World Bank freezes funding for Fonterra's palm oil partner pending review

Thursday 10th September 2009

The World Bank has frozen new funding for Fonterra Cooperative Group’s Indonesian palm kernel supplier pending a review into environmental and social sustainability practices of the sector.

The World Bank found its International Finance Corp. failed in ensuring due diligence when approving loans to Wilmar’s palm oil development in Indonesia, and has suspended future investment in the company until the IFC overhauls its sector strategy within the next six months.

Still, it stopped short of vilifying Wilmar, which has been the subject of criticism by environmental lobby groups, even as it decided against renewing two US$50 million partial guarantee facilities for pre-shipment finance.

“In the case of the Wilmar plantation companies in Indonesia, we believe on the basis of our analysis and supervision that there was no clearing of primary forest, nor were they using burning to clear land for planting,” president Robert Zoellick said in a letter to the Forest Peoples Programme.

“I understand that staff conducted an overview of a number of Wilmar plantations, including selected site visits, and that due diligence concluded that overall these operations were being managed in the spirit of the draft principles of the RSPO (Roundtable on Sustainable Palm Oil).”

Environmental lobby group Greenpeace raised concerns about the business practices of Wilmar last month, accusing it of destroying rain-forests and seizing indigenous land without due process, while Green Party co-leader Russel Norman called on New Zealand’s largest company to sever ties with the palm oil and kernel manufacturer.

Fonterra’s half-owned subsidiary RD1 hosed down suggestions that Wilmar breached environmental and socially sustainable business practices, saying the World Bank’s audit was of its own lending criteria and didn’t evaluate the company’s social or environmental impact.

“Since helping found the RSPO five or six years ago, all Wilmar’s new plantings have been in compliance with RSPO’s protocols and guidelines,” RD1 chief executive John Lea told BusinessWire. “We also need to keep this in perspective; palm kernel expeller forms less than 2% of the value of the palm oil crop and is only used as a supplementary feed for New Zealand dairy cows that are and will remain overwhelmingly pasture fed.”

Wilmar supported the World Bank’s audit and has resolved land acquisition issues with local communities through mediation, according to the World Bank website. Since then, the company has adopted a dispute resolution procedure for addressing community-based complaints.

Businesswire.co.nz

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