The number of major corporations making commitments to purchase certified deforestation-free commodities steadily has increased over the past 18 months. Kellogg’s and McDonald’s are just two recent examples of companies that have made such commitments. But will certification policies alone be enough to reduce deforestation, or should governments and corporations consider other strategies that provide incentives for forest conservation?
It also is fueling the extinction of species and the rights and well-being of 1.6 billion vulnerable people that depend on the forest for their livelihoods. As market linkages to deforestation have become better understood, companies are examining their supply chains and beginning to shift purchases to certified commodities.
A big unknown for these companies is whether their commitments can stimulate an adequate supply of certified sustainable commodities to meet their needs at a reasonable price. Based on data collected by WWF, certified sustainable commodities make up somewhere between two percent and 15 percent of the total global supply of the four largest forest risk commodities: cattle, palm oil, soy and timber.
A key challenge in increasing the supply of certified commodities will be compensating growers and producers for the costs of sustainable production including certification costs, the costs of changing management practices and maybe most important, the opportunity costs of foregone production on forested land.
One way to compensate growers and producers is through higher prices, although in practice, companies and customers have been reluctant to pay price premiums for certified commodities. Data recently released by GreenPalm showed that certified palm oil generated only a minor 1.2 percent price premium over conventional palm oil in 2013. And while there are examples of modest price premiums for certified timber, these premiums have not been sufficient to expand the supply of FSC certified timber beyond 10 percent of total global timber supply.
Another way to compensate growers and producers for better practices is through incentive-based payments linked to forest protection. This is TerraCarbon’s approach. Payments for generating carbon offsets are one such incentive that have been developed to compensate forest landowners for the climate value of keeping their forests standing. Used with commitments to purchase certified commodities, offsets can help provide the funding needed to increase the supply of sustainable commodities and to protect forests.
Two recent initiatives support the notion of combining commodity certification and offsets. The Carbon Canopy program, launched by Dogwood Alliance in partnership with large corporations such as Coca-Cola, Domtar and Staples seeks to increase the supply and demand for certified timber and carbon offsets produced from forests in the southeast U.S. that practice sustainable forestry.
The second initiative is the Sustainable Forests Landscapes announced at last year’s UN climate conference by the World Bank BioCarbon Fund. The U.S., U.K., German and Norwegian governments have pledged $280 million for this initiative to provide results-based incentives for activities that reduce deforestation. Unilever and Mondelez have stated their support (PDF) for this initiative, and will be working with the BioCarbon Fund to see how the initiative can support their certified commodity sourcing strategies.
Initiatives such as these can be replicated elsewhere by private companies working together and with governments. Funding for incentives will remain a key question that can be answered in the long-term by regulations that put a price on carbon, and in the short-term by voluntary offset purchases by companies taking action on climate change and deforestation.
At the same time, if the aim is to reduce deforestation not only at a supply chain scale, but also at regional and global scales, then governments and corporations need to go further and provide economic incentives, such as payments for carbon offsets, that generate alternative income and keep forests standing.