Olam clashes with green group over Gabon deforestation

Singapore

OLAM International, which has styled itself as an industry leader in agricultural sustainability, has come under fire for supposed deforestation practices in Gabon, a West African country. The agri-commodity trading group has also bought unsustainably produced palm oil from third-party suppliers, according to an investigation by US-based environmental group Mighty Earth.

Olam, in response, says that it uses ecologically degraded areas for its palm plantations, and that Gabon has a sovereign right to convert a fraction of its least valuable forested land for agriculture as long as it is responsibly and transparently done. As part of a 20-page response to Mighty's accusations on Monday, it also released the list of its third-party suppliers.

Olam entered into a joint venture with the Gabon government in 2011 to set up a 300,000 hectare palm oil and rubber plantation. The firm - which took 60 per cent of the joint venture - will plant 58,000 ha of palm trees over two phases.

Last year, the group entered into a second joint venture with the government to develop and manage 70,000 ha of smallholder plantations under the country's Graine programme; Olam holds 49 per cent of the JV.

In a media call on Monday morning, Olam's CEO Sunny Verghese said: "I want to say very categorically, we believe both these projects in Gabon in the upstream plantations are both environmentally sustainable and socially responsible."

These contribute to Gabon's efforts to develop sustainable agriculture so as to diversify its economy away from oil, Mr Verghese added. The two investments add up to an estimated S$1.7 billion - one of the largest investments into the Gabon economy.

Mighty claims that Olam has cleared 20,000 ha of forest in the country since 2012, and provided photos and a video showing workers using bulldozers and chainsaws to cut large trees.

The Congo forest is the world's second largest rainforest after the Amazon, and holds an estimated 50 billion tonnes of carbon, according to Mighty. "These forests are the last place any company should be looking to develop plantation agriculture," it said.

The 12-page report by Mighty was titled "Palm oil's black box" - for Olam's supposed lack of transparency over its palm oil supply as it had not released details of its suppliers till Monday - which evoked memories of the attack by US shortseller Muddy Waters four years ago; the shortseller used similar words to accuse Olam of inscrutable accounting and business practices.

Olam said that 59 per cent, or 25,735 ha, of the planted palm area was originally highly logged and degraded secondary forests, while the balance 41 per cent was originally in savannah. The group has also set aside 55,000 ha of high conservation value forests, more than the current planted area of 44,000 ha.

The firm, however, added that it cannot sign up to no-deforestation commitments that adhere to the High Carbon Stock Approach, used to distinguish forest areas for protection from degraded land that may be developed.

The methodology was designed for use in fragmented forest landscapes such as those seen in Indonesia, and not in Gabon which is 90 per cent covered with forests, said Mr Verghese.

"Getting high-yielding plantations up and running requires an appropriate initial land base," Olam said. "Given much of Gabon's non-forested land is infertile savannah or swamps, there simply isn't enough available non-forested land to start up such a development. It is therefore necessary to include some highly degraded forest lands."

Besides Olam's plantation projects, Mighty also took aim at the group's trading practices, accusing the firm of delaying the application of its sustainability policy to third-party suppliers - who represent more than 99 per cent of its palm oil volume - until 2020.

"Putting off the implementation date is like waving a green flag at rogue palm oil companies telling them to get as much deforestation as possible done now - before the sustainability policy kicks in," Mighty said.

Calling this a misunderstanding, Olam said it expects immediate compliance from all its suppliers in Indonesia and Malaysia, and clarified that it is the verification process of its suppliers' supply chain that will take till 2020 to complete.

The group has in fact discontinued many suppliers which did not conform to its supplier code, resulting in the number falling from 48 in 2014 to 14 today, it said. Its current suppliers include Singapore-listed Wilmar International and Golden Agri-Resources, as well as Felda Global Ventures and Sime Darby in Malaysia.

Olam, with the help of US-based World Resources Institute, is in the process of verifying the sustainability practices of the mills that sell to its suppliers, an "immense task" that is expected to be completed by 2020, it said.

Olam's main shareholder, Temasek Holdings, was not spared criticism by Mighty either. Temasek, through its investment in Olam, might have "unwittingly financed" unsustainably produced palm oil that fuels the haze, the environmental group said.

Mighty called on Temasek and Olam's customers such as Nestle and Unilever to ensure that Olam raise its standards. Many palm oil buyers have in the past few years announced plans to use only sustainably produced palm oil, pressuring the industry to set new sustainability standards.

Temasek, in response to a query from The Business Times, said that Olam's operations are matters for the firm's board and management to address, and that Temasek does not direct the business operations of its portfolio companies including Olam.

Its spokesman, Aedan Lai, added that Temasek fully supports no-burn policies for land clearance, and "would urge oil palm companies and plantation owners to do the same".