Cargill mulls scheme aimed at saving Indonesia forests

KUALA LUMPUR Wed Oct 27, 2010 12:26pm BST

KUALA LUMPUR (Reuters) - Agribusiness giant Cargill Inc may well become the first major palm oil buyer to invest in a carbon credit scheme that rewards nations like Indonesia for preserving forests, a key official said on Wednesday.

The reduced emissions from deforestation and degradation (REDD) proposal would provide a stamp of approval for firms like Cargill to assure consumers that products made from palm oil follow eco-friendly guidelines, giving it cover from green campaigns that allege widespread habitat destruction.

Participation by Cargill would breathe life into the scheme now mostly pushed by governments.

"As for our direct involvement in the scheme, we're in the early days," Cargill Tropical Oils Chief Operating Officer John Hartmann told Reuters in a telephone interview from Singapore.

"We're exploring this option but we need to see how the rules are written before we make any commitment."

Cargill runs two mid-sized plantations in Indonesia and buys palm oil from suppliers like Jakarta-listed SMART Tbk that recently came under fire for allegations of clearing forests and peatlands.

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Palm oil firms in Indonesian and Malaysia, the world's top producers, are eager to expand as demand for vegetable oil soars from China and India, sending benchmark prices above the 3,000 ringgit for the first time since July 2008 just last week.

Groups like Greenpeace however argue that expansion of Indonesia's plantations come at the expense of cutting down pristine forests, which leads to more carbon dioxide pumped into the atmosphere.

The REDD scheme, which seeks to limit carbon by putting key forest reserves off limits and identifying marginal lands that could be reclaimed for palm oil plantations, is also a part of Norway's $1 billion climate aid deal to Indonesia.

Part of Norway's agreement includes a formal survey or marginal or degraded lands -- which are largely seen as the main mode of industry expansion in the world's largest palm oil producer.

Cargill said it broadly supported the idea.

"We are talking about degraded land that will have specific definition which is more stringent than high conservation value definition," Hartmann said, referring to further high carbon value assessments.

"In essence, it will reduce the area that's available for plantation expansion. But at the same time...it will assist palm oil plantation companies to determine their development plans."

Singapore investment bank Hwang-DBS said last week palm oil firms in Indonesia will hold back on aggressive planting in 2010 and the years to come despite capital raising exercises last year to exploit low interest rates.

The bank said 60 percent of the initial location permit issued to planters will be developed compared to its previous assumption of 80 percent.

(Editing by Ed Lane)