Palm oil

We bought around 445 000 tonnes of palm oil in 2014 – around 1% of the global production – from a number of processing companies that source oil from Malaysia, Indonesia and other countries.

It is mainly used as a cooking oil and as an ingredient in food categories such as confectionery and culinary.

  • The palm oil supply chain is notoriously complex and often opaque. Also, because palm oil is a traded commodity, economies of scale and logistics underpin the trade, and solutions that make logistics more complicated and costly are not viable. Very low margins at refinery levels mean that some suppliers are hesitant to incur the additional costs associated with greater transparency.

    Smallholders are responsible for 40% of the world’s palm oil production. They are essential to long-term sustainable production and supply, but are barely impacted by any transformation in the sector. Productivity remains low and social issues, from forced labour to health and safety, are prevalent. In addition, it’s costly and bureaucratic for smallholders to get their oil certified. We recognise the need to develop a more inclusive approach to responsible sourcing and provide the smallholder farmers, from whom we source palm oil, with technical assistance and training, and facilitate the sharing of best practices within the local community. We are not alone within the industry in recognising this.

    Deforestation is a major environmental issue that has long been associated with the palm oil supply chain. Rising consumer demand means tropical rainforests and associated peatlands have been cleared to make way for plantations, which contribute to greenhouse gas emissions, soil erosion, water pollution and a loss of biodiversity; working conditions and land conflicts over tenure rights are also an issue. Many NGOs actively campaign against unsustainable practices.

    In 2010, Nestlé made a No Deforestation commitment, stating that all of its products, globally, will not be associated with deforestation. This commitment was the first of its kind by a food company, and covers all the raw materials we use to make our products, as well as our packaging, making traceability and transparency crucial. A significant number of traders and manufacturers have since followed our lead and developed sustainable palm oil policies and ‘no deforestation’ commitments of their own.

  • Our category-specific requirements for palm oil require our suppliers to source oil from plantations that:

    • Comply with local laws and regulations;
    • Do not come from areas cleared of natural forest after November 2005;
    • Respect the free, prior and informed consent of local and indigenous communities;
    • Protect high-carbon-value forests;
    • Protect peatlands; and
    • Comply with the principles and criteria of the Roundtable on Sustainable Palm Oil (RSPO), the industry-wide certification body that promotes the growth and use of sustainable palm oil products.

    Our Responsible Sourcing Guideline (RSG) also goes beyond the RSPO standard by making explicit provisions for the protection of peatland and high-carbon forest, which are critical in combating deforestation, and preventing social conflict arising from potential land rights and acquisition disputes.

    By September 2013, we had met our ambition to source 100% RSPO-certified palm oil, two years ahead of our public commitment. This includes RSPO segregated (16%) and GreenPalm certificates (84%), which we have now decided to phase out.

  • Nestlé is working with its suppliers towards plantation-level traceability for all our products, but there has been a lack of available information across the palm oil supply chain. In 2014, we created, piloted and deployed our Traceability Declaration Document (TDD), which suppliers complete quarterly to declare the supply chain linked to our products. While information gaps remain, the TDD does allow for unprecedented transparency and facilitates discussions with suppliers to address those gaps.

    The information obtained is used to determine which mills and growers are prioritised for assessments, so that we can better understand their practices and provide ways to strengthen policies, systems and practices against our RSG. Explaining the new form to all our suppliers, as well as the collation and verification of the data, has been time-consuming, but it is a necessary first step to reach our ultimate goal of having our entire supply chain compliant with our RSG.

    At the end of 2014:

    • 82% (2013: 51%) of our global volume (445 000 tonnes) was traceable back at least as far as the mill in the country of origin, against an annual target of 90% (13% was traceable back to plantation); and
    • 32% (2013: 19%) was Responsibly Sourced (annual target: 50%); this means it is traceable to a plantation that either meets our standards (11% ‘compliant oil’) or at least engaged in continuous improvement (21% ‘action plan oil’).

    While the task is not easy, we remain determined to collaborate with others to make progress towards our next goals: 95% traceable and 70% Responsibly Sourced palm oil by 2015.

    Together with The Forest Trust (TFT), we have made major progress in engaging with leading suppliers – notably Sime Darby, Wilmar, Cargill and a collaboration between Golden Agri Resources (GAR) in Indonesia and Oleo-Fats (Philippines) – that have established traceable supply chains that are also assessed against the Responsible Sourcing Guideline. For example, Florin AG, based in Switzerland, has established its own Palm Oil Sourcing Policy that aligns with our own – all the oil it purchases is traceable, RSPO certified and deforestation-free.

    GreenPalm certificates

    We have almost reached our newly stated, more ambitious target for increased traceability and supplier engagement. However, we also recognise that until traceability becomes feasible for all supply chains, including for complex blends of palm-based derivatives, GreenPalm certificates have had a role to play in supporting producers of certified sustainable palm oil.

    Since 2010, we have used RSPO GreenPalm certificates to offset our purchases of palm oil and contribute to the development of best practice in the palm oil industry. This mechanism has helped us to demonstrate our sustainability commitments to suppliers, plantation owners, customers and consumer communities. But it was always a temporary solution while we identified palm oil origins and started to assess and help to remediate the root causes of deforestation and poor labour conditions.

    We have now reached a point where, for much of the palm oil volume we source, the origin is known so we must refocus our resources on tackling the key issues we have identified, while mapping our supply chains. Therefore, from January 2015, we started to phase out the buying of GreenPalm certificates for the palm oil that is traceable back to the mill and began diverting resources to partnership activities to support palm oil smallholders.

    As a first step, Nestlé will fund Rurality, a key initiative started by TFT that aims to engage with smallholders, identify scaleable improvement opportunities and build a train-the-trainer model that facilitates the sharing of best practice. As Rurality develops, we will align it with our Rural Development Framework and in 2015, our activities will focus on five countries of origin.

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