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P&G Palm Oil Supply Chain

P&G buys from multiple major suppliers, including Musim Mas, Kuala Lumpur Kepong Berhad (KLK) and BW Plantation. Each of these large palm oil companies is linked to multiple third-party subsidiary suppliers. The ‘PT’ shown in the name of these third-party suppliers stands for Perseroan Terbatas, which indicates that this is a Limited Liability Company in Indonesia with direct foreign investment. Musim Mas, KLK and BW are all based in Indonesia and operate plantations mainly on the island of Borneo, as well as Riau and Papua, Indonesia. They export refined palm oil mainly from the port of Dumai, on the eastern shore of  Sumatra, Indonesia. Greenpeace (and others) have linked these major palm oil companies to jungle and peatland deforestation, unsustainable plantation practices, destruction of tiger and orang-utan habitat and social conflict. Although these companies are members of the Roundtable on Sustainable Palm Oil (RSPO), this certification does not guarantee palm oil has been sustainably sourced, nor does the RSPO ban deforestation or destruction of peatland. Furthermore, Procter & Gamble sources less than 10% of its palm oil through RSPO Mass Balance or Book and Claim methods while reporting their products contain sustainably-sourced resources.

 

Supply-Chain Infographic

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Citation: http://stephensongroup.co.uk/blog/post.php?s=2014-07-18-rspo-the-challenge-we-face

This infographic shows the various levels of the supply cain for palm oil.

There are three generally accepted types of supply chains for certified commodities:

  1. Segregated: certified palm oil is physically keep separate from non-certified oil throughout the supply chain
  2. Mass Balance: certified palm is mixed with conventional palm oil
  3. Book & Claim: certified palm suppliers sell certificates to users with claimed amount of certified oil; certified and conventional oil are not kept separate

 

The most popular method is the ‘Book and Claim’ supply chain, through which producers certified by RSPO receive certifications of sustainability for each tonne of palm oil. Companies then sell these certificates to manufacturers such as P&G who are then able to legally claim their products are “supporting sustainable palm oil.”

 

The graphic below shows the scale of just one large industrial palm oil company, Musim Mas. It is an example provided to illustrate the reach of these large companies.

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Citation: http://www.musimmas.com/qws/slot/u50045/style/Sustainability/3.%20Progress%20on%20Policy/Musim%20Mas%20Operations/MM%20Group%20map%20for%20website%20Final-01.jpg