Malaysia: Civil society organisation wants fair pricing for suppliers to palm oil companies

The development of palm oil procurement policies and the adoption of fair trading practices are among the key recommendations made by international civil society organisation Solidaridad to promote a more inclusive and sustainable palm oil supply chain.

According to Solidaridad, most palm oil companies fail to pay prices that enable suppliers to produce sustainably, with fair pricing rarely incorporated into sustainable procurement strategies.

While buyers often stress compliance with “No Deforestation, No Peat, No Exploitation” (NDPE) standards during negotiations, smallholder inclusion and incentives for sustainable practices are frequently overlooked in procurement decisions, it said in its 2025 Palm Oil Barometer Report titled “Procurement for Prosperity”.

To address this imbalance, one proposed solution is to implement a minimum premium price for sustainable palm oil production through cost-plus-margin pricing. This approach ensures producers are compensated based on the actual costs of sustainable production, including a fair profit margin.

“It is known, more or less, what the additional costs are for producing in accordance with the RSPO (Roundtable on Sustainable Palm Oil), for example. Instead of fully relying on an open market, setting a minimum price can ensure that the cost for sustainable production is guaranteed for growers and smallholders. This can be done via cash payments or credits,” said Solidaridad.

“One representative we spoke to from a major fast-moving consumer goods company said: We pay the RSPO premium price on top of the material price. It is not something we are going to squeeze; we add it on top. The RSPO premium is independent from our other sourcing decisions.”

In addition, Solidaridad highlighted the potential of rewarding oil palm farmers for carbon sequestration, which could offer an additional source of income. This approach would enable farmers to participate in international carbon markets by selling carbon removal units, thereby incentivising climate-friendly agricultural practices.

Similar initiatives are already being explored in the coffee and cocoa sectors, it said.

Solidaridad also proposed the use of a key performance indicator to track the percentage of smallholder farmers in the value chain earning a living income.

The organisation encouraged companies to explore mechanisms for paying living income reference prices and to set clear, measurable targets aimed at closing the income gap for smallholders.

“We recommend researching the specifics of living incomes in the regions where purchasing takes place, ensuring the paying of a local living income.

“Whether you are a retailer, brand or trader, you should know how to calculate the living income gap for farmers in your supply chain. You should commit to a time-bound, gender-sensitive goal to close this gap, including regular assessment of the payment of a living income,” said Solidaridad.

Solidaridad recommended collaboration with initiatives such as the National Initiatives for Sustainable and Climate-Smart Oil Palm Smallholders (NISCOPS II) and its partner, the Sustainable Trade Initiative (IDH). The IDH is currently leading efforts to define living income benchmarks for the palm oil sector and developing tools to help buyers implement these standards.

“Our NISCOPS II partner IDH has taken on the task of further researching and better defining living income in the palm oil value chain and creating tools to support buyers. The outcome of this work is openly available for companies to adopt on a voluntary basis,” it said.

Solidaridad, a civil society organisation advocating for sustainable and inclusive value chains, said it supports smallholders in adopting more sustainable oil palm cultivation and trade practices.