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Unilever slaps palm oil supplier SMS with suspension following damning deforestation report

Post a commentBy Will Chu , 17-Jul-2017

©iStock
©iStock

Unilever has suspended buying palm oil from Sawit Sumbermas Sarana (SSMS), after concluding the supplier had been in breach of its no deforestation, no peat, no exploitation policies.

The swift, no-nonsense way in which Unilever has reacted is another example of how the big food brands are reacting quickly and decisively when it comes to sustainable sourcing of palm oil.

In May, consultants at Chain Reaction Research presented information to Unilever showing that SSMS “continues to deforest”, despite a complaint made to the Roundtable on Sustainable Palm Oil back in 2015.

The analysts produced satellite images showing “ongoing deforestation and peatland clearance by SSMS”. They also noted that: In 2016, several other SSMS subsidiaries also engaged in material deforestation and peatland clearance.”

Their report warned that SSMS “has done little to diminish its buyers’ material concerns about the company’s deforestation practices”, so if Unilever continued trading with the supplier it “might damage its sustainability reputation”.

Unilever moved quickly to seek reassurances from SSMS at the beginning of June, and threatened to suspend sourcing if it didn’t put things right.

But in a statement released recently it confirmed that supply has now been suspended. A remedial action plan has been put in place and Unilever won’t start using SSMS again until there is “clear progress” on implementation of the plan.

Leakage

Chain Reaction has noted that a segment of the market continues to produce or purchase palm oil from recently deforested plantations and cleared peatlands – this they call the “leakage market” for unsustainable palm oil.

“Leakage creates an unlevel playing field and slows and dilutes industry transformation, thereby incurring various financial and reputational risks,” the experts wrote in June . “The history of Sawit Sumbermas Sarana (SSMS) is instructive.”

SSMS lost 81% of its customer base in 2014 and 2015, according to Chain Reaction’s report, but has since been able to “continue operations and marginal profitability”. Unilever was among the firm’s new buyers.

Annual sales could soon approach €18.8m ($21.4m), which would make Unilever a “major client” for SSMS.

Gabriel Thoumi a director at the consultancy Climate Advisers said the palm oil bought by Unilever represented about 8% of SSMS’s total palm oil sales in the first quarter of 2017.

Operating in the leakage market is a high-risk game, for both suppliers and buyers. The big food brands, many of which have strict sourcing policies on the commodity and are members of the RSPO, move increasingly quickly to stub out any potential scandal.

The way companies like Unilever, Nestlé, Mars and Kellogg reacted to the issues with Malaysian supplier IOI last year shows they will take a strict line with those that fall foul of sustainable sourcing policies, in particular no deforestation, no peat, no exploitation principles.

SSMS did not respond to emails sent by FoodNavigator. 

Unilever said it has been “encouraged by SSMS’s willingness to engage” and “remains hopeful” the supplier can address the allegations to bring it in line with Unilever’s no deforestation, no peat, no exploitation principles.

 

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