The palm oil industry’s transformation towards sustainability gained traction in 2013 when major Southeast Asian palm oil traders/refiners began to embrace ‘No Deforestation No Peat No Exploitation’ (NDPE) sourcing policies. Through such policies, these firms require their suppliers to refrain from clearing forests and peatlands for new oil palm plantations. However, unsustainable practices continue to take place and non-compliant palm continues to be produced, traded and consumed. One of the main reasons for this ‘leakage’ of unsustainable palm oil is that a segment of the refining market does not apply NDPE sourcing criteria. Insights in the market share and primary actors of this segment is crucial to understand both the risk that the sector transformation is halted, as well as the business risks for non-compliant plantation companies.
- As the bottleneck in the supply chain, palm oil refineries have the leverage to drive sustainability in the sector. The majority of refineries are located in Indonesia (capacity of 45 million MT/year), Malaysia (27 million MT/year) and India (24 million MT/year).
- Late-comers in the NDPE market may be expected to pay increasingly significant reparations for previous intentional or unintentional non-compliance.
- 29 company groups with refining capacity have NDPE sourcing policies. However, a number of notable refiners continue to operate without applying any sustainability criteria to their suppliers.
- In Indonesia and Malaysia, company groups with NDPE policies operate acombined refining capacity of 53.2 million MT per year. This represents 74 percent of the total capacity in these countries. Of the 15 largest refiners in Indonesia and Malaysia, 11 have NDPE policies. Based on refinery count, NDPE policies cover 65 percent of the refinery market in the rest of the world.
- Markets that still accept unsustainable palm oil include the domestic Indonesian market, India, Pakistan and China. In India, the largest importer of CPO from Indonesia, only 35% of all refineries are operated by companies with NDPE policies.
- Leakage players that continue to source Crude Palm Oil (CPO) without sustainability requirements include Hayel Saeed Anam (HSA) Group, Best Group, Intercontinental Specialty Fats, Felda IFFCO and Ruchi Soya, among others. On average, leakage actors have less refining capacity than NDPE committed companies.
- The leakage market share is likely to shrink further in the coming years. With refining as the bottleneck of the palm oil supply chain, leakage through non-NDPE committed refiners represent a highly-limited option for non-compliant growers. Increasing transparency in the palm oil supply chain along with continued pressure from civil society, consumers and policy makers, may push leakage actors to the margins of the market.