Palm Oil King Shifts From Forest Foe to Advocate
BY :YURIY HUMBER & RANJEETHA PAKIAM
MARCH 13, 2015
The sprawling palm oil industry is the destroyer of rainforests and tormentor of endangered species across Southeast Asia, to hear environmental groups tell it.
And if there’s one executive who embodies this contentious $50 billion business, it’s Singaporean commodities magnate Kuok Khoon Hong. He’s the palm oil king, co-founder and chairman of giant Wilmar International, the industry’s biggest trading firm. It handles almost half of the global trade in the commodity.
Yet, these days Kuok is no longer portrayed as a villain by activists and non-governmental organizations. He’s actually become central to their campaign to prod the industry into adopting new, eco-friendly business practices that may start to arrest the environmental damage in the region.
“I would consider myself an environmentalist today,” Kuok said in an e-mail.
“I changed a few years ago when I saw the damage climate change had on the environment in some countries.”
The story of how Kuok’s position changed is based on an e-mail correspondence with him and interviews with industry executives, experts and environmentalists familiar with his thinking.
The portly 65-year-old, who sports a head of jet-black hair, has a warm, avuncular demeanor and a tendency to wink as he speaks. He’s also a pragmatist and a member of one of Asia’s most powerful business clans.
Extracted from the orange pulp of a palm fruit, palm oil is the most ubiquitous edible oil in the world, consumed every time you brush your teeth, wash your hair, slurp some ice cream or put on lipstick.
As commodities go, it’s cheap, versatile and high-yielding. Cultivation of palm oil ties up more than 17 million hectares worldwide, an area four times the size of Switzerland.
The business has made Kuok a billionaire and lifted many communities in Southeast Asia and Africa out of poverty. It’s also led to mass deforestation and air pollution across Southeast Asia.
A consumer backlash against using palm oil in Europe and other developed economies threatens the profitability of the industry. Kuok says the solution is not to shun the fruit, but change the way it’s produced.
Wilmar’s experience may also offer up lessons to other industries whose expansion and business practices pose risks to the environment.
A bad year
Back in 2013, Kuok had every reason to believe the world might be conspiring against him. That year, the world’s biggest sovereign wealth fund, Norway’s Government Pension Fund Global, disclosed that it had dumped shares in 23 palm companies, citing environmentally harmful industry practices. The next year that number rose to 27 companies.
Greenpeace videos, alleging that consumer industry palm oil buyers including Unilever contributed to deforestation, had amassed millions of YouTube hits. Environmentalists confronted the chief executive of Kellogg about palm oil purchases from Wilmar on investor calls. And Singapore, the home of Kuok and Wilmar, was covered in ash from plantation fires.
Environmentalists are far less critical now. Wilmar and about 30 other firms including Unilever and McDonald’s have pledged by the end of 2015 to buy palm oil that’s certified as coming from sustainable sources. The pledge effectively means no trees, peat land or orangutans were harmed in making the products.
While most the goals are not legally binding, Dave McLaughlin, vice president of Agriculture for the World Wildlife Fund, said the companies are “putting their credibility on the line.” Global firms “really are exposed on the palm oil issue. It’s difficult, the circumstances and the issues are not easy, but they’re doing it,” he said.
Wilmar’s decision to back causes as diverse as restoring forests and riverbanks, protecting wildlife on the edges of plantations from poachers, and education of migrant workers, have not come about due to the activist pressure, according to Kuok. Being sustainable is good for business, he says.
Oil palm trees were introduced to Malaysia at the turn of the 20th century by the British, who brought the West African variety to pretty up the gardens of colonial homes. Today, Indonesia and Malaysia dominate supply.
It’s a fragmented industry consisting of hundreds of large plantations and thousands of plots tendered to by a single family or community.
Wilmar is testament to one family’s obsession with food. A Chinese immigrant family in British-controlled Malaya, the Kuoks started with a rice and flour shop before current patriarch Robert Kuok rose to be one of the world’s top sugar traders.
Robert’s nephew, Khoon Hong, set up Wilmar with a partner in 1991, growing it to be one of Singapore’s biggest firms with $45 billion in revenue.
Wilmar’s reputation took a hit when the Norwegian sovereign wealth fund sold its stake in the company in 2012. It didn’t specify a reason.
However, in its 2012 annual report, the fund explained the sale of Wilmar and other palm stocks by noting the industry’s role in continued deforestation in Malaysia and Indonesia and its view that some companies “by our reckoning produced palm oil unsustainably.”
Matters turned worse in the spring of 2013. Winds carried record volumes of smoke from land-clearing fires at Indonesian plantations. The miasma that visited Singapore set records for air pollution in the city state and blanketed cars with ash, forcing people indoors.
The government wanted answers.
Wilmar stated its case, according to Jeremy Goon, Wilmar’s chief sustainability officer. The company told government officials it had a zero-burning policy. It monitored fires and knew none of these were on its own land, though it couldn’t speak for others, Goon said.
Voice from TV
Amid the public questioning in Singapore about those culpable for the fires, Kuok turned on the television news and saw one activist lay the blame squarely on Wilmar. The company was closing its eyes to murky industry practices, instead of using its clout to enact change, the man argued.
The speaker was Glenn Hurowitz, executive director of Catapult, and one of the strategists behind a year-long attack by a broad collective of NGOs including Climate Advisers and Forest Heroes on the palm industry, with Wilmar as their number-one target.
“I asked myself what we did wrong for us to be so wrongly accused,” Kuok said. Because of Wilmar’s industry position “we were made to look like the biggest villain.”
Wilmar bends Kuok tracked down the activist he saw on TV and fired off a defensive letter. The two began an e-mail exchange and within weeks the tycoon had invited Washington-based Hurowitz to his Singapore office.
Kuok spent the first 15 minutes ranting about NGOs.
“I couldn’t believe I’d flown 24 hours across the world to listen to that,” Hurowitz recalls. Then Kuok calmed down and “treated me like a Chinese uncle.”
The new mood of respect deepened when Wilmar’s chief discovered over a meal in a local Chinese restaurant that his “angry” critic was a vegetarian.
Conversing in English and “rusty”
Mandarin Chinese first picked up as a kid at a Minnesota summer camp, Hurowitz explained that he had quit meat because of the strain rearing animals has on the planet.
“He thought it was an indicator that I was a sincere environmentalist,” Hurowitz says.
According to Kuok, that’s a person who wants to help the planet without ignoring positive aspects of palm development.
Scott Poynton, the founder of environmental group The Forest Trust, soon joined the talks. The activists pushed Kuok to use his industry clout to force all Wilmar suppliers to cease forest cutting, cultivation on peat land, and to champion labor and indigenous tribes’ land rights.
In principle, Kuok agreed, Hurowitz said. After all, Wilmar was already implementing much of the advice at its palm estates. The harder task was getting outside suppliers — including the more than 800 mills that send crude palm oil to its refineries and the thousands of farmers who sell its agents fruit — to do the same.
Already Kuok was starting to feel resistance from “some of the big plantations,” Hurowitz said.
Few of Kuok’s peers shared the tycoon’s fear that NGO campaigns could provoke a consumer pushback and government interventions, factors that would limit palm oil use and hurt prices.
Kuok gathered industry peers in the fall of 2013 to urge everyone to take the plunge together. The talks were joined by Unilever’s chief executive Paul Polman, the world’s biggest palm oil buyer.
Unilever, the maker of Dove soaps and Ben & Jerry’s ice cream, had been through its own NGO heat.
Greenpeace had run public and social- media campaigns that scored millions of YouTube views for videos such as “Dove Onslaught(er),” depicting an Indonesian girl amid tree stumps.
A Unilever spokesperson, without discussing the details of the 2013 talks, said that the company believes governments, business and civil society must work together to enact change. Unilever is pursuing such an approach in palm, soy, paper and beef and plans to widen the focus, the spokesperson said.
“We are working with our key supplier partners, including Wilmar, to drive market transformation,” the spokesperson said by e-mail.
Failure to agree
At the talks Unilever pushed for higher standards, but stopped short of offering to pay more for sustainable products, according to the account of three participants, who asked not to be named because of the closed-door nature of the meeting. Palm companies objected to calls to stop all new plantation development.
The negotiations yielded a Sustainable Palm Oil Manifesto, which was denounced by Greenpeace as worthless. Wilmar didn’t even sign it.
Though the talks failed to win widespread industry support, Hurowitz said Kuok was still looking for solutions — ones that would not put him at a disadvantage with competitors.
“He talked a lot about how upset he was at the haze in Singapore and in China,” Hurowitz said. “He just needed to be given a business rationale to go ahead with this, to show that this was a commercial decision.”
By early December, the momentum seemed to falter and Kuok threatened to call the whole thing off, according to Hurowitz.
On Dec. 4, 2013, Hurowitz and Poynton, Kuok and other Wilmar executives went for dinner to the Szechuan Court & Kitchen at Singapore’s Fairmont hotel, a five-minute drive from Wilmar headquarters.
Seated around a table with a Lazy Susan rotating tray, the party’s mood was tense and the conversation at times descended into shouting, Hurowitz recalls.
Hurowitz and Poynton warned Wilmar palm oil would lose market share as demand for the product in the West crumbled under NGO criticism.
They even threatened to renew all attacks on the industry — but focus on Wilmar alone. And they promised to bring competitors aboard later if Kuok made the first step.
Kuok, said Hurowitz, offered a deal:
Get me Unilever and I’ll sign. If the biggest seller and buyer could make the jump together it would make a splash. And Kuok wouldn’t be alone.
The two campaigners penned an e-mailed letter to Unilever chief executive Polman in the hotel lobby. “We thought this deal could change agriculture,” Hurowitz said.
No reply came. The next morning, the pair received a last- minute invite to visit Unilever’s Four Acres office in Singapore. Resigned to another fruitless run through the issues, they didn’t even bother with jacket and tie.
The UK-Dutch firm’s chief procurement officer at the time, Marc Engel, sat across from them and simply said: We’re in. I’ll call Khoon Hong.
The Unilever spokesperson, who asked not to be named, did not reply to questions about this episode.
In a domino effect, big-brand food and household goods companies from Dunkin’ Donuts to Procter & Gamble and Kellogg joined the movement to buy oil from sources certified as sustainable or, at least, offset purchases with so-called green certificates that compensate the “good” suppliers.
Rival traders Cargill and Golden Agri-Resources made similar pledges to prevent deforestation by their suppliers.
Amid the euphoria, there is a need to remain watchful against backsliding, says Daniel May, a senior manager at the German sustainable palm oil industry group. Myriad production and monitoring challenges must be overcome. Another challenge: Consumers are largely in the dark about the issue. “There is still a long way to go.” May says.
Unilever’s vision is that “the entire industry will move to 100 percent sustainable palm oil” by 2020, the firm’s spokesperson said.
“In a world of finite resources, it makes absolute business sense to source sustainably so we can continue to serve consumers in decades and centuries to come, whilst preserving environments and livelihoods.”
Expansion from palm
Norway’s sovereign fund, which sparked the exodus from palm stocks, is keeping tabs on events.
“To the extent we find that companies improve their practices we may choose to reinvest,” said Marthe Skaar, a spokesperson for Norges Bank Investment Management, which oversees the sovereign fund.
Palm’s makeover bodes well for the whole of agriculture, says Hurowitz.
Cargill vowed in late 2014 to start spreading the lessons learned in palm to all its products.
For Kuok, however, the focus is still firmly on palm oil. In fact, he has argued that production of alternative oilseeds requires even more land and result in more forest clearing.
Wilmar has devoted vast resources since making its pledge in 2013 simply to “educating” its suppliers “that sustainable development is an irreversible trend in the world today,” he says.
Business-minded to the end, he fears palm oil prices will crash if his new alliance with his former critics doesn’t hold.
“If the industry continues business as usual, NGOs will continue to tarnish the reputation of palm oil and governments and consumers will be pressured to restrict the use of palm oil in food, biofuel and so on,” the palm oil king warns.