Analysis: sustainable sourcing – Partners pour oil on troubled waters

By Toby Webb on May 3, 2012

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A partnership between Nestlé, The Forest Trust and a leading palm oil supplier may have created a new model for more sustainability

Nestlé, pushed by an aggressive Greenpeace campaign, committed in 2010 to a global no deforestation target by 2020, alongside other members of the Consumer Goods Forum.

Despite the world’s largest food company being only a tiny player in the global palm oil market, deforestation connected with the commodity means the target has become a key priority for Nestlé.

The company’s partnership with its leading palm oil supplier, Golden Agri Resources (GAR), and NGO The Forest Trust (TFT) is starting to look like an example of how sustainability collaboration can dramatically change operating practices and business models.

While the Roundtable on Sustainable Palm Oil is the group typically associated with the commodity, Nestlé’s work with GAR, in the eyes of RSPO critics such as Greenpeace, represents serious and substantive change on important areas such as forest clearance and use of peat lands.

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Magdi Batato, group group technical director at Nestlé UK, says sustainability is about transformation. “Your suppliers are part of it,” he says, adding that long-term partnerships are needed to help suppliers change the way they work. “It’s very expensive for a supplier to run two business models.”

Batato says transformation around forest conservation has led to a new business model between Nestlé and GAR while creating competitive advantage for GAR as a leading palm oil supplier.

GAR now has a forest conservation policy in collaboration with TFT. It aims to ensure it has no deforestation footprint. The firm has committed to zero palm oil development on peat and high conservation value areas. GAR also promises no development on high carbon stock forest land, “free prior and informed consent” with regard to communities, and compliance with all local and national laws. In recent years the company has implemented a social and community engagement policy and a yield improvement policy in collaboration with TFT and others.

"GAR is prepared to take a lead,” says GAR’s Peter Heng. But in terms of wider impact, GAR is limited by the actions of other stakeholders and companies. Nestlé UK’s Batato agrees, saying: “It’s about transformation of the business models of suppliers and bigger companies can lead the way.”

"GAR’s work with Nestlé and TFT is based on close collaboration between the three players in monitoring progress around more sustainable palm oil development. The three parties have agreed cutting-edge policies and incentives needed on all sides to make it more sustainable.

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Local networks

The GAR/TFT/Nestlé collaboration works, according to TFT’s executive director, Scott Poynton, by utilising networks of local grassroots NGOs, once allied against GAR, to provide early warning systems of when policy is not being properly put into practice.

“Because GAR is listening and responsive, trust is building,” he says.

The long-term challenge for collaborative partnerships such as that pioneered by GAR/TFT/Nestlé may well be scale. There are not many experienced forestry NGOs of TFT’s kind that can work on the ground across sizeable land areas. If a dozen other companies the size of GAR suddenly wanted to shift to their models, these firms might struggle to find the NGO capacity and the big brand buyer support they would need to make it happen.

Major brands such as Nestlé and Unilever are pushing other palm oil participants hard, through mediums such as the Consumer Goods Forum, as they strive to reach their 2020 traceability and no deforestation targets. If other big brands can begin to take a similar approach to Nestlé’s with suppliers, progress may accelerate quickly.

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Catherine McNally Steven Wilding
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