Sustainability Pledge Proves an Obstacle for Government Hungry for More Palm Oil


OCTOBER 17, 2015

Jakarta. The Indonesian government is taking a major step backward from efforts to develop a sustainable palm oil industry, critics contend, as it sidelines a “zero deforestation” pledge by the country’s five biggest producers of the commodity in favor of economic nationalism.

Indonesia and Malaysia, which together account for 85 percent of all the palm oil produced in the world, signed a memorandum of understanding on Tuesday to set up a new council to promote the image of palm oil, stabilize prices, improve cooperation between producers, and coordinate on production, stocks, biodiesel mandates and replanting schemes.

The new initiative, to be called the Council of Palm Oil Producer Countries, or CPOP, will essentially replace the industry-initiated Indonesian Palm Oil Pledge (IPOP), which chief resources minister Rizal Ramli claims infringes on the government’s authority to set standards and may constitute a cartel dominated by foreign interests.

“This is an example of how to fight for our sovereignty,” he said as quoted by Reuters. “We are the biggest palm oil producer. Why [should] the consumers from the developed countries set the standard for us as they want?”

The IPOP was signed in New York during a climate change summit in September 2014 by executives from Indonesia’s top four palm oil producers – Asian Agri, Cargill Indonesia, Golden Agri-Resources and Wilmar International – who initiated a voluntary commitment for sustainable practices in an industry that generates nearly $20 billion a year for the country.

The signing of the pledge was witnessed by then-president Susilo Bambang Yudhoyono and his chief economics minister, Chairul Tandjung, and came in response to mounting calls for sustainability in the palm oil industry by environmental groups. The entry of Musim Mas into the private-led initiative in March this year meant the five biggest palm oil companies in Indonesia were now committed to sustainable practices.

“The pledge outlines the collective commitments from member companies to maintain economic, social and environmental sustainability throughout the supply chain based on existing individual commitments,” Nurdiana Darus, the executive director of the IPOP, told the Jakarta Globe in an e-mail.

“The pledge does not create new obligations, instead it focuses on creating multi-stakeholder collaboration to transform the palm oil sector of Indonesia and increase its competitiveness.”

More plantations

Among others, the pledge commits the companies to a ban on clearing primary, secondary and peat forests – all regarded as important carbon dioxide sinks – but the government, looking to double crude palm oil output to 40 million metric tons a year by 2020, wants secondary forests taken off that list.

That has put the industry squarely at odds with policy makers.

Environment and Forestry Ministry Siti Nurbaya Bakar says the government “is reviewing clauses in the IPOP that are too restrictive on Indonesian smallholder palm oil producers” who cannot afford to comply with the pledge’s sustainable forestry commitments.

Smallholders account for some 42 percent of Indonesia’s palm oil output.

“[The IPOP management] is proposing their own regulations that don’t fit ours […] They should match our laws, not ours them,” Siti said.

Mansuetus Darto, chairman of the Bogor-based Oil Palm Smallholders Union (SPKS), says the government is only using “the welfare of oil palm farmers” as justification to go against the IPOP, while failing to address the real problems faced by smallholders.

“The government hasn’t actually done its part to empower the farmers. Some regulations are not in the farmers’ favor,” he said, citing the example of a 2006 Agriculture Ministry regulation that prohibits palm oil farmers from obtaining bank loans for their business.

The government has also ceased to train oil palm farmers in methods to boost yields, and to distribute good-quality seeds to the farmers – in direct violation of the 2013 Law on Farmer Protection and Empowerment, according to Darto.

He also noted that the government was conspicuously absent on the issue of tackling the unfair prices imposed by middlemen on independent farmers.

“The real focus should be on how to increase productivity instead of expanding the plantations,” Darto said.

The government could achieve its 40 million ton target by 2020 simply through better landscape and industrial management of existing plantations, according to the World Bank.

Eliminating obstacles

Irwan Gunawan, the director for market transformation at WWF Indonesia, agrees that the current government’s stance toward the palm oil industry is to get rid of anything seen as an obstacle to greater output.

“The government has become overbearing of the palm oil industry because the mining sector hasn’t been contributing as much as it used to toward the country’s GDP,” Irwan told the Globe.

He noted that proposals for new plantations continued to flow into the Agriculture Ministry, especially for Papua and West Papua provinces, which hold some of the country’s largest remaining tracts of virgin forest.

And where the government is absent, the industry appears to be filling in.

The IPOP’s Nurdiana says all five of the group’s members provide their more than 400,000 smallholder partners with capacity enhancement on sustainable agriculture practices, skills, infrastructure and technology, including better fertilizer, seeds, intensification technology and a policy banning slash-and-burn land clearing.

Nurdiana says the IPOP’s programs, currently being drafted by the members, will also focus on fundamental issues for smallholders, such as mapping, land tenure, legal licenses and mandatory sustainable palm oil standards certification, known as ISPO.

“The implementation of these programs is slated to start in early 2016,” she said.

‘Sustainability is the future’

The WWF’s Irwan says the government, if anything, should be supportive of the IPOP’s efforts to adopt more sustainable practices in the palm oil industry.

“Sustainability is the future. The government shouldn’t only be seeing the IPOP as violating its laws. The former administration fully supported it, so why is this one doing the opposite?” he asked.

“The current government should instead prepare enabling policies so that the IPOP can become the mainstream palm oil industry group in Indonesia.”

Darto of the smallholders’ union said he was concerned that the new joint council with Malaysia would end up benefiting the latter, given how extensively Malaysian palm oil companies operate inside Indonesia.

“Half of the plantations in West Kalimantan, for example, are controlled by Malaysians,” Darto said.

Wait and see

Minister Siti says the government will await further details on the CPOP, expected to be revealed toward the end of this month, before deciding on what to do with the IPOP.

Meanwhile, the IPOP management says it is looking forward to aligning its commitments with the government’s efforts to ensure sustainability and competitiveness of the palm oil sector.

“We welcome and will support opportunities to work side by side with the government, civil society and smallholders on concrete actions on the ground that will ultimately increase Indonesia’s palm oil competitiveness in the global market,” Nurdiana said.

She added the new proposed council would strengthen the ISPO certification and help it obtain global recognition, which would mean increased competitiveness for Indonesia palm oil and concrete benefits for producers, exporters and smallholders.

“The IPOP management and member companies are looking forward to coordinating with the government to get a deeper understanding of the coalition [with Malaysia] and the joint standards that are currently being drafted,” Nurdiana said.