Newsroom

Supply Chain

After a crazy 2020, what can we expect in 2021?


After the black swan event aka the global pandemic of 2020, most of us are looking forward to saying an emphatic goodbye to one of the most tumultuous years in recent history. The world is hoping that 2021 will see a return to something closer to pre-COVID-19 life, especially with the start of vaccination programmes.

If there’s anything the last 12 months have taught us, it should be to approach any forecasting of the future with caution. Nevertheless, some things are likely to be on the horizon for Golden Agri-Resources (GAR) and the palm oil sector.

1. Palm oil prices forecast to stay up in the first half of 2021

After a bumpy year, palm oil prices are expected to remain buoyant in the first half of 2021. According to the Council of Palm Oil Producing Countries (CPOPC), supply is expected to remain tight due to La Nina weather conditions which have brought more rainfall. Palm oil prices already hit eight-year highs in November.

With vaccination programmes starting worldwide, it’s hoped that economies will begin to recover from the effect of COVID-19 lockdowns and social distancing measures. This is also likely to boost palm oil demand, especially in the battered food and beverage sector.

After a year when many faced the possibility of income or job loss, this upbeat outlook will be welcome news. Some 16 million people are employed directly and indirectly in the Indonesian palm oil sector alone. Fortunately, the palm oil sector, which has been designated a critical economic sector, has continued to operate without any major disruptions in 2020. Millions of small farmers will continue to earn a livelihood in 2021, and if the price outlook proves correct, they should also hopefully see a rise in their earnings.

2. After Traceability to the Plantation, what next?

In the last few years, GAR has been carrying out a massive traceability project with the ultimate aim of ensuring that its suppliers are brought along on the journey towards responsible palm oil production. We set a deadline of end-2020 to achieve 100% Traceability to the Plantation (TTP) for the entire palm supply chain, including GAR-owned mills and third-party mills. By Q3 2020 we had hit 88 percent TTP and are confident that even with some inevitable delays caused by the pandemic, we will be able to achieve full TTP by the end of the year or shortly thereafter. Any supplier that does not show any willingness or interest in reporting traceability information will be automatically excluded.

What’s next after TTP? Firstly, traceability will have to be maintained. Secondly, the Responsible Sourcing Team is already looking beyond the achievement of TTP and is starting programmes to expand engagement with more suppliers, especially agents and smallholders.

A pilot programme due to start early next year involves partners Koltiva and Mars and will target 4,000 smallholders in Aceh. We know about these smallholders because they have been mapped and using this information, we are now working to create appropriate programmes to help them become more responsible producers. The SMART Research Institute will also help develop training for them in Good Agricultural Practices. Based on this pilot, we will be able to duplicate other engagement programmes around the country.

This is a significant step as GAR moves forward with deeper engagement beyond the Tier 1 supplier mills to Tier 2 suppliers (smallholders/agents) who are more numerous and face different challenges and capacity issues. Addressing these will be critical to the successful transformation of the industry.

Thirdly, investing in Traceability to the Plantation has also allowed GAR to build up better data about its supply chain. Now that we’ve done TTP, we’re embarking on the next exciting chapter. “The traceability information combined with spatial analysis using satellite imagery will help us better monitor our supply chain and respond faster on environmental issues such as potential deforestation,” said Justinus Kriswantoro, Head of Traceability.

3. Continued focus on employee well-being and OHS

The pandemic made us all hyperconscious about health, safety and well-being in all aspects of our lives, whether it be work or leisure. This is likely to continue well into 2021 as universal vaccination against COVID-19 will not be achieved overnight.

The pandemic led to many companies formalising business continuity plans and emergency plans for the first time. Companies also had to develop stricter OHS policies for workers going to work at plants, factories or plantations as well as improved IT policies for those employees working from home during lockdowns. These developments will help companies cope with future crises that can potentially disrupt their business, making them more resilient. Other welcome developments include a growing awareness of and greater willingness to tackle employee mental well-being issues.

In addition, the pandemic will likely have changed the way we work forever. There is likely to be a greater acceptance of flexible work arrangements where possible.

As we look forward to a new year hoping that there will be no more major global shocks, lessons learnt in 2020 will also stand us in good stead in the event of future crises.

Read about the work we’ve accomplished in 2020 here.

| | |