Green palm oil output must rise 5-fold by 2015: AAK

LONDON Fri Oct 22, 2010 12:57pm EDT

LONDON (Reuters) - Production of sustainable certified palm oil needs to increase about fivefold in the next five years, to meet buyers' commitments, the British unit of Swedish oils manufacturer AAK said on Friday.

The Roundtable on Sustainable Palm Oil (RSPO), an industry body of consumers, green groups and plantation companies, was formed in 2004 and aims to promote growth and use of sustainable oil palm products.

Annual production capacity of RSPO-certified sustainable palm oil jumped over the 3 million tonnes mark last month, according to the Roundtable. Certification for green palm oil started in August 2008.

"Many blue-chip companies are making statements that by 2015, they will use only certified palm," Ian McIntosh, president, west division at AAK, told Reuters on Friday.

"We need to promote the reasons why plantations should pursue certification -- the principle reason is that the market expects and demands it," said McIntosh, who is currently the treasurer at the RSPO. "It has got to be 15 million tonnes."

Palm oil is used in products such as food, cosmetics, tyres and biofuels, but the there has been weak demand for certified palm oil due to the higher cost involved.

Palm oil planters have also complained that premiums for eco-friendly palm oil are not high enough to encourage production.

Accusations from green groups over deforestation have led to some firms boycotting certain plantation companies.

AAK recently sent an audit team to its supplier United Plantations, after a series of critical newspaper reports aimed at its working practices.

The audit reported back in September and found no wrongdoing. "If we have specific reasons, we will on occasion go and audit plantations," McIntosh said, adding that no other AAK suppliers were currently under any audit or investigation.

GREEN CERTIFICATES

AAK refines vegetable oils, using raw materials mostly obtained from areas such Malaysia.

The firm has also started up GreenPalm, a trading system where producers certified by the RSPO can sell certificates issued for a tonne of green palm oil to consumer firms and any individual.

It aims to reward and encourage plantations to pursue RSPO certification, and has sold 1.1 million certificates since launch two years ago, with around 700,000 in 2010.

Green groups are saying that GreenPalm system does not encourage separate supply chains for green palm oil and not so green palm oil.

"The criticism is that it is not ... segregated palm oil and it's true," said McIntosh, speaking ahead of the RSPO's annual meeting in Jakarta from November 8-11. "But where segregated palm oil physically is not available -- it's a good alternative."

On Friday, Malaysia's benchmark January palm oil futures ended at two-year highs at 3,007 Malaysian ringgit from 2,990 at Thursday's close.

McIntosh, who was part of the RSPO organizing committee for the RSPO in 2003, is bullish on prices going into 2011 due in part to population growth.

"I don't see it coming down," he said. "If no double dip recession, no major custom duty changes or sudden shocks in China ... I would see an average next year of 3,200 (ringgit)."

For its part, AAK is set to double its palm oil capacity in the United States from November next year.

Globally, AAK will sell around 800,000 tonnes of palm oil, little-changed from last year, with a similar number forecast for 2011.

"We have very ambitious plans," he added. "We are doubling our capacity in the U.S. in the anticipation that palm oil sales are going to continue to grow."

(Editing by Sue Thomas)