This article first appeared in The Edge Malaysia Weekly on December 30, 2024 - January 12, 2025

Founded on April 8, 2004, by six visionary organisations (Aarhus United, Karlshamns, Malaysian Palm Oil Association, Migros, Unilever and WWF), the Roundtable on Sustainable Palm Oil (RSPO) has made unprecedented progress in spearheading the global production and use of sustainable palm oil that is aligned to the triple bottom-line philosophy embracing social justice, environmental protection and economic viability.

From a humble beginning with 51 members in 2004, RSPO today has more than 6,000 members representing players in the entire value chain, including civil society organisations. About 20% of the global palm oil production has been produced and certified against the RSPO standard for several years. As of July 2024, RSPO members produced 16.5 million tonnes of certified sustainable palm oil (CSPO). More than 90% of palm oil consumed in Europe is sustainable palm oil certified by the RSPO since 2020.

As the RSPO celebrates its 20th anniversary, it has recently embraced a new vision, mission and Theory of Change (ToC) to guide the organisation through the next 20 years. The new vision of “A global partnership to make palm oil sustainable” is supported by a three-prong mission focused on communication, collaboration and certification. The revised ToC builds on the expectation that three interlocking or cross-cutting themes (Standards, Certification and Assurance; Engagement and Partnerships; and Market Transformation) will enable the attainment of the new vision. This article shares some thoughts on how this can be done.

Certification — the road to market transformation?

The RSPO suite of certification standards covering the Generic Principles & Criteria (P&C), Independent Smallholder Standard and the Supply Chain Certification System is RSPO’s real strength and can be regarded as the gold standard for sustainability certification for palm oil. Development and revisions of the standards (after a five-year cycle) were done through a rigorous multi-stakeholder process. Among the three cross-cutting enablers of the RSPO ToC, certification and assurance is clearly the cornerstone that is directly responsible for delivering four outputs, five intermediate outcomes and four long-term outcomes.

So, how does certification transform the market? According to NewForesight, the life cycle of a voluntary sustainability standard (VSS) has four distinct phases: Inception, First Movers, Critical Mass and Institutionalisation. For RSPO, inception was in 2004, first movers delivered the first shipment of CSPO in 2008 and it reached the critical mass of about 20% CSPO production in 2020 but the final phase when CSPO becomes the norm has yet to happen.

Full transformation of the market would require an exponential increase in CSPO production but this could be a major challenge as currently, about 80% of the CSPO production comes from 25 companies with a cultivated area of 30,000ha or more. In fact, the five top companies (SD Guthrie, PTPN III, KLK Bhd, Golden Agri Resources and Wilmar International) account for 40% of global CSPO production. Scaling up CSPO production would depend on mid-sized plantation companies and smallholders to a large extent but the business case for them to do so is not compelling because of the high entry requirements into the RSPO system, including payments of compensation for past deforestation. Viewed from another perspective — the Solidaridad’s Pyramid of Change — transformation at scale by certification happens at the base of the pyramid where sustainable production is driven by national standards such as Malaysian Sustainable Palm Oil (MSPO) and Indonesian Sustainable Palm Oil (ISPO).

From these two perspectives, it is clear there is a two-tier market for sustainable palm oil — the premier CSPO market and the mass sustainable palm oil market. Against this reality, how can RSPO transform the market? First, RSPO should maintain its market leadership for producing the best-in-class CSPO for the discerning buyers, especially in Europe, who are willing to pay the price premium. RSPO should endeavour to become the reference or de facto standard to support emerging regulations such as the EU Deforestation Regulation (EUDR).

Given its stringent certification requirements and the newly launched prisma (Palm Resource Information and Sustainability Management) system, RSPO certification could provide the basis for verifying compliance of the EUDR requirements and due diligence statements instead of the bureaucratic process being imposed by the European Council.

With its vast experience in developing robust certification standards, RSPO could work in partnership with producer governments to raise the bar of national standards, eventually becoming on par and interchangeable through mutual recognition of their standards. In this way, RSPO and national producer governments could jointly transform the market and make sustainable palm oil the norm.

Collaboration — partnerships for transformation at scale

RSPO has adopted the tagline “Partners for the Next 20”. In the spectrum of types of partnerships, the most impactful at scale, albeit challenging, is “transformational development” which the 2020 SDG Partnership Guidebook defines as “multiple partners bring the essential complementary resources to create the levers for system transformation”. The RSPO is well placed to engage in this level of partnerships. In fact, in 2015 it initiated the Jurisdictional Approach (JA) for large group certification across entire jurisdictions, at the local, state or country levels. The distinguishing feature of this multi-stakeholder partnership is that it is led by governments; this is the first time that governments are directly involved in the voluntary business-to-business RSPO process. Given that governments have greater convening power, resources and regulatory authority, their participation would contribute to large-scale transformation.

Considering the low level of achievement of the UN Sustainable Development Goals (SDGs) at present, RSPO could work in partnership with relevant UN agencies and international organisations such as the Consumer Goods Forum and the intergovernmental Council of Palm Producing Countries (CPOPC) for a broad-based and holistic transformation of the sector that contributes to the attainment of the SDGs by 2030. According to a 2020 International Trade Centre study on the linkages of 232 voluntary and private standards with the SDGs, the RSPO standard has good alignment with the SDGs for food commodities; its requirements are consistent with the targets of seven SDGs, including SDG 1 (No poverty) and SGD 15 (Life on Land).

Smallholder inclusivity

Collectively, smallholders are big producers; about seven million smallholders contribute about 40% of global production of palm oil. They are the largest producers in Africa and Thailand where smallholders account for 70% to 85% of land under oil palm cultivation. In Indonesia, smallholders cultivate 42% of the area under oil palm. It is obvious that smallholders could play a critical role in market transformation. However, their contribution to the production of sustainable palm oil has been low, especially the independent smallholders (ISH) who produced only 2.4% of total global production (as of July 2024).

While efforts have been made by the RSPO to support greater smallholder inclusivity, especially the introduction of a simplified stepwise ISH certification system in 2019, there is no clear business case for smallholders to participate in the sustainable palm supply chain. At present, the main route for market access for ISH production is through the Book & Claim supply chain mechanism where they can earn ISH credits for their certified fresh fruit bunches. However, increasingly stringent sustainability requirements and demands for end-to-end traceability verification, particularly by the EUDR, could lead to the exclusion of smallholders.

When discussing the business case for smallholders, due consideration should be given to the share of various players in the value and profits generated by palm oil. An analysis by Rijk Zwaan and others in 2021 showed that of the total value of US$282 billion generated by the palm oil supply chain, smallholders have only a 6% share while consumer goods manufacturers and retailers have a 54% share of the total value.

In terms of profits, the manufacturers and retailers get 66% of the total profits while smallholders have zero profits. Much has been said about increasing smallholder inclusivity but insufficient attention has been given to the core principles (ownership, voice, risks and benefits). The present focus is on livelihoods and living income. Smallholders deserve a better share of the value chain. Clearly, there is a need to develop inclusive business models for smallholders.

Conclusion

Since its inception in 2004, RSPO has made tremendous progress in spearheading the production and uptake of certified sustainable palm oil; about 20% of the global production of palm has been certified by RSPO for several years. But scaling up sustainable production to achieve full market transformation would be challenging in the next 20 years. Transformation at scale could be achieved if RSPO works in strategic partnerships with national sustainability standards to make sustainable palm oil the norm.

Teoh Cheng Hai is the former first secretary-general of the RSPO. This opinion piece is based on some insights from his keynote address delivered at the RSPO RT2024 meeting in November 2024 in Bangkok.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.