New Britain Palm Oil Limited
The production of palm oil has been important driver for the economies of Indonesia, Malaysia. Production has grown steadily at about 7% over the last 10 years, while prices increased over 15% annually during the same period, implying a supply constrained market. This has led to expansion of the industry but it is an industry based on a raw material whose large-scale production has the potential to wreak devastating effects on the environment and wildlife and to produce conflict with local communities. The external pressure to develop responsible and sustainable palm oil comes from many quarters and not least of these have been environmental activists. Increasingly, however, consumers in the West are demanding that palm oil is produced in a environmentally and socially responsible manner. In Papua New Guinea (PNG) this challenge is being met through ethical producers like New Britain Palm Oil which has been supplying the European market for over 40 years.
UK-based New Britain Palm Oil (NBPOL) and its subsidiaries operate in the palm oil, sugar and beef cattle industries in Papua New Guinea, with palm oil operations also in the Solomon Islands. A vertically integrated producer of palm oil, the company raises its own seed, which it also sells globally, and harvests and processes oil palms fruits in PNG before exporting the oil to countries within the European Union. More recently and through its refinery in Liverpool it delivers sustainable palm oil directly into the United Kingdom. This simple straight line supply chain assures customers of a fully traceable and segregated product direct from PNG. Sugar and beef cattle are sold domestically within Papua New Guinea.
Because of the characteristics of the regions in which NBPOL operates, it has long had to think innovatively about the way it clears land to cultivate palms, for instance NBPOL adopted a no burn policy as early as 1963 and avoids plantings on peat and primary rainforest which is found in abundance in the biodiversity rich islands of PNG. Such innovation is not restricted to just the physical landscape as the company developed new ways to engage landowners and to bring about poverty reduction within the social landscape. Not least of these has been the effective engagement of smallholders allowing small family units to share in this prosperity. Such close ties with its growers and its sensitivity in developing the business have also helped it to develop one of the world’s first sustainable and fully traceable sources of palm oil.
New Britain devised new, sustainable palm cultivation techniques and developed a fully segregated, traceable sustainable palm oil supply chain ahead of other producers. In its approach to developing traceable palm oil, they are ahead of the curve. In 2004, the company achieved ISO 14001 certification for its plantations and in 2008 its operations were first in the world to achieve Roundtable for Sustainable Palm Oil (RSPO) certification for plantations and associated smallholders. It also pioneered the integration of ISO 14001 and RSPO standards into a single procedure.
Cultivating palm oil is traditionally associated with clearing forests and in Indonesia and Malaysia with the draining and burning of peat lands. As such cultivation processes can release significant carbon emissions into the atmosphere, the company has focused closely on limiting the greenhouse gas emissions associated with its operations through controlled carbon budgeting and developing plantations on degraded forests and grasslands and avoiding peat.
Well before other companies started to embrace such practices NBPOL worked to preserve soil fertility and prevent erosion of any land under its control. It maintains the quality of ground and surface waters and limits use of chemicals through integrated pest management. When developing land, it minimizes its impact on natural habitats such as reefs, wetlands, estuaries, rivers and streams and takes into account biodiversity and traditional land use by local communities. It appreciated the value of working with civil society and non-governmental organizations (NGOs) early on and formed a number of partnerships to promote sustainable environmental and social practices. Since the late 1960s it has strengthen relationships with smallholders and land owners, leasing (rather than owning) land and coming to arrangements that benefit both the company and the community. NBPOL now integrates this approach, engaging NGOs during negotiations over native land rights, to avoid conflicts which have historically hindered development in other palm oil producing countries.
For New Britain Palm Oil, sustainability began inside the company, with a recognition that developing a sustainable source of palm oil is not only essential in order to mitigate risks to profitability but is also a way of fostering a sustainable natural environment and community development. It maintains that sustainability, productivity and efficiency cannot be separated and embeds its approach to sustainable development in the triple bottom line of People, Planet and Prosperity.
The certification processes they employed helped the company establish robust assessment tools and set ambitious goals. “We developed the first ever self-assessment kit, not because we believed that self-assessment was the way to go, but because so many people were reluctant to even join the Roundtable for Sustainable Palm Oil (RSPO) ,” says Simon Lord, director of sustainability at the company. Now the company uses third party independent audit teams to uphold the Principles and Criteria of the RSPO standard recognising the value of such a strong sustainability standard in maintaining its environmental and social values as well as profitability.
Shape the environment
Since smallholders produce 30% of the fruit for its oil, New Britain supplies these farmers with environmentally sustainable inputs and, working with extension services and NGOs, trains them in practices that promote sustainable cultivation as well as increased productivity. Innovative use of technology helps the company to map its operations and communicate with the farmers in its supply chain.
Close communication with its suppliers is what made it possible for New Britain to trace the origin of its palm oil and assure its customer that the oil has been sustainably produced—an assurance that wins it more business as leading companies start to pay higher prices for sustainably-sourced raw materials.
The company has now become so confident about its ability to track its supply chain that it recently opened a refinery in the UK that will process only certified, sustainable and fully traceable palm oil. “Traceability is the biggest issue now,” explains Lord. “Because you want to be able to trace your supply to a particular plantation and know that there are assurances in place that the plantation is a sustainable operation.”
NBPOL has been involved with the RSPO since its conception helping to shape the standard and to pioneer many of its values (such as advocating a working group on greenhouse gases). In 2009, it was the first Palm Oil company to produce a Sustainability Report to the Global Reporting Initiative standard, disclosing its environmental, social and governance in a transparent and meaningful way to all its stakeholders and in 2010 it introduced carbon foot printing accountability, Both these initiatives took it beyond the RSPO standard.
Spreading the word is also important to New Britain—and not only among its smallholder suppliers. It does this through Global Sustainability Associates, a development consultancy it set up to promote sustainable development through changes in company policies and practices.
Impact – Business:
By their innovations and their strong local business relationships with smallholders, suppliers and NGOs New Britain Palm Oil obtained a strong competitive position locally. By developing a fully traceable supply chain of palm oil with these advantages, they operate in the global economy and develop a competitive position at this level as well. New Britain Palm Oil compound annual growth rate for revenue between 2005 and 2009 was almost 30%, outpacing their industry significantly. Their average EBITDA margin was 34% in 2009, compared with an industry average of 19.3%.
Impact - Environmental and social:
According to Lord, they have developed a technique which uses 50% less pesticides, less fertilizers and experienced a 1.6% increase in yields per annum over the last 30 years as a result of their breeding programs. NBPOL also captures the methane released when converting palm fruits into oil and converting it into in electricity not only to save energy costs but also allows the company to accrue World Wide Fund for nature (WWF) Gold Standard carbon credits.For the future, New Britain Palm Oil is working actively with NGO's to develop spatial planning for future expansions utilising satellite imagery and mapping to ensure minimum impact on high conservation values and to exclude intact forest landscapes. “Maps are incredibly important when you talk about high conservation value areas, assisting us to delineating them and as part of a precautionary approach strategy to mitigate the negative impacts of development,” says Lord.