Digital transformation

A palm oil digital supply chain would allow transacti ons to be captured digitally and stored on a private blockchain consorti um owned by stakeholders (Source: DIBIZ)

With demand for sustainable palm oil growing as a result of government, NGO and consumer pressure, what bene ts does a digital supply chain platform o er and how can it work? Unnikrishnan Unnithan

The palm oil industry faces compliance, fi nancial and reputati onal risks if it does not engage in sustainable palm oil producti on and trading, according to Unnikrishnan Unnithan, CEO of the DIBIZ digital platf orm.

“Demand for sustainable palm oil is expanding and this has become a massive challenge in the industry as plantati ons do not generally have a digital workfl ow to track their fresh fruit bunches (FFB),” Unnithan told the virtual Palm Oil Outlook (POC) conference earlier this year.

Malaysia and Indonesia account for over 80% of world’s palm oil supply.

According to Unnithan, 18.9M ha of land was planted to oil palm in 2017, producing 75M tonnes of palm oil and

Source: DIBIZ, Virtual POC, March 2021 7.7M tonnes of palm kernel oil (PKO).

In 2019, the area planted under the Roundtable on Sustainable Palm Oil (RSPO), Indonesian Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil (MSPO) schemes was 14.9M ha. In that year, 14.8M tonnes of RSPOcerti fi ed palm oil and 3.37M tonnes of RSPO-certi fi ed PKO was produced (see also Figure 1, below).

“Producing and trading sustainable palm oil is no more an opti on. It is mandatory for businesses to survive in 2021 and beyond,” Unnithan said.

This was due to increasing regulatory, NGO and consumer pressure. The EU’s Farm to Fork strategy would also add more pressure on Malaysian and Indonesian producers to adopt sustainability. Meanwhile, many large multi nati onal corporati ons were demanding sustainable certi fi ed products.

Bringing in smallholders

Unnithan said any sustainability initi ati ve would not be meaningful without bringing in the more than 3M small-scale oil palm farmers who were limited by funds and inadequate informati on and knowledge about growing and selling palm oil.

“Some 40% of the world’s palm oil is produced by smallholders cut off from the sustainable supply chain.”

Unnithan said current challenges in u

Figure 2: Current manual paperwork process from harvesting to oil mill/trader

u

Source: DIBIZ, Virtual POC, March 2021

Figure 3: Scope for digital supply chain from oil palm harvester to plantation office

Source: DIBIZ, Virtual POC, March 2021

Figure 4: Scope for digital supply chain from plantation office to oil mill/trader

Source: DIBIZ, Virtual POC, March 2021

implementing extended supply chain monitoring included: • The high cost of developing and maintaining siloed systems. • The high cost of human capital to monitor compliance and manage supply chain partners. • Lack of collaboration between

producers, trading partners and smallholders due to lack of digital platforms/tools • Difficulty in exchanging data due to different ERP and accounting systems • Concerns about security, data privacy • Lack of trust in exchanging trade information Unnithan said the current manual process of tracing product involved tedious bookkeeping and too much paperwork to conform to regulations (see Figure 2, left).

However, with a digital platform such as DIBIZ, the trade documentation of each and every stakeholder could be captured and required delivery slips autogenerated. This entire ecosystem would be connected by a blockchain network with immutable records, building trust and transparency.

With DIBIZ, smallholders could download a free mobile app available in Basa Malaysia, Bahasa Indonesia, Tamil, Mandarin Chinese or English. They could choose which certification system to sign up to (RSPO, MSPO or ISPO), with daily prices displayed, cutting out the middle men who could exploit them. Farmers could keep up-to-date records, access daily prices and new farming and agricultural practices could be disseminated to them. And through digital wallets and tokens, farmers could be rewarded for every sustainable step they took, giving them access to low-cost funds for supplies such as fertiliser and seeds.

“For the first time, the cost barrier that existed in bringing smallholders on board can now be incentivised because it actually means more money in the pocket of the smallholder.”

There were also benefits for oil mills, downstream companies such as refiners and oleochemical/biofuel operators, distributors/retailers and logistics companies as the app gave them much better inventory management, collaboration with partners with an inbuilt and secure messaging system, efficient and low cost supply chain management across geographies, and the ability to make sustainability claims with solid data.

“The app can get exact coordinates of every single supplier in the palm oil supply chain, helping companies find out if they can easily conform to NDPE (no deforestation, no peat and no exploitation) policies. You can see end-to-end real time traceability. And it provides the opportunity for open trading of all certified sustainable palm oil (CSPO). DIBIZ is not the only palm oil app available to operators in the sector.

However, Unnithan believes a digital transformation of the palm oil supply chain is a must to survive, bringing benefits to all stakeholders in the supply chain. ● Unnikrishnan Unnithan is the co-founder and CEO of the DIBIZ digital platform. This article is based on a presentation he made at the Virtual POC conference on 23-24 March 2021