ADM's New Frontiers: Palm Oil Deforestation and Child Labor

ADM used to be known as the country's corporate welfare king, and its top executives drew headlines as they perp-walked to prison. That was then, when the company ran elaborate price-fixing schemes in the lysine and other global commodity markets. This is now:  For the second year in a row, ADM topped Fortune magazine's list of most admired food production companies.

But underneath its improved public image, ADM's major forays into new markets, including cocoa and palm oil, are raising concerns. This time they center on the impacts of the global food conglomerate's supply chain, and on charges of complicity in forced child labor and massive deforestation.

The Palm Oil Food Chain of Destruction

About 40 million tons of palm oil worth $20 billion is produced each year - 85 percent of it by Indonesia and Malaysia, where giant oil palm plantations account for the highest rates of deforestation in the world. As of 2009, more than seven million hectares of palm oil plantations had been planted where forests super-rich in diversity once stood. Within a couple of decades, the deforestation is projected to triple to more than 20 million hectares.

While most palm oil is processed for cooking oil, biofuels and other uses in China and Southeast Asia, U.S. consumption has tripled in the past five years, making North America the fastest-growing market. Most palm oil exported to the United States - one million tons in 2008/2009 - is extracted from the hard kernel at the center of the fruit, and processed into a variety of ingredients for food products, including vitamins.

U.S. consumers might be shocked to learn that an estimated 10 percent of common grocery goods - including chips and crackers, ice cream, margarine, instant noodles, chocolate, cereals, canned vegetables, soaps, shampoos, cosmetics and detergents - already contain some kind of palm oil ingredient. They might be doubly shocked to learn that palm oil is implicated in the same health problems that are driving trans fats out of the market. Merely replacing trans fatty acids with other artery-clogging saturated vegetable fats not only does little to bring down the incidence of heart attacks and strokes (still the top killers in America for public health), but it is also fueling deforestation and social injustice halfway across the planet.

Rather than replace palm oils and trans fats with healthier soy, corn, sunflower and peanut oils grown closer to home on land long used for agriculture, food producers are destroying virgin habitat while giving consumers no notification and little choice.

Vast areas of Indonesian rainforest have already been lost to palm oil monoculture, which has wiped out the habitats of precious Indonesian species, including orangutans, rhinos, Asian tigers, elephants, the Queen Alexandra's Birdwing (the largest butterfly in the world), and the slow lori - a primate described as one of the cutest mammals on the planet (google "slow lori" and judge for yourself).

The industry's rapid expansion has also driven many small landholders and indigenous communities from ancestral lands, leaving them bereft of their traditional livelihoods and food security.

"Oil palm plantations have violated many local communities' rights," says Nordin, a leader of the Indonesian NGO Sawit Watch. "Their land has been wrestled away from them, their community members imprisoned, and their environment destroyed."

Raiding the World's Biggest Carbon Bank

The worst impacts of palm oil plantations may ultimately be global, with ADM and other companies' practices on the ground in Indonesia making a significant contribution to climate change. Indonesia now ranks third - behind only China and the U.S. - in total man-made greenhouse gas emissions. Palm oil plantations have been identified as the main culprit.

While the rapid pace of deforestation to create vast palm plantations is frighteningly apparent (Greenpeace estimates that 20 square miles are cleared each day), the destruction of the peatlands found beneath Indonesia's forests adds even more urgency to the problem. The degradation and burning of the peatlands alone releases 1.8 billion metric tons of CO2 each year, according to Greenpeace.

Covering just three percent of the earth's land surface, the world's peatlands store somewhere between a fifth and a third of the total carbon contained in the terrestrial biosphere, about 528 billion metric tons of carbon, according to Wetlands International. If all of the world's peatlands were burned or degraded it would release greenhouse gases equal to about 190 years of current annual global emissions from fossil-fuel power stations.

Once peatland is drained, oxygen in the air begins to decompose the peat, releasing CO2. Decomposition rates are much faster in places like Sumatra and Kalimantan (the Indonesian half of Borneo, where peatlands are abundant and many meters thick) than they are in Siberia, which also contains large peatlands. Dry peat is also highly flammable, making it susceptible to creating massive releases in the event of fires. Fires account for about 70 percent of Indonesia's annual emissions from peatland.

Almost half of Indonesia's 22.5 million hectares of peatland have already been cleared and drained. In the next decade, another three million hectares of forested peatland are expected to be converted into palm oil plantations in Riau - a province of Sumatra estimated to have the planet's highest concentration of carbon stored per hectare. The greenhouse emissions projected from this expansion alone would equal five years' emissions from all of the coal, oil and gas-fired power plants in the world, according to Greenpeace.

For Indonesia, this massive "climate bomb" could also mean losing billions of dollars worth of potential carbon storage credits from global carbon markets designed to reward developing nations for protecting and preserving their forests. With the world's highest concentration of carbon stored per acre, Indonesia is effectively letting palm oil companies raid the Fort Knox of carbon storage so they can make off with their own form of liquid gold - palm oil.

ADM and Wilmar: Joining Palms

ADM's involvement in palm oil production comes primarily through Wilmar International Limited, which calls itself "Asia's leading agribusiness group." ADM acquired a 16 percent stake in the Singapore-based company when Wilmar restructured a few years ago. ADM also picked up a seat (currently filled by John Daniel Rice) on Wilmar's board. The largest palm and lauric oil trader in the world, Wilmar is also the largest supplier of palm oil to the U.S. market.

While Wilmar claims to be producing and using "sustainably produced" palm oil "traceable for the entire production process and chain," an investigation conducted for Friends of the Earth and two Indonesian NGOs "found quite a different reality on the ground." After giving Wilmar an opportunity to respond, the groups issued "Policy, Practice, Pride and Prejudice," a review of Wilmar's legal, environmental and social record in West Kalimantan, in June 2007. The groups reported that Wilmar illegally cleared land without the required conservation assessments, often through the intentional use of fires (also illegal) and without the prior, informed consent of local communities.

The investigators also uncovered a history of fraudulent and poorly managed land transfers leading to community protests, police reprisals, beatings, arrests and imprisonments. Asked how one nearby community was supposed to build and renovate houses after losing the forest where they traditionally harvested timber and rattan, a Wilmar manager suggested that they "just use concrete."

Although the subsidiaries studied for the report represent a fraction of Wilmar's 570,000 hectares of palm oil plantations in Indonesia and Malaysia, the authors concluded that their findings were more the rule than the exception. NGOs (including Sawit Watch), academics, and other investigating bodies have reported similar problems on other Wilmar plantations around Indonesia, as well as in other countries, including Uganda.

After the report was released, the Palm Oil Monitoring Initiative (POMI), a coalition of international NGOs and local communities impacted by Wilmar, formed to pressure the company and the financial institutions that fund its palm oil projects.  

The IFC Steps Up

One of POMI's first targets was the International Finance Corporation (the World Bank's private sector lending arm). In an IFC internal report, the organization's compliance advisor ombudsman (CAO) confirmed POMI's allegations, concluding that "IFC did not meet the intent or the requirements of the [bank's] Performance Standards in its assessment of the Wilmar trade facility investment ...; failed to take into account the supply chain plantations and other companies and suppliers linked to the Wilmar Group, as required ...; [and] paid inadequate attention to civil society monitoring reports and concerns about continuing social, environmental and economic problems in the oil palm industry in Indonesia." The CAO added that the IFC's approach was ultimately "counter-productive to IFC's [own] mission of reducing poverty and improving lives."   

On August 28, 2009, Robert Zoellick, president of the World Bank, announced that the IFC was suspending any new investments in palm oil "until we have a new strategy in place" that addresses both environmental and social sustainability. A few weeks later, at POMI's urging, Zoellick extended the policy to the entire World Bank.

Dr. Marcus Colchester, director of the UK-based Forest People's Program, which helped coordinate POMI's complaint to the IFC, says the ombudsman's report not only forced the World Bank to reconsider its approach to palm oil development, but provided the necessary political space and impetus for negotiations between communities and the company to proceed. Local land conflicts and debates over standards added pressure.

"With the help of the [IFC's] ombudsman," Colchester says, "and after difficult negotiations, Wilmar agreed to compensate [local communities] for damages, pay for acquired and planted land, and handed back other areas." But implementation of the agreement was slow, Colchester noted, and despite important gains, it "remains to be seen whether the local improvements by Wilmar can be systematically mainstreamed into company practice in all its areas but that is their expressed intention."

RSPO: Really Slow Progress Overall

The IFC/World Bank decision has also brought increased attention to the Roundtable on Sustainable Palm Oil (RSPO), a voluntary association that includes leading growers, processors, traders, consumer product manufacturers, retailers and banks - as well as a handful of other "stakeholders," including environmental/conservation and social/developmental NGOs.

Founded in 2002, the RSPO sees its mission as aiding the industry's efforts to reach sustainability. Activists see the RSPO as an ambiguous and moving target.

"The RSPO and its members have taken few meaningful steps to end the devastation and injustice linked to the industry and its expansion," Greenpeace concluded in a 2007 report on the impacts of palm oil called "Cooking the Planet." "By dragging out and complicating its 'sustainability' process, many in the industry are using the RSPO to cover their backs, putting off urgent action while the destruction continues."

When the IFC began investing in the palm oil sector, it also criticized the RSPO for having "no established independent verification process." In its June 19, 2009 report, the IFC ombudsman explained that the entire agribusiness sector "inherently confronts the challenges of complex and variable supply chains in having to deal with issues related to chain of custody, land acquisition, child labor, health and safety, indigenous peoples, working conditions, biodiversity conservation, deforestation, and land use. ....Assuring sustainable supply chains is also of great importance in order to maintain brand integrity."

But the IFC ombudsman also credits the RSPO for "moving this sector to a more universally sustainable footing that reduces deforestation, and protects the rights of communities and small-scale producers."

Key to the RSPO's ability to "move" the industry has been its commitment to construct and expand a certification program for palm oil production. The RSPO finalized its criteria in 2008, and the first shipment of RSPO-certified palm oil was exported from Malaysia to the Netherlands in November 2008. It was "literally a drop in the ocean of world palm oil trade," RSPO officials acknowledged. "But it is the first step toward helping millions of poor and vulnerable women and men. We aim to have 50 percent of the world palm oil trade certified as 'sustainable' by 2013."

Given the slow pace of change, 50 percent by 2013 sounds extremely ambitious. But member companies like ADM and Wilmar anticipate that customers will want to buy certified palm oil, and have been rushing to make it available. ADM has begun to use an online trading portal called GreenPalm.org to give its customers access to certified palm oil.

For its part, Wilmar has pledged to ensure that customers will be able to trace products back to their sources, and verify compliance with roundtable standards. "We have already received RSPO certification for three mills and their supply base of four plantations....In addition, we improved the transparency of our supply chain by securing interim approval for the RSPO Supply Chain Certification for four of our palm oil mills and refineries in Sabah, East Malaysia and our biodiesel facility in Riau, Indonesia."

The criteria for RSPO certification seem to be designed to drive the industry's progress toward sustainability. Palm oil producers seeking certification are barred from planting in High Conservation Value forest land, are required to confirm that land use not infringe on the legal or customary rights of indigenous peoples and others, and they cannot violate applicable local, national and international laws. Still, there is no independent verification of the documentation the companies submit to the RSPO, and the documentation is not publicly released. Nor has the RSPO made it clear how it will enforce its own standards.

Meanwhile, member companies like Wilmar and ADM have themselves been cautious about releasing any data. Although Wilmar says it "conducted a carbon footprint study on our palm oil supply chain and downstream aspects of our soybean business," it has not released the study publicly. (The Carbon Disclosure Project says Wilmar is one of only six Singapore-based companies to respond to a request for data,  yet CDP gave Wilmar a "carbon disclosure rating" of just 47/100 in 2009 - lower than most companies). When CorpWatch asked ADM for a copy of a "materiality assessment" of its corn, soy and palm supply chains conducted for the company by Business for Social Responsibility, ADM declined the request in an email, explaining that the assessment was for "internal use only."

Slow Cooking the Planet

Whether the RSPO's certification system will evolve into a trustworthy and independently verifiable system, or serve as a secretive bulwark protecting the industry from deeper levels of accountability is still unclear, but pressure continues to mount both within and from outside.

The WWF (formerly World Wildlife Fund) has worked within the RSPO since 2003 to ensure that compliance is monitored, and that standards contain robust social and environmental criteria, including a prohibition on the conversion of valuable forests. But in May 2009 WWF warned that "one of the major solutions to halting deforestation of tropical forests is not catching on fast enough."

"The RSPO's standards actually look pretty good on paper," says Leila Salazar-Lopez of the Rainforest Action Network, "and we think they are a first step toward establishing sustainable palm oil, and that the intentions of many companies are sincere. But anyone can join the RSPO by buying a membership, and then use the membership in their marketing to customers. It doesn't necessarily mean that you are implementing the standards."

Local groups and NGOs are demanding that the RSPO facilitate a moratorium on deforestation in Indonesia. Activists vow that as long as palm oil plantations continue to cause irreparable harm to communities and the environment, they will continue to greet the RSPO with the banner they held aloft at its 2007 meeting: "Roundtable Sustainable Predators Organization."

"It is time for Sustainable Palm Oil Principles and Criteria to be binding upon companies and no longer voluntary," says Sawit Watch's Nordin. "If this is not done, then RSPO is merely a ceremonial gesture, and no real progress will be made."

The Sinar Mas Litmus Test

NGOs including Greenpeace continue to pressure the RSPO to enforce its own standards by documenting pervasive violations by member companies with large operations in Indonesia, including Wilmar, Duta Palma (another top ten oil palm producer, with over 200,000 hectares of land in Indonesia) and Cargill (which also owns and operates oil palm plantations in Indonesia). But the first test case of the RSPO's willingness and ability to enforce its own standards may be Sinar Mas, a giant pulp and paper conglomerate and Indonesia's biggest producer of palm oil. While investigating Sinar Mas' palm oil operations in West Kalimantan, Greenpeace found that its subsidiaries were "persistently engaging in widespread illegal deforestation and peatland clearance."

"The RSPO right now is evaluating Sinar Mas and other companies and trying to figure out [whether to] kick them out, or make them take corrective action," says Salazar-Lopez. "Companies that are not abiding by the standards should be put on a no-trade list, and companies shouldn't do business with them until they improve their practices."  

Unilever, Nestlé and Kraft, as well as grocery chains in Europe, have already pledged to stop doing business with Sinar Mas, but the biggest suppliers to the U.S. market - Cargill and ADM - say they are waiting for the RSPO to reach a decision before acting.

The RSPO could undermine its credibility if it doesn't significantly discipline Sinar Mas (especially after some companies have already taken action). Yet if it singles out Sinar Mas, the RSPO risks having the company walk out, and thereby weaken the roundtable's ability to facilitate meaningful reform.    

Industry-Wide Ripple Effects

In the long run, the palm oil industry's reputation will rest on measurable results - results that require significant changes in government policies and enforcement rather than reliance on voluntary agreements. Sustainable palm oil markets cannot be constructed without binding legal standards that strengthen and enforce local land rights, and implement an effective moratorium on deforestation in high value conservation areas. 

Without strong national laws, the RSPO's attempt to build a credible certification system with traceability down to the plantation level is unlikely to succeed. An effective system must also extend beyond traders like ADM and their corporate customers to a credible product labeling system that gives conscientious consumers a clear, verifiable choice. Only then will the levers that consumer pressure can bring to bear have the potential to ensure change. But still there is no guarantee. The situation is reminiscent of other global commodity certification regimes including the Forest Stewardship Council (FSC), which covers just five to six percent of the world's productive forests.

For U.S. consumers, the key decision-makers are companies like ADM, which have the ability to support entire vegetable oil markets, and which could substitute healthier oils grown on existing farmland. So far, with little consumer awareness or brand-level presence, ADM has felt little pressure to promote sustainability. Perhaps that will change as consumers understand the growing stakes, and learn of ADM's role in threatening endangered species and driving a major source of climate changing greenhouse gases.

__________________________________________________________________

This article is part a Participant Media educational action campaign around corporate ethics and the Steven Soderbergh/Matt Damon movie "The Informant!." Check out our new case study of the infamous ADM price-fixing scandal, The Story Behind The Informant!

• 104 Globalization
• 107 Energy
• 116 Human Rights
• 183 Environment
• 190 Natural Resources