KUALA LUMPUR, Oct 28 — The insertion of smallholders in the global supply chain can be accelerated by digitalization that enhances sustainability, minimizes certification costs, and the role of the middleman.
Sumwin Group founder and chief executive officer U.R. Unnithan said that while 40 percent of the global palm oil supply comes from smallholders, only two percent of them are certified.
“There are three million smallholders in Malaysia and Indonesia, but the (number of) certified smallholders are very small. Their insertion in the value chain needs to be looked at seriously, particularly when there is 13 percent and 11 percent year-on-year increase in certified sustainable palm oil (CSPO) and certified sustainable palm kernel,” he said during the second day of the virtual Palm Oil Conference 2020 today.
The second session, themed “Impact of COVID-19 and the US-China Trade Tensions on Palm Oil Industry” also discussed on the outlook for palm oil next year.
Unnithan explained that digital solutions would help the smallholders overcome these limitations through low-cost and easily adaptable methods, and at the same time, encourage all smallholders to change from manual processes to automated digital workflows using their mobile phones.
“Digitalization empowers smallholders to follow all the necessary certification guidelines including the Roundtable on Sustainable Palm Oil (RSPO), Malaysian Sustainable Palm Oil (MSPO), and Indonesian SPO and be included in the sustainable supply chain,” he said.
More importantly, it would help the smallholders to minimize reliance on the middlemen for market prices which are usually set at a premium, new farming practices, new schemes, and traceability documentation, he added.
Unnithan emphasized that the digitalization platform allows smallholder to connect directly to global buyers and leverage on these companies’ sustainability incentives and overcome the increasing regulatory, non-governmental organization, and consumer pressure for CSPO.
“Many large multinational companies are demanding sustainability certified products and by producing and trading sustainable palm oil is no longer an option for smallholders but it is mandatory for them to survive in the challenging global oil market,” he said.
Citing a report, Unnithan said only 8,012 independent smallholders and 152, 284 organized smallholders are RSPO-certified since the introduction of the certification 16 years ago.
“For MSPO, there are 54,609 certified independent smallholders while 231,576 organized smallholders are certified,” he said.
Meanwhile, another panelist, FTSE Russel Global Investment Research associate director Chris Bates said that the Palm Oil Plantation Index has been volatile but has staged a strong recovery from the lows in March.
“The FTSE Bursa Malaysia Palm Oil Plantation Index performance coincided with the declining price of crude palm oil since early this year, and we saw a recovery in March, and although the price did not go to the price at the beginning of the year, the index is still stronger than the FTSE All-World Food Producers,” he said.
Commenting on Malaysia’s economic outlook, Bates said the Malaysian economy has faced a perfect storm of declining crude oil and palm oil prices, as well as the COVID-19 impact, and the country’s gross domestic product is forecast to contract by 3.4 percent in 2020 and is expected to register a six percent growth in 2021.