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The Chain: Petition to Bar U.S. Imports of FGV’s Palm Oil Highlights Possible New Business Risk for Industry

July 11, 2019

FGV Holdings Berhad released a statement in late June contesting a petition to ban importation of its palm oil into the United States. Grant & Eisenhofer ESG, a U.S.-based plaintiff advocacy firm, called on the U.S. government to bar FGV imports due to alleged human rights and labour violations. The petition, filed on June 24, 2019, says the company’s workers have had to contend with poor conditions such as extreme isolation, limited food supply and medical attention, an unsafe working environment, and intimidation. “Palm oil is a major part of the American economy. Unfortunately, palm oil that FGV produces using forced labor is entering the supply chains of major U.S. companies and is present in their end products,” said Grant & Eisenhofer director Deborah Elman in a press release. Grant & Eisenhofer submitted the petition to U.S. Department of Homeland Security under a section of the Tariff Act of 1930 that allows for the banning of imports of goods that are produced using forced labor.

FGV’s response to Grant & Eisenhofer ESG came two days after the submission. FGV, which is the Bursa Malaysia-listed arm of the government’s Federal Land Development Authority (FELDA), notes that the allegations have already been public since the middle of this decade, and it has taken action to resolve them. Moreover, FGV says that the allegations of child labour are false. “FGV has never employed child labour in any of our operations,” the press release said. “In fact, FGV has a strict policy against the use of child labour.”

The elimination of the “consumptive demand exception” in the Tariff Act – a loophole that allowed for the importation of goods produced using forced labor if domestic consumption exceeded domestic production – by the U.S. Congress in 2016 may increase the likelihood of success for petitions like Grant & Eisenhofer’s. If this petition is granted, it would create a new business risk for FGV by cutting it off from Malaysia’s sixth largest importer of its palm oil. The United States imported USD 1.09 billion of palm oil in 2018, with 38 percent coming from Malaysia. Approximately three percent of Malaysia’s palm oil is shipped to the United States, compared to about 11 percent going to EU countries. China and India are the biggest buyers. Overall U.S. palm oil imports have more than doubled since 2006, and Indonesia has more than 50 percent market share. If stricter sustainability measures become a requirement to access certain markets, some companies could be cut off and forced to look elsewhere for new buyers. “We hope that shining a spotlight on this issue will lead to changes in the industry,” Grant & Eisenhofer’s Deborah Elman told Chain Reaction Research (CRR).

FGV has come under scrutiny for its labour practices since 2015, when the Wall Street Journal published an exposé on working conditions and workers’ wages at FGV’s plantations. In November 2018, the Roundtable on Sustainable Palm Oil (RSPO) suspended one mill and four plantations owned by the company for breaches of Malaysian laws and possibly committing human trafficking. The certification body required the company to undergo an audit to review its recruitment and employment practices.

The RSPO suspension and the Grant & Eisenhofer ESG petition come at an inopportune time financially for FGV. For instance, the company recorded a net loss of USD 258 million (RM 1.07 billion) in 2018, the worst annual performance since going public in 2012. Since the start of 2015, FGV’s share price has fallen by half. Moreover, FELDA’s financial woes could bleed into FGV. As CRR reported in April, FELDA, which owns 12.4 percent of FGV, received a cash injection from the government earlier this year, which may impede high-cost restoration commitments. An inability to honour publicly stated ESG commitments could hinder FGV’s participation in the NDPE market and prompt questions over the likelihood it will adhere to industry NDPE policies. Along with financial risks, reputation risks from the claims of labour violations and human trafficking, whether true or not, loom for the company. It has been a major supplier to large FMCGs such as Unilever, Mars, Hershey’s, Nestle, PepsiCo, and Procter & Gamble, all of which are mentioned in the Grant & Eisenhofer petition. As 2020 zero-deforestation deadlines approach, these companies are likely to become more vigilant about their supply chains in order to stifle reputation risks.


One Response to The Chain: Petition to Bar U.S. Imports of FGV’s Palm Oil Highlights Possible New Business Risk for Industry

  1. […] ESG Institute submitted a petition to the CBP that called for a ban on imports of FGV products. As CRR highlighted at that time, the move followed several years of coverage of FGV’s alleged workers’ […]

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