World Bank lifts 18-month palm oil moratorium

WASHINGTON Sat Apr 2, 2011 4:33am IST

Palm oil storage tanks are seen at the palm oil-based refinery plant owned by Sinar Mas Agro Resources and Technology (SMART) in Marunda, West Java March 30, 2011. REUTERS/Enny Nuraheni

Palm oil storage tanks are seen at the palm oil-based refinery plant owned by Sinar Mas Agro Resources and Technology (SMART) in Marunda, West Java March 30, 2011.

Credit: Reuters/Enny Nuraheni

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WASHINGTON (Reuters) - The World Bank on Friday lifted an 18-month global moratorium on lending for new palm oil investments, endorsing a strategy that focuses on supporting small farmers that dominate the sector.

The poverty-fighting institution suspended new investments in the palm oil sector in September 2009 to review its lending practices and to conduct global consultations in the $30 billion industry.

The International Finance Corp, the private-sector investment arm of the World Bank, will restart talks with companies over possible investments that it delayed when the moratorium was imposed, a senior official told Reuters.

"How many of those will lead to investments ... or how quickly they will lead to investments I don't know," said Rachel Kyte, IFC vice president for business advisory services.

She said IFC would focus on poor and low-income countries in West Africa, Southeast Asia and Latin America where it can help develop a sustainable palm industry.

The agency will determine whether to invest based on a series of factors, including the local government, how palm oil companies treat their employees and shareholders, as well as their environmental and land practices.

"By producing clarity on a series of issues related to good practices in the industry, we make it easier for both ourselves but also for other public and private investors to invest in this sector," Kyte said.

After meeting with 3,000 stakeholders, including farmers, environmental and social groups, and businesses, IFC said palm oil investments could contribute to economic growth and reduce poverty, while also being eco-friendly.

Palm oil employs over 6 million rural poor around the globe. Some 70 percent of palm oil production is used as staple cooking oil by the poor in Asia and Africa.

Although the World Bank is a small player in the palm oil sector, having invested $132 million in projects in Asia, Central America, Ukraine and West Africa, it said its new effort would seek to boost production on degraded plantations and boost productivity.

David Laborde Debucquet with the International Food Policy Research Institute said the announcement was an important signal to private investors.

"The palm oil industry can now promote the idea that they are 'clean' or have good governance since the Bank is offering them new loans," he said.

Laborde Debucquet said the new investments would play a role in helping the poor. "Palm oil production will increase and prices will be pushed downward," he said. "It means more job opportunities and lower food prices."

Palm oil companies have said the industry has been unfairly vilified for cutting down forests and draining peatlands -- contributing to huge amounts of planet-warming carbon dioxide entering the atmosphere.

Malaysia and Indonesia produce 85 percent of global output of palm oil. In addition to food, demand for palm oil is surging as more of the commodity goes toward non-food uses such as soaps, detergents, cosmetics and biofuels.

(Additional reporting by Lesley Wroughton; Editing by Dale Hudson)

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