RSPO accreditation for four firms

24 July 2008 amresearch

The Edge Financial Daily reported that Sime Darby, IOI Corporation, Kulim and United Plantations would secure the Roundtable for Sustainable Palm Oil (RSPO) certification in the next few weeks

We view this development positively as it would allow the four group of companies to export their palm oil products to Europe without any hassles or face any protests. RSPO guidelines were put in place to address the concerns of non-governmental organisations in Europe that palm oil is planted at the expense of the environment

RSPO guidelines are also increasingly important as some multinational consumer companies may only purchase certified palm oil in the future. For instance, Unilever has said that it would only buy certified palm oil by 2015

Currently, the certification is done by independent bodies such as SGS Malaysia and Control Union and the cost of the certification is borned by the plantation companies themselves. We believe that certified palm oil may command a slight premium over non-certified palm oil as plantation companies pass on some of the cost of certification in the form of higher selling price

RSPO guidelines include implementation of a proper water management system and non-use of fire on peat soil. A few of the guidelines such as non-usage of fire to open up plantation areas are already being practised by plantation companies in Malaysia and Indonesia

Among the plantation companies under our coverage, Wilmar International was the only one that faced complaints in the past. Some of the allegations made against Wilmar related to local communities’ rights on land clearing, poor quality of Environmental Impact Assessment (EIA) reports, conversion of forests without conducting High Conservation Value Forest (HCVF) assessments and open fire burning

In response to these complaints, Wilmar has said that it would observe all legal and statutory requirements for land development and pay special attention to the potential presence of HCVF in the future

Our current recommendations are Buy for Sime Darby and IOI Corporation and Hold for Kulim. We would be reviewing these recommendations soon.