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Supply Chain
BASF, Cargill, P&G, GIZ Team Up to Transform Coconut Oil Supply Chain

BASF, Cargill, Procter & Gamble and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH have joined together in a development partnership under the German Federal Ministry for Economic Cooperation and Development's (BMZ) program. The partnership will help establish a sustainably certified and transparent supply chain of coconut oil in the Philippines and Indonesia.

The demand for coconut oil has skyrocketed in recent years having garnered a reputation as a healthy alternative to traditional skincare products amongst other things. But the product’s social and environmental impacts are another story.

While the environmental impact of coconut oil is relatively low — traditional cultivation requires no pesticides or herbicides and coconuts are harvested by hand — it is beginning to spur changes in land use, as more coastal mangroves are being cleared for coconut monocrops. Mangroves play an important role in maintaining soil health, preventing coastal erosion and promoting biodiversity. Additionally, the majority of coconuts are grown by small-scale farmers, many of whom live in poverty.

The Philippines and Indonesia are the world’s two largest producers of coconuts and exporters of coconut-based products. But a lack of functioning farmer groups and cooperatives in the Southern Mindanao and Southern Leyte regions of the Philippines and Amurang in the North Sulawesi region of Indonesia has caused a number of challenges: little or no economies of scale, lack of financing and training resources and a rigid supply chain, which increase the farmers’ dependence on middlemen and perpetuates inefficient and unsustainable agricultural practices.

Through the program, the partnership will provide farmers with additional training on Good Agricultural Practices (GAP), intercropping and enhanced farm management skills in an effort to increase their incomes and economic self-sufficiency by improving the productivity of their farms. Around 3,000 smallholder farmers in the Philippines and 300 in Indonesia will benefit from the program. Out of this group, around 800 smallholder farmers will receive additional training on the Sustainable Agriculture Network (SAN) standards in order to apply for Rainforest Alliance certification. The partnership is also working on establishing a chain of custody for certified material to help increase transparency along the supply chain.

Cargill, which owns and operates copra-buying stations and crushing plants, is providing training to smallholder farmers and setting up the structures for certification. The crude and refined oil produced by Cargill is then further processed by BASF and P&G for ingredients in the home, personal care, health and nutrition markets. Together, the private partners bring to the project an understanding of and experience in the coconut oil market mechanisms and trends. GIZ will contribute to the project by sharing its expertise in capacity building at the farmer level, as well as in implementing GAP and sustainability standards. GIZ will also steer the project and manage its implementation on the ground, working closely with government agencies, such as the Philippine Coconut Authority (PCA) and the Agricultural Training Institute (ATI) in the Philippines.

“Cargill’s work with farmers around the world focuses on increasing agricultural productivity and incomes while ensuring responsible land use. In the Philippines, we have been working with our partners since 2011 to improve the livelihood of thousands of smallholder coconut farmers and spearhead a supply chain of sustainable coconut oil. This project is our continued commitment to train more farmers in the Philippines, expand our reach to train farmers in Indonesia and further advance the supply of sustainable coconut oil in the world,” said Efren Barlisan, General Manager of Cargill Grain and Oilseed Supply Chain in the Philippines.

The project builds on a preceding development partnership — Nucleus of Change — implemented in General Santos in the Philippines by Cargill, BASF and GIZ from 2011 to 2015. The partnership saw over 1,000 smallholder farmers undergo training and 300 coconut smallholder farmers become the world’s first Rainforest Alliance Certified™ coconut farms.

“Like the predecessor project, Nucleus of Change, this joint initiative is not only a chance for the industry to make an important supply chain more sustainable, but also creates new opportunities for local smallholder coconut farmers to increase their incomes. Thereby, the project partners will jointly contribute to poverty alleviation in rural areas in the Philippines and in Indonesia,” said Matthias Radek, Chief-Advisor for Partnership Projects in Agriculture of GIZ Philippines.