Reference no: EM132935688

Unilever and Palm Oil In 1850, the United Kingdom repealed a tax on soap, which had previously been considered a luxury item. The resultant lower price of soap led to William Lever's entry into the soap business, building a company to mass-produce soap. In 1930, Lever's U.K.-based company, known as Lever Brothers, merged with Margarine Unie, a Dutch margarine producer, to form the Unilever Group. Unilever has evolved into one of the world's largest consumer goods companies, with operations in approximately 100 countries, sales in over 150 countries, and revenue of $45.6 billion in 2002. Unilever specializes in food as well as home and personal care products, owning such widely recognized brand names as Hellmann's, Knorr, Lipton, Bertolli, Slim-Fast, Ben & Jerry's, Dove, Pond's, and Wisk. Despite the 1930 merger, Unilever is still a joint venture between Unilever PLC (United Kingdom) and Unilever NV (the Netherlands), trading separately on the stock market but acting as one company with a single board of directors. Importance of Palm Oil Palm oil, derived from the fruit and seeds of the oil palm tree, is one of the more common raw ingredients that Unilever employs throughout its product line. Palm oil is found in soap, margarine, snack foods, cosmetics, cooking oils, and other products. Because of the ubiquitous value of palm oil, Unilever's search for a large, constant supply has a long history. Lever Brothers started looking for palm oil sources in Africa in the early 1900s. In the 1950s, Unilever began operating its own oil palm plantations in Malaysia to complement its African plantations. Today, Unilever each year buys over 1 million tons of palm oil, 6% to 8% of the total world production. Palm oil offers two major benefits to manufacturers and growers. First, the yield of palm oil is higher than that of any other edible vegetable oil source. Second, the properties of palm oil allow for its use with less processing, saving both time and money. The Oil Palm Tree Industry Palm oil is one of the world's most rapidly increasing crops, and more palm oil is produced than any other vegetable oil. Global palm oil production is increasing by 9% every year, prompted largely by expanding biofuel markets in the European Union and by food demands in Indonesia, India, and China. Oil palm trees, used to produce palm oil, grow best in wet tropical conditions (Fitzherbert et al., 2008). Therefore, commercial plantations are usually found in countries within 10 degrees of the equator. Although the palm oil industry originated in Africa, Asia now dominates world production. Malaysia is the world's largest grower of oil palms, producing 50% of the world's supply (over 16 million acres of trees), followed by Indonesia, with 30% of the world's production (nearly 10 million acres). Current Trends Oil palm trees are viewed as a cash crop by governments with large foreign debts or struggling economies. As a result, many governments are encouraging the growth of palm plantations in order to increase the country's income and reduce its debt. The expectation is that plantations will double in acreage within 20 years, primarily in West Africa, South America, and Southeast Asia (Sustainable Agriculture Initiative [SAI], 2002). Some countries, such as Malaysia, are already running out of expansion room. Impact of Palm Plantations People living in oil palm plantation areas have felt the impact of the industry in numerous ways. First, many environmental influences have directly affected the local people. Second, indigenous people have been relocated to make room for plantations. Finally, the local people have been affected economically. Environmental The environments that support palm plantations typically support rain forests as well. In many countries, rain forests have been converted into palm plantations. The exact number of converted acres is hard to determine and rather controversial. Some countries, such as Sri Lanka and Ghana, are converting degraded land (such as rubber plantations or mining land) to palm plantations. Malaysian officials claim that no forests have been converted to palm plantations, but the same cannot be said for other countries. For example, in Indonesia, the minister of forests and estate crop development reported that 815,000 acres of forest were being converted to palm plantations annually (Gautam et al., 2000). In 1998, some 20,273,789 acres of Indonesian forest were about to be approved for conversion to palm plantations (Manurung, 2002). The impact of such forest conversion includes a rise in pests, changes in the flow of ground surface water, increased land erosion, and pollution of rivers and drinking water due to the use of fertilizers and pesticides. In Malaysia, the number of polluted rivers had increased from 7 in 1990 to 12 in 2001, with the opening of more land for palm plantations being cited as the reason for the increased pollution ("More Rivers," 2002). Social The entry of large plantations has often triggered conflict between local communities and estate investors. In Indonesia, "to secure the vast area needed, estate investors usually use whatever means necessary. It is therefore common knowledge that the estate business is engaged in random forest tree felling and forced control of communal land" (Bider, 2003). For example, according to Cameroonian law, peasants do not have customary rights to land, so expropriation does not require indemnification by the state (World Rainforest Movement, 2001). Amnesty International reported that in Burma, for at least 13 years prior to its report, there was widespread use of forced labor (Ramachandran & Shanmugam, 1995). Primarily ethnic minorities were forced to work for no pay. In many cases, the army was involved in seizing minorities for work. Unpaid wages are common in other countries as well. In Mexico, Guatemalan workers have frequently been unpaid for their work, requiring intervention by the Guatemalan government to recover wages. Economic Despite governmental desire to encourage palm plantation growth because of the financial opportunities, the benefits rarely make it to the indigenous people. Wages for palm plantation workers are notoriously low (Bhattacharjee, 2003), typically being determined by several factors: world prices for palm oil, weather, size of the fruit, and yields. Unlike some crops, palm plantations are usually fully harvested. Production, then, often exceeds demand, leading to a reduction in palm oil prices. With the increasing acreage of palm plantations, rising supply will likely lead to further price reductions, spurring a higher demand for the product, especially as a substitute for more expensive vegetable oils. As demand increases, governments and plantation investors increase production even further to maintain their necessary income levels. This cycle keeps constant pressure on prices, resulting in consistently low wages for the workers. Large nonlocal companies are noted for failing to promote the local economy. For example, in Malaysia, nonlocal companies typically pay an oil palm sales tax, but little else. The main reason for this is the expatriation of earnings; most of the palm plantations are owned by companies based in Kuala Lumpur. Additionally, many of the companies hire foreign laborers to harvest the palm fruit, denying wages to local workers. Finally, many of the companies import supplies such as food, farm supplies, machinery, chemicals, and fertilizers directly from their home offices in other countries ("Plantation Giants," 2003). Unilever's Sustainability Development In 1995, Unilever commissioned two studies on sustainable development. The studies revealed a complex set of criteria for sustainable agriculture. From these criteria, Unilever's sustainable agriculture mission statement was formally adopted in 1998, which included the following principles: Output must be high enough to meet demand. Negative environmental impacts on soil, air, water, and biodiversity must be minimized. Quality and safety of products must be guaranteed. Changing consumer demands must be met. Profitability must be competitive with other industry sectors. Agriculture must offer an attractive livelihood to workers (Vis & Standish, 2000). In 1997, two Unilever employees, Jan-Kees Vis and Hans Broekhoff, were working to translate sustainable development into terms that related to Unilever's business. Vis and Broekhoff developed the concept of the triple bottom line to show that Unilever depended on economic, environmental, and social assets. They used this concept to show why Unilever needed to preserve these assets (Standish, Mehalik, Gorman, & Werhane, 1998). Eventually, Vis and Broekhoff developed a set of strategies to preserve the three assets. The strategies now guide Unilever's worldwide operations. The same philosophy guided Unilever to create an unusual partnership with Oxfam, a global charity organization to fight poverty and injustice, to engage in a research project that explored links between international business and poverty reduction and use Unilever as a case study. The study examined critically Unilever's impact on its environment and demonstrated, among other things, the mutual benefits to the community and to the company that were derived from the company's sponsored community projects. These projects included a donation to UNICEF to reopen 900 health centers that had been closed when public funding was cut for supportive efforts to reduce water pollution in the Brantas River (Clay, 2005). Unilever's sustainable development plan has led to several honors: Dow Jones ranked Unilever number four on its sustainability index (Hartmann & SAM Research, 2003, 2015), and Fortune magazine listed Unilever among its 50 World's Most Admired Companies ("World's Most Admired Companies," 2009). Unilever was awarded the top ranking in the 2015 Sustainability Leaders survey (published in May 2015) from GlobeScan/SustainAbility for the fifth consecutive year. GlobeScan and SustainAbility asked over 800 expert stakeholders representing business, government, nongovernmental organizations (NGOs), and academia across 82 countries who they considered to be the corporate leaders in the area of sustainability. GlobeScan and SustainAbility said, "Consistent with the past four years, Unilever's global reputation among corporations is judged by experts to be unparalleled, with the leadership gap this year widening even further. This is a remarkable achievement by the company, especially since past leaders have tended to falter or be supplanted by others within a few years of claiming the top of the ranking." Unilever was awarded top position with a 71% score in the latest Oxfam Behind the Brands Scorecard, published in March 2015. The campaign assesses and rates agricultural sourcing policies of the world's 10 largest food and beverage companies. Sustainable Agriculture Initiative Unilever employs its sustainable development commitment and experience to facilitate a broader impact. It was one of the three founding companies of the Sustainable Agriculture Initiative (SAI). SAI was created to actively support the development and communication of sustainable agriculture practices worldwide. Like Unilever's sustainable development plan, SAI's initiatives target the triple bottom line: economics, environment, and society (Pretty et al., 2008; SAI, 2002). As of 2015, SAI had over 60 members from industry suppliers, governments, and NGOs (SAI, 2015). The company came to realize that it could not work on the initiative alone and therefore formed a partnership to move forward on agriculture sustainability and to develop and renovate production systems. In 1998, Unilever developed an internal Sustainable Agriculture Steering Committee to foster focused working groups and activities toward developing sustainability indicators and goals for each crop. A Sustainable Agricultural Advisory Board was later developed and appointed members from agricultural research, policy, and NGOs. The Advisory Board held environmental and policy debates that addressed sustainability-specific indicators for each crop, and the rapidly changing policy environments at national and international levels (Pretty et al., 2008). In coordination with SAI, Unilever became a founding member of the Roundtable on Sustainable Palm Oil (RSPO) in 2004. The nonprofit association brings together stakeholders from seven sectors of the palm oil industry to address sustainability issues and progress toward sustainability produced palm oil, and was developed to promote "the growth and use of sustainable oil palm products through credible global standards and engagement of stakeholders" (RSPO, 2012). The RSPO currently represents more than 40% of all palm oil producers in the world. Current partnerships involved with Unilever's sustainable agriculture goals are the International Fund for Agriculture Development (IFAD), Solidaridad, The Enhanced Livelihoods Investment Initiative, Scaling Up Nutrition, and The Global Alliance for Improved Nutrition (GAIN) (SAI, 2015). Implementation of the Sustainable Development Plan Unilever introduced pilot projects to test its sustainable development plan. It started with five of its strategically important crops: palm oil, peas, spinach, tomatoes, and black tea (Vis & Standish, 2000). The pilot program for palm oil was in Malaysia at the Unilever palm plantation (which it has since sold). Unilever ("Malaysia: Improving Biodiversity," 2003) employed the following sustainable practices: Liquid effluent from the mills was used as irrigation and fertilizer for the trees. This reduced the amount of synthetic nutrients needed. Leguminous ground cover was grown to prevent soil loss, fix nitrogen, and encourage beneficial insects that are natural predators of tree pests. Owls were used to control rats. Palm fronds and empty fruit bunches from the mills were left to decompose naturally under the trees. This provided some nutrients (especially potassium) and helped to curb weed growth, restrict beetle pests, and reduce soil loss during rain. Industry practice had been to burn the empty bunches, using them as mulch helped reduce air pollution. Steep hillsides were left as natural forest, which provided a wildlife refuge. Hunting was not permitted. In addition to Unilever's agricultural programs, the company has undertaken numerous social programs ("Environment and Society," 2003; Unilever Annual Progress Report, 2016; Unilever Sustainable Living Plan Progress Report, 2012): 45 million people have gained access to safe drinking water from Pureit since its launch in 2005. India: Indian School of Business-Unilever has taken a leading role in developing a world-class business school. It has also worked with the government with UNICEF to promote handwashing, building capabilities to sustain the program for the long term. South Africa: Nelson Mandela Scholarships-The scholarships aim to improve the leadership in South Africa by helping those from disadvantaged backgrounds. Sri Lanka: Unilever Cultural Trust Fund-Started in 1979, this fund was designed to protect indigenous workers in Sri Lanka. Vietnam: In partnership with the World Toilet Organization and Domesto, the company trains local entrepreneurs to set up hygienic toilet businesses such as supplying latrines, toilet cleaners, and sanitation education to prevent diseases such as diarrhea that can lead to death. Building Partnerships With Suppliers-Unilever offered financial support and education to help develop quality long-term relationships in Vietnam. Indonesia: River cleanup-Unilever organized a community-wide effort to clean the badly polluted Brantas River in Java. Bangladesh: Improving health care-Lever Brothers Bangladesh provided an initial $135 million to the Friendship Association to convert an old oil tanker into a hospital and provide operating income. More recently, social programs that Unilever has undertaken include: Brazil: Free Laundry-Since 2004, Unilever fully funds 36 washing machines on land donated by the local municipality and allows people to wash their clothes for free ("Brazil Free Laundry," 2012). Kenya : HIV/AIDS Discussion-Advocates from Unilever partnered with seven other companies in 2009 to provide HIV/AIDS education organized through Neighbors Against AIDS, a coalition of companies that provides HIV/AIDS education in the workplace. The goal was to get people to talk openly about HIV/AIDS ("Kenya Fighting HIV/AIDS," 2012). Ghana: Education and Development-Started in 1999, Unilever developed the Ghana Foundation for Education and Development. The foundation has awarded 120 scholarships to children of employees to cover 3 years of education at the secondary level. The foundation also focuses on rural communities in Ghana. In 2006, the foundation provided potable, safe water to rural districts in Ghana to improve the health and hygiene of community residents. Unilever's Sustainable Living Plan: In November 2010, Unilever put together the Sustainable Living Plan, a 10-year approach toward sustainable growth in eight core areas. These core indicators focus on improving the health and well-being of the people, reducing the impact on the environment, and enhancing people's livelihoods by 2020. The plan involves Unilever and also its suppliers, distributors, and consumers who use its brands. As of 2011, Unilever was on target to meeting its goals (Unilever Progress Report, 2011). Unilever's Progress Report for 2011 demonstrates the company's current progress in the eight core areas: Health and hygiene: Unilever is on track to reduce disease through handwashing, improve oral health and self-esteem, and provide safe drinking water. Improving nutrition: Unilever is on track to meet the 10-year indicator for healthy nutrition standards. This includes reducing salt levels, saturated fats, trans fats, and calories; increasing essential fatty acids; and providing an increase in education on nutrition to the community. Greenhouse gases (GHG): In the 10-year plan, Unilever will decrease the amount of GHG manufacturing and the amount in clothing. Water: Unilever is working on reducing the amount of water use on agriculture, in the laundry process, and during the manufacturing process. Waste: Unilever is working on eliminating waste by reducing/reusing packaging and getting rid of PVC and other manufacturing wastes. Sustainable sourcing: By 2020, Unilever plans to have 100% of its agricultural raw materials sustainable. These include palm oil, sugar, fruit, rapeseed oil, tea, dairy, cocoa, and vegetables. Better livelihoods: By 2020, Unilever plans to engage with 500,000 small-holder farmers and 75,000 small-scale distributor companies. The people: Unilever will work internally to provide a better and healthier working place for its employees. This includes reducing the amount of injuries, accidents, and energy consumption in its office, and increasing employee health and nutrition (Unilever Annual Progress Report, 2016; Unilever Progress Report, 2011). Unilever's current Sustainable Living Plan has three main areas, with goals to be achieved by 2020: improve human health and well-being; reduce environmental impact; and enhance livelihoods through fairness in the workplace, opportunities for women, and inclusion (Unilever Sustainable Living Plan, n.d.). Unilever's Current Involvement in Palm Oil Divesting of Plantations Unilever has undertaken a refocusing of its business with the intention of focusing solely on promoting its core brands. As a result, the company is divesting all noncore businesses such as its oil palm plantations. In December 2002, Unilever sold its Malaysian palm plantations, which account for over 50,000 acres. Helping Ghana Grow Oil Palm Plantations Unilever has a long-standing relationship with Ghana, investing in the country's economy and the skills of its employees. Unilever has also been active with numerous community activities such as implementing the Unilever Foundation for Education and Development. The foundation contributes to education to help Ghana reach its goal of being a middle-income economy by 2020. In addition to the foundation, Unilever recently pledged its expertise to help the Ghana government implement its oil palm tree initiative ("Ghana: Unilever Ready to Assist," 2002). Ghana, like many other countries, sees a large economic benefit in palm plantations. It wants to convert 568,000 acres of 1,581,000 acres of degraded mining land into palm plantations ("Ghana: Degraded Mining Lands," 2003). Unilever Foundation. In January 2012, Unilever announced the launch of the Unilever Foundation, created to improve quality of life through changes in hygiene, sanitation, access to clean drinking water, basic nutrition, and enhanced self-esteem. The Unilever Foundation has partnered with five global charitable foundations that are dedicated to creating sustainable changes worldwide ("Unilever Foundation for Education and Development," 2012). These include: Oxfam: Unilever and Oxfam have been working together on projects for many years. In the United Kingdom, they are providing food parcels to the very poorest people, helping them move from "surviving" to "thriving." Unilever and Oxfam are planning to take this project worldwide. PSI: Population Services International (PSI) is working with Unilever on an initiative to contribute to and improve the health of children and families through handwashing, clean drinking water, and sanitation. PSI is dedicated to helping people in countries by focusing on specific health issues like HIV/AIDS, children, maternal health, and family planning. Save the Children (STC): STC is working with Unilever to improve the lives of children around the world by improving access to health care and lifesaving vaccines, and ensuring more children and mothers are reached with high-impact health and nutrition programs. STC is also working on a global movement for child survival. UNICEF: Unilever is continuing to partner with UNICEF on a project to improve sanitation in developing countries through UNICEF's Community Approaches to Total Sanitation (CATS) initiative, a program that promotes good hygiene practices, helps create demand for toilets, and raises awareness of the sanitation crisis. World Food Programme (WFP): A public-private partnership that aims to create a scalable and sustainable model to improve nutrition, health, and livelihoods in Bangladesh and Indonesia ("Unilever Foundation for Education and Development," 2012).

Questions

1.What was Unilever's motivation to undertake such ambitious programs for sustainability development?

2.What can Unilever do to improve the wages and living conditions of the oil palm workers worldwide? What impact would such actions have on the triple bottom line of Unilever's sustainable development plan?

3.How can Unilever employ its influence over the government of Ghana to improve worldwide conditions? Should Unilever encourage or discourage Ghana from entering the oil palm industry?

4.What are the impacts of Unilever's divesting itself of oil palm plantations? Will Unilever still have influence over the triple bottom line of the oil palm industry? Why or why not?