The main sustainable palm oil industry group Wednesday suspended an ongoing certification process for major plantation firm IOI Corp. Bhd. (1961.KU) following land dispute complaints and charges of deforestation by non-governmental organizations, a move that market participants said could threaten the company's supply contracts with major consumer firms.

The Roundtable on Sustainable Palm Oil, a group of plantation companies, green groups and consumers that certifies palm oil as environmentally friendly, said on its website that IOI Corp. breached its principles on land conflicts and conversion of lands with high conservation values into crop lands.

"IOI Group will be given a period of 28 days to (respond) with an acceptable solution," it said. "Failure to deliver the required proposal by May 2, will result in the RSPO considering further sanctions, which may include suspension of licenses for new transactions involving certified sustainable palm oil."

IOI Corp. officials couldn't immediately be reached for comment.

IOI Corp., which is a founding member of the RSPO and owns more than 250,000 hectares of plantation land, has come under fire from the indigenous community in the Baram district in the state of Sarawak on Borneo island, after the firm took over a plantation in the area in 2006.

The company in March dismissed allegations that it was encroaching into native land in Baram, and said that a court judgement "did not allow the natives' claim for a declaratory order to cancel the leases issued in favour of IOI for the lands."

The comments by RSPO may hurt sales of sustainable palm oil by IOI Corp. to major consumer products companies including Nestle SA (NESN.VX), Unilever N.V. (UN) and Kraft Foods Inc. (KFT), who have policies requiring raw materials to be sustainably sourced, said a trading manager at a Singapore-based vegetable oil refining firm.

IOI has attained RSPO certification at three of its palm oil plantations in Malaysia, and is seeking full certification by the end of the year.

Nestle and Unilever in 2009 ceased buying palm oil from Indonesia's PT Sinar Mas Agro Resources & Technology (SMAR.JK) due to alleged draining of peat lands and violations of environmental laws.

-By Shie-Lynn Lim, Dow Jones Newswires; +603 2026 1233; shie-lynn.lim@dowjones.com
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