The Chain: U.S. Biodiesel Indonesian Countervailing Duty Ruling May Impact Wilmar, Others

On November 9, the U.S. Department of Commerce announced final countervailing duties on imported biodiesel from Indonesia and Argentina. Countervailing duties (CVD) are an import duty imposed by countries when another country exports products that allegedly are subsidized by the exporting country. This CVD decision impacts two Indonesian palm oil biodiesel exporters that import into the U.S.: Wilmar International, which trades on the Singapore Exchange, and Musim Mas, which is privately held.

As shown in Figure 1 (below), the CVD ruling is one of three ongoing investigations. The other two are the Department of Commerce Antidumping (AD) investigation and the U.S. International Trade Commission (ITC) Injury Investigation

Figure 1 shows key upcoming dates for these three investigations. Some of these dates may change. A key consideration is that if the ITC votes against either country during the final injury phase, the overall process stops.

Wilmar’s biodiesel sales to the U.S. are small compared to the overall firm’s sales. These decisions may marginally impact Wilmar, which is also dealing with the effects of Indonesia’s recent decision to decrease the quota of biodiesel to be sold in Indonesia’s domestic market. For context, Wilmar’s Q3 2017 earnings, announced two weeks ago, fell 16 percent year-over-year with tropical oils profit before taxes down 51 percent year-over-year. Its Q3 2017 crude palm oil sales, which include biodiesel sales, were 2.9 percent lower at 5,749,000 metric tons compared to Q3 2016 5,919,000 metric tons.

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Report: BrasilAgro – Cerrado Deforestation Could Reduce Farmland Value, Put Soy Revenue at Risk

BrasilAgro is a Brazilian rural real estate firm. It focuses on acquiring ‘underutilized and non-productive land’. It generates revenues by clearing and developing land and subsequently selling these rural properties. In addition, BrasilAgro produces soy, sugarcane, corn and livestock. BrasilAgro has 11 properties in its portfolio. The majority of its farms are in the Cerrado, a wooded grassland savanna and an environmentally sensitive area that sees high rates of deforestation since 2000. Most of the soy expansion has occurred by clearing native vegetation in the Matopiba region. The Matopiba region includes the Cerrado states of Maranhão, Tocantins, Piauí, and Bahia. The Cerrado is home to rich biodiversity, with 12,070 native plant species. It is also where many traditional communities reside, and it is an important source of water for all Brazilian regions. BrasilAgro’s activities in the Cerrado expose the company to deforestation-related business risks. Continue reading

The Chain: Paradise Papers Links APRIL’s Tax Avoidance to Deforestation and Banks, Could Impact USD 500 Million Loan

Asian Pacific Resources International (APRIL), one of the world’s largest pulp-and-paper companies, has been linked to deforestation in Indonesia. With the leak of the so-called ‘Paradise Papers’ this week, further information about APRIL’s financial backers have been revealed, leading to more questions about whether banks such as ABN AMRO follow their own sustainability policies and how global corporations may use tax engineering to increase funds available for deforestation.

These questions come as an APRIL subsidiary, as reported by Bloomberg, seeks a potential USD 500 million loan. Funders for this possible loan may include their previous lenders such as ABN AMRO, Maybank, Bank of China or others. According to Bloomberg, the loan is currently under syndication which means that banks are in the process of deciding to proceed or not proceed to finance the loan. Continue reading

The Chain: Forest Heroes Campaign Ranks Palm Oil and Soy Leaders and Laggards on Deforestation Commitments

Forest Heroes recently released a report, Green Cats: Scoring Palm Oil and Soy Companies on Forest Policies and Transparency, which analyzes the public pledges of 26 companies – 21 in the SE Asian palm oil market and five in the Latin American soy industry. It examines public disclosure on 18 different factors related to zero-deforestation and fair labor policies, and transparent implementation of those promises.

Effective implementation of deforestation commitments is arguably the most efficient method to mitigate the financial risks of deforestation. As demonstrated by the work of Chain Reaction Research, deforestation can lead to market access risks, stranded land, legal costs, reputational damage, increased financing costs and other adverse business impacts. The results of the Forest Heroes study might be included in risk assessment models for the palm oil and soy sectors.

The report found that there is significant room for improvement in both sectors. Differences between leaders and laggards are meaningful. Sime Darby is the median palm oil company, with a score of 56 percent. The median soy company score is Bunge with a score of 27. Continue reading

Report: Unsustainable Palm Oil Faces Increasing Market Access Risks – NDPE Sourcing Policies Cover 74 Percent of Southeast Asia’s Refining Capacity

The palm oil industry’s transformation towards sustainability gained traction in 2013 when major Southeast Asian palm oil traders/refiners began to embrace ‘No Deforestation No Peat No Exploitation’ (NDPE) sourcing policies. Through such policies, these firms require their suppliers to refrain from clearing forests and peatlands for new oil palm plantations. However, unsustainable practices continue to take place and non-compliant palm continues to be produced, traded and consumed. One of the main reasons for this ‘leakage’ of unsustainable palm oil is that a segment of the refining market does not apply NDPE sourcing criteria. Insights in the market share and primary actors of this segment is crucial to understand both the risk that the sector transformation is halted, as well as the business risks for non-compliant plantation companies. Continue reading

The Chain: JBS Cancels 2018 subsidiary IPO, Suspends Slaughter at 7 Locations while Investigations Continue

JBS has canceled a USD 500 million IPO of processed food subsidiary JBS Foods International BV (JBSFI) planned for 2018. The IPO was initially scheduled to occur in H1 2017 before JBS experienced scandals regarding alleged insider trading, political bribery and meat safety corruption, deforestation and human rights concerns. Past reporting by Chain Reaction Research has suggested that to reduce net debt/EBITDA ratio to 2 times, the JBSFI IPO would have needed to exceed USD 6 billion and include a valuation discount, with equity dilution between 30 and 63 percent for existing JBS shareholders.

As the world’s number one beef, leather and chicken producer, and the world’s number two pork and lamb producer, JBS has an outsized impact on Brazilian land-use planning, forest conservation and deforestation. Chain Reaction Research analysis has shown that in Brazil, more than 70 percent of deforestation is linked to the cattle industry. Continue reading

The Chain: Sime Darby Submits Plans for Pure-Play Plantation Company, Announces Impairments, Mitigates Liberian Liability

In 2016, Chain Reaction Research reported (“Sime Darby: Liberian Crossroads”) that Malaysian palm oil conglomerate Sime Darby (SIME:MK) would be unable to fully develop its 220,000 hectare (ha) concession in Liberia without violating its own sustainability policies. As SIME submitted in September 2017 listing plans to the Securities Commission Malaysia to spin-off its plantations and property divisions into pure-play companies, SIME has acknowledged for the first time that it will not plant its entire concession area in Liberia.

SIME’s Q2 2017 financial results included a USD 48 million impairment due to slower than expected growth in Liberia from a moratorium on new planting since 2014, dry weather lowering projected yields, and the tragic Ebola outbreak from 2014 through early 2016.

SIME is scheduled to publish its Q1 FY2017/18 earnings November 24, 2017. Continue reading