Unilever and PepsiCo are supporting the Production, Protection, Inclusion (PPI) Compact, convened by IDH and agreed between the Aceh Tamiang District government and a range of stakeholders last December. The food companies are exploring investment opportunities in the area to increase sustainable palm oil production.

The PPI is the first stage to the region becoming an IDH Verified Sourcing Area. Overall, the aim is for the entire area under the local administration’s jurisdiction to become a “sustainable commodity-producing region”. 

Over the coming three years, it aims to increase sustainable palm oil productivity by a third, while improving the livelihoods of independent smallholders and protecting forest areas. In doing so, the PPI Compact will protect 40,000 hectares of the Leuser Ecosystem Area, which covers 2.6 million hectares of the Aceh and North Sumatra provinces of Indonesia and is renowned for its rich biodiversity.

The significance of supporting smallholders in Indonesia and Malaysia is vital to food companies. Smallholders account for 40% of total palm oil production in Indonesia and Malaysia, which in turn represents 85% of global palm oil production.

Palm oil certified as sustainable by the multi-stakeholder Roundtable on Sustainable Palm Oil accounts for 19% of global production. Moreover, not only is a large proportion of palm oil not subject to the scrutiny and improvement certification brings, but smallholders in particular are a very challenging area of palm oil production for certification to reach.  

For Willem Klaassens, director for markets and Verified Sourcing Areas at IDH, it’s a systemic issue, creating a significant problem for any food company, regardless of its own record. 

“You can be one of the big guys, Unilever, PepsiCo, and do everything right in your supply chain, but if next door the forest is going, you still have an issue because people will shout at you,” Klaassens says. “It will be a problem that always exists unless you start helping a whole region – and that’s the landscape approach.” 

This view is shared by Dan Strechay, global outreach and engagement director at the RSPO. “We always welcome our members to get involved with impact programmes in the producer nation because that shows commitment and it’s investing in a better supply chain, not just for them, but it ends up improving the supply chains for others which may not have the facilities to do those investments.”

While PepsiCo confirms it is still “on track” to meet its 100% sustainably sourced palm oil goal by the end of the year and has made a powerful statement about the role of landscape programmes through its investment in Aceh Tamiang, it is yet to confirm whether it will set new goals for a higher specification of certified palm oil than the RSPO’s CSPO. 

The company does make clear that it sees supporting smallholders as an important and continuing sustainability priority for the company. PepsiCo has taken a “holistic and inclusive approach” with its entire supply chain policy, Natasha Schwarzbach, palm oil expert at the US giant, explains. 

This includes a commitment to “investment in impact programmes at the sector level, which means that it supports conservation, smallholder inclusion, better agricultural practices and improving livelihoods”.

When PepsiCo does reach that 100% CSPO target it will mean, like any other company sourcing CSPO, that the Lay’s snacks maker is subject to what campaigners view as a fundamental weakness in the CSPO classification. 

The RSPO offers two higher classifications than CSPO, namely “segregated” and “identity-preserved”. Palm oil bought and delivered as CSPO will in fact be a mixture of certified and non-certified product, made possible by using the “mass balance” system, which means the buyer has still bought a sufficient volume of certified sustainable palm oil that would have met their needs. 

The two highest RSPO classifications, “segregated” and “identity-preserved”, are the only ones that mean all the actual palm oil a company purchases and uses in its products is certified by the RSPO to be sustainably produced, with the latter traceable to individually identifiable certified sources.

So, the issue of driving higher sustainability standards and tackling deforestation across palm oil production as a whole not only speaks to the challenge ahead for food companies but a weakness in the CSPO classification, consistently highlighted by campaigners since the system was introduced.  

Gemma Tillack, forest policy director at environmental campaign group Rainforest Action Network (RAN), believes being able to use the mass balance system “undermines the ability to move the food manufacturers on to a segregated pathway”. 

How Tillack characterises the use of mass balance should serve as a salutary warning to any food company viewing the attainment of a 100% CSPO goal as the final stage in its sustainable palm oil strategy. She cites the issue of “conflict palm oil”, a term that encapsulates the implication of palm oil production in both human rights violations, for instance in relation to child labour, modern day slavery and forced removal of indigenous peoples from their land, and rainforest destruction.

“Food manufacturers are all relying on mass balance and they are still able to make product claims through that system even though their products are tainted with conflict palm oil,” Tillack contends. “So, there’s a huge greenwashing crisis that’s still happening through the RSPO mass balance system that needs to be addressed.”

Tillack therefore sees landscape programmes as a means to address what RAN sees as a weakness in RSPO certification. “I don’t think they are the silver bullet but the IDH Verified Sourcing Area and other landscape initiatives do have a role to play in scaling up, not necessarily certified palm oil, but scaling up best practice with regard to No Deforestation, No Peatland and No Exploitation practices across a ‘supply shed’, where there is this interplay of various producers, and some of which are independent producers that are operating at a small-scale level.”

Klaassens concurs. As long as certified and totally segregated palm oil remains a significantly smaller part of production, the problem for food companies of a lack of control over their indirect supply chain will be “part of the territory” in palm oil sourcing. “But there is a way around it,” Klaassens says, “and the way around it is landscape approaches to sustainability. You can get that control also by landscape approaches to sustainability.”

Unilever has also backed the landscape programme in place in the Sabah region of Malaysia, along with US-based retail behemoth Walmart. Over the coming years, food companies will have the option of focusing on a segregated supply of palm oil. 

Some may place virtually all their efforts in securing the integrity of their supply chain, while some will still be building volumes of CSPO. Indeed, Strechay points out there is excess capacity in the production of segregated and identity-preserved palm oil, because the market is lagging behind production.

So, the question of whether food companies should invest in jurisdictional programmes as PepsiCo and Unilever are doing in Aceh Tamiang effectively comes down to the relative prioritisation of raising general standards or focusing on making its physical supply of palm oil conform to the highest standards certified by the principal certification body. 

Eventually, however, the creation of a truly sustainable palm oil sector will require bringing all areas of production up to the standards food companies are increasingly setting for their supply chains.

A further reason for companies to look to the next five and ten-year timeframe is the approach of another landmark year ending in a zero. 

The significance of 2030 will go well beyond goals CEOs may set for their companies on palm oil. It is the target year for the United Nations’ Sustainable Development Goals (SDGs).

The goals take the term “stretching target” and stretch it, but the transformational aspirations of the UN’s 2030 Sustainable Development Agenda have been identified as a powerful theme for food companies to endorse and many have publicly “aligned” their sustainability goals with the programme. 

The involvement of the private sector in the SDGs has been welcomed, and the authors of the UN’s programme for 2030 will be looking to food companies to play a leading role in putting the global agricultural commodity market on a socially and environmentally sustainable footing. 

As 2030 approaches, continuing systemic challenges in palm oil production will represent a major impediment to a global development agenda food companies have pledged to support.