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CRR Webinar: How does the palm oil spot market contribute to deforestation?

On July 22nd, Aidenvironment will be hosting a webinar to discuss our recent report ‘Spot market purchases allow deforestation-linked palm oil to enter NDPE supply chains”. The report was published as part of the Chain Reaction Research consortium, with our partners Climate Advisers and Profundo.

Aidenvironment’s projects in Indonesia focus on increasing the sustainability of agricultural supply chains. We conduct research into the palm oil sector, identify companies clearing forest for plantation expansion and work with companies to assist with the implementation of their No Deforestation, No Peat, No Exploitation (NDPE) policies. These policies have contributed massively to the transformation of the palm oil industry, as companies with policies have actively removed suppliers linked to deforestation from their supply chains or used their purchasing power to pressure non-compliant suppliers into compliance. A recent report by Chain Reaction Research estimated that 83% of refining capacity in Malaysia and Indonesia, where most palm oil refineries are located, is covered by NDPE policies.

During our research into the palm oil sector, we have identified areas of the market that are not covered by sustainability policies (referred to as the leakage market) and trading mechanisms that may allow deforestation-linked palm oil to enter NDPE supply chains. One such mechanism is the spot market.

The spot market refers to purchases that occur outside of long-term contracts, usually one-off purchases. Such purchases are typically opportunistic and can occur under several scenarios:

  • If a mill approaches a trader with surplus palm oil they are looking to sell.
  • If a trader approaches an individual mill asking for palm oil to fill a shortfall in their refinery.
  • At auctions, when either physical palm oil or futures permits are offered for sale.
  • At bulking stations, often at ports, when traders are looking for a last-minute purchase before shipping.
  • Indirectly, when a supplier delivering an order of palm oil makes their own purchase to top up supply, allowing that one-off purchase to be mixed with an order.

Aidenvironment noticed that some companies, for example the Malaysian palm oil company Sime Darby, were receiving supplies of palm oil from companies known to be non-compliant with NDPE policies. Investigating the market in more detail, we determined that companies are failing to apply due diligence to these spot market purchases in the way they have been with their long-term contracts. This presents a policy violation and a threat to sustainability efforts in the industry.

Aidenvironment and our Chain Reaction Research partners will be discussing the issues in more detail at out webinar on the 22nd July.

We hope you can join us.
Click here to register