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Why Indonesia urgently needs to address the burning issue of palm oil

World Finance - January 12, 2016

Elizabeth Matsangou As the world's most commonly traded vegetable oil, palm oil is a key economic driver for Indonesia. It also happens to be one of the most destructive commodities on the planet.

Many people will be unaware of just how often they come into contact with palm oil or palm oil derivatives during their daily lives. The highly versatile ingredient can be found in products ranging from toothpaste and washing detergent to baked goods and chocolate. In fact, palm oil alone accounts for 65 percent of all vegetable oil traded worldwide, is used in around 50 percent of all packaged products sold in supermarkets, and is found in 70 percent of all cosmetics. Moreover, as a result of various governmental commitments to reduce the consumption of fossil fuels, palm oil is also increasingly used to generate bio-fuels.

Having a much higher yield in comparison to other crops, palm oil is cheaper to produce and more economical in terms of land use than its alternatives, making it the commodity of choice for mass-produced goods. With consumer spending on disposable products rising exponentially and the logistical ease of globalised networks ever-increasing, demand for palm oil has grown rapidly over the past few decades.

Dr Amanda Berlan, an expert in ethical business research and a fellow at the Centre for Business in Society at Coventry University, told World Finance, "One of the reasons for the growth in demand for palm oil is the rise in processed food, which also involves a much more significant carbon footprint and use of resources than 'slow' home-cooked food."

Economic progression

Despite its attributes in terms of versatility and cost-effectiveness, palm oil is steeped in controversy due to the damage that it does to the environment. Such destruction includes the deforestation of some of the most bio-diverse areas on the planet, as well as being responsible for a shocking level of greenhouse emissions.

Although the plant is native to West Africa, cultivation in Malaysia began in the 1930s and soon spread to Indonesia. The two Asian countries now account for approximately 85 percent of the global production of palm oil, with Indonesia producing the lion's share. With global demand having doubled in the past decade and being set to double again by 2020 the commodity has become a key driver in Indonesia's developing economy. "It's a major contributor to the Indonesian economy either directly or indirectly, as it supports several million jobs", said Mark Driscoll, Head of Food at the Forum for Future. "In the context of 2014, when the last figures came out, palm oil contributed roughly $20-21bn to the Indonesian economy."

Palm oil has therefore become the archipelago's biggest agricultural export and a vital earner of foreign capital. Given its fundamental financial role to the developing nation, the industry continues to expand at an unprecedented rate. According to a 2015 report by the Rights and Resources Institute, the production area for the commodity has almost tripled since 1997, now nearing eight million hectares, while a further 15 million hectares of production zones have been licenced to start development.

With over half of Indonesia's population living in rural areas, palm oil production has become an important source of employment for the country. "It contributes to the employment opportunities of local people directly through producers, both large and small, and also indirectly through the manufacturing, processing and exporting of palm oil", Driscoll told World Finance. Moreover, according to the World Bank, smallholders in Indonesia report a significantly higher income for palm oil cultivation than subsistence farmers or growers of competing cash crops, such as coffee and cocoa. Palm oil's cultivation has also prompted a similar economic boost in Malaysia, serving to diversify the country's agricultural sector, as well as providing employment to nationals and migrant workers from countries such as Bangladesh and Thailand.

Yet, despite the job creation and income levels afforded by the palm oil industry, some argue that the work is actually inconsistent, which can be disruptive to the labour force. Many allude to the unsatisfactory safety measures and poor working conditions for workers in the field, particularly among women, immigrants and casual workers, while several organisations have also raised concerns regarding forced labour, child labour and discrimination, in addition to a lack of government policy.

Irreversible damage

In the 2000s, news of the damage caused by the palm oil industry began spreading throughout Western media and the international NGO network. The rapid deforestation and illegal logging of Indonesia's rainforests and peatlands then raised alarm among environmentalists across the globe, as did threats to a multitude of species in Sumatra and Borneo, including tigers, rhinos and elephants, as a result of the destruction of their natural habitat.

"The iconic orang-utan is probably the key species associated with deforestation and palm oil plantations", Driscoll explained. "[Around] 20 percent of all global emissions are associated with food and agricultural production in some shape or form, but if you look at indirect land use change as a result of deforestation globally, that's an additional 10 percent." Palm oil production has also severely impacted several indigenous and local communities, as they have been permanently removed from their ancestral lands as a result of plantation development.

What is perhaps most shocking, however, is the amount of toxic chemicals that are emitted by the highly destructive enterprise. When peatlands are cleared and drained, huge quantities of greenhouse gases are released into the atmosphere, a phenomenon that is exacerbated further by producers' chosen method of razing: deliberately setting forest fires. According to research conducted by the VU University Amsterdam, 122,568 active fires were detected in Indonesia from January until mid-November 2015, which collectively emitted over 1.5bn metric tonnes of carbon dioxide, nitrous oxide and methane.

Considering palm oil's economic contribution to the nations that produce it, one thing is clear: cultivation will continue

Usually, the carbon dioxide discharged from forest fires is offset somewhat by the regrowth of vegetation. However, this compensation is not realised when land is cleared for monocropping. Furthermore, with methane being over twenty times more harmful to the environment than carbon dioxide, this particular concoction of pollutants is exceptionally damaging in the long-term.

So bad are Indonesia's fires that the toxic haze they produce sometimes reaches Malaysia and Singapore, causing cancelled events and flights throughout the region. Last September, the smog reached such a critical level that the Indonesia National Board for Disasters declared a state of emergency in six provinces and closed 2,000 schools. According to the World Vision website, the haze has so far affected over 43 million Indonesians, caused acute respiratory infections in around 500,000, and killed 12 individuals.

The strongest haze for two decades also caused significant damage to the palm crops themselves, reducing production by between 10 and 20 percent in some areas, according to IJM Plantations Bhd. There have been various indirect implications as well, including traffic incidents, unemployment and disruptions to local businesses yet the full cost to the Indonesian economy is unknown. "I have seen estimates ranging from $18bn to $34bn", Dr Erik Meijaard, a Jakarta-based expert in environmental science, biogeography and zoology told World Finance. "Many costs remain unquantified, however: how do you cost unknown long-term health impact? How do you cost loss of wildlife... [or the] destruction of insect pollinators that will reduce crop yields for years? Many of these factors remain unstudied."

The 2015 crisis has been a huge economic setback for a state that is already struggling with sluggish growth and a falling currency. But in spite of the evident social, environmental and economic damage caused, the Jowoki-led government has not yet implemented the necessary measures to bring an end to the currently legal practice.

Fighting back

In 2008, various multinational corporations came under fire from Greenpeace activists for the use of unsustainable palm oil in their products. Unilever, the world's biggest buyer at the time, was among those targeted, with Dove its leading beauty brand being singled out in particular. The attack received widespread attention, as did the unwanted publicity for Kraft, General Mills, Cargill, HSBC and Nestle.

The online spoofs, office raids and widespread criticism worked, causing big players in the consumer products industry making a marked shift in their respective policies towards palm oil. Following the publicity attack, Unilever announced a plan to acquire all of its palm oil from sustainable sources by 2015, while Nestle, Danone and Kellogg's have all since been rated as having a "strong commitment" to the cause in WWF's latest Palm Oil Scorecard.

All too aware of the importance of trust in highly competitive markets, more and more consumer brands are taking extensive measures to ensure that their goods are ethically sourced. As such, over the past decade, numerous high-profile companies have gained membership to the Roundtable on Sustainable Palm Oil (RSPO), an organisation that strives to promote sustainability by setting a global standard for the industry. RSPO certification can only be obtained after undergoing a validation process that examines all participants along the supply chain, and can be withdrawn at any time. According to the website, RSPO's criteria are based on extensive evidence that "sustainable palm oil production is comprised of legal, economically viable, environmentally appropriate and socially beneficial management and operations".

A global perspective

Although encouraging multinational companies to guarantee that they will only use sustainable ingredients is in itself a big step, this is only a small part of the puzzle. Despite the success that environmental groups have had in publicising the havoc that the palm oil industry wreaks on rainforests and biodiversity, as of 2014, RSPO-certified farms still only account for 18 percent of global production, which in itself continues to rise exponentially every year.

An underlying problem is that many large companies buy from traders and processors, as opposed to from plantations directly. Moreover, due to the cost of international shipping, sustainable and unsustainable palm oil are not always segregated during transport, and so differentiating between the two can be unmanageable for even the most well-meaning corporation.

Even though companies that are headquartered in the West are increasingly taking notice of the issue of sustainable palm oil, the region only accounts for a small portion of the global supply. "We need to take a global perspective on this question", according to Berlan. "Western consumption of palm oil is of course significant, but it is also important to realise that the largest global importer of palm oil is India, where it is commonly used in cooking. With a population of over one billion people, this represents an estimated 15 percent of the global supply of palm oil. In order to make the palm oil industry more sustainable, this is where major change needs to happen. However, there is no business case for companies in India to adopt certified sustainable palm oil if consumers are not demanding it and this is problematic".

The lesser evil

Hoping to tackle the problem, some firms are switching to alternative commodities, such as coconut oil. However, doing so actually exacerbates the problem further: as palm plantations produce as much as 10 times more oil than sunflowers, soybeans or rapeseed per hectare, in essence, this approach simply moves the problem elsewhere. What may help, however, are technological breakthroughs in finding alternatives that are even more economical to produce, such as microalgae, an ingredient that is currently being investigated for its potential as a palm oil replacement in cosmetic products.

Considering palm oil's economic contribution to the nations that produce it, one thing is clear: cultivation will continue, and so simply finding alternatives is not the answer. In order to bring a halt to the damage inflicted by the industry, the support of the Indonesian and Malaysian governments is key. A drastic shift in policy is needed, whereby the agenda is pushed all the way through to the grassroots level: every plantation must be reviewed and certified on an on-going basis, while border controls can also stem the export of illegal palm oil. "Oil palm is the most profitable oil-producing plant, and it is not going to go away", said Meijaard. "Consumer and buying governments need to recognise the difference between good and bad oil... as developed under the criteria of RSPO. Trade in bad oil needs to be phased out. Just like we reject slavery and child labour, the international community needs to develop a system that helps reject unsustainable palm oil."

Indonesia's fire and haze crisis still remains the most pressing issue at hand, however. "A lot has to do with land use planning", according to Meijaard. "Oil palm expansion and related land speculation, especially at the small and medium-scale, are a major driver of fires. Lots of people with some cash are seeking access to land. The government is continuously changing and updating its land use maps, sacrificing more and more forest to development. What they do not realise is the major social and environmental impacts that are related to deforestation. These undermine the very fabric of Indonesian society.

"[There needs to be a] full fire ban on peat, with the means to enforce it, [which will involve] phasing out slash-and-burn cultivation, stabilising land use planning by permanently recognising which areas should remain forested, and providing the means to implement such planning." Perhaps applying international political and economic pressure to the Jowoki regime may force the issue further, just as the international media spotlight forced the Indonesian government to take reactive action to the 2015 fires.

In any case, this is not an issue just for 'animal lovers' or for 'tree huggers' this is a problem that faces the entire globe. We each have a role to play in it through our purchase of goods containing palm oil derivatives: no shampoo or confectionary product is worth the irreversible damage that is inflicted on the planet and the ozone layer as a direct result of palm oil plantations. A noticeable transformation will take time, and this is a luxury that we are quickly running out of however, nothing is impossible with collective action in the right direction.

Source: http://www.worldfinance.com/markets/why-indonesia-urgently-needs-to-address-the-burning-issue-of-palm-oil.

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