Endangered Orangutans and the Palm Oil Industry

Project Purpose

In this project, you will evaluate the business decision the Tengku needs to make to keep his company a viable commercial opportunity The purpose of this assignment is to develop the critical thinking and decision making skills necessary to make a contemporary business decision. Along with critical thinking skills, you will develop research, communication and data evaluation skills.

Outcomes You Will Meet by Completing This Project:

applies the basic steps of the MDQ model to make a sound business decision

describes and explain the reasoning behind the application steps used and the ultimate decision

demonstrate the use of collaboration to help determine the final decision

analyze, evaluate and explain both the decision factors in making the decision as well as the stakeholders involved

Setting the Stage

Palm oil is the most widely consumed vegetable oil on Earth. Referred to as the “Miracle Crop” (Wan, 2017) it can be found in seventy-one percent of most supermarket food products like pizza and doughnuts, 24 percent of cosmetic products like lipstick and makeup, and five percent for energy uses like heating fuel (Deutsch bank, 2015). Known as a super food, the demand for palm oil is already high, and it is expected to triple by 2050 (Deutsch Bank (db), 2015).

Currently Malaysia, Indonesia and India produce 50 of the 56 million tons needed to meet international consumer demand. While the production of Palm Oil promotes economic development badly needed in these countries, it does not come without serious environmental and social consequences (Deutsch Bank(db), 2015).

One prominent side effect of the deforestation caused by the rapid growth of palm oil production is the reduction of the Orangutan population. It is estimated that over fifty thousand Orangutans died because of palm oil production in the last 20 years. It is also estimated that 2,000- 3,000 die every year (Orangutan. n.d.). The guestimates by experts suggest that in the next 30-50 years those found in the wild will be extinct.  Environmentalists are attempting to stave off the extinction by creating refuges on nearby islands and transporting the remaining Orangutans from Borneo (where most Orangutans have traditionally lived) to the sanctuaries (Emont, 2017).

Orangutan’s are not the only victims of the increased number of palm oil plantations, but humans also suffer from the side effects. A study estimated that 91,600 people in Indonesia, 6,500 in Malaysia and 2,200 in Singapore may have died prematurely because of exposure to fine particle pollution from burning forests (France-Presse, 2016).

The large destruction of rain forests by plantation owners and its effect on global climate is also a serious problem brought about by palm oil production. Deforestation is a significant contributor to climate change; when the forests are lost, carbon is released into the atmosphere, causing the climate to heat up. Clearing the land to plant the new crop is often done by burning timber and undergrowth putting significant amounts of smoke into the air which releases carbon dioxide in large amounts. In Indonesia and Malaysia, much of the land is on tropical peat soil. The richness of the holds carbon. Clearing the land releases that carbon into the atmosphere, which contributes to global warming (Perils of Palm, 2018).

In the last years environmentalists have actively attempted major campaigns to bring awareness of the problems related to palm oil production and have taken a variety of approaches.

One approach is to demand companies stop using palm oil altogether. The Say No to Palm Oil group states “We think that consumers should focus on cutting down unnecessary consumption in general, thus removing some palm oil and other vegetable oils from their lifestyle.” (Fassler, 2016). Those opposed to this approach suggest that considering the number of products that contain palm oil ridding it from the ingredient list or reducing it will likely just switch the burden on to another oil crop whose side effects are worse. No other crop can yield even a third as much oil per acre and use less land. Pesticide use in palm oil production is also considerably less (Fassler, 2016).

Another approach is to the problem is for user companies to buy only sustainable palm oil. NGO’s and corporations in Europe and America, two of the largest communities of palm oil consumers, have taken some steps to comply to this demand by creating the Roundtable on Sustainable Palm Oil. This organization has set out a certification process for palm oil production in compliance with a set of environmental and social criteria (Roundtable, 2018). However, organizations like Greenpeace (Moas, 2013) and the Rainforest Action Network (Tillack, 2013) complain that the organization’s standards are not strong enough and that even certified sustainable palm oil can contribute significantly to deforestation and its climate and health effects.

A third approach has been for environmental activists to stage protests, boycotts and petition drives to make corporations and their consumers aware of the side-effects that are produced by palm oil. These activities have resulted in many companies like General Mills, Mondelez International and J.M. Smucker company to adapt policies on Palm Oil use in their products. However, as pointed out by the Conservation International group in their Consumer Guide the source to market problems make certification difficult “Complexity and fragmentation in the palm oil supply chain present challenges to consumer goods manufacturers and retailers seeking to implement sustainable sourcing commitments.” (Drummond, 2015 p.15)

The rapid expansion of palm oil production in Southeast Asia endangers orangutans and humans, destroys virgin rain forests and contributes to climate change. It also is one of the most profitable products for the Southeast Asian and global economies.  As noted by Sustainability Policy Transparency Toolkit group, “Palm oil is one of the most profitable land uses in the tropics. For the main producing countries, palm oil can significantly contribute to national economies, driving rapid economic growth and contributing to the alleviation of rural poverty.” (SPOTT, 2016). The question then becomes; what role does the plantation owner play in the preservation of the company’s income while dealing with competing societal concerns?

Business Background

PPO is a small family owned business which began in 1998. Owned by Abdul Tengku, PPO has three Palm Oil Plantations in Borneo in the Kilimaten region. The first of PPO’s plantations planted in 1998 is 1500 hectares in size and yields 6.5 tons per hectare. The second plantation planted in 2006 is 2,000 acres and yields 7.25 tons per hectares. The newest plantation is only 6 years old and is the biggest at 3,500 hectares. The yield is only 3.5 tons per acre owning to the immaturity of the trees. Currently Tengku has all his production under contract for the next two years. PPO’s current revenue annually is $24,090,000 US Dollars. Down 9.2 percent from last year. Since Palm Oil is a commodity the prices can fluctuate from month. Contracts are paid based on the price noted on the market for the transaction date of sale

Palm trees typically begin flowering and producing fruit after 3-4 years and yield well enough after 6-8 years for the owner to return a profit. Oil palm plantations generally remain profitable for 25 years, after which they need to be replanted.  Peak palm oil yields occur anywhere between 10 to 18 years of age, and gradually decline thereafter. As a plantation ages it also tends to experience declining tree populations because of pests and diseases. Newly established plantations might have 130-145 trees per hectare, whereas an old plantation might be reduced to approximately 100 trees per hectare. The huge start-up costs and long lead time between plantation establishment and profitability are huge impediments to independent small farmers in Indonesia. And that is precisely why the government has had to provide substantial long-term capital and subsidies to smallholders to ensure they can participate in the industry. IPOC,the government regulatory board, indicates that roughly 98 percent of all smallholder palm farmers have successfully paid off their loans in the past 10 years. This is in fact the case for PPO.

So, PPO is now faced with the following financial situation:

They have paid off their loans.

They have the 1998 plantation coming to the end of its production numbers because of the age of the trees. The plantation will have to be replanted in five years. Leaving a 6 to 8-year gap where the plantation will not be productive and high costs for replanting will have to be absorbed.

The second oldest plantation is beginning to reach the peak time for productivity but in 6 more years the trees will begin to reach full maturity and production will decline.

The largest plantation is immature and will not bring in a strong yield for another 3 to 4 years.

While prices are still strong the market is going down.

PPO has not received its government certification as a sustainable producer because it is not yet able to pay the costs of needed changes for qualification (estimated at $1 million dollars) having just repaid its government loans.

The loss of contracted customers would threaten his financial success.

Dilemma:

Consumers against Palm Oil (CAPO) has recently taken to targeting your business, Perfect Palm Oil (PPO).  It is the mission of the group to go to all Palm Oil Producers and publicly attack, using protests and picketing tools, what they do to bring attention to the plight of the orangutan’s natural habitat as well as the other harm done by the production process including human mortality. The group also encourages customers to reduce consumption of the product through boycotts of palm oil by pressuring the brands we buy to use only sustainable palm oil.

Some of PPO’s big American customers have approached Tengku to find out what he intends to do about the problem and have hinted that they may have to seek out a sustainable palm oil producer if Tengku cannot provide some assurance that he is addressing the problem.

Instructions: 

You are Abdul Tengku’s plantation production manager. Tengku wants to turn over running the main business to you but he wants to see how you make a decision of this magnitude first.  You have been tasked by Tengku to decide what to do about the CAPO situation. When the protesting started several weeks ago you decided to investigate the CAPO’s philosophy and strategy in their attempt to bring down the Palm Oil Industry. The information you acquired is recounted accurately in the “Setting the Stage” area of this case study. That material including the reference list, will provide a good start to looking at the decision facing PPO. Below is some additional research that you have reviewed. More research may be needed later as you begin to apply the MDQ.

Harvesting Palm Oil and Rain Forests

Palm Oil and The Environment

Malaysian Palm Oil Industry

Blazes in Southeast Asia May Have Led to Deaths of Over 100,000, Study Says

Indonesia’s Orangutans Suffer as Fires Rage and Businesses Grow”

Southeast Asia, Choking on Haze, Struggles for a Solution”

The Violent Costs of the Global Palm-Oil Boom

Step One:

Read the MDQ class material (found in the content and collaboration areas in weeks 3,4,5 and 6) and the case study taking careful notes. Focus on what PPO needs to do to stay in business and the goal set out by CARPO. There is a lot information so be sure to take detailed notes.

Step Two:

Read and take notes on the MDQ model. Be sure you understand what each step is trying to accomplish with respect to deciding.

Step Three: Collaboration Exercises Begin

Starting in week three, use the notes that you have collected and begin to apply the MDQ model to the decision process by creating a initial post for the collaboration discussion. After making your initial post, read the other students posts and discuss with them how best to apply the MDQ model step(s) and what results are most likely if done correctly. The goal of the discussions is to come to some consensus among the class as to what each step should contain in order for you to make the best decision. Read the instructions in the discussion/collaboration area and remember to participate in the discussion through out the week. The more that you are in the discussion with your classmates the better.

Step Four:

Repeat the collaboration process in weeks 4,5, and 6.

Step Five: Individual Submission

Using the information gathered in the collaboration process, the class material on the MDQ process, research and case study facts outline the process that you went through step by step to make the decision. This is an individual decision paper that will be submitted to the assignment folder when complete. Using the rubric as a guide to the discussion, clearly state the conclusions drawn and how they were arrived at by applying the MDQ. The pertinent steps to cover area:

·         Step 1, statement of the decision to be made- the decision statement is clearly stated and accurately reflects the decision that must be made.

·         Step 2, framing the decision by finding the objectives through analysis of scope, purpose, and perspective of the decision to be made.

·         Step 3, building the Decision by using objectives to collect information to create alternatives and to exam the potential consequences of each alternative if chosen.

·         Step 4A, create and apply a decision matrix to evaluate the alternatives.

·         Step 4B, evaluation discussion of alternatives relevant to the decision made (use of decision matrix results and prioritization of objectives).

·         Step 5, assess the effectiveness of the decision process by reviewing the decision made against the information collected and evaluated and answering the questions: Does the decision optimize the objectives and was is arrived at objectively as possible?

·         The paper should use the research found in the case study itself as well as any additional work to justify the reasoning behind the conclusions drawn.

Additional Requirements and How to Prepare the Paper for Submission

·         Cover page is required.

·         Use bold headers for each of the MDQ model steps. (i.e. Defining the decision, framing the decision …)

·         Describe each of the MDQ model steps in detail.  Explain how conclusions were drawn.  Support and justify all statements using case study facts and research.

·         APA formatting with in-text citations and a reference list are required.

·         Read the grading rubric for the project to be sure all elements of the project have been covered.

·         Third person writing is required. Third person means that there are no words such as “I, me, my, we, or us” (first person writing), nor is there use of “you or your” (second person writing). If uncertain how to write in the third person, view this link: http://www.quickanddirtytips.com/education/grammar/first-second-and-third-person.

·         Contractions are not used in business writing, so the expectation is that students do not use contractions in assignments.

·         Paraphrase and do not use direct quotation marks. This means you do not use more than four consecutive words from a source document, put a passage from a source document into your own words and attribute the passage to the source document. Provide the page or paragraph number. Note that a reference within a reference list cannot exist without an associated in-text citation and vice versa.

·         Do not use books as source material.

·         Students are expected to use a variety as well as multiple course readings and research to support ideas, reasoning, and conclusions.

·         Submit the final project into the appropriate assignment submission folder.  Once submitted, the project is eligible for grading and students will not be permitted to make changes or make another submission.

STEP 6:

Submit the paper in the assignment folder not later than Sunday at 11:59 PM EST.

Reference List

Economic impacts. (n.d.). Retrieved from https://www.spott.org/palm-oil-resource-archive/impacts/economic/

Emont, J. (2017, April 25). A Refuge for Orangutans, and a Quandary for Environmentalists. Retrieved from https://www.nytimes.com/2017/04/25/world/asia/indonesia-borneo-orangutans-palm-oil.html

Drummond, B. (2015, May) Palm Oil Sourcing Guide. Retrieved from https://www.conservation.org/publications/Documents/CI_Palm-Oil-Sourcing-Guide.pdf

Fassler, J. (2016, March 01). Giving Up Palm Oil Might Actually Be Bad for the Environment. Retrieved from https://www.smithsonianmag.com/science-nature/giving-up-palm-oil-might-actually-be-bad-environment-180958092/

France-Presse, A. (2016, September 19). Haze from Indonesian fires may have killed more than 100,000 people – study. Retrieved from https://www.theguardian.com/world/2016/sep/19/haze-indonesia-forest-fires-killed-100000-people-harvard-study

Kruse, J. (2018). Estimating Demand for Agricultural Commodities to 2050. Retrieved from http://www.globalharvestinitiative.org/Documents/Kruse – Demand for Agricultural Commoditites.pdf

Moas, A. (2013, July 03). Sustainable Palm Oil? No, not really! Retrieved from https://www.greenpeace.org/usa/sustainable-palm-oil-no-not-really/

Protection against risks to the environment and society (palm oil). (n.d.). Retrieved from https://www.db.com/cr/en/datacenter/infographic-palmoil.htm

Sustainable Palm Oil. (n.d.). Retrieved from https://www.rspo.org/about/sustainable-palm-oil

The Perils of Palm Oil: How a Popular Product Leads to Deforestation. (n.d.). Retrieved from https://www.fix.com/blog/how-palm-oil-affects-the-environment/

Threats to Orangutans. (n.d.). Retrieved from http://www.orangutan.com/threats-to-orangutans

Tillack, G. (2013, April 25). Why ‘Roundtable on Sustainable Palm Oil (RSPO)’ palm oil is neither responsible nor sustainable. – The Understory. Retrieved from https://www.ran.org/the-understory/why_rspo_sustainable_palm_oil_is_not_responsible/

Wan, Y. (2017, March 15). A makeover for the world’s most hated crop. Retrieved from https://www.nature.com/news/a-makeover-for-the-world-s-most-hated-crop-1.21634

This case study was adapted from the following source: Gonchar, M. (2017, November 09). Endangered Orangutans and the Palm Oil Industry: An Environmental Science Case Study. Retrieved from https://www.nytimes.com/2017/11/09/learning/lesson-plans/endangered-orangutans-and-the-palm-oil-industry-an-environmental-science-case-study.html