DBS Plantation Indonesian palm oil industry to counter NGO’s black campaign

According to Bisnis Indonesia , the Indonesian government plans to meet with 18 Indonesian palm oil producers to hold discussions on action plans to overcome non-profit organisations’ (NGO) negative campaigns on the Indonesian palm oil industry. The move came following Greenpeace’s successful pressure on Nestle to discontinue its CPO purchases from Sinar Mas Group (incl. those sourced from third parties). Golden Agri Resources (GGR) and SMART Corporation (SMAR) are part of Sinar Mas Group. Greenpeace has also urged Cargill and IOI Corporation to stop palm oil purchases from Sinar Mas Group. Sinar Mas Group reportedly plans to appoint independent external certified bodies to assess and review claims made by Greenpeace that its operations have destroyed rainforests. Cargill has responded that it may stop buying from Sinar Mas Group if the environmental claims are true.

The 18 producers include Astra Agro Lestari (AALI), Sinarmas Agro Resources and Technology (SMAR), London Sumatra (LSIP), Wilmar International (WIL), Musi Mas, Sampoerna Agro (SGRO), Bakrie Sumatera Plantations (UNSP), and state-owned PTPN.

The Indonesian government currently has two options that might be pursued: 1) to stop exports to the EU market, and 2) to raise the issues to the World Trade Organisation (WTO). Indonesian delegates will be sent to EU in May to white campaign the CPO products produced in Indonesia .

Greenpeace had responded that it will be all out in responding to any counter-campaigns made by the Indonesian government and the other CPO producers, citing that its move to boycott the EU market would not be easy due to Greenpeace’s worldwide operations (i.e. some of CPO exports to China and India are also exported to the EU).

We view this development worrisome, as both consumers and producers would lose out should the matter escalate to an all-out boycott. Still, note that this is not the first time a boycott has been raised. In 1999, the EU had threatened an embargo on Indonesian CPO on concerns over forest fires. We believe it would be difficult to find substitutes for palm oil in the event of a complete halt in palm oil shipments to Europe ; while not all palm oil producers are the same. The impact on demand and CPO prices may not be significant at this point, although we believe this issue may benefit Malaysian planters on temporary demand shift.