FGV sets precedent with withdrawal from RSPO cert


  • Business,Palm Oil,Plantations,Commodities,Stocks,Earnings,Corporate News,Investing
  • Monday, 09 May 2016

Premium denied: Workers unloading palm fruit bunches at FGV’s mill in Perak. The withdrawal of RSPO certification for 58 out of 71 of its palm oil mills in Malaysia will deny the FGV Group from gaining the CSPO premium, which is about US25 (RM98) per tonne.

PETALING JAYA: Top planter Felda Global Ventures Holdings Bhd (FGV) has set a precedent with its recent withdrawal from the Roundtable on Sustainable Palm Oil (RSPO) certifications for its 58 palm oil mills nationwide.

This is the first time a member of the multi-stakeholder RSPO grouping – the world’s first palm oil certification body – is seeking a voluntary suspension for RSPO certifications.

Market analysts believe the decision could be linked partly to the alleged breach of labour conditions at FGV plantations in the treatment of workers, leading to the suspension of the Pasoh palm oil mill in Negri Sembilan, which was filed under the RSPO complaint case trackers.

Also, a recent report by NGO-based Chain Reaction Research has alleged that FGV’s subsidiaries are in breach of RSPO standards as its subsidiaries cleared 880 ha of high-conservation-value peat lands in Sarawak.

Meanwhile, the RSPO members were mostly surprise over FGV’s decision to suspend its certifications, but still intend to stay on as a member of the grouping.

A source close to RSPO told StarBiz that “Some board members are deeply concern with FGV’s unprecendented decision that could result in other oil palm grower members of the RSPO seeking a similar move in the future.”

There is no provision in the RSPO constitution that says an RSPO member can voluntarily seek for a suspension in certification and still remain as a member of the grouping.

So far, only the RSPO has the right to revoke or suspend its members should they be found guilty or suspected to have breach the RSPO Principles and Criteria (P&C).

In the case of IOI Corp Bhd, the RSPO has decided to suspend the RSPO certification for the entire IOI Group – one of the founding members of the grouping – following complaints by the NGOs on the planter’s alleged breaching of the RSPO P&C, according to analysts.

“I believe the FGV voluntary suspension for its RSPO certification will be among the hot topics up for discussion at the RSPO European Roundtable to be held in Milan, Italy, early next month.

“This episode could also trigger some changes in the RSPO constitution soon,” added the source.

For the RSPO voluntary certification, a palm oil producer will have to fork out about RM100 for the production of one tonne of certified sustainable palm oil (CSPO).

The CSPO currently fetches a better premium at about US$25 to US$30 per tonne more in the world market compared with the non-CSPO.

The source also said that the RSPO secretariat in Kuala Lumpur of late has been bombarded with enquiries from various banks, NGO groups and the US Department of Agriculture over FGV’s voluntary suspension for its certification, given its status as an exporter of palm oil and palm oil-based products in the world market.

An oil palm industry expert, meanwhile, pointed out that it was a good move by the new FGV group president and CEO Datuk Zakaria Arshad to seek for suspension of the RSPO certifications for its 58 mills nationwide.

“Perhaps it is timely for FGV to get its house in order, especially on the sustainability issues along its supply chain – from plantations, Felda settlers/smallholders and right down to the mills,” he added.

The RSPO certification is valid for five years and a re-certification process would take about six months to one year.

Meanwhile, CIMB Research said the surprising move is negative for FGV as “the group will no longer be able to sell RSPO-certified sustainable palm oil to its customers.

“This could result in lower selling prices achieved for its CPO as the group will no longer be able to command a CSPO premium for its palm products.

“The withdrawal could dent the group’s reputation and image as a sustainable palm oil producer. It could also lead to potential loss of customers who are looking for sustainable palm oil products,” it added.

The research house estimates the CSPO premium value on its palm oil to be around RM30mil to RM40mil, adding that “Based on this, the dent to our net profit works out to be approximately 6% for financial year 2016 (FY16) and 7% for FY17.”

Public Investment Bank also questions FGV’s non CSPO-premium status.

It pointed out that the withdrawal of RSPO certification for 58 out of 71 of its palm oil mills in Malaysia would deny the FGV Group from gaining the CSPO premium, which is about US$25 (RM98) per tonne.

The withdrawal of RSPO certificatiom was effective May 3.

On the positive side, Public Investment Bank said FGV’s downstream earnings, which is 2.3% of the group’s bottom line in FY15, is relatively small and it has little direct exposure to Europe exports.


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