IOI starts long journey to win back major customers

By David Burrows

- Last updated on GMT

Yesterday (August 8), the RSPO lifted the suspension imposed on the Malaysian palm oil supplier back on April 1. ©iStock
Yesterday (August 8), the RSPO lifted the suspension imposed on the Malaysian palm oil supplier back on April 1. ©iStock

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IOI took just four months to regain its certification by the Roundtable on Sustainable Palm Oil (RSPO), but convincing major customers to take it back could take much longer, according to experts and NGOs.

Yesterday (August 8), the RSPO lifted the suspension imposed on the Malaysian palm oil supplier back on 1 April. The joint statemen​t​ released last month by AidEnvironment – the consultants which sent the original complaint to the RSPO – and IOI seemed to be key. This cited the “significant progress”​ that had been made in resolving the issues, which included allegations of illegal deforestation within IOI’s supply chain.

In a short statement on its website, IOI’s board of directors said they were “pleased”​ with the announcement.

NGOs, however, believe the roundtable has reacted too hastily. “Re-certifying the IOI group on the basis of unreliable promises, without waiting for verified action on the ground is risky and counter-productive,” ​said Greenpeace Indonesia forest campaigner Annisa Rahmawati. “It sends the message that the RSPO is more concerned about helping a founding member regain its customers than ensuring its standards are upheld.”

However the RSPO’s board of governors warned that implementation of the action plan by IOI will be subject to an independent ground verification by a team of experts. There will be another in 12 months’ time.

Equity volatility

Financial Diagrams
IOI has experienced equity volatility five times between 2011 and 2015, noted Chain Reaction Research.©iStock

Shares in the company rallied on Friday, when the news broke​.​ This followed a fall of 18% since the suspension was announced. IOI has experienced equity volatility five times between 2011 and 2015 due to landbank and RSPO concerns, noted Chain Reaction Research in a financial risk assessment​ of the company last month.

Though IOI has made a commitment to RSPO Next “questions remain”​ whether the scheme is operational, noted authors Gabriel Thoumi and Milena Levicharo. IOI’s equity value could be further suppressed if the suspension dragged on. “Simply put, IOI cannot move forward without resolving its RSPO case first,” they added.

The suspension has now been lifted, but for IOI this is likely the start of a long journey to prove its supply chain is up to scratch and win back customers​.​ In the past four months, the supplier has lost “26 corporate customers”​ – including Unilever, Nestlé, Mondelēz, Kellogg’s and Mars – according to Chain Reaction.

Long journey

The RSPO was established in 2004 to promote the growth and use of sustainable oil palm products.©iStock

Rahmawati claimed the IOI brand remains “toxic”.

“Companies must insist on seeing a real plan with measurable, time-bound commitments, and real changes on the ground, before they resume buying," ​she told FoodNavigator.

Others don’t see the companies rushing back to IOI’s door anytime soon. For a start, they will need to honour any new buying deals put in place. "This presents companies with a test of their seriousness about sustainability,”​ Rahmawati added.

A spokeswoman for Unilever said the firm is looking into the decision taken by the RSPO and “based on this assessment will decide on the right approach and next steps. We will be able to communicate further on this matter in the next few days.”

Nestlé’s spokeswoman said that following IOI’s suspension from the RSPO in March, they immediately ceased sourcing from the plantations at the centre of the concerns raised.

“We were able to do this due to the industry leading traceability systems we have in place. We also asked our partner organisation The Forest Trust (TFT) to look into how IOI responded to the issues raised.”

“Alongside TFT, we carried out an assessment of IOI’s action plan. Our conclusion was that it did not go far enough in tackling the issues raised and that as a consequence Nestle will not award any new business to IOI group. We also committed to phasing out all existing contracts with an expected completion date of August 31st 2016, which is on track,” ​she added.

"The lifting of IOI’s RSPO suspension is a first step towards rebuilding trust with its clients, including Nestlé. However the decision will not change our approach until we see IOI’s upgraded policies enacted, with improvements verified on the ground by an independent group of experts. We will remain in dialogue with IOI group during this time to ensure that the exchange of best practices and experiences continues."

FoodNavigator approached Mondelēz and Kellogg’s but received no response in time for publication.

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