April, 9, 2018
Despite first being established in 1968 on Watawala Plantations’ Nakiyadeniya Estate in the Galle district, oil palm has until recent times gone under the radar as one of Sri Lanka’s most promising cash crops. While this is true both in terms of its ability to generate substantial profits for estates and the remarkably positive socio-economic impact it has had on communities employed in and around oil palm estates, the industry continues to face notable challenges, however Watawala Plantations Chief Executive Officer, Binesh Pananwala is confident that local oil palm cultivation holds the key to the continued prosperity of the Sri Lankan plantation industry as whole, provided that meaningful steps are taken to improve understanding of the crop.
Pananwala believes that social and environmental sustainability will be the ultimate determining factor on which the success of oil palm hinges in Sri Lanka and to that end, has led the initiation of Roundtable on Sustainable Palm Oil (RSPO) certification – a first for any Sri Lankan oil palm producer. Following are excerpts of an interview discussing the sector’s performance, challenges in perception, and a way forward through a culture of sustainability.
Q: What are some of the key factors determining success in the context of the Sri Lankan oil palm industry?
A: The success of the oil palm business tends to hinge on land productivity, cost of production, and the net import of oil palm into Sri Lanka. In order to make the most of this extremely valuable crop, it is of course crucial to ensure that only the best agronomic practices are implemented throughout our plantations, while maintaining a high quality of planting material, which has to be imported in the form of seeds from countries like Malaysia and Indonesia.
Sri Lankan oil palm cultivation tends to be drastically different to conditions in other major cultivating nations, where domestic plantations tend to be situated on moderate or rolling lands, where plantations in other countries tend to be located on larger tracts of flat lands. This presents unique challenges for the Sri Lankan oil palm industry, and as a result, we tend to place a much greater emphasis on the implementation and maintenance of superior agricultural practices.
Where other producers are able to reduce costs through extensive mechanization, our terrain makes such strategies largely untenable. Together with the vast differences in economies of scale between Sri Lanka and other major producers, we find that our cost of production is noticeably higher in comparison.
Meanwhile, Sri Lanka is a net importer of oil palm, bringing in approximately 180,000 metric tonnes (MT) per annum; meaning that we are currently only able to collectively produce about 20% of Sri Lanka’s total oil palm requirement, with the balance 80% being imported. We believe this presents an unprecedented opportunity for the Sri Lankan economy.
At the highest levels of the Sri Lankan Government there’s a very clear understanding of this potential to economically empower a large segment of the population, and as a result, the nation, through the expansion of oil palm cultivation, hence while we presently have 8,000 hectares of oil palm cultivation, the Government has put in place an ambitious target of 20,000 hectares of oil palm in the coming years.
This type of high level support is vital, and it is absolutely crucial that this understanding permeates down to the provincial and district levels. If we are successful in strengthening local production of palm oil, the positive impact of these developments will be felt at every level of the economy. It will reduce the drain on foreign exchange while promoting opportunities for lucrative employment within the rural economy. Palm oil is itself an extremely sought after commodity given its extremely wide range of applications – from food and beverages to soaps, shampoos and other cosmetics – hence it is a crop with immense untapped earnings potential for Sri Lanka’s plantation industry as whole.
Q: How has Watawala’s oil palm business performed and what are some of the factors affecting this performance?
A: Given the massive global demand for palm oil, its price tends to be dictated by international market dynamics, but compared to rubber or tea, palm oil prices tend to be a bit less volatile and you can generally you can look to the Malaysian futures market to get an idea of where the prices are likely to move and hedge your buying and selling prices accordingly. The other factor is of course the duty component. Just like with coconut oil, the Government can impose import duties in order to encourage local production and this has a very notable and direct impact on domestic oil palm, and is therefore a key factor when analyzing the profitability of the business.
Overall, Watawala Plantations continues to perform extremely well, particularly over the last six months, despite some variation in the duty component of oil palm. Compared to the previous year, palm oil prices have reduced by about 11%, however these reductions in price were marginally offset by notable increases in production, across several Key Performance Indicators in field and milling operations.
Q: When we talk about the application of palm oil in Sri Lanka, what is this consumption going towards? Is it all edible or is there a portion allocated for manufacturing?
A: While palm oil is used for various products; 70-90% of our daily usage is palm oil. All vegetable oil brands in the market are palm oil and it is also a key primary ingredient in various products. The four main traditional uses of palm oil in food products are for cooking/frying oil, shortenings, and margarine and confectionary fats. Palm oil is popularly used in both solid fat products as well as in the liquid cooking oil sector especially in industrial frying applications. It offers several technical characteristics desirable in food applications, such as resistance to oxidation, which contributes towards longer shelf life of end products.
In other countries, we also see palm oil being used as a form of bio-diesel, however in Sri Lanka 99% of palm oil we produce is utilized for food preparation while most of the remainder goes towards soap manufacturing and other product manufacturing. Our business model is a business-to-business (B2B). We produce CPO and palm kernel oil which we sell to refineries which then go on to perform further value addition.
Q: What are some of the new developments in sustainability that Watawala Plantations has been exploring more recently?
A: On the global stage, palm oil has earned a somewhat negative reputation due to irresponsible agricultural practices implemented by large-scale producers, particularly in Indonesia and in recent times, the global market has started to raise important questions as to whether palm oil is being produced within acceptable ethical and environmental standards and regulations. In some countries, oil palm cultivation has caused – and continues to cause – deforestation since companies there have cleared land that was once predominantly covered in virgin jungles. These pockets of rich biodiversity served as important habitats for protected species and the clearing of these forests for conversion into oil palm plantations, particularly in Indonesia has rightfully caused an international outcry.
However, it is absolutely crucial to keep in mind that these types of extremely irresponsible practices are not followed in Sri Lanka at all. We do not ever clear out virgin jungles, but instead use arable land that has already been under cultivation for a period of more than 100 years. In Sri Lanka, oil palm was first cultivated in 1968 at Nakiyadeniya. These plantations have since grown in extent, due in large part to the growing requirement of the country.
Naturally, it is important to be mindful of the environment, and we must absolutely avoid following the environmentally unsustainable agricultural models seen in places like Indonesia and, to a lesser extent, in Malaysia. Sustainable agricultural practices are a must. We do not have the same types of large tracts of land that are uninhabited by people that we see in those countries. Instead, our oil palm lands are usually surrounded by villages, hence we need to also take precautionary measures to ensure that not only the environment, but these communities are also not disrupted in any way when establishing new plantations.
In that regard, we are in the process of applying certification from the internationally-accredited body for palm oil cultivation which is RSPO (Roundtable on Sustainable Palm Oil). This process has several stipulations that we must now undertake relating to planting procedures, types of land used, spacing of plants and other agricultural best practices.
Before expanding new plantations, we are now required to conduct biodiversity surveys, and also conduct social impact assessments. All of our plantations must now maintain stringent compliance with the standards set forth by the RSPO.
RSPO is a globally accepted standard and it takes good 3-4 years to complete their assessment process in order to quality a certified plantation. They have extremely stringent standards that we are now adhering to and it is a very rigorous process. Whilst the plantation and the mill comes under the RSPO certification process, the mill has to be separately certified for food quality standards under ISO:20000 and ISO:14000 standards in order to provide best quality palm oil for our business partners while also ensuring health and safety standards of our associates who are working in the mill.
At the moment, we are an associate member in RSPO and we are in process going for the audit to obtain the full membership and while we have made excellent progress, there is still some more that needs to happen before we can qualify. In that regard, we have channelled extensive resources into hiring and training executive staff members with specialized expertise that will assist Watawala to achieve the important outcomes set under the RSPO certification.
At present, 51% of our executive staff members are graduates who have completed higher education in forestry, environmental studies and sustainability and it is these team members that are the driving force behind our push to achieve full certification within the year, and full membership with the RSPO by April 2018.
Q: What are some of the main concerns in terms of social and environmental impacts with regard to oil palm and what has been done to mitigate them?
A: In terms of social impact, the main issue that we have seen is that there are a lot of misunderstandings about the environmental impact of oil palm cultivation. One of the most frequent concerns that we hear about is that these plants somehow absorb more water than other crops. But the science simply does not support these ideas. There has been a lot of comprehensive analysis done on this subject by local experts like Professor Asoka Nugawela who have shown that while water extraction of a single tree is slightly higher than coconut or rubber, the number of plants per hectare is much less than a crop like rubber. In that context, there are only 120-125 oil palm trees per hectare whereas you look at rubber or tea, which are 150 and 13,500 plants per hectare respectively.
As a result, the extraction per unit area for rubber and palm oil palm and rubber are almost the same. But when you look at tea, it requires substantially more water than the other two crops and even this does not permanently affect the water table. In order to deal with social anxiety on this issue, it is vital that we communicate this scientific information in a manner that is understandable to all stakeholders and for our part, we do our best to engage with communities and community leaders and host an active and transparent dialogue with them prior to setting up new plantations.
Conversely, we also must do more to help improve understanding of the immense social benefits that oil palm cultivation brings to the regions surrounding oil palm plantations. The salaries of oil palm harvesters and other workers have improved drastically because as a crop, it is much more valuable while the cost of production is relatively low; hence we are able to share the benefits of this crop with the workers. The types of improvements in quality of life that these salaries bring serve as powerful incentive and it is gratifying to see our harvesters’ transition from coming to work on foot to driving in on a motor-cycle that they can now easily afford.
This filtering down of benefits to the community has enabled remarkable positive transformations of communities. This is why we are confident that over time, oil palm will contribute significantly more to the Sri Lankan economy at every level, including the grassroots, hence it may well be one of the most socially sustainable crops in this country moving forward.
Q: What potential is there for technology to impact oil palm industry in term of production like drones and other technological innovations?
A: The technology in oil palm industry has advanced in terms of milling and growing. In terms of harvesting, we now utilize mechanical harvesting technology, and have invested in equipment that has ergonomic benefits for the harvester, which in turn produces an overall increase in oil palm output by making the act of harvesting much easier.
We use technology to collect fresh fruit brunches from the field and to transport them as well while at a more sophisticated level, we are now using soil mapping technologies to monitor use of fertilizer, and nutrient levels in the soil.
We are also using geographical information systems (GIS) and we have a drone unit which we are using to understand and identify specific planting areas and water catchment areas so that our efforts in planting become more refined. Similarly, Watawala is also in the process of using our drone unit to take count of palm fruits, monitor its availability and check whether riparian zones are protected.
GSI mapping also enables us to monitor and preserve reserved forest patches and regularly monitor for encroachments into buffer zones and high conservation areas, while also assisting in the design and implementation of new development plans.
Q: What plans are stored for the future for the company and how does WPL looking forward to assist government policies?
A: The government has taken a policy decision to plant 20,000 hectares of oil palm, however in order to accomplish this goal, more state support is required in streamlining processes relating to import of seeds. We need to ensure that we get hybrid, high quality seeds into the country, and there has been some notable progress made in this regard, but the overall process remains extremely cumbersome and more could be done to facilitate it.
The authorities must also engage with all stakeholders in order to develop a sustainable model for oil palm, given that it is often the case that when oil palm is first introduced, we see a lot of resistance from communities in the area, based on the mistaken assumptions made about the crop. Such a plan should specify how to progress with establishment of oil palm plantations with minimal damage to the environment and provide a platform for social engagement to mitigate any social issues that come up.
It does not mean that we have to reinvent the wheel but we could learn from looking at other models. If we can implement and execute these strategies locally, that would be a huge boost to the industry.
Government also needs to encourage oil palm harvesters have a social dialogue with the community and engage with them. They need to find out a way to communicate actual facts pertaining to oil palm cultivation and try to change their perception by inviting people to look at the facts in a scientific way.
In that context, the oil palm industry must build a scientific database in order to share up-to-date information on the sector’s performance, so that the business is carried out in a transparent manner that is easily accessible to the wider public.
Q: What are your immediate plans for the oil palm business moving forward?
A: We are currently in the process of exploring new methods to harness the best from our lands. Our main goal is to ensure optimal productivity that is not only the best in the country, but also on par with international standards. In addition to best-in-class agricultural practices, we must also ensure that our industry stays ahead of the technology curve. This is important not just for Watawala Plantations, but also for the entire oil palm industry and we are eager to share our experiences in order to improve performance, and perception of the oil palm business.
We also need to work at increasing capacity while reducing cost of production. Once we are certified with the RSPO, we will be the first company in Sri Lanka to achieve this high standard and our hope is that this will also inspire other companies to learn and also go for the same high standard and we look forward to sharing the lessons that we have learned in securing RSPO certification moving forward.