Some of the world’s largest agricultural businesses are forming an alliance to raise the status of a sector that faces mounting political scrutiny over environmental harm — particularly over its production of palm oil.
Olam, Sime Darby and Wilmar are among the group that plans to co-operate to raise environmental standards.
Producers of palm oil — a key ingredient in cosmetics and processed foods — have come under intensifying pressure from investors, green groups and corporate buyers over deforestation and the burning of peatland in Southeast Asia.
The companies’ alliance will also seek to improve food security and mitigate the effects of climate change.
Sunny Verghese, chief executive of Olam, told the Financial Times: “We’ve fought wars over oil. Food and water are more sensitive issues. We need to come together as an industry to address the sustainability and development challenges that face our industry.”
A total of 36 companies — covering a range of commodities from grains and dairy to rubber and sugar — are joining the alliance, including Saudi Arabia’s Sabic and Japan’s Mitsubishi Corporation. The forum is being launched in Singapore on Thursday.
One avenue for collaboration will be through sharing technology: modern farming increasingly uses high-tech methods such as soil moisture sensors to monitor water usage and drones to spot forest fires.
Large corporate buyers of palm oil turned up the heat on agricultural businesses over sustainability this year when they ceased trading with Malaysia’s IOI Group, a leading palm oil producer.
Consumer groups including Nestlé, Unilever, Mars and Kellogg suspended business with IOI after a decision by the Roundtable on Sustainable Palm Oil, an industry body, to suspend certification for the company’s palm oil.
IOI allegedly failed to prevent its subsidiaries’ involvement in deforestation in Indonesia.
The haze from burning forest land in Indonesia has also spread pollution across the region, forcing the closure of schools and straining relations between states.
Mr Verghese warned that “a few rotten eggs in the industry” could have a negative impact on the whole sector.
We’ve fought wars over oil. Food and water are more sensitive issues. We need to come together to address sustainability and development
Companies joining the alliance say that managing environmental resources more responsibly will improve food and water security, reducing the risk of confrontation with governments and broader political crises.
An IMF research study in 2011 linked high food prices to increased political instability in poor countries.
Mr Verghese said: “Imagine a situation 10 years from now — massive food price inflation. Policymakers and consumers look at industry and say: ‘You guys are benefiting from the misery of all of us.’ It’s an untenable position to be in.”
Simon Lord, chief sustainability officer at Sime Darby, said: “We’re going to see water wars — people fighting over these scarce resources. Climate change is going to polarise that. As a business it makes sense to protect our resources so we can deliver what our customers want.”
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