Yayasan Konservasi Alam Nusantara

14 January 2019

PALM OIL: LESS STRIFE, MORE SOLUTIONS

by Rizal Algamar

 “East is East and West is West, and never the twain shall meet”. That often quoted first line from the poem, The Ballad of East and West by the 1907 Nobel Prize in Literature winner, Rudyard Kipling, could well apply to the present day supporters and opponents of palm oil production. The controversy and debate over the economic benefits versus the environmental and social costs of palm oil production have, more often than not, been conducted under zero-sum assumptions on both sides. But the complex issues facing the palm oil sector cannot easily be seen through a stark black and white perspective. If the major challenge is to harmonize the interests of multiple stakeholders and at the same time address both short term development goals and long-term environmental objectives, a more balanced and solution-oriented perspective from both sides is required.

1

Past Shapes Present

Global controversy is so much attached to the palm oil industry today that it is easy to forget its long history as a valued commodity. Originating in West Africa, palm oil has been used going back 5,000 years. Along the way, palm oil played a major role in the start of the First Industrial Revolution when it became an essential ingredient in such early industrial products as candle-making and industrial lubricants. Its use contributed to the expansion of industrial production, encouraged overseas trade and the spread of colonialism. The demand for palm oil led to investing in palm oil plantations, first in West Africa then in Southeast Asia, particularly in the colonial areas that are now present-day Malaysia and Indonesia. East did indeed meet West, but not on equal terms.

 2

Global Palm Oil Demand

In what is now the Fourth Industrial Revolution, palm oil still plays an important role in the global economy. Palm oil world production continues to expand, sparked by global demand. Worldwide demand is expected to double by 2050 to 240 million tonnes.

By the 1960s, global demand was large enough that about half of the global production of oil palm was exported. By 2014, the demand had accelerated so that 75 percent of the expanded global production was exported. Not surprising considering palm oil remains an essential ingredient in many consumer products, ranging from lipstick and soap to ice-cream and chocolate. By some estimates, about half of all packaged products contain palm oil.

Global Palm Oil Production

In the 1980s, Malaysia was the world’s largest palm oil producer. By 2006, Indonesia had surpassed its neighbour in palm oil production. By 2008, Indonesia was also the world’s largest exporter of palm oil. In 2017, Indonesia exported 75 percent or 31 million tonnes of palm oil of its total output, which was about half the country’s total agricultural exports.

 This performance is not surprising given Indonesia’s status as the world’s lowest-cost palm oil producer, aided substantially by its low costs of land and labor. Such conditions make the palm oil sector attractive to investors, not only to large domestic companies and foreign investors (mostly Malaysian and Singaporean), but also Indonesian smallholder farmers. Smallholders own approximately 40 percent of the total planted oil palm, which represent about 35 percent of crude palm oil (CPO) produced in Indonesia.

3

Global Controversy

Oil palm expansion has provided economic development benefits for palm oil producing countries, such as additional foreign exchange revenue. There are also important indirect benefits such as local infrastructure development, rural poverty reduction, and other multiplier effects. However, these benefits have been overshadowed by the global controversy over palm oil, aimed primarily at the major producing countries of Indonesia and Malaysia.

The forest fires that raged across Indonesia for months in 1997-1998 was instrumental in making palm oil production in Indonesia a global issue. The 700 million tonnes of carbon released by the deforestation amounted to a fifth of annual global emissions. Forests fires continued to be a major problem over the years. And the increasing global demand for palm oil fuelled more deforestation - even with increased production from existing oil palm plantations.

Besides deforestation and biodiversity loss, controversy arose from multiple issues arising from incidents of illegal land clearing, community eviction, watershed degradation, river pollution and worker rights and child labor violations. All of which has resulted in criticism, not only from local NGOs and others in Indonesia’s civil society, but also from international NGOs and other mostly Western countries. The Indonesian government has been particularly sensitive to the criticism of the latter, invoking national interest in pushing back against the criticism.

4

Palm Oil and National Interest

The Indonesian government has framed the defense of its palm oil sector policies as a matter of national interest. For example, in early 2018, the Indonesian embassy in Brussels issued a statement protesting European Parliament policies that it viewed as unfair and protectionist against palm oil stating, “Palm oil is one of primary elements of Indonesia's national interest, notably because it is related to the prosperity of 17 million Indonesian citizens, including smallholder farmers, who directly and indirectly depend on the palm oil industry”.

Later, at the November 2018 Indonesian Palm Oil Conference, Coordinating Minister for the Economy Darmin Nasution linked the importance of the oil palm sector to Indonesia’s national interest in attaining of Indonesia’s Sustainable Development Goals (SDGs), through, for example, generating foreign exchange, and contributing to education and health.   

Sustainable Palm Oil is in The National Interest

 However, the minister also equated national interest to the development of a sustainable palm oil sector:

 “Given the importance of the palm oil sector to Indonesia’s development, it is in our own national interest to ensure that further development of the oil palm sector takes into account the principle of sustainability. It is our obligation that this sector is managed carefully and responsibly for the sake of the future generations.”

The minister held up the improvement of the certification system for the palm oil industry, the Indonesian Sustainable Palm Oil (ISPO) as an important illustration of the sustainable direction the government is taking in palm oil. The ISPO was established in 2011 to promote sustainable management of palm oil in the country. But it has often been criticized as being less robust and transparent than the Roundtable on Sustainable Palm Oil (RSPO), the certification system established in 2004 by palm oil producers and buyers to minimize impact on forests, wildlife and communities. Indeed both the RSPO and ISPO continue to come under attack for weak governance that allow violations of standards to continue. To overcome such weaknesses, the government is taking steps to improve transparency and credibility of the ISPO standards through a multi-stakeholder process involving government, private sector and community.

However, such institutional strengthening will not help much if the root problems in the ‘rule of law’ in Indonesia are not resolved-a long and arduous task not restricted to the palm oil sector itself. Fundamental issues of transparency, accountability and governance need to be addressed in order to ensure the palm oil sector’s sustainability.  

5

Unintended Consequences and Banning Palm Oil Production

Making palm oil production more sustainable becomes more important because alternatives to palm oil could lead to even more deforestation. Alternative oils such as soya and colza have caused more deforestation than palm oil. Clearing land from cattle farming can do even more damage. So the one choice is to make the palm oil sector sustainable. And to do so, an inclusive multi-stakeholder approach will be needed to ensure that stronger transparency, accountability and governance can be achieved. 

The failure of the Indonesian Palm Oil Pledge (IPOP) is an object lesson on the need for such an approach.

In 2014, the biggest Indonesian palm oil producers showcased, with all good intentions, their commitment to palm oil sustainability by signing the Indonesian Palm Oil Pledge (IPOP), at the UN Climate Change Conference in New York. But lacking prior multi-stakeholder buy-in from some government quarters and other palm oil producers, the IPOP was dissolved in 2016 after coming under Indonesian government pressure.

This negative outcome underlines the need for a multi-stakeholder platform, a broad based sustainable palm oil coalition, which can develop and implement sustainability by creating shared values through sharing best practices and lessons. Such a broad based palm oil sustainable coalition can house the constructive dialogues essential for the future of sustainable palm oil.

But making the palm oil sector sustainable while neglecting the sustainability of other sectors of the economy would be an exercise in futility. A holistic approach to ensure sustainability across sectors and across larger scale geographic areas is required. One practical approach called Development by Design is already practiced and can be scaled up to cover wider areas.

Development by Design

Development by Design (DBD) takes into account both the importance of sustainable livelihoods (development) and of conservation. Pioneered by The Nature Conservancy, the DBD approach is being piloted in areas such as in the district of Berau, East Kalimantan and in the province of East Kalimantan - through its provincial wide Green Growth Compact. The key to the jurisdiction (landscape) wide scope of DBD is the conscious balancing of choices related to economic livelihoods and conservation interests.

The balancing is done through a three-step hierarchical and sequential mitigation approach: avoid impacts, minimize impacts and (only if there are unavoidable negative impacts) offset impacts. The approach is both evidence based and intensely consultative, to ensure as much as possible the desired sustainable outcomes. Current DBD programs piloted in Berau and East Kalimantan can be scaled up to the national level. Once implemented on a national scale, a new sustainable trajectory that accounts for economy and ecology can begin.

East can Meet West 

In the meantime, can East meet West in the matter of palm oil? It is possible if we abandon zero-sum approaches. Klaus Schwab, founder and executive chairman of the World Economic Forum, emphasized the need to do so when we face the challenges associated with the Fourth Industrial Revolution:

“As we develop a new approach to the new economy, we must remember that we are not playing a zero-sum game. This is not a matter of free trade or protectionism, technology or jobs, immigration or protecting citizens, and growth or equality. Those are all false dichotomies, which we can avoid by developing policies that favor “and” over “or,” allowing all sets of interests to be pursued in parallel.”

A new cooperative approach that engages all stakeholders is required. After all, Kipling’s famous quotation on the intractable East/West condition is actually a misinterpretation. What comes after the quotation makes it abundantly clear that, given mutual respect and interests, to broadly paraphrase Kipling, East can indeed meet West. 

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Rizal Algamar is the Country Director of The Nature Conservancy - Indonesia since 2012 and Chairman of the Board of Management of Yayasan Konservasi Alam Nusantara since 2015. With 25+ years of experience in both corporate and non- profit sectors, Rizal’s background includes corporate sustainability, creating shared values, international trade and business development, fast moving consumer goods and financial sector at various Indonesian conglomerates.

                                                 

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