UN Unilever NV

The world's 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, which comprises plantation companies, environmental groups and consumers said on its website that IOI Corp. breached its principles with regard to land disputes and conversion of areas 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."

RSPO founding member IOI Corp., which owns more than 250,000 hectares of plantation land, said in a statement to Dow Jones Newswires that it "accepts [the RSPO's] decision and will work closely with [the] RSPO in developing a plan to find [an] acceptable solution to the issue of compensation" to an indigenous community in the Baram district in the state of Sarawak on Borneo island. The indigenous group initiated a land dispute after the firm took over a plantation in Baram 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."

"IOI welcomes an independent organization like RSPO to appoint representatives to observe the proceedings of the meetings between IOI and the natives and possibly mediate in the negotiation over the affected land area and the amount of compensation," an IOI spokeswoman said.

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 NV (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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