UPDATE: Nestle May Resume Palm Oil Purchases From SMART

Nestle S.A. (NSRGY), the world's largest food and beverage company by sales, may resume purchases of palm oil from Indonesia's PT Sinar Mas Agro Resources & Technology (SMAR.JK) if deforestation claims made by an environmental group against the company are proven to be false, a Nestle executive said Monday.

Nestle is a major consumer of palm oil, so reopening the door to buying from PT SMART would give the Indonesian company a major fillip after the high-profile, costly recent losses of two of its major sales contracts, and would grant a significant boost to the palm oil industry, which has long taken fire for alleged environmental wrongdoing.

Nestle stopped buying palm oil from PT SMART earlier this year after environmental group Greenpeace alleged in a report that the company and its parent, Singapore-listed Golden Agri-Resources Ltd. (E5H.SG), failed to comply with plantation practices mandated by the Roundtable on Sustainable Palm Oil. PT SMART and Golden Agri are both members of the RSPO, a group formed in 2004 by stakeholders, including environmental and consumer groups and palm oil companies, to improve the sustainability of palm oil production through efforts such as rainforest and wildlife conservation.

PT SMART has denied a Greenpeace claim that it was also involved in clearing rainforests and draining peatlands for palm oil cultivation.

Other environmental groups have also placed pressure on consumer-goods companies that source palm oil from PT SMART, prompting fellow consumer-goods maker Unilever PLC (UL) to cancel purchases from the company last year and, subsequently, Nestle.

SMART has appointed Control Union Certification and the BSI Group to conduct and independent audit into Greenpeace's allegations, the results of which will be known in June, the company has said.

"If Sinar Mas, or anybody else, does a proper job on quality, traceability, on having a transparent supply chain, of course we will buy from them," Nestle executive vice president for operations Jose Lopez said at a forum on sustainable palm oil in Malaysia.

"I don't have anything against them," he said. Once the audit is completed, "we will take the right decision at that time."

Indonesia and Malaysia are the world's top palm oil producers, accounting for a combined 85% of global production. Nestle's tougher stance on sustainability in palm oil production came after a series of environmental issues and supply suspensions hit the palm oil industry.

Lopez reiterated that Nestle, which uses palm oil in its cereal and instant noodle products, has pledged to source palm oil exclusively from certified, sustainable sources by 2015. For 2010, about 18% of its annual requirement of 320,000 tons of palm oil will be sourced from planters who are members of the RSPO, Lopez said. Nestle uses the palm oil--equivalent to about 0.7% of total world production each year--in products ranging from food to personal hygiene supplies.

"We expect (palm oil purchased by certified palm growers) to reach 50% of purchases by end-2011," he said.

Nestle also announced that it has entered a partnership with non-profit organization The Forest Trust, that will trace whether its palm oil suppliers are linked to deforestation, and provide technical support for palm-oil growers who are keen to commit to environmental standards.

-By Shie-Lynn Lim, Dow Jones Newswires; [phone]; [e-mail]