Why Does World Bank Hate Palm Oil?

Alan Oxley, New Straits Times


MANY large global resources companies now refuse to take finance from the World Bank for major projects in developing countries. Bank procedures now increasingly make the bank a regulator, and not of compliance with policies of governments, but of non-governmental organisations.

This is about to happen in palm oil, an industry which is very important to Malaysia.

Last year, the Indonesian affiliate of Friends of the Earth, along with other NGOs, exercised a right under the rules of the World Bank Ombudsman to complain that the International Finance Corporation (IFC), the bank’s private sector arm, failed to ensure that Wilmar International, a large commodity company based in Singapore, followed World Bank rules for a loan it made to a Wilmar palm oil project in Indonesia.

The bank’s own rules demanded that the ombudsman investigate and report directly to the president of the World Bank, Robert Zoellick. This is overkill enough. Imagine a complaint that a commercial bank did not follow its own loan rules being automatically reported to the president of the Bank, regardless of its gravity.

Zoellick compounded the overkill. Before the enquiry began he ruled out any more loans for palm oil projects until the review was finished. The overreaction became clear when the enquiry reported only a minor transgression and certainly not a system failure. Yet after he received the report, he announced that the bank’s whole system for engagement in palm oil projects would be reviewed.

Here he was following to the word the NGO script on “how to capture a multilateral institution”. He gave the NGOs the play they wanted — the opportunity to embed further NGO policies into bank rules. And they did, bombarding the bank with suggestions. More concerned to show the bank was “listening” to the NGOs, than to set effective development policy, bank staff have proposed tough, new rules.

They would demand borrowers comply with sustainability and environmental standards that are more onerous than any government of a palm oil producer, including Malaysia. They even go beyond those of the Roundtable on Sustainable Palm Oil, a body set up jointly by Worldwide Fund for Nature (WWF) and oil palm producers which sets voluntary sustainability standards for the industry.

Smallholders (they produce around 40 per cent of palm oil) would have to adopt systems to verify the sustainability of their oil palm plots. No such systems exist. Everybody in the certification business knows it is costly and impractical for smallholders. They are anyway unnecessary. Large palm oil producers control 60 per cent of production, and demonstrate the sustainability of those estates.

The bank itself admits palm oil is great for lifting the poor out of poverty. So why is it toying with rules that elevate the green interests of NGOs, mostly based in wealthy countries, over the bank’s core mission of reducing poverty?

There is a long and dismal history here. For nearly 20 years now, bank regulations in a number of areas, mostly playgrounds for western NGOs — mining, energy, water and forestry — have been progressively captured by them. A peak year was 1999. Then Zeollick’s predecessor twice removed, James Wolfensohn, agreed to a “partnership” on forestry with WWF.

The result is that the WWF now exercises more influence on World Bank policy on forestry than World Bank board members. The giveaway here is not that loans for forestry require that recipients certify forestry is sustainable, but that the bank’s criteria for certification recognise only one system — that of the Forest Stewardship Council (FSC). WWF set up the council and Greenpeace and Friends of the Earth, both of whom oppose commercial forestry, are members.

The bank has locked out other systems, such as that of the Malaysian Timber Certification Council (MTCC), which are not only more widely used in the private sector, they demonstrate best practice in certification of sustainable forestry policy in ways the FSC cannot. For example, growers and NGOs have equal say, but no veto, in the MTCC system. In FSC, growers are outvoted by NGOs.

The FSC system is also anti-development. It requires businesses to move towards WWF policy to cease or reduce forestry in natural forests, even where governments have earmarked such land for agro-development to raise living standards. The new bank rules on palm oil would move the bank in the same direction.

Today the bank’s private arm is supporting a project, ironically initiated by Wilmar, to introduce into Uganda the very oil palm plantation model to reduce poverty which the bank itself supported in the past in Malaysia and Indonesia. Under the new rules, this would end.

It is hard to believe the board of governors of the bank, where developing countries have a formal voice in bank policy, would subscribe to this. They won’t have a say if the procedures to implement the new policy on palm oil are followed. Bank management and their NGO cronies, not the board, will set the new policy.

This does not have to be the case. All a member of the board has to do is ask. Malaysia, the world’s second largest palm oil producer, can play a key role here. The prime minister is a member of the board and represents Southeast Asia. That also includes the world’s biggest palm oil producer, Indonesia. This would also be of interest to African and Latin American board members where oil palm is grown and China and India who are major consumers.

These are the parties who should be shaping World Bank policies on palm oil, not Western environmental NGOs who show little interest in ensuring environmental policies complement policies to remove poverty, not replace them.

Alan Oxley is chairman of World Growth