Certified sustainable palm oil derivatives ‘prohibitively expensive’ in US

By Elaine Watson

- Last updated on GMT

India and China must embrace sustainable palm to have a game-changing impact on the market
India and China must embrace sustainable palm to have a game-changing impact on the market

Related tags Palm oil

It could be years before certified sustainable palm oil (CSPO) derivatives are affordable for most US food manufacturers, although changes to the ‘mass balance’ option for sustainable palm could bring prices down, suppliers have admitted.

Speaking to FoodNavigator-USA.com at the IFT show, representatives from AAK, Loders Croklaan and Cargill said CSPO derivatives such as palm stearin, fractions of stearin and palm kernel oil fractions, were still “prohibitively expensive​” in the US, even though all three firms can now offer straight (refined) certified sustainable palm oil.

The reason was simple, said Bob Norman from certificate trading scheme GreenPalm: “Palm oil is intermingled at every stage of the supply chain, and traceability requires physical segregation, so it's not cost-effective to buy in 100t of​ [premium-priced] sustainable palm to fractionate into 80t of olein and 20t of stearin if you only have customers willing to pay for sustainable stearin.”

China and India are not demanding sustainable palm – yet

This was a major challenge, admitted Cargill Oils & Shortenings national sales manager Kris Knudson.

“Palm olein is the global vegetable frying oil of choice, and China and India are not demanding sustainable product, so it’s hard to justify producing certified sustainable oil to fractionate it just for sustainable stearin.”

Indeed, the big elephant in the room was the lack of interest – or at least firm action – from India and China, which together accounted for more than half of global consumption, said Norman.

“Even if 100 percent of Europe, the US and Australia switched to certified sustainable palm, it would not give us critical mass because these markets account for just 18% of global palm oil consumption.”

If the game was really going to change, said Norman, “China and India must buy into sustainable palm.”

Meanwhile, although the amount of global palm oil production certified sustainable more than doubled in 2011, only 60 percent of supplies were sold last year, said Knudson.

Certified/fully segregated palm oil

Right now, food manufacturers have three choices. The first is to buy certified sustainable refined palm oil (trading at a premium of around $50-70/t). This is made by plantations adhering to criteria laid down by the Round Table for Sustainable Palm Oil (RSPO), segregated throughout the supply chain and fully traceable.

This can be used in cookie dough and some other foods, but is not the kind of palm used in most bakery shortenings, for example.

Book and claim/GreenPalm

The second option, ‘book and claim’ – is to buy GreenPalm certificates (trading at www.greenpalm.org at $2.74/t for palm oil and $3.50/t for palm kernel oil) guaranteeing that a tonnage of oil or derivatives equivalent to the tonnage you use has been produced from sustainable sources.

While buyers can't guarantee the actual​ oil they are buying is from an RSPO-approved plantation, they at least know the amount they use has been produced sustainably.

Mass balance. The third way?

The third option – mass balance – at a premium of around $10-20/t, combines some segregated certified/traceable sustainable oil and some standard oil.

While some firms have questioned the value of mass balance given that the claims they can make are the same as for the cheaper GreenPalm option ('Supports the production of RSPO-certified sustainable palm oil'), it had recently been changed, said Loders Croklaan R&D boss Gerald McNeill.

“Companies are now able to purchase a certain volume of segregated sustainable palm and use it to match the sales of an equal volume of a palm product fraction under a mass balance claim.

“Since the new option only applies to companies that source segregated sustainable palm products, it will also increase fully segregated flows of sustainable palm products to user markets.”

Prices will come down

The new option did not require a physical or chemical link between the segregated oil and the derivative that was sold under mass balance, said McNeill. So a purchase of 20t of segregated palm olein can be used to match the sales of 20t of mass balance stearin.

"This should bring prices down."

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False Claims ??

Posted by Bob Norman - GreenPalm,

According to USDA figures for 2010 the US, EU and Australia cumulative imports of palm oil products totaled around 6.5 million mt. The total volume of of exports of palm oil for 2010 was 36 million mt. so my estimate of 18 for these combined markets was pretty much spot.

The point I was was making is that we need to stimulate more demand from these regions and encourage China (6m mt) and India (6.5m mt) to do likewise. We shouldn't also forget that about 11m mt of palm oil is also consumed domestically in the growing regions.

We need to encourage mechanisms to encourage sustainable palm production that will then be available in all its derivative forms to all markets.

I am on your side Ashley wanting to provide supply chain options for RSPO certified palm products to manufacturers and retailers.

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False Claims

Posted by Ashley Schaeffer,

Mr. Norman needs to get his facts straight. Sure - India and China represent the elephant in the room when it comes to demand for "sustainable" palm oil, but according to June 2011 USDA: Palm Oil World Supply & Distribution latest figures, China, India and the EU all represent about an even 20% of imports (http://su.pr/APrxue) so there is no way that Mr. Norman's claim that EU, U.S. and Australia together comprise 18%. This is simply untrue. It would provide more of a "critical mass" than he thinks if US, EU and Australia demanded 100% certified palm oil!

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Supply Chain Costs versus Premium for Sustainable Grower

Posted by Bob Norman - GreenPalm,

Skeptical Jon - buying "the real thing" at $50-70/mt includes the supply chain costs of traceability and segregation. The premium back to the original grower is diluted in this cost and it's not transparent on how much actually go back to the certified grower. With GreenPalm the FULL value of the certificate goes back to the RSPO certified grower in essence performing the same function as the segregated option but in a more transparent efficient way. Someone somewhere consumes the sustainabally producuced palm oil that the buyer of GreenPalm certificates have covered.

THe very low value of certificates is indeed a concern - it is however very simply to explain. Ironically there is more SUPPLY than DEMAND hence the low value. If more manufacturers and retailers in the demand regions purchased certificates and supported the production of RSPO certified palm oil (and at $2-$3 why shouldn't they) then the value of certificates would go up - During 2010 the traded level for palm certificates was nearer $10 each.

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