Palm oil traceability: A summary
- Complex supply chains make it difficult to trace palm oil, just as they do with coffee and cocoa.
- Palm oil can be used in a wide variety of products, which adds complexity to the situation
- Smallholders have difficulty accessing the supply chains, which are dynamic and always changing.
- Crops are harvested throughout the year rather than only annually
- Palm oil is well prepared for EUDR but many downstream companies are not visible.
The palm oil used in a wide range of food products, from instant noodles to chocolate and pizza dough is very versatile.
It’s also one of seven commodities that will be covered under the EUDR (the European Union Deforestation Regulation). It must therefore be tracked back to the source.
What are some of the main challenges and complications that arise from such traceability.
Supply chain complexity
Palm oil, like cocoa or coffee, has an extremely complex supply chain. This is the source of many of palm’s biggest challenges in terms of traceability.
It is a challenge that companies who operate downstream are faced with, as they are further away from the actual production process.
“For downstream businesses, the biggest challenge is navigating through the layers of suppliers to reach a refinery or mill,” explains Priscilla Molin, Senior Advisor at Indonesian NGO Earthqualizer.
Some people buy from traders or manufacturers. This adds to the complexity. Another challenge is independent mills, which often don’t own their plantations but instead rely on smallholders and multiple middlemen to source from them.
Palm oil has a highly complex supply chain (silentstock639/Getty Images/iStockphoto)
It is hard for companies to know exactly which bunches of fresh fruits end up in each shipment unless they opt for segregated supply chains or those that preserve the identity.
Palm oil has many uses, as opposed to cocoa or coffee, which have only one primary use. The supply chain is made more complicated by this versatility.
Angeline Camus explains that palm oil has a long carbon chain which allows it to be fractionated and transformed many times throughout the supply chains of many different actors.
It is sometimes necessary to segregate the entire supply chain because it is such a liquid product.
Dynamic Supply Chains
Moulin explains that the supply chain is not only complex but also dynamic. Smallholders are more likely to go to the mill that offers them the highest price. Sourcing patterns can change quickly because of this.
It is possible that a traceability test conducted in the past may be outdated very quickly.
The challenges of traceability are exacerbated in regions with a high concentration of smallholders such as Sumatra. There, hundreds and thousands mills work alongside smallholders and dealers, creating dynamic and fluid sourcing networks.
Palm oil can be stored in a warehouse for several weeks, or even months. By the time palm oil leaves, it may have lost its original source.
The’real time traceability’ concept is currently not realistic.
Accessing smallholders
The palm oil chain is dominated by smallholder farmers. Around 7,000,000 smallholders supply 2,200 mills globally. There can be thousands of smallholders for each mill.
They are hard to reach. Camus, RSPO, explains that smallholder farms often are in rural locations with little access to roads or equipment for delivery.
Intermediaries often mix the fruits in a single batch before delivering them to mills. The mixing of the fruit can affect both traceability and market access.
Some have considered, due to these problems, excluding smallholders as part of the EUDR.
Continuous harvesting
Palm oil, unlike coffee or cocoa which is harvested twice annually, continues to be harvested. The harvesting can range from once every two weeks for lower yielding bunches, to seven times a week on commercial estates that have a high-yield.
The palm fruit bunches are ripening all year round and need to be processed in 24-48 hours for oil quality.” explains Moulin.
“This creates a constant inflow of fruit from different plantations and smallholders, often mixed together in the same deliveries. Unlike seasonal crops, there is no natural break in the supply chain to separate or easily track batches (not so easy record keeping), so tracing a particular shipment of palm oil back to its exact plantation of origin becomes far more complex.”
How prepared is the palm oil sector for the EUDR?
Palm oil is one of the best prepared of all the EUDR-relevant commodities. Even before the EUDR was extended last year, the sector was in good shape.
“Most refineries and traders in the palm oil sector are relatively well prepared. Palm oil has been under global scrutiny for more than a decade, and transparency efforts have accelerated since the adoption of NDPE (No Deforestation, No Peat, No Exploitation) policies and the establishment of the RSPO‚” Earthqualizer Moulin explained
There are exceptions. The preparedness level of downstream companies in Europe is not the same as the industry. Moulin says that they relied upon traders and refiners to provide information, and their supply chain was not visible. Most are therefore “reacting”, rather than being pro-active.
Many companies bet that the EUDR will either be delayed or removed completely.
Camus, from the RSPO, says that the combination of the private sector’s commitment, the extensive satellite data offered and the good organization among NGOs have made this sector better prepared than others.
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