MARKET DEVELOPMENT
Palm Oil Industry in Indonesia: A Blessing or a Curse?
Palm Oil Industry in Indonesia: A Blessing or a Curse?
23/12/2013 (The Establishment Post) - The Indonesian government tried hard but failed to convince the international community at the Asia- Pacific Economic Cooperation (Apec) forum held in Bali, this year to include Crude Palm Oil (CPO) on the Apec Environmental Goods List (EG List) that will help free palm oil goods from their bad image.
The Value of Indonesian Palm Oil Exports in US$ bil from
2008-2012 (Sources: Gapki & Indonesia Ministry of Agriculture)
The European countries and United States have raised concerns in recent years that palm oil plantations have destroyed Indonesian forests as well as created high green house gas emissions, which have negatively affected Indonesian exports of crude palm oil.
Criticism is particularly directed at the expansion of palm oil plantations through illegal logging as well as intentional slash and burn practices which have caused haze in the immediate and nearby region in past decades.
Today, 85 per cent of the world’s palm oil is produced in Indonesia and Malaysia.
Indonesian palm oil, worth a total of US$21.6 billion, is the third-biggest contributor to the country’s foreign exchange earnings, after crude oil and natural gas. Since 2009, Indonesia is the world’s largest palm oil producer. Last year, it produced 26.5 million metric tons of CPO and exported around 18.1 million tons.
Indonesia’s top market destinations for palm oil are India, China, Europe and Africa. The Indonesian Palm Oil Association (Gapki) says the industry provides direct employment to 4.9 million people.
How the Palm Oil Boom in Indonesia Started
Indonesia Palm Oil Production and Export
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture. (note: 2013 figures are projected)
The palm oil boom in Indonesia dated back to the 1970s when former president Suharto initiated the nationwide transmigration program to transfer inhabitants of the much populated Java island to outer Indonesian islands such as Sumatra and Kalimantan.
By the end of the 1980s, millions of Javanese had become new landowners in Sumatra and Kalimantan.
The transmigration program took a toll on the native inhabitants of the receiving islands.
One example is the Orang Rimba, who are the indigenous, semi-nomadic tribe of Jambi province, located in central Sumatra. Their people number around 3,000, spread among the forests of Bukit Duabelas and Bukit Tigapuluh, two national parks.
With forests being cleared for industrial plantations and transmigration settlements, Orang Rimba– which literally means the forest people– are being squeezed out of their traditional lands, causing them not just losing their source of foods and homes, but also gradually losing their cultural identity.
In 1999, Jambi’s forests made up 42 per cent of the province’s total land area, or about 2.17 million hectares. A decree issued by the governor’s office at the time set aside almost half of that, about 870,000 hectares, as a protected area. Nonetheless, Jambi is currently losing around 1,500 hectares of that protected area every year due to illegal logging, land clearing and development. The same pattern of deforestation is occurring across the country.
The Ministry of Forestry concedes that from 2003 to 2006, more than 1.17 million hectares of forest were cleared, with Sumatra losing the most.
Derom Bangun, often called as the ambassador of palm oil in Indonesia has been part of the industry since the beginning. “From the 1970s when it was only producing maximum 200,000 tonnes to 28 million tonnes today, you can really tell this industry is showing a great progress,” he told The Establishment Post.
According to Mr. Bangun, 40 per cent of palm oil plantations are owned by traditional farmers, while big corporations own about 50 per cent of them. “State-Owned Enterprises owned about 10 percent,” he said highlighting the “positive effect” of the industry to the locals that the palm oil industry results in infrastructure projects being initiated so that industry can operate effectively. This in turn contributes to the development of the surrounding areas as well as the people’s welfare.
“You can’t just keep blaming palm oil plantations for destroying forests, driving away orangutans, tigers, even people from their habitats and such without looking at the benefits and revenue it gives to the people and the state,” Mr. Derom Bangun said while saying “Besides, you wake up in the morning and you use palm oil based products already,” he said smiling.
“Palm oil plantations accounts for only 15 to 16 million hectares worldwide. This is nothing compared to soy plantations for example, which at the beginning began with the same practice: chopping trees,” he said, adding “If you take palm oil out as one of ingredient to many industries which final products are used by millions of people worldwide and replace it with other substance; for example olive oil, the final products will be very expensive and people in general can’t afford to buy them”.
The explanation seems to fall into place, until we see the other side of it.
“When they say it’s cheap, we should raise the question: why is it cheap?” said Abetnego Tarigan, executive director of Friends of the Earth Indonesia (Walhi) who has been engaged in the issue of palm oil industry for decades.
“They can successfully produced cheap product because firstly they didn’t have to buy their land, it was given to them by former president Suharto, second they exploited their labours and third is because they conducted their activities in a cheaper way; for example the slash and burn practice,” Mr. Tarigan told The Establishment Post.
In the last couple of decades the problem of haze resulting from slash and burn methods from forests in Riau province in Indonesia during the dry season has become worse. While it has affected the immediate islands of Riau on which it occurs the most, winds have carried it also to neighbouring countries, where the Air Pollutant Standards (API) in West Malaysia and Pollutant Standards Index (PSI) readings in Singapore hit record levels on a few days in June earlier this year.
“It’s very difficult to drag companies and prove they are guilty of slash and burn practice because of our weak law enforcement,” according to Mr. Abetnego Tarigan.
According to a study between 1998 and 2003, there are 49 companies implicated in using slash-and-burn methods of clearing land, but only two of them have ever been brought to court to face justice. Article number 50 from the Forestry Law of 1999 says “No one is allowed to burn the forest”.
The Establishment Post’s attempts to reach the palm oil companies and the Ministry of Agriculture to answer questions on slash and burn methods used to clear land were not fruitful as no requests for interviews were granted despite several requests by the time this article was printed.
The World’s top 15 Palm Oil Companies by Estimated Landbank
Whos the Biggest Palm Oil Company?
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The Sustainable Way Forward for the Palm Oil Industry in Indonesia
At the end of the day, there should be the “middle way” that might please all stakeholders’ interests. In 2001, the World Wildlife Fund (WWF) initiated the establishment of a Roundtable on Sustainable Palm Oil (RSPO) which was finalised in April 2004. The non-profit organisation has more than 500 members worldwide.
The organisation aims to first to advance the production, procurement, finance and use of sustainable palm oil products. Second it aims to develop, implement, verify, assure and periodically review credible global standards for the entire supply chain of sustainable palm oil. And third, RSPO aims to monitor and evaluate the economic, environmental and social impact of the uptake of sustainable palm oil in the market as well as to engage and commit all stakeholders throughout the supply chain, including governments and consumers.
One of its members is Unilever, an Anglo–Dutch multinational consumer goods company which has been using the certified palm oil since 2008. According to the Unilever branch in Indonesia, the company uses around three percent of the world’s total production for all its products.
Going further, Unilever Indonesia is building its own mill in North Sumatra province expected to operate in 2014. The investment worth a total of 1.4 trillion rupiah is partly to be able to ensure tracability of its palm oil and will be the company’s 10th factory in Indonesia. One of the problems for companies trying to use only sustainably grown palm oil is how to track and audit the supply of sustainably grown palm oil.
Wilmar International, one of the world’s biggest produces of processed palm oil and one of the first companies to be RSPO certified, announced on December 5 earlier this month, that it would ensure its own palm oil plantations which it directly owns and manages and those of the third party suppliers adhere to their new “No Deforestation, No Peat, No Exploitation” policy. By doing so, Wilmar commits to ensuring its own plantations and those of its subsidiaries or that it invests and third party suppliers and traders it deals with do so in a way that is consistent with RSPO standards. Wilmar has committed to providing updates on a quarterly basis for the first year of the implementation of this policy to the public.
According to Derom Bangun, Roundtable on Sustainable Palm Oil (RSPO) is one of the “ways out” in ensuring that companies will abide by sustainable agriculture practices even while the industry remains profitable.
“It is economically viable, as well as making sure we are not compromising the future,” he said.
The Value of Indonesian Palm Oil Exports in US$ bil from
2008-2012 (Sources: Gapki & Indonesia Ministry of Agriculture)
The European countries and United States have raised concerns in recent years that palm oil plantations have destroyed Indonesian forests as well as created high green house gas emissions, which have negatively affected Indonesian exports of crude palm oil.
Criticism is particularly directed at the expansion of palm oil plantations through illegal logging as well as intentional slash and burn practices which have caused haze in the immediate and nearby region in past decades.
Today, 85 per cent of the world’s palm oil is produced in Indonesia and Malaysia.
Indonesian palm oil, worth a total of US$21.6 billion, is the third-biggest contributor to the country’s foreign exchange earnings, after crude oil and natural gas. Since 2009, Indonesia is the world’s largest palm oil producer. Last year, it produced 26.5 million metric tons of CPO and exported around 18.1 million tons.
Indonesia’s top market destinations for palm oil are India, China, Europe and Africa. The Indonesian Palm Oil Association (Gapki) says the industry provides direct employment to 4.9 million people.
How the Palm Oil Boom in Indonesia Started
Indonesia Palm Oil Production and Export
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture. (note: 2013 figures are projected)
The palm oil boom in Indonesia dated back to the 1970s when former president Suharto initiated the nationwide transmigration program to transfer inhabitants of the much populated Java island to outer Indonesian islands such as Sumatra and Kalimantan.
By the end of the 1980s, millions of Javanese had become new landowners in Sumatra and Kalimantan.
The transmigration program took a toll on the native inhabitants of the receiving islands.
One example is the Orang Rimba, who are the indigenous, semi-nomadic tribe of Jambi province, located in central Sumatra. Their people number around 3,000, spread among the forests of Bukit Duabelas and Bukit Tigapuluh, two national parks.
With forests being cleared for industrial plantations and transmigration settlements, Orang Rimba– which literally means the forest people– are being squeezed out of their traditional lands, causing them not just losing their source of foods and homes, but also gradually losing their cultural identity.
In 1999, Jambi’s forests made up 42 per cent of the province’s total land area, or about 2.17 million hectares. A decree issued by the governor’s office at the time set aside almost half of that, about 870,000 hectares, as a protected area. Nonetheless, Jambi is currently losing around 1,500 hectares of that protected area every year due to illegal logging, land clearing and development. The same pattern of deforestation is occurring across the country.
The Ministry of Forestry concedes that from 2003 to 2006, more than 1.17 million hectares of forest were cleared, with Sumatra losing the most.
Derom Bangun, often called as the ambassador of palm oil in Indonesia has been part of the industry since the beginning. “From the 1970s when it was only producing maximum 200,000 tonnes to 28 million tonnes today, you can really tell this industry is showing a great progress,” he told The Establishment Post.
According to Mr. Bangun, 40 per cent of palm oil plantations are owned by traditional farmers, while big corporations own about 50 per cent of them. “State-Owned Enterprises owned about 10 percent,” he said highlighting the “positive effect” of the industry to the locals that the palm oil industry results in infrastructure projects being initiated so that industry can operate effectively. This in turn contributes to the development of the surrounding areas as well as the people’s welfare.
“You can’t just keep blaming palm oil plantations for destroying forests, driving away orangutans, tigers, even people from their habitats and such without looking at the benefits and revenue it gives to the people and the state,” Mr. Derom Bangun said while saying “Besides, you wake up in the morning and you use palm oil based products already,” he said smiling.
“Palm oil plantations accounts for only 15 to 16 million hectares worldwide. This is nothing compared to soy plantations for example, which at the beginning began with the same practice: chopping trees,” he said, adding “If you take palm oil out as one of ingredient to many industries which final products are used by millions of people worldwide and replace it with other substance; for example olive oil, the final products will be very expensive and people in general can’t afford to buy them”.
The explanation seems to fall into place, until we see the other side of it.
“When they say it’s cheap, we should raise the question: why is it cheap?” said Abetnego Tarigan, executive director of Friends of the Earth Indonesia (Walhi) who has been engaged in the issue of palm oil industry for decades.
“They can successfully produced cheap product because firstly they didn’t have to buy their land, it was given to them by former president Suharto, second they exploited their labours and third is because they conducted their activities in a cheaper way; for example the slash and burn practice,” Mr. Tarigan told The Establishment Post.
In the last couple of decades the problem of haze resulting from slash and burn methods from forests in Riau province in Indonesia during the dry season has become worse. While it has affected the immediate islands of Riau on which it occurs the most, winds have carried it also to neighbouring countries, where the Air Pollutant Standards (API) in West Malaysia and Pollutant Standards Index (PSI) readings in Singapore hit record levels on a few days in June earlier this year.
“It’s very difficult to drag companies and prove they are guilty of slash and burn practice because of our weak law enforcement,” according to Mr. Abetnego Tarigan.
According to a study between 1998 and 2003, there are 49 companies implicated in using slash-and-burn methods of clearing land, but only two of them have ever been brought to court to face justice. Article number 50 from the Forestry Law of 1999 says “No one is allowed to burn the forest”.
The Establishment Post’s attempts to reach the palm oil companies and the Ministry of Agriculture to answer questions on slash and burn methods used to clear land were not fruitful as no requests for interviews were granted despite several requests by the time this article was printed.
The World’s top 15 Palm Oil Companies by Estimated Landbank
Whos the Biggest Palm Oil Company?
The Sustainable Way Forward for the Palm Oil Industry in Indonesia
At the end of the day, there should be the “middle way” that might please all stakeholders’ interests. In 2001, the World Wildlife Fund (WWF) initiated the establishment of a Roundtable on Sustainable Palm Oil (RSPO) which was finalised in April 2004. The non-profit organisation has more than 500 members worldwide.
The organisation aims to first to advance the production, procurement, finance and use of sustainable palm oil products. Second it aims to develop, implement, verify, assure and periodically review credible global standards for the entire supply chain of sustainable palm oil. And third, RSPO aims to monitor and evaluate the economic, environmental and social impact of the uptake of sustainable palm oil in the market as well as to engage and commit all stakeholders throughout the supply chain, including governments and consumers.
One of its members is Unilever, an Anglo–Dutch multinational consumer goods company which has been using the certified palm oil since 2008. According to the Unilever branch in Indonesia, the company uses around three percent of the world’s total production for all its products.
Going further, Unilever Indonesia is building its own mill in North Sumatra province expected to operate in 2014. The investment worth a total of 1.4 trillion rupiah is partly to be able to ensure tracability of its palm oil and will be the company’s 10th factory in Indonesia. One of the problems for companies trying to use only sustainably grown palm oil is how to track and audit the supply of sustainably grown palm oil.
Wilmar International, one of the world’s biggest produces of processed palm oil and one of the first companies to be RSPO certified, announced on December 5 earlier this month, that it would ensure its own palm oil plantations which it directly owns and manages and those of the third party suppliers adhere to their new “No Deforestation, No Peat, No Exploitation” policy. By doing so, Wilmar commits to ensuring its own plantations and those of its subsidiaries or that it invests and third party suppliers and traders it deals with do so in a way that is consistent with RSPO standards. Wilmar has committed to providing updates on a quarterly basis for the first year of the implementation of this policy to the public.
According to Derom Bangun, Roundtable on Sustainable Palm Oil (RSPO) is one of the “ways out” in ensuring that companies will abide by sustainable agriculture practices even while the industry remains profitable.
“It is economically viable, as well as making sure we are not compromising the future,” he said.