Supply Chain Current Events

Palm oil procurement

As the European Union seeks to distance itself from the controversial palm oil supply chain, other countries, such as China, are filling the void.

In April 2017, members of the European Parliament voted to ban biofuels made from vegetable oils, such as palm oil, by the year 2020. British supermarket Iceland also recently announced that it would remove palm oil from all of its store brand items. Although it does not yet have legal force, the proposed ban was driven by concerns that demand for products such as palm oil is contributing to massive deforestation in Southeast Asia.

Indonesia is the world’s largest producer of palm oil, exporting 30 million tons in 2017 for products ranging from vegetable oil and cosmetics, to detergents and biofuel. Between 1995 and 2005, Indonesia has cut down 2.3 million hectares of tropical lowland forest for palm plantations. Indonesia and its neighbor Malaysia account for more than 85 percent of the global palm oil supply.

Smallholder farmers in Southeast Asia have protested the EU’s move to ban vegetable-oil biofuels, claiming that the restrictions are unfair and harmful to their agro-economies. Malaysia has also threatened to cancel billions of dollars in defense contracts with EU countries in retaliation for the proposed ban.

With the EU planning to vacate the palm oil supply chain in Southeast Asia, trading partners, including China, are highly interested in replacing them. Sixty percent of China’s palm oil imports already come from Indonesia, making it the world’s third-largest buyer of Indonesian palm oil.

After a recent meeting with Indonesian president Joko Widodo, Chinese premier Li Keqiang has announced that the country intends to expand its imports of Indonesian palm oil by at least 500,000 tons. The sharp escalation will be China’s second straight annual increase of palm oil imports, which heightens the country’s profile in the controversial supply chain.

China plans to use much of the exported oil in a new biofuel blend of 5 percent palm oil and diesel. The country currently consumes 5 million tons of palm oil every year.

According to the Wall Street Journal’s Anita Rachman, the new agreement is important for both Beijing and Jakarta. As environmental concerns over palm oil production fuel opposition to the product elsewhere, including in North America, China’s announcement will help ensure that the Indonesian palm oil market remains viable. All else being equal, China is also a more desirable market for Indonesian palm oil, since buyers are closer and cheaper to reach.

Transparency and traceability

Cloud-based software platforms for supply chain management (SCM) have come a long way in improving transparency and traceability of upstream supply chains, be it for agriculture, apparel production, or other industries with social or environmental-sustainability challenges.

Newer applications deliver real-time connectedness for strategic procurement planning, budgeting, monitoring, sourcing traceability, and the ability to track and compare key performance indicators for continual processes improvements. These capabilities are critical to food safety, as well as to social and environmental stewardship.

Indeed, more and more companies are setting sustainability targets with suppliers, measuring performance, and reporting with frequency and accountability. Just this year, Unilever announced it would publicly disclose all suppliers and mills where it sources palm oil, hoping to start an “industry-wide movement.” Other large consumer-brand holdings are following suit, investing in technology to improve supply chain transparency, traceability, reporting, and communications. The movement is underway.

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Vanguard Software introduced its first product for decision support analysis in 1995. Today, companies across every major industry and more than 60 countries rely on the Vanguard Predictive Planning platform. Vanguard Software is based in Cary, North Carolina.

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