Wilmar's sourcing criteria will hit farmers' income

Melbourne: WILMAR International Ltd's new sourcing criteria has triggered unexpected political risks of curbing oil palm farmers in developing nations from exporting their produce at market price, said World Growth, a lobby group for poverty alleviation.


"Although it looks like a business deal, it has far-reaching political implications," World Growth chairman Alan Oxley said.

"If this deal is allowed to be executed, the income earning ability of oil palm farmers in Malaysia and Indonesia will be severely curtailed," he told Business Times in a telephone interview from Melbourne, Australia, yesterday.

Last month, well-funded green group World Wide Fund for Nature (WWF) arranged a signing ceremony for Wilmar, the world's biggest palm oil trader, and food giant Unilever Plc to undertake "No Deforestation, No Peat, No Exploitation" terms in their palm oil trades. 

All this while, oil palm farmers in developing nations, like their soya, rapeseed and sunflower rivals in developed nations, export their produce to the global market and accept commodity booms and bust. 

But this deal, Oxley explained, will subject oil palm farmers' livelihoods to unjustified trade curbing criteria. 

Last week, Sarawak Oil Palm Plantation Owners Association (Soppoa) strongly rejected the deal as it sought to discriminate against the state's palm oil supply. 

Soppoa manager Melvin Goh reportedly said the imposition of "No Deforestation, No Peat, No Exploitation" terms is the start of plantation companies being coerced into a pathway that will kill the oil palm industry's growth.

Although Soppoa only represents oil palm planters from Sarawak, its protest is just as relevant in other parts of Malaysia as the "No Deforestation" pledge is narrowly defined from what one would normally expect. 

Millions of oil palm farmers in Malaysia and Indonesia garner US$40 billion (RM133 billion) in palm oil trade by collectively exporting around 40 million tonnes a year. This amount makes up almost 60 per cent of the world's vegetable oils market. 

Malaysia, which benefits from US$20 billion palm oil exports annually, has a lot to lose if such unjustified barriers to palm oil trade by Wilmar, Unilever and WWF are allowed to be executed.

While some may argue this business deal is voluntary, oil palm farmers are essentially price takers because they do not have much bargaining position compared to financially-strong traders.


Oxley, who was former chairman of the General Agreement on Tariffs and Trade, the predecessor of the World Trade Organisation, concurred with this observation. "It's no longer free trade but that of managed trade. In fact, this market interfering deal could quite possibly be in breach of competition laws. 

"I'm not surprised if the governments of Malaysia and Indonesia are looking to take action against perpetrators of unhealthy competition," he added. This means shareholders of Singapore-listed Wilmar should be concerned of the political risks this deal has triggered.

One Response to Wilmar's sourcing criteria will hit farmers' income

  1. The United Nations Charter rejects coercion. Since 1992, at the Rio Earth Summit of which Malaysia is signatory, UN Agenda 21 global environmental agenda expressly maintained multi-lateral global trading systems formed by the rule of WTO. There is nothing in the World Trade Organisation (WTO) that allows for powerful economies to coerce markets of weaker ones.

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