Palm Oil, Crisis and Forest Loss in Indonesia
10/1/98
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RELAYED TEXT STARTS HERE:
Title: Palm Oil, Crisis and Forest Loss in Indonesia
Source: World Wildlife Fund Germany
Status: Contact source for reprint permissions
Date: 10/1/98
"Lipstick Traces in the Rainforest"
Palm Oil, Crisis and Forest Loss in Indonesia:
The Role of Germany
A Forest Campaign Project of WWF Germany in collaboration with WWF
Indonesia
Author Eric Wakker, AIDEnvironment, Amsterdam, The
Netherlands
Contributing researchers Lesley Potter and Justin Lee, Department of
Geography, University of Adelaide, Australia Volker Homes, WWF Germany,
Frankfurt, Germany Abdon Nababan, Telapak, Bogor, Indonesia
Project Coordinators Fernando Gonzalez, WWF Indonesia
Tim Jessup, WWF Indonesia
Markus Radday, WWF Germany
Published by WWF Germany, October 1998.
Any reproduction should mention the title of the report and credit WWF
Germany as the publisher.
Preface
The forests of the Indonesian islands, covering the second largest tropical
forest area of the world after Brazil, are home to an immeasurable wealth
of plant and animal species. But this wealth is threatened. Every year,
Indonesia loses about one percent of its forest area, a rate of destruction
that is higher than the average rate around the world. In its effort to
belong to the economically emerging nations of Southeast Asia, the
Indonesian government has neglected to give adequate priority to the
sustainable use of its forests, with the result that large areas of forest
have been stripped away during the past three decades. This loss has meant
that the habitat of many plant and animal species has also disappeared.
This study, compiled by the Dutch consultancy AIDEnvironment, examines a
new and alarming cause of Indonesian forest destruction. Everyone remembers
the devastating forest fires that destroyed millions of hectares of
tropical rain forest, plantations and farmland in Indonesia and caused
terrible air pollution throughout the region just a few months ago. This
catastrophe is the dramatic climax of a scenario that is dictated by poorly
planned and politically driven land use conversion in which oil palm
plantations now play the major role. Should Indonesia go ahead with its
plans to become the world's largest producer of palm oil as a cheap and
easy way to gain foreign income, an area larger than the Netherlands will
be covered by oil palm plantations. And if it continues in the same,
reckless way as before, then much of it will be at the cost of the rain
forest, and of local communities that depend on the forest for their
material and spiritual well-being.
However, such a disaster can be averted if land allocated for plantations
is not taken from forests but rather from other areas of less natural
value, and also if local farmers are involved as partners, not victims, of
plantation development. WWF is not opposed in general to economic
development or to palm oil production. What we do oppose is the reckless
disregard of environmental and social values in favour of short-sighted,
unsustainable exploitation.
The palm oil industry and consumers in Germany cannot evade their
responsibility for protecting the Indonesian forest. Second only to the
Netherlands, Germany is the largest importer of palm oil in the EU. In this
study, WWF Germany and WWF Indonesia draw attention to this `hot issue'. It
is addressed to German businesses that use palm oil in their products. WWF
calls on these companies to disclose their trade and consumption figures
regarding palm oil and to make commitments to seek solutions for
sustainable land use together with WWF.
At the same time, WWF calls on the Indonesian government to change its
priorities on present forest conversion policy. The core demand can only be
that no more virgin tropical forest be destroyed to make way for
plantations. The ban on large scale land-clearing by fire must be
controlled and offenders must account for their activities.
The future of Indonesia's tropical forests will also depend crucially on
the political will to break away completely from current predatory forest
management practices and to transform the use of forests so that they are
no longer plundered but preserved for future generations. In contrast to
the past, people living in these regions must be included in a sustainable
forest economy so that they can profit equitably from the wealth of the
forests.
Markus Radday Tim Jessup
Tropical Forest Officer Science and Policy Advisor
WWF Germany WWF Indonesia
Summary
Indonesia is spread across 13,600 islands that cover an area five and a
half times the size of Germany. This huge archipelago is home to one of the
largest biological treasuries in the world. Most of this biological
richness is found in various kinds of tropical forest. But Indonesia also
has one of the highest global rates of forest destruction. The underlying
reasons for the increasing destruction of Indonesia's tropical forests are
complex. They include, as is the case in many other countries of the South,
population growth, poverty and poor forest land management, but also
oversized mega-projects and the nepotism of a small but politically
powerful minority.
This study describes, for the first time, the influence of the Indonesian
oil palm plantation sector and Germany, in its role as a large palm oil
importer, on forest destruction. WWF fears that further millions of
hectares will be sacrificed if the conversion of forest land into oil palm
plantations continues unhampered.
The role of palm oil plantations
Two economic sectors that control land resources play a key role in forest
destruction. One is a forestry sector that does not provide for
sustainability; the other is the plantation economy. This study describes
the role of an oil palm plantation economy that has gone through booming
development in recent years. Presumably, Indonesia's present economic and
financial crisis will slow this development down, but only for a while. Oil
palm plantations now cover an area of 2.4 million hectares. The Indonesian
government plans to more than double this area by 2005. The consequences
would be dramatic: plantation cultivation has already destroyed tropical
forests that were the habitat of an enormous diversity of plant and animal
species. Orang-utans, Sumatra tigers and Asian elephants have lost
significant living space. The risk of extinction increases dramatically
with every new large-scale clearcutting project.
Palm oil plantations also harbour potential social conflict. Local
communities are often robbed of their traditional life styles, forest use
and agriculture by the expansion of large-scale monocultures, in many cases
without receiving proper compensation. An increasing number of small
farmers have become pay-dependent plantation workers whose existence is
determined by the global market price of a single plant product.
Indonesia's burnout
In the fall of 1997, forest destruction increased dramatically: devastating
fires raged over an estimated area of more than 5 million hectares - an
area larger than the Netherlands. A large part of these fires were started
by plantation outfits to speed up the `conversion' of tropical forests to
palm oil plantations. According to the latest research by WWF Indonesia and
the Economic and Environment Program for Southeast Asia (EEPSEA), up to 80
percent of the fires in Sumatra and Kalimantan alone were started by
plantation outfits.
The recurring El Nio climate phenomenon that led to an unusually intense
drought during the latter half of 1997 in the whole Malay-Indonesian
archipelago simply accelerated the consolidation of many single fires to a
vast firestorm. Its dimensions were so immense that the perpetrators became
victims: not only forests but also plantations were widely damaged or
destroyed.
The costs of the inferno are enormous. Experts estimate that damage in
Indonesia caused by smoke and air pollution in the second half of 1997
alone adds up to one billion US dollars. If the damage caused directly by
fire is added to this figure, the total cost just for 1997 in Indonesia
alone comes to 3.8 billion US dollars.
Germany's role
Ever more tropical forests are making way for oil palm plantations because
demand for palm oil is on the rise. In Germany, imports of crude palm oil
(CPO) alone increased 37 percent from 360,000 tonnes in 1993 to more than
494,000 tonnes in 1997 (see Table 3.2), making Germany the world's fifth
largest importer. Palm oil imports from Indonesia in particular increased
very rapidly: the volume of CPO alone doubled between 1993 and 1997 from
144,000 to 288,000 tonnes (Table 3.2). This volatile increase was possible
only because Indonesia had increased its area of oil palm cultivation ten-
fold since 1978 (Figure 2.1).
At least 45 percent of German palm oil imports today come from Indonesia.
Germany is Indonesia's fifth most important trade partner for this product.
And consumption is still increasing.
Direct German investment in Indonesian oil palm plantations is
comparatively small. But in the past, for example in Sumatra, it did
contribute to the development of oil palm plantations that led indirectly
to the loss of forest area and the decay of indigenous culture.
The crisis offers new opportunities
The fact is that exporting businesses within the oil plantation economy
make high profits during a crisis. But a transitional phase in Indonesia
also offers good opportunities for re-thinking future plans. The conversion
of forest to plantation has slowed down. Because of corruption and
nepotism, several plantation companies have lost their licenses to convert
forest area. WWF Indonesia has successfully lobbied for the creation of a
National Park in a valuable forest area once considered for plantation
conversion; the government was persuaded that conservation was a more
valuable option.
But Indonesia is still very far from putting a final halt to predatory
practices. Even today the Indonesian and the international palm oil
industry and its financial backers show only limited interest in forest
sustainability and social responsibility for people who are affected by
conversion.
This study presents several interim and promising possibilities on how
changes can be made before Indonesia's tropical forests are completely
destroyed.
Preface
1
Summary
2
1. Introduction
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5
1.1 WWF's commitment to forest conservation
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5
1.2 Growing German awareness of tropical forest conservation needs
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5
1.3 Indonesia: a country in crisis
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6
2. The palm oil boom - Indonesia's way to the top
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8
2.1 Indonesia's oil palm plantations today
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8
2.2 Expansion plans - A gloomy future for Indonesia's forests
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9
2.3 The impact of the crisis - The plantation sector resists economic
shock ..................................
11
2.4 Forest land for oil palm conversion
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14
2.5 More plantations - more problems
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16
3. Germany's role in Indonesia's oil palm boom
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20
3.1 World production and international trade
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20
3.2 Indonesian palm oil production and exports - Palm oil as an
important source of foreign exchange
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21
3.3 Germany's palm oil imports - The rising popularity of a healthy
vegetable oil .......................
23
3.4 Germany's palm oil consumption - Oil and fat for choosy consumers
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24
3.5 Corporate players in Germany's palm oil industry
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25
3.6 Other German interests in Indonesia's oil palm sector - A lesson
for German development cooperation
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26
4. Incentives for conservation
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28
4.1 Opportunity through crisis
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28
4.2 WWF's activities to promote conservation
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28
4.3 Needs
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28
4.4 How palm oil consumers may contribute to conservation - the
necessary steps ahead ............
30
4.5 Financial institutions and donors
30
Notes
References
Appendix
1. Introduction
This report investigates the role of Indonesia's palm oil industry in the
destruction of tropical forests. It explores Germany's potential
contribution to this problem as well as ways in which key actors in Germany
may help to promote forest protection and responsible plantation
management. WWF is deeply concerned about the threat to conservation and
sustainable development posed by the palm oil sector and invites relevant
parties to seek and develop innovative solutions.
1.1 WWF's commitment to forest conservation
Forests provide endless services to mankind. They harbour millions of rare,
unique and economically valuable plant and animal species. Forests
contribute to stable soils, water supply and climate. Millions of people
living in and nearby rainforests enjoy the benefits of high quality
building materials, food products, medicines and clean water. To indigenous
people, the forest is their home and `shopping centre'. And for urban
people as well, forests offer a place for recreation and spirituality.
Despite their myriad of functions, forests are under great pressure almost
everywhere in the world. Today, only one-third of the Earth's original
forest cover remains. And some 39 percent of that is threatened by logging,
road construction, pollution, agricultural expansion and other human
activities . WWF estimates that 94 percent of the world's current total
forest area of 3,000 million hectares is unprotected. WWF is deeply
concerned about the insufficiency of protected forests, deforestation and
the degradation of primary forests as a result of poor forest management.
WWF has therefore defined two targets:
Target 1: The establishment and practical realisation of an ecologically
representative network of protected areas covering at least 10 percent of
each of the world's forest types by the end of 2000.
Target 2: The independent certification of at least 25 million hectares of
well-managed forest by June 2001 focusing on key timber producing
countries.
1.2 Growing German awareness of tropical forest conservation needs
WWF Germany does not stand alone in its efforts to achieve these goals.
Forest conservation, especially in the tropics, is a priority in Germany. A
1998 survey of the German public showed that 38 percent identified tropical
forest conservation as the most important area for WWF Germany's financial
commitments, next to overall environmental protection. Of WWF's membership,
90 percent of the respondents prioritised tropical forest conservation .
Sustainable forest management for timber and paper production enjoys
considerable public support. For example, over 60 percent of the consumers
in the most important European markets, including Germany, are willing to
accept a higher price for certified forest products .
The German business sector is increasingly committed to responsible forest
management. In October 1997, WWF Germany and various partners launched
Gruppe 98. Like its counterparts in Austria, Switzerland, United Kingdom,
Netherlands, USA, Australia, Japan and elsewhere, Gruppe 98 members aim to
promote trade in wood products certified according to the principles and
criteria of the Forest Stewardship Council (FSC). Since its launch, 38 key
players in the timber and paper trade and retail sector have become members
of this group.
WWF Germany collaborates with BMZ (Federal [German] Ministry for Economic
Cooperation and Development), GTZ (German Technical Cooperation Agency) and
IUCN (International Union for the Conservation of Nature) to promote
conservation and sustainable management of tropical and non-tropical
forests. In this joint effort, special attention is given to collaboration
with partners in the private sector, the international donor community and
other non-governmental organisations. These partnerships aim to encourage
the introduction of an internationally recognised certification scheme
(FSC), as well as the establishment of a network of ecologically
representative conservation areas in primary forests all over the world.
Partnerships with the public (consumers), government, the private sector
and local communities in protected areas and other conservation
organisations are crucial for WWF to achieve its targets: environmental
degradation results from a multitude of causes and actors. This is
especially true for forest loss.
It has already been said that forests all over the world are threatened by
logging, road construction, pollution, agricultural expansion and other
human activities. Threats to forests are astonishingly diverse and vary
from region to region and year by year. However, the key role of the timber
and paper industries, both in forest degradation and sustainable
management, is widely acknowledged. Nowadays, key players in these
industries are assuming responsibility. By June 1998, a total area of 10
million hectares of forest had been certified according to the FSC
Principles and Criteria, six months before the first target date set by
WWF. While much more work remains to be done in the forestry sector, there
is also an urgent need to determine the role of other industries in forest
loss as well as their potential to contribute to more conservation and
better forest management.
In Indonesia, growing awareness of forest conservation needs, driven mainly
by NGOs, is also showing the first fruits of success. Two large private
initiatives have been formally launched to start the timber certification
process: the Lembaga Ekolabel Indonesia (Indonesian Ecolabel Institute) and
the Community Forestry Initiative to promote alternative forest management.
1.3 Indonesia: a country in crisis
This report focuses on Indonesia, a country in crisis. The political,
economic and ecological crisis which this Southeast Asian country
experiences were built up over many years when nepotism, corruption, poor
financial management and unsustainable forest management thrived throughout
the country. The costs of this situation remain enormous.
During the latter half of 1997 and throughout the first months of 1998,
Indonesia received unaccustomed international attention because of raging
forest fires. During September, October and November of 1997, fires belched
enough smoke into the atmosphere to blanket the entire region in haze as
far north as southern Thailand and the Philippines. WWF Indonesia and the
Economy and Environment Program for Southeast Asia (EEPSEA) estimate that a
total of 5 million hectares were affected in 1997 alone, of which an
estimated 20 percent were forest areas. The haze affected about 70 million
people. The economic cost of the forest fires and resulting air pollution
(haze) for the people of the region are conservatively estimated at 4.5
billion US dollars for 1997.
The greatest burden of this huge economic toll falls on the Indonesians.
Combined haze and fire damage from the 1997 fires approaches four billion
US dollars. Approximately one billion US dollars' damage was haze related;
most of it, 2.8 billion US dollars, was fire related .
In December 1997, most fires went out because of monsoon rains. But when
the country's financial crisis escalated in January 1998 as prices soared
and riots became an almost daily phenomenon, the forest fires and haze
returned. During this second round, the eastern part of Indonesian Borneo,
Kalimantan, was particularly hard hit. In early September, fires were
observed again in Kalimantan by the GTZ Integrated Forest Fire Management
Project in Samarinda, East Kalimantan. The GTZ detected 45 fire `hot spots'
on 14 September and as many as 76 on 21 September 1998.
Indonesia's forest fires are not just the result of the El Nio phenomenon.
This climatic event did bring extreme drought to the archipelago in 1997-98
and catalysed man-made fires to run out of control. In 1997, the Indonesian
authorities did away with the `tradition' of blaming smallholder farmers
for forest fires, used in earlier years. For the first time, the dominant
role of commercial plantation companies as a cause of the fires and haze
was openly acknowledged. In September 1997, former Environment Minister
Sarwono Kusumaatmadja identified big-scale plantations, industrial estates
and transmigration estates using slash-and-burn methods and he received
orders from Suharto to ban land clearing and to undertake action against
violators. In October, 176 companies were accused of practising forest
burning, 133 of which were oil palm plantation companies. However, only
five companies were undergoing legal prosecution in 1998.
The question of accountability is not easily answered. Is the plantation
worker responsible who sets fire to a forest for payment from the
plantation manager? Or is the community which sets fire to a plantation
responsible because they resent large-scale commercial plantation
development on their ancestral land? Is the government accountable because
of inaction or because it promotes plantation development in forest lands?
Are European importers and consumers responsible for their high demand for
vegetable oils which drives a developing country to rapidly expand its
plantation area to satisfy growing demand for cheap palm oil? For these
questions, only a complicated answer to a complex problem suffices: the
fires and the haze are the visible expression of an ecological crisis which
resulted from a complex of economic, political and natural powers with
local, national and international dimensions.
In May 1998, President Suharto stepped down from office after months of
political and public unrest. It is currently not clear to what extent
President Habibie will be willing and able to meet the need for thorough
reforms, also in the forestry and plantation sector. Some pledges to reform
have been made, but the economic crisis has not been resolved and there are
many signs that Indonesia will rely especially on the expansion of its
plantation and forestry sector in its attempts to recuperate. This means
that the danger of a deepening ecological crisis is all but behind us. At
the same time, the crisis brings about unprecedented opportunity for
change, also for fundamental reforms in forest policies. Whether threat or
opportunity will prevail also depends on the role which key players in the
international timber and plantation sector intend to play in the future.
2. The palm oil boom
Indonesia's way to the top
Box 2.1 A brief history on oil palm
The oil palm (Elaeis guineensis) is indigenous to West and Central Africa.
Big scale commercial growing in plantations started only at the beginning
of this century. Within the last fifty years, no other oil crop has reached
such scale of expansion throughout the tropics than the oil palm. Today
Elaeis is the world's most economic palm in terms of the value of its crop.
Four seedlings were introduced to Indonesia in the nineteenth century and
the first plantations were set up in 1911 in North Sumatra by the Franco-
Belgian corporation SOCFIN (Soci,t, FinanciSre des Caoutchoucs). In the
1930s an injection of Dutch capital led to rapid expansion in the area of
plantations and production so that in 1938 the combined exports from North
Sumatra and Aceh were the highest in the world. The sub-sector stagnated
after Indonesian independence but then grew strongly from 1968 onwards as
the Indonesian government made direct investments via state-run companies
setting up oil palm plantations. The government's policy was to ensure
adequate supplies of affordable cooking oil for domestic consumers, promote
industrial development and boost non-oil exports.
Through the years, the oil palm's productivity has been substantially
improved through backcrossing, hybridisation and cloning. As a result, the
per hectare yield potential of planting materials has more than doubled
since 1960 .
2.1 Indonesia's oil palm plantations today
Thirty years ago, the total area planted with oil palm in Indonesia was
just 100,000 hectares. Malaysia, currently the world's leading palm oil
exporter, had at that time established only 200,000 hectares of this tree
crop. Today, areas of this size are commonly controlled by a single private
plantation company. Figure 2.1 shows that the total planted area with palm
oil in Indonesia experienced spectacular growth in the 1980s and 1990s.
By late 1997, 2.4 million hectares, more than half the size of Denmark, had
been planted in Indonesia. About two-thirds of the planted area was
productive, while one-third of the planted area was still immature. It
takes three to four years for an oil palm to become mature. This means that
approximately 800,000 hectares had been cleared and planted since 1993-94.
Oil palm plantations are usually established as monocultures, in
concessions ranging in size from two by two kilometres (4,000 hectares) to
27 by 27 kilometres (75,000 hectares) . In these areas, most standing
vegetation is removed phase by phase through mechanical clearing or burning
after which planting commences (Box 2.2).
Box 2.2 Land clearing techniques
Until recently, land clearing by so-called `controlled burning' was
commonly applied by plantation companies in Indonesia. Controlled burning
involves the clearing of windbreaks, systematic thinning of the vegetation
and burning of dried debris. Under dry and windy conditions, `controlled'
fires can easily run out of control. Wildfires create risk to the existing
plantations and workers' housing but overall, plantation companies have a
clear interest in seeing forests `accidentally' burned. Even after the
fires went completely out of control in mid-1997 and a general burning ban
was called for by the Indonesian government, many fire `hot spots' in
plantation areas continued to be observed by satellites.
Plantation companies consider burning to be cheaper and faster than
alternative clearing techniques. In Malaysia, however, plantation companies
have already started to test and adopt `zero-burning techniques'. This
involves more thorough thinning of the standing vegetation and mechanical
shredding and stacking of the debris. Major advantages are `zero air
pollution', better soil properties and no wildfire risk. Controlled burning
for large-scale plantation development was prohibited by law in 1998. In
Malaysia, zero-burning techniques have been shown to be cost-effective .
Oil palm performs best in lowland, tropical moist environments, which is
also the habitat of the world's most biologically diverse tropical
rainforest ecosystems. Where oil palm monocultures are established, these
natural ecosystems have disappeared. Practically forever.
Officially, plantation companies are only granted grassland areas and
severely degraded forests by the provincial and national authorities. In
reality, the areas contain various kinds of vegetation, from virgin
rainforests and secondary forests used by local communities to agricultural
land and grasslands. A concession may have all of these categories, or just
one. In the 1990s, between 150,000 and 225,000 hectares of forest land were
converted into oil palm plantations annually (Figure 2.3). Much of this
area was converted at the expense of forest cover, but the overall area is
yet to be determined based on forest and provincial land use maps. WWF is
especially concerned that the oil palm plantation sector is yet to take its
greatest toll on Indonesia's natural forest.
2.2 Expansion plans
A gloomy future for Indonesia's forests
By early 1998, the Indonesian government had granted concession rights with
a joint area of over 5.5 million hectares to several hundreds of oil palm
plantation companies throughout the country . At the end of 1997, 2.4
million hectares of oil palm plantations had already been established, thus
a further 3.1 million hectares (about the size of Belgium) have yet to be
cleared and planted (Figure 2.2).
Originally, the government planned to see the total concession area planted
by 2000 in order to become the world's largest producer by 2005. This
objective could not be realised since investment proposals and the release
of land for conversion boomed only recently. Many plantation areas are
therefore not yet cleared and planted. Early in 1998, the Indonesian
government predicted that in the coming years, 300,000 hectares would be
planted annually . A representative of Oil World, an internationally known
organisation in Hamburg which publishes trade statistics for the vegetable
oil sector, recently forecast that planting rates will fall considerably in
the coming years as a result of the economic crisis . However, Oil World
expects the planting rate to rise again at the turn of the century (Figure
2.3).
2.3 The impact of the crisis
The plantation sector resists economic shock
Indonesia's crisis leads to a contradictory situation. On the one hand, the
plantation sector is constrained. Domestic banks and the Indonesian
government can no longer provide loans to the sector at favourable interest
rates. International banks lost faith in the Indonesian economy, and Asian
investors stopped new investments, at least for the time being. Prices of
imported fertilisers soared. These factors explain the slowdown in planting
rate forecasted by Oil World.
On the other hand, palm oil is Indonesia's most important agricultural
commodity in terms of foreign exchange earnings. While the economic crisis
worsened in 1997 and 1998, export-oriented plantation companies seem to
have done excellent business. They saw local costs (in rupiah) fall
drastically while (CPO) paid in foreign currency brought exceptionally high
prices, resulting in extraordinary profit margins . In February 1998, the
plantation sector was the `prima donna' of the stock market in Indonesia
with shares posting gains of 29.5 percent. In April 1998, PT Astro Agro
Lestari, one of Indonesia's largest plantation companies, announced it
expects a 200 percent increase in its net profits in 1998 as compared to
1997 . Analysts of the Credit Lyonnais are now recommending Astra Agro
Lestari as the best investment opportunity on the stock market among all
Indonesian companies .
It seems that on the national scale, expansion of agriculture is seen as
one of the main ways to overcome the crisis. In fact there are several
features of agriculture that make it an attractive option . Ironically,
the crisis favours agricultural export income because the drastic currency
depreciation makes Indonesian commodities cheap on the international
market, and because earnings are in US dollars while costs are in local
currency. This last point applies in varying degrees to the timber, mining
and fisheries sectors as well.
The Indonesian government and International Monetary Fund (IMF) provide
strong incentives to the export-based agricultural sector to counter the
economic crisis . The 43 billion US dollar rescue package of the IMF
included an initial loan of 400 million US dollars which has been disbursed
by the World Bank in November 1998 to support restructuring of the
agricultural sector, including the palm oil sub-sector . In early 1998,
the IMF negotiated a series of reforms which freed foreign investors and
plantation companies from the moods of the Suharto government with regard
to foreign investment penetration and export bans on crude palm oil. In
February, the ban on foreign investments in the oil palm plantation sector
was lifted and one million hectares of land were set aside for new foreign
investments, in addition to 2.2 million hectares which had already been
reserved for foreign plantation companies. In April, the export ban on
crude palm oil was lifted and replaced by a 60 percent export tax. The
Indonesian government introduced additional incentives including easing the
bureaucratic process for approval of investment applications in the oil
palm sector, provision of infrastructure, and longer term land lease
periods. As a result, substantial new foreign investments were attracted in
1998 .
New investments will have to be squeezed into the already numerous
applications to convert land into plantations (see 2.4 below). Almost all
large corporate plantation groups in Indonesia had already developed major
expansion plans before the crisis broke out in 1997 (Box 2.3).
Box 2.3 Corporate profiles
Oil palm plantations in Indonesia are nowadays primarily owned by private
companies (48 percent of the total area), followed by smallholders (33
percent). The state operates the remaining 19 percent. Private estates are
dominated by just four domestic business cartels - Astra, Salim, Sinar Mas
and Raja Garuda Mas - which accounts for 68 percent of private estates .
Private companies also have access to a large share of the smallholder palm
oil output from so-called plasma/tree-crop transmigration programs. Palm
oil refinery capacity in Indonesia is concentrated in the hands of five
corporate groups: Hasil Karsa, Musim Mas, Sinar Mas, Salim and Bukit Kapur,
who jointly control 61.3 percent of total annual refining capacity .
Since the overhaul of the Suharto government, the political clout of the
large Indonesian conglomerates, especially Astra and the Salim Group, was
shaken up. Their expansion plans, mentioned below, may not be realised
pending the outcome of investigations on corruption and nepotism. The
concentration of control in the sector may also have been diluted by the
influx of foreign capital since 1993. About 1.5 million hectares of oil
palm plantations were allocated to Malaysian companies in early 1997.
Astra Agro Lestari was founded by forestry tycoon and former Minister of
Trade, Bob Mohamad Hasan. Astra owns 27 oil palm plantations in Kalimantan,
Sumatra and Sulawesi as well as various tea, cocoa and rubber
plantations. Astra's oil palm plantations, 174,000 hectares as of 1996, are
planned for expansion to 260,000 hectares by 2000. The company expects CPO
production to increase from 196,000 tonnes in 1996 to 620,000 tonnes in
2000. Smallholders produce about 40 percent of Astra's CPO output. In the
first half of 1998, the Astra Group produced 96,000 tonnes of CPO of which
5,300 tonnes were sold in Europe.
Salim Group was founded by Liem Sioe Liong in the 1940s. The current
management of the group is now in the hand of his eldest son Anthony Salim.
Today the Salim Group is the largest and most diversified business
conglomerate in Indonesia. The group consists of more than 450 companies in
a wide spectrum of industries. Salim has access to 240,000 hectares of oil
palm plantations in Sumatra, Kalimantan, Sulawesi and Riau Islands. In
1995, the group produced some 600,000 tonnes of CPO and 125,000 tonnes of
palm kernel oil (PKO). Salim aims to increase CPO output to 2 million
tonnes annually once the allotted plantation areas of 400,000 hectares are
fully planted. The Salim Group is also involved in mining, forestry, oil
and gas exploration and poultry and crocodile farming. Salim acquired a
palm oil refinery in Rosslau, near Leipzig, Deutsche Hydrier Werke GmbH in
1990 .
Sinar Mas Group/PT SMART. Sinar Mas was founded by chairman Eka Tjipta
Widjaja. PT SMART is the group's agricultural subsidiary. At present the
Sinar Mas Group is one of the largest plantation owners in the world with
approximately 140,000 hectares of plantations in Sumatra and Kalimantan.
Sinar Mas has wholly owned and partial interests in 25 oil palm plantations
in Indonesia . In 1995, PT SMART reported to have access to 64,000
hectares of oil palm plantations. SMART planned to continue planting at a
rate of 7,000 - 10,000 hectares per year. The company is in the process of
establishing 40,000 hectares of oil palm plantations in East Kalimantan. In
1996, Sinar Mas was Asia's largest pulp and paper producer and the largest
stationary producer in the world .
Raja Garuda Mas Group is led by Sukanto Tanoto. This group is one of the
biggest palm oil producers in Indonesia and includes numerous forestry and
non-forestry subsidiaries, including the controversial PT Riau Andelan Pulp
and Paper and PT Inti Indorayon Utama (IIU) pulp mills. From 1995 to 1997
it invested 491 million US dollars in the increase of its production
capacity and an expansion of its plantation area of 363,000 hectares. The
group has three new palm oil factories with a total production capacity of
up to 383,000 tonnes per year. Its annual production is expected to reach
up to 2.8 million tonnes of CPO and 0.58 million tonnes of PKO.
Barito Pacific was established by Projogu Pangestu in 1968. The Barito
Pacific Timber subsidiary has concessions in Indonesia with an aggregate
area of 2.6 million hectares, of which 1.16 million hectares are virgin
forest . Barito produces 1.2 million m3 of wood products annually, mostly
plywood. Barito is also active in coal mining, real estate, petrochemicals
and financial services. In a joint venture with the Astra Group, the Barito
Group owns palm oil and rubber plantations in Sumatra.
Bakrie Brothers control over 88,000 hectares in Sumatra and has development
plans to expand with another 88,000 hectares in Kalimantan. Its diversified
business lines include cooking oil production, telecommunications, rubber,
trading and infrastructure support.
PT Perkebunan Nusantara is the major state-owned plantation company in
Indonesia. Nusantara takes account for some 30 percent of Indonesia's palm
oil production . It has 14 subsidiaries and more than 97 plantations
located throughout Indonesia of which currently 130,610 hectares are oil
palm. PT Perkebunan Nusantara's economic activities outside the palm oil
business cover rubber, tea, sugar cane, cocoa and coconut plantations and
processing industries.
SOCFIN (Soci,t, FinanciSre des Caoutchoucs), a Franco-Belgian holding with
oil palm plantations in Malaysia and Sumatra, Indonesia. The company is
partially owned by the Bollor, Group, which is involved in logging and oil
palm operations in Cameroon and elsewhere in Africa . SOCFIN was the first
plantation company to establish oil palm plantations in Indonesia. It
currently manages an area of 36,825 hectares.
PT PP London Sumatra (LonSum), owned by Harrisons & Crosfield until 1994,
produced 96,000 tonnes of CPO in 1996. In addition to its existing 54,000
hectares of oil palm and rubber estates in North Sumatra, PT LonSum is
developing additional plantations in East-Kalimantan (75,000 hectares, all
oil palm) and in South Sumatra (15,000 hectares, 70 percent oil palm).
LonSum will furthermore develop plantation areas of similar size for
smallholders through the Plasma-Nucleus Estate Programme.
SIPEF (Belgium capital) is a major supplier of palm oil to the UK, German
and Belgian markets. The SIPEF Group (Tolan Tiga Group in Indonesia)
consists of 12 companies, the second largest foreign owned group after
SOCFIN and LonSum, with 25,030 hectares of oil palm plantations. The German
development association DEG is known to have stocks of unknown amount in
one of the SIPEF Group members, PT Argomuko in Bengkulu, Sumatra which owns
5,170 hectares of oil palm estate, as well as rubber and cocoa plantations.
Cargill Indonesia is in the process of establishing its first oil palm
plantation and an oil palm mill plant in South Sumatra under the local name
of its subsidiary Hindoli. For this 45 million US dollar project, more than
one million oil palms have been planted and another 2.4 million are on
smallholder land near the crushing plant . Cargill Trading has also
established supply alliances with PT LonSum and Hasil Karsa Perdana.
2.4 Forest land for oil palm conversion
Indonesian Forest Land extends over an area of 143 million hectares, almost
three-quarters of the country's total surface. Indonesia's national land
use plan determines that 30 million hectares of Forest Land can be
converted to other land use, such as oil palm plantations. This is referred
to as Conversion Forest, whereas 113 million hectares would remain as
permanent forest, called Production Forest (for selective logging),
Protection Forest (mostly mountain forests) and Conservation areas (see
Figure 2.4).
Although the Indonesian government states that palm oil plantations should
mostly be established on Conversion Forest and occasionally in Production
Forest, there is a very real danger that expansion will increasingly take
place at the expense of Production Forest when clearing and planting for
oil palm recommences in the coming years.
This distribution of forest use according to the national land use plan may
seem balanced, but it does not reflect the reality on the ground. Forest
Land is only a legal status, it is not necessarily forested. Actual forest
cover in Indonesia today is estimated at 92.4 to 103 million hectares ,
which is less than the total permanent forest area of 113 million hectares
stated by the Indonesian government. According to the Indonesian
government, 19 million hectares of Conversion Forest remained in 1995 .
This means that a large area of permanent forest has been deforested or,
one may argue, that the Conversion Forest has already been fully opened up.
At the provincial level, there are many more applications for conversion
projects than there is land available from Conversion Forest. Of the 19
million hectares of remaining Conversion Forest, 11.7 million are located
in Irian Jaya, but applications for forest conversion projects are
submitted mostly to the authorities in Sumatra and Kalimantan because
investors prefer to locate their plantations in accessible and populated
areas nearby major ports and markets. If the outstanding applications for
conversion projects are approved, major deficits in available Conversion
Forest will be created. The pressure to release technically suitable
permanent forest land as Conversion Forest is enormous, especially in
Sumatra and increasingly in Kalimantan. Figure 2.5 shows that in 1995,
applications for the release of forest land in these regions largely
exceeded the amount of Conversion Forest that was available (see Appendix 2
for province level data). The situation was worst in Riau (Sumatra) where
almost six million hectares of forest land were being sought for release to
agriculture even though the entire area of permanent forest lands totalled
just over 4.5 million hectares.
Sources: Sumahadi (1995), DJP (1996), BPS (1997).
Provincial governments largely determine the allocation of Forest Land
through their five-year provincial land use plans. They tend to favour oil
palm estates above forest conservation and indigenous agriculture practised
by local communities (see Box 2.4).
Box 2.4 Frustration of a promising private initiative in Kalimantan
The industrial timber plantation company Finnantara Intiga, a joint venture
between companies from Indonesia and Finland (ENSO-St"ra), tried to develop
a new approach that was sensitive to local people and the environment.
Finnantara had been granted a 100,000 hectare concession in the north of
Sanggau and Sintang regencies. It vowed to convert only those areas of land
that were grassland or scrub and leave forest areas and villagers' rubber
groves untouched. Ignoring the government's land use and forest zone maps
it used remote sensing data to determine land areas which should be
developed and those which should be left in their existing state. The
regional governments, however, objected to Finnantara's approach, arguing
that it was wasteful. They gave the forested land, that Finnantara had set
aside, to oil palm companies .
In recent years, the Ministry of Forestry (now: Forestry and Estates),
which was required to approve provincial land use plans, has been bombarded
with requests to reclassify more and more production forest into estate
crop land. The Ministry agreed to these requests provided that evidence was
available that the forest was degraded. After decades of heavy logging and
forest fires, degraded forests have become widely available in Indonesia.
Government officials themselves acknowledge that timber companies leave
over 60 percent of the logged forest in a poor and degraded shape. Where
the forest is still in good shape, ways of degrading it are to log and burn
it before applying for a plantation concession.
Plantation companies sometimes claim they prefer to plant in grassland
areas because clearing forests and compensating communities for lost
agricultural crops is more expensive. But grasslands are generally
perceived to be less productive. Furthermore, Indonesia's oil palm sector
is dominated by corporate groups which are also active in the timber and
pulp and paper industry (see Box 2.3). Rather than wait for the forest to
regenerate after one of the group's logging companies has overlogged a
timber concession, plantation members of the group apply for a conversion
permit for the severely degraded Production Forest. Positive cash flows
from the newly established plantation can be expected six to eight years
after clearing. It would take much longer, five decades or more, before the
logging company could profitably exploit the regenerated forest.
Ironically, in some cases logging companies apply as well for a conversion
permit to get a `licence' for clearcutting already over-logged secondary
forests.
The interest in establishing oil palm plantations is sometimes believed to
be driven by the value of standing timber and mere land speculation. The
companies could apply for a logging concession, but the Indonesian timber
industry has increasingly been subject to stricter controls because of
international pressure and declining log production. A plantation permit
requires a lengthy process of approval, but once granted, there are few
restrictions to the way in which the forest is treated, since it is
destined to be cleared anyway. A 1998 study commissioned by the Japan
International Cooperation Agency (JICA) in cooperation with Indonesia's
National Development Planning Agency (BAPPENAS) concluded that only 15
percent of the 3.2 million hectares of land earmarked for planting oil palm
by the provincial government of West Kalimantan was suitable for this
purpose .
Encroachment in national parks and production forest is already taking
place. On 30 May 1998, East Kalimantan's provincial environment office
reported that there were 21 cases of estate companies (mostly oil palm
estates) operating on forest lands that were not intended for conversion.
At the same time officials said there had been 18 cases of overlapping land
use where protection forest lands were being used by mining and logging
interests. Two logging companies were working in national parks .
In order to reduce pressure in the already heavily exploited regions of
Sumatra and Kalimantan, the national government closed down the provinces
Riau and North Sumatra to further new investments in March 1998. The
government intends to direct new investors to East Indonesia. which
includes East Kalimantan, Sulawesi, the Moluccas and Irian Jaya . If the
government succeeds in redirecting the industry to these remoter regions,
substantial investments in road construction and other infrastructure will
be required as well as attracting a labour force to these areas, thus
leading to further destruction in these regions.
2.5 More plantations - more problems
Fire, habitat loss and social conflicts
There are many environmental, social and economic problems related to the
oil palm sub-sector, not only in Indonesia, but almost anywhere it expands.
Some major impacts related to converting forests into plantations, such as
fires, habitat loss and social disintegration, are discussed below. It is
important to note that few oil palm plantations and governments have dealt
adequately with the problems related to soil erosion, labour conditions and
the excess application of pesticides, herbicides and fertilisers.
Fires and haze
Clearing the land by burning vegetation adds to air pollution, releases
greenhouse gases into the atmosphere and increases the risk of wildfires
outside the intended area. Burning peat swamp areas for oil palm
plantations is becoming more common as better-quality soils on higher
ground have become scarce. Fires in peat swamps are particularly hazardous
since they burn for a long time and emit large amounts of carbon and
sulphur-rich smoke. They are hard to extinguish because underground organic
material feeds the flames. Although oil palm companies burn forested land,
they are also quick to apply for land that has already been destroyed by
others' activities (Box 2.5).
Box 2.5 Timber and oil palm companies swapping musical chairs in East
Kalimantan
The eastern part of Indonesian Borneo, East Kalimantan, was mostly spared
from the rampant fires which swept throughout the rest of the island and
Sumatra in 1997. But in January 1998, fires did break out and peaked in
March 1998, affecting a huge area with up to 1,000 separate locations. Both
Kutai National Park and the Bukit Suharto Reserve were devastated as a
result. Kutai lost 71,000 hectares, almost 50 percent of its area, and its
already stressed orang-utan population was driven further to the edge of
extinction. . Large numbers of people lost crops; many people saw their
houses burned. Water bombing was attempted but many fires were out of
control and were doused only by rains in late April.
Central government officials stated that 60-65 percent of ravaged areas
were owned by timber estates using fire for clearing land to plant
softwoods for pulp and paper production . Logging and tree plantation
companies suffered enormous losses and many left the province. As is
happening in other provinces in Kalimantan, a new area of one million
hectares of burned and degraded land will now be planted with oil palm.
This will include sections of the Balikpapan-Samarinda highway, once
planted with pepper and now largely under elephant grass (Imperata
cylindrica) but badly burned, another burned area in Sangkulirang and the
lands of a former softwood plantation near Kota Bangun. German investors
are said to be involved in this new project .
Habitat loss
The unique ecological richness of the rainforest in terms of both plant and
animal life is lost upon clearance, although even before this, disturbance
by logging will have had a marked effect, especially on wildlife
populations. Monoculture systems severely restrict habitat diversity and
favour only a very restricted number of species . Figure 2.6 shows the
number of mammal species found in various vegetation types, based on
research in 1983 by Salleh and Ng in Malaysia. This distribution is likely
to be very similar to Indonesia's.
The mammals most favoured by the oil palm monocultures are rats, which are
regularly true pests to the plantation companies. They are fought mostly by
applying rodenticides, but the more progressive companies increasingly
resort to integrated pest management by raising owls or by instructing
their workers not to kill pythons. On the losing end are, among others,
orang-utans, Sumatran tigers, wild pigs, porcupines and wild elephants.
Their natural habitat, lowland rainforest, has been substantially
diminished in size by plantations and other human activities. For example,
herds of wild elephants get pocketed in too small forest remnants and start
raiding unprotected crops planted by farmers and plantation companies.
Elephants are thus also considered a pest by plantation companies. Crop
raiding is especially serious in Riau, the province with the largest area
of oil palm estates after North Sumatra. It was estimated that wild
elephants had damaged at least 113,665 hectares of rubber and oil palm
plantations at a cost of over 16 billion rupiahs in 1995 (6.9 million US
dollars at that time) . Moreover, the well-known seasonal migration
patterns of elephant herds are not taken into account by the government
during land use planning. In the absence of an ecological infrastructure,
elephants have no alternative but to roam through the plantations. Fencing
keeps the animals completely out and creates even greater problems for
them. Occasionally, wild elephants are killed. In March 1996, a plantation
company in Riau was accused of killing 12 wild elephants through the
indiscriminate use of poison. However, most wild elephants are captured and
retained in six government facilities in Sumatra for domestication.
However, elephants often remain in a facility because domestic demand for
them is low and obstacles to selling elephants abroad are high . In
Lampung Province alone, about 40 wild elephants are captured each year .
Social disintegration
While oil palm concessions have been granted on lands with good forest
cover, it is even more common for them to be granted on or near the lands
of traditional smallholders, especially in Sumatra and West Kalimantan.
Like industrial timber companies, oil palm companies prefer to build their
estates in accessible locations with good roads. This draws them in most
cases to areas that are already populated , which results in numerous
conflicts with local communities (see two cases in Box 2.6).
Box 2.6 Conflicts between local communities and oil palm estates
On 8 June 1998, the Indonesian newspaper Suara Pembaruan said the Bukit
Tigapuluh National Park in Riau (Sumatra) was under siege from two oil palm
estates of 8,000 and 4,000 hectares respectively that were encroaching on
the forest. There were also twelve sawmills operating illegally in and
around the park. The oil palm estates were operating with the permission of
the Governor but the local inhabitants (Kubu people) were concerned that
their lands would be taken by the oil palm companies and that the forest
resource would be degraded.
On 4 July 1998, Kompas reported that hundreds of villagers in Siberakun,
Benai district, Inhu regency in Riau, burned down the facilities of oil
palm company PT Duta Palma causing 10 billion rupiahs damage. They
destroyed warehouses, a processing factory and a bridge. The regent of Inhu
said the conflict erupted because the company did not heed the people's
requests to stay out of their traditional protection forests and customary
lands. Duta Palma commenced operations in 1983 and had planted an estate
45,000 hectares in area, of which 1,500 hectares displaced permanent forest
and customary lands.
On 5 October 1998, the Strait Times reported that thousands of farmers in
the Indonesian province of West Sumatra protested against an oil palm
plantation firm which they said had polluted a local river. The villagers
attempted to attack the base camp of PT Tri Agro Adhiniaga (Taan) at the
Limapuluh Kota district but were repulsed by company security guards who
were backed by about 35 soldiers from a local battalion. The villagers were
angered by the pollution of the river following the felling of forests by
Taan. The company had dumped the waste from the felling into the river and
the villagers, who rely on the river for their daily water needs, have been
complaining of serious skin irritation.
Social impacts observed by the JICA/Bappenas study included indigenous
landowners being forced to change their ways to accommodate oil palm
companies competing for their land resources (see Boxes 2.5 and 2.6). Land
was offered to companies by the provincial government without consulting
with local communities. Those communities were then forced to surrender
their land while being offered very little compensation .
While it is often claimed that villagers can earn substantial incomes from
oil palm either as labourers or cooperating smallholders in nucleus estate
and smallholder schemes, the reality is very different. The JICA study and
the University of Adelaide in West Kalimantan and Jambi revealed that
smallholders involved with oil palm often received less than half of the
estimated returns and experienced economic difficulties . Similarly, the
employment opportunities generated by oil palm estates were often
overestimated. The JICA study also observed that the regional economy would
be susceptible to international palm oil price changes if the plans to make
the province dependent on the single commodity proceeded .
Box 2.7 Sustainable use of a non-timber forest product: the rattan palm
Indonesia has the richest palm flora in the world. An estimated 477 species
of native palms occur in Indonesia, mostly in lowland primary forests .
Rattans are the economically most important native palms in Indonesia.
Millions of indigenous peoples depend on rattan for their livelihoods.
Rattan is an important raw material for furniture and basketry exports.
About a century ago, indigenous Dayak communities of East Kalimantan
started planting rattan in abandoned shifting cultivation plots and
secondary forests. Today, these `rattan gardens' are still a very important
source of cash income and help to maintain biodiversity in the secondary
forest. But logging, expanding plantations, forest fires and low market
prices threaten to destroy this unique example of sustainable forest
management.
3. Germany's role in Indonesia's oil palm boom
Box 3.1 Margarine, lipstick and fuel
Palm oil products in brief
The oil palm is primarily grown for the oils which are extracted from its
orange fruits. Fruit production starts three to four years after planting
until the tree reaches the age of 20 to 30 years. Processing mills derive
CPO from the fruits' mesocarps and palm kernel oil(PKO) and palm kernel
meal (PKM) from the kernel.
The mill residues, empty fruit bunches, are burned or mulched as
fertiliser. Overmature oil palm trees are usually burned or chipped, but
research shows that the palm oil trunks can also be used for lumber and
fibre board. Palm kernel meal is a major raw material for animal feed such
as food for pigs.
The main products, CPO and PKO, are further refined into bleached
deodorised palm oil and olein, the raw materials for cooking oil,
margarine, frying fat, shortenings, ice cream and other foodstuffs whereas
a third refinery by-product, stearin, is used for soap production.
Palm oil is used primarily for food stuffs, especially margarine, but non-
edible and technical applications of fatty acids derived from palm oil are
substantial and increasing. Large quantities of CPO are used by the steel
industry during the cold rolling of steel plate to provide lubrication and
prevent surface corrosion. Apart from soap, other non-food applications are
lubricants, cosmetics (lipstick, hand creams), candles and, potentially,
fuel. In Malaysia, Mercedes Benz and Malaysian companies are testing a new
fuel from palm oil, called 140 CPO Elsbett, which is being tested by taxi
drivers in Kuala Lumpur .
3.1 World production and international trade
Over the last five years, global consumption of palm oil products increased
by 32 percent at an average of seven percent per year, while production
only grew by 21 percent. Prices have subsequently soared to approximately
70 percent above what might be considered normal . Malaysia is the world's
largest palm oil producer and exporter, and contrary to prior hopes of the
Indonesian government and industry, Indonesia will not take the lead in
global palm oil production in 2005, but only from 2017 onward . In 1997,
Malaysia and Indonesia jointly accounted for 80 percent of the world's
crude palm oil production (17.6 million tonnes) and 87 percent of global
exports (12.4 million tonnes) .
Box 3.2. Malaysian oil palm
Malaysia's oil palm plantation area still exceeds that of Indonesia. Of the
2.8 million hectares in this country, most have been planted in peninsular
Malaysia through direct forest conversion and the conversion of rubber
estates to oil palm. Oil palm plantations are rapidly expanding in East
Malaysia (Sabah and Sarawak), where most of the future expansion will take
place. Especially in Sarawak, many local communities oppose this
development because the plantations are established on their ancestral
domain.
Malaysian oil palm companies started to invest in plantations abroad
because of rising land and labour prices since the early 1990s.
Approximately 50 Malaysian companies established joint ventures with
Indonesian plantation companies and other investments have been made in
palm oil plantations in, among others, Papua New Guinea and the Solomon
Islands.
By volume, the world's largest palm oil importers are China, India and
Pakistan, where palm oil is the traditional cooking oil, similar to olive
oil in South Europe (see Table 3.1). Europe's main palm oil importers
include the United Kingdom, Netherlands and Germany. Imports by these
countries exhibited above average growth in the 1990s. However, German
industry representatives believe that Asian countries will account for most
of the future growth in palm oil consumption .
Table 3.1. World crude palm oil imports by country, 1993-1997
(in 1000 tonnes).
(gross imports, excluding palm kernel oil and
palm kernel meal)
Import per capita
(in kg)
Countries
1993
1994
1995
1996
1997
(1997)
PR China
1,059
1,863
1,595
1,370
1,860
1.5
India
151
408
863
1,254
1,465
1.5
Pakistan
1,141
1,230
1,125
1,103
1,120
7.8
Netherlands
411
434
429
504
606
37.9
Germany
361
427
412
445
494
5.1
United Kingdom
377
446
446
455
456
7.9
Singapore
631
474
559
421
427
142.3
Egypt
473
390
353
381
372
5.8
Japan
356
349
351
361
370
2.9
Turkey
250
201
201
171
245
3.9
Sub-total
5,210
6,222
6,334
6,465
7,415
3.4
Others
4,176
4,535
4,141
4,233
4,844
0.9
Total
9,386
10,757
10,475
10,698
12,259
2.1
Source: Oil World Annual 1998.
With 2,039 million tonnes CPO, the EU is the largest palm oil importing
trade block in the world. The three EU countries, Netherlands, Germany and
UK jointly account for three-quarters of Europe's CPO imports.
Gross per capita imports are very high in Singapore and the Netherlands,
countries which obviously re-export most of the palm oil imported after
some form of processing. About 10 to 15 percent of CPO and 34 to 53 percent
of Germany's butter fat is imported from the Netherlands .
3.2 Indonesian palm oil production and exports
Palm oil as an important source of foreign exchange
Palm oil is an important cooking oil in the domestic markets in Indonesia
and Malaysia. Demand for CPO within Indonesia was about 60 percent of total
production in 1997 . Indonesia's palm oil exports show a less continuous
pattern than total palm oil output (Figure 3.1) . One reason is that since
1991 the Indonesian government frequently intervened in the marketing of
palm oil through taxes and export bans to guarantee low domestic prices for
cooking oil , not the least to diminish risk of popular unrest. Of course
in 1998 the economic crisis prompted producers to export rather than supply
the domestic market. Preliminary export figures for 1998 suggest that as
soon as the ban on CPO exports was lifted there was a surge in export
activity with somewhere between 720-780,000 tons of CPO leaving Indonesian
shores in the three months from May to July . If this trend continues for
the remainder of this year, approximately 84 percent of total production
will have been exported by the end of 1998, causing already high domestic
prices for cooking oil to increase further. The introduction of further
trade liberalisation measures in Indonesia is likely to boost exports in
the future .
With a total export value of 1.78 billion US dollars in 1997, Indonesia's
palm oil and related products surpassed rubber exports, which raised 1.5
billion US dollars in foreign exchange earnings . The biggest importers of
Indonesia's palm oil are China (16 percent), India (16 percent),
Netherlands (13 percent), Germany (10 percent) and Kenya (seven percent).
With this share, Germany is the second largest EU importer after
Netherlands. In 1997, the EU bought 37 percent of total Indonesian palm oil
exports.
3.3 Germany's palm oil imports
The rising popularity of a healthy vegetable oil
In Germany, palm oil is the second most imported vegetable oil after
soybean. Germany's CPO imports from Indonesia doubled since 1993 from
144,000 tonnes to 288,000 tonnes in 1997 (Table 3.2). Indonesia is
increasing its market share for CPO and PKO in Germany, partly at the
expense of imports from Malaysia. Kernel meal is still mostly imported from
Malaysia.
Table 3.2. Germany's main palm oil suppliers, 1993-1997 (in 1000
tonnes)
Crude palm oil
Indonesia
Malaysia
Other
Total
Volume
Share
Volume
Share
Volume
Share
1993
360.6
144.6
40%
99.4
28%
116.6
32%
1994
427.3
183.4
43%
125.1
29%
118.8
28%
1995
412.3
188.6
46%
107.2
26%
116.5
28%
1996
445.7
218.2
49%
108.2
24%
119.3
27%
1997
494.1
288.1
58%
113.9
23%
89.1
18%
Palm kernel oil
Indonesia
Malaysia
Other
Total
Volume
Share
Volume
Share
Volume
Share
1993
156
96.1
62%
46.6
30%
13.3
9%
1994
153.9
104.6
68%
30
19%
19.3
13%
1995
110.2
85.5
78%
14.6
13%
10.1
9%
1996
136.4
101
74%
24.9
18%
10.5
8%
1997
156.5
115.6
74%
21.5
14%
19.4
12%
Palm kernel meal
Indonesia
Malaysia
Other
Total
Volume
Share
Volume
Share
Volume
Share
1993
612.6
145.9
24%
444.3
73%
22.4
15%
1994
598.6
132.7
22%
435
73%
30.9
23%
1995
499.3
100.4
20%
381.9
76%
17.0
17%
1996
472.0
110.6
23%
352.3
75%
9.1
8%
1997
520.1
192.7
37%
308.1
59%
19.3
10%
Source: Oil World Annual 1998.
Note: Germany also imports small amounts of stearin, olein and
glycerine from Indonesia.
The German shift from Malaysia to Indonesia is most probably the result of
lower Indonesian palm oil prices. Indonesian palm oil has the lowest cost
of production in the world. Labour wages at Indonesian plantations, for
example, were just 0.90 US dollars and 1.50 US dollars per day between 1992
and 1997 compared to 15 US dollars per day in Malaysia (1997). Land
prices in Malaysia are said to be four times above those in Indonesia .
According to industry representatives, overall growth of the share of palm
oil in vegetable oils and fats used in Germany is due to its favourable
price compared to alternative oils such as soybean oil. Another reason
mentioned is public concern over genetically engineered soybean . Between
1993 and 1996, the export value of Indonesian CPO exports to Germany ranged
from 23 million US dollars (1993) to 61 million US dollars (1995) .
3.4 Germany's palm oil consumption
Oil and fat for choosy consumers
A representative of Union Deutsche Lebensmittelwerke (Unilever) estimates
that the share of palm oil is about 20-30 percent of consumption of all
vegetable oils in Germany. In many applications in the food sector, palm
oil can be - and normally is - exchanged for other vegetable oils. Figure
3.3 provides an overview of the main consumer sectors of all vegetable oils
in Germany. Most of the vegetable oils, including palm oil, are consumed by
the food industry, particularly for the production of margarine, frying
fats, snacks and sweets.
The food sector is the most important source of consumption in Germany.
Palm oil contains a relatively high amount of saturated fatty acids
compared to other vegetable oils such as sunflower oil or soybean oil.
These saturated fatty acids are regarded as less favourable for the daily
diet than the unsaturated ones (essential fatty acids). But unlike most
other vegetable oils, palm oil is already a semi-solid fat in temperate
climate. For margarine and frying fat production it can be used without
hardening. This hardening (hydrogenation) process demands expensive
technical facilities but moreover causes the development of the so-called
trans-fatty acids, which are said to be one contributing factor to coronary
heart disease. Another favourable aspect which makes it highly suitable as
a major component in margarine is that it has no linolenic acid, which
causes flavour reversion. These attributes together with its moderate price
make palm oil an ideal vegetable oil for the margarine industry. According
to the Verband Deutscher Margarineindustrie, the major association of
margarine processing companies in Germany, the overall German consumption
of palm oil (from any source) for margarine was 124,000 tonnes in 1997.
Another major product line containing palm oil is the wide range of
shortenings, frying fats and bakery fats.
The full range of foodstuffs made with palm oil is surprisingly diverse.
Chocolate products like candy bars, pralines or chocolate icing contain
palm oil as a perfect substitute for cocoa butter. Other products are
toffees, ice cream, coffee whitener and peanut butter. The growing demand
for `convenience products' such as dry soup mixes, canned cream soups and
packaged meals for the microwave will most probably lead to a higher demand
for palm oil. The traditional fat for dry soups and canned soups is of
animal origin which has nutritional disadvantages and limited stability.
Market leaders in this industry have been replacing more and more meat fats
with hydrogenated vegetable fats such as palm oil.
About 15 percent of vegetable oil is used in the non-food sector for the
production of lubricants, detergents, soaps and cosmetics. Mineral oil is
normally the primary alternative for vegetable oils in this sector. Among
the various cosmetic products are lipstick, body lotion, sun cream and
make-up remover.
3.5 Corporate players in Germany's palm oil industry
Major importers, refiners and manufacturers of oil palm and other vegetable
oils in Germany include Meister Markenwerke, Noblee & Th"rl, Walter Rauh
Nuesser Tl und Fett and Deutsche Cargill (all oil refiners), AKZO Nobel,
Henkel Material Wirtschaft (chemical industry), Dr. Oetker, Maylip
Nahrungsmittel (margarine and other foodstuffs), Unilever (refining, food
and non-food sector) and Nestl, (food sector). Major producers of cosmetics
and detergents in Germany are Colgate-Palmolive, Procter & Gamble, L'Oreal,
Johnson & Johnson, Beiersdorf, Unilever/Lever GmbH and Avon .
Most of these companies are internationally active and few are actually
German-owned. Internationally, Henkel Material Wirtschaft is probably the
best known German producer of detergents and raw materials for the chemical
industry. Within the non-food sector, Henkel is one of the biggest users of
vegetable oil in Germany. It uses one million tonnes of vegetable oils and
fats in its subsidiaries throughout the world per year. A well known Henkel
brand name is Persil. The company is represented in Indonesia by PT Henkel
Indonesia. According to political analyst George Aditjondro, there are
various links between Henkel and Indonesia's leading politicians and the
Salim Group, one of Indonesia's largest timber, pulp and oil palm
conglomerates, which had all of its applications for land suspended this
year (see also Boxes 2.3 and 4.1).
One of the directors of PT Henkel Indonesia is H.M. Yanis Zahiruddin, the
elder brother of Akbar Tanjung, who is presently minister and chairman of
the leading Golkar Party. Tanjung is also a commissioner of the Zeta
Corporation, the sole agent for Henkel in Germany. Liem Sioe Liong, the
president commissioner of Zeta, founded the Salim Group. Tanjung's family
holding, Marison Nusantara, also has overlapping shares and directorships
with the Salim Group .
Unilever (Dutch/English) has four margarine producing subsidiaries in
Germany: Union Deutsche Lebensmittelwerke, Homann, Benedict Klein and
Meister Markenwerke. Unilever manages oil palm plantations in Malaysia,
Ghana, Cote d'Ivoire, Congo Kinshasa and Thailand, but not in Indonesia
although it does own several oil and food processing plants in Indonesia.
In Europe, Unilever trades and processes substantial amounts of palm oil
from Indonesia through its purchases of CPO on the international market .
Unilever Germany has a broad range of subsidiary companies providing a full
set of commodities for the private consumer (foodstuffs, cosmetics and
household detergents). In 1998, Unilever Germany is expected to use 40,000
tonnes of palm oil.
Nestl, Deutschland AG belongs to the world's leading food company, Nestl,
S.A. that has more than 490 factories around the world. The German
corporation houses such well known brands as Maggi, Thomy (ketchup, salad
dressing, cooking oil) and Alete (baby food). The annual palm oil
consumption of Nestl, Deutschland is 60,000 tonnes.
Cargill, a US-based international concern represented in Germany by
Deutsche Cargill, is developing an oil palm plantation in South Sumatra.
Cargill Trading was one of PT London Sumatra's most important clients in
1995-96 . LonSum supplies approximately 2,000 tonnes of palm oil to
Cargill Trading every month.
3.6 Other German interests in Indonesia's oil palm sector
A lesson for German development cooperation
Financial institutions, such as banks, investors and development agencies,
provide the capital to the oil palm sector to expand through loans, grants
and participations. This capital is important as it often allows the oil
palm companies to finance the most costly phase of plantation
establishment, land clearing.
Major European development aid institutions and commercial banks are
involved in plantations in Indonesia. The German Development Bank (DEG),
for example, participated in a US$ 41 million funding package prepared by
the International Finance Corporation (IFC), a part of the World Bank
Group. The funds enabled the company PT Kalimantan Sanggar Pusaka to expand
both its oil palm estates to 35,000 ha. and its production facilities in
West Kalimantan . German companies are also involved in technological
development of palm oil processing. For example, Gies Kerzen GmbH of
Germany will set up a joint venture with PT Natura Lilinmas Lestari of
Indonesia, called PT Gies Natura Indonesia, to produce candles from stearic
acid derived from palm oil . Gies Kerzen will contribute 1.25 million US
dollars to the project. Machinery will be brought from Germany and the
candles exported to Europe and Australia.
Financial institutions also provide capital for regional development, often
through the infrastructure development, which in turn attracts investments
of oil palm companies. Small investments may attract major capital,
creating serious and unwanted side effects. This seems to be the case with
the O-Phir project in Sumatra, which is supported by the German government.
In 1981, when Indonesia's oil palm industry was virtually embryonic, the
German government was involved in a development project in Pasaman,
Sumatra. Known as the O-Phir project, it was funded by the Kreditanstalt
fr Wiederaufbau (KfW) (a German financial cooperation agency) and
technically supported by the German Technical Cooperation Agency (GTZ). A
relatively small area of 6,000 hectares was planted with oil palm as part
of the Nucleus Estate Smallholder (PIR) programme. To facilitate
transportation, the KfW financed the construction of the coastal West
Pasaman Road in 1986. The core of the project was formed by the state-owned
plantation company PT Perkebunan Nusantara VI and some 2,400 families, who
each received two hectares of mature oil palm plantation. A recent survey
in the area confirmed that farmers' income was higher than before the
project started. One farmer pointed out that the exchange rate of 10,000
rupiahs to one dollar allowed a family to earn a net income of 1.5 to 2.0
million rupiahs per month, a very high figure compared to the earnings of
most Indonesians, who are now suffering under the severe economic crisis.
The final project evaluation report stated that the O-Phir project
significantly reduced poverty for 31 percent of the target group.
But this expansion also brought hardship to the indigenous Kinali. The
smallholding farmers were mostly ex-military servicemen and their families
who were returning to the area. Members of the indigenous community started
to sell communal land to them and abandoned their customary law, `adat'
(see Box 3.3). A growing infrastructure for plantations fueled the invasion
of foreign and domestic capital to the Pasaman region in the late 1980s. As
of September 1998, there were six oil palm companies operating in the
Kanagarian Kinali area.
Plantation expansion in the region has created fear and conflict within the
Kinali community. Reports of land conflict cases indicate that there are
disputes regarding an area of almost 40,000 hectares that are planted with
oil palm. In September 1998, several people were arrested who had been
protesting against the seizure of their indigenous land.
The plantations replaced rice fields and forest. An indigenous leader said
that 80 percent of the Kinali people now need to buy rice on the market, in
a region that only 10 years ago was a net rice exporter. Income from non-
timber forest products such as resins, rattan and wild fish has also
declined; these products vanished together with the natural forest within
eight years. Large trees have disappeared. If a community member wants to
build something, the lumber must now be purchased at 400,000 rupiahs per
cubic meter.
Community members also report that water supplies in the area were altered,
rendering a relatively new irrigation system useless .
Box 3.3. The traditional land rights system in Indonesia
The cultural diversity of Indonesia has resulted in a complex system of
indigenous, and largely unwritten laws, related to the use and ownership of
land. Though the many different people and ethnic groups of the Indonesian
archipelago vary widely in customs, religion, social organisation and
resource management systems, they share some common pattern in land tenure.
Under the traditional `adat' land rights system, land is regarded as the
common property of the community. This communal right to land, known as
`hak ulayat', can not be bought, sold or leased: it is unalienable .
People do not own the land on which they live and work, they merely control
it. Ownership to specific plots can belong to a household but usually the
control over a wider territory relates to the village community. Customary
land rights nowadays are under increasing pressure as the country is
sacrificing the needs of its local people for land and resources for the
sake of national `development'. As a consequence, people were subsequently
pushed off their traditional lands due to the drive to develop cash crops
or exploit natural resources.
The O-Phir project is now completed. Since the O-Phir project began, much
has changed within the GTZ and the KfW. The GTZ no longer provides support
to expand oil palm plantations. Based in Samarinda, East Kalimantan, the
GTZ Integrated Forest Fire Management project now plays a key role in
monitoring Indonesia's forest fires and in promoting sustainable forest
management in Indonesia..
However, there is a need for further assessment of German development aid
and potential support to projects that may prove to be unsustainable. In
January 1998, the Jakarta Post reported that the German government intended
to increase its investments in West Kalimantan, especially in ports and
infrastructure projects. In addition to investments in natural gas,
business prospects in West Kalimantan included the palm oil industry and
bauxite. The economics section at the German Embassy said that investment
plans would be discussed with German businessmen first; it did not want to
elaborate on these plans .
4. Incentives for conservation
4.1 Opportunity through crisis
The Centre for International Forestry Research (CIFOR) in Bogor recently
stated that despite the increasing threats to Indonesia's forests, the
"opportunities have never been greater for fundamental forest policy change
in Indonesia". The forest policy reform movement aims to break with certain
bad practises of the past, and to greatly improve the stream of forest
benefits and management responsibilities to relatively small companies, to
cooperatives and forest communities . WWF subscribes to this position.
Great opportunities also exist to expand the area of existing parks and
reserves (see Box 4.1).
Box 4.1 Oil palm plantations applications converted to National Park
In North East Kalimantan, four oil palm plantation companies belonging to
the Salim Group were in the process of obtaining concessions in
biodiversity-rich swamp and tidal forests. Because the Salim Group had
close contacts with the Suharto regime, all applications for land from this
group had already been suspended by the reformation government pending
investigation of corruption and nepotism . WWF, supported in its work by a
grant from EPIQ under the USAID/NRM2 project, lobbied Forests and Estates
Minister Nasution to completely cancel the applications and include the
swamp and tidal forests in the proposed Sebuku-Sembakung reserve. It was
believed that these companies' main interest was the value of the standing
timber since the suitability of the soils for oil palm was highly
questionable due to tidal flooding. Furthermore, local communities depend
on the swamp and tidal forests for their livelihoods. In late August 1998
Minister Nasution (Forestry and Estates) decided to cancel nine concessions
in East Kalimantan and announced that the 100,000 hectares area will be
classified as National Park instead.
There are signs that the economic crisis will, at least for now, slow down
forest clearing for oil palm plantations during the next two to three
years. The slow down gives the breathing space to reconsider the situation
before the next clearing boom might begin.
4.2 WWF's activities to promote conservation
WWF Indonesia participates in the management of numerous national parks in
Indonesia, provides support to mammal conservation, notably orang-utan
rehabilitation, and conducts research into the causes and impacts of the
recent forest fires and haze. To address the need for better conservation
outside existing protected areas, WWF started its Integrated Protected Area
and Bioregional Planning Programme in Kalimantan and Irian Jaya in 1998.
WWF and its partners aim to secure conservation of biologically critical
areas located outside existing protected areas and to promote responsible
management in production areas. Provincial governments are important
partners in this process, which up to date emphasised the transformation of
forested lands to more intensive land use to achieve development goals.
4.3 Needs
The research for this report revealed the discrepancy between land/forest
use planning and the actual situation on the ground. There is an urgent
need to revise the planning process based on the actual situation to avoid
further conversion of forest areas which are important to conservation and
local communities. In this respect the role of the provincial governments
should be scrutinised as well. Changing the rules at the central level will
have little effect if things remain the same at the provincial level.
In fact, one of the policy changes imposed on Indonesia through the IMF
loan is to "reduce land conversion targets to environmentally sound levels
and implement a system of performance bonds for forest concessions". This
policy is to be put into effect by December 31, 1998 . This gives the
Indonesian government the formidable task of taking inventory of the actual
land conversion situation on the ground. WWF intends to offer the
government assistance in this area to identify high priority conservation
areas outside existing reserves which would help to increase the actual
protected area on the ground, and to create an ecological infrastructure on
the regional level.
At the level of individual plantation concessions, numerous improvements
should be considered, only some of which are listed below:
Forest retention
Good forest within plantation concessions should be preserved. The
conservation value of retained forests, even when already logged, can be
considerable. Retained forests along riversides and slopes help to reduce
soil erosion and siltation of rivers and coral reefs. It is believed that
in many cases, forests are cleared on sites within the plantation where the
company could have established beforehand that they were not suitable for
oil palm. Patches of forest may also prove important sources of non-timber
and timber products for local communities and plantation workers. Finally,
retained forests provide a habitat for rat predators and these may help to
reduce pest rats .
Experience with voluntary forest retention in plantations has not been an
overwhelming success. In the case of Finnantara in West Kalimantan, the
forest retained by the company was simply handed over to oil palm
companies. Hardly surprisingly, PT London Sumatra experienced that leaving
one big tree in every 50 hectares of forest cleared did not prove
successful. When it tried to retain a larger area of primary forest inside
a plantation concession, local people started to exploit this forest since
nobody was using it .
These experiences should provide important lessons. There is a great need
to find out and try out how forest in plantations can be more effectively
retained, before and after the plantation is opened up. Much may be
achieved through voluntary mechanisms. Alternatively, government
regulations may be improved and enforced more strictly.
Forest restoration
Once oil palm monocultures are established, many conservation values are
lost. Immediate forest restoration in these plantations may not be
feasible. However, once the plantations are overmature and require
replanting, opportunities exist to exclude certain areas (in a spatial
structure which is beneficial to wildlife and people) to allow forest
regeneration. This will be particularly necessary in provinces where much
forest has already been lost.
Zero-burning techniques
Burning is an outdated and non-economical clearing method. In Malaysia,
plantation companies must adopt zero-burning land clearing methods (and may
count on hefty fines if they don't comply). Indonesian companies should be
provided with incentives to introduce these techniques, although
environmental impacts will also need careful study.
Wildlife centres and rehabilitation
Thousands of orang-utans, tigers, proboscis monkeys and elephants are
victimised by forest fires and plantation establishment. There is a great
need for support to wildlife rehabilitation centres.
Other improvements in plantation management
There are many ways in which plantation and palm oil mills are already
improving their environmental performance, especially in Malaysia. There is
still much space for wider adoption of some of these improvements. For
example, integrated pest management is being adopted by some of the more
progressive plantation companies to reduce pesticide application. Valuable
nutrients from empty fruit bunches are recycled from the oil mills to the
plantation soils by mulching. In Malaysia, research is ongoing to integrate
livestock such as cattle and deer, and other crops, with oil palm
plantations. The Finnish company ENSO and the Indonesian Palm Oil Research
Institute study the use of empty fruit bunches for paper production in
Malaysia and Indonesia .
4.4 How palm oil consumers may contribute to conservation
The necessary steps ahead
Up to date, the international vegetable oil sector has been all but
visionary in its approaches towards sustainable resource use. As a result,
the sector is confronted with one problem after the other: overfishing and
fish oils, genetic modification and soya bean, deforestation in the Amazon
and soya bean, health implications of tropical oils. The latest issue is
that industry is held accountable for forest loss and air pollution in
Indonesia. New issues appear on the horizon, such as genetically engineered
oil palms and reckless expansion of oil palm plantations in other forest
rich countries such as Papua New Guinea, Guyana, Cameroon and elsewhere.
It is clearly in the vegetable oil industry's self-interest to develop long
term strategies towards ecologically and socially sustainable land use and
production methods. Consumers today expect the industry to take care of
these issues.
At least 45% of the palm oil demand in Germany is sufficed by Indonesia and
this share continues to grow. This brings about a responsibility for German
importers to assure that their purchases do not cause forest loss and
social conflict, but it also means leverage to change poor policies and bad
practises in the field for the better. This is even more true if we
consider that the EU is the world's largest palm oil importer and major
multinational corporations stand behind Germany's vegetable oil industry.
Palm oil importers and manufacturers in Germany and producers alike, are
unwilling or reluctant to share information about the origins of their raw
materials. Some are completely unaware of origin of their raw materials.
There is a tendency among some to downplay the influence they may have to
help improve the situation in Indonesia. This is not the way to go forward.
Like the corporate members of the German Gruppe 1998, palm oil importers
and manufacturers should, for a start, identify the suppliers and their
plantations. Most suppliers will manage productive plantations which have
already replaced the original vegetation cover and adapted local peoples'
lives. In these areas, there are often still opportunities for forest
restoration and other improvements. It is also especially important to
identify where suppliers plan to open forest areas for future plantations.
It is in these areas where biodiversity values can still be preserved and
where local peoples' needs can be met in appropriate ways.
4.5 Financial institutions and donors
On average, 77 percent of the funds required by plantation companies for
development are obtained from bank loans. Because interest rates at
domestic banks are so high, plantation companies have increasingly resorted
to international banks for loans. If these banks screen the viability of
these loans on the basis of expected rates of return and the project's
legality only, they miss out on an excellent opportunity to strengthen
conservation goals and socially responsible development in Indonesia and
other tropical countries. Therefore, these banks should develop minimum
guidelines that go beyond existing national legislation, to at least assure
that their investments would not lead to forest loss, fires and social
disruption. Ideally, they would provide incentives (for example, through
low interest rates) to plantation companies that intended to develop
plantations in an ecologically and socially responsible manner.
Besides exploring ways to support conservation in Indonesia, German
development aid organisations and the German Embassy in Jakarta should
review their loans and grants to the agricultural sector and infrastructure
projects. These funds may create unwanted side effects on forests and local
communities, even after a project is finished. The same applies to the
commercial institutions mentioned above. Finally, the German government is
in a position to provide incentives to international organisations such as
the EU and the World Bank/IMF to monitor and evaluate the possible impact
of credits and grants on Indonesia's agricultural sector and
infrastructure.
Notes
Appendix: Forest land classifications and demand for release of forest land
to plantation use in Indonesia, 1995.
Province
Area
(ha)
Permanent forest
lands
in 1995
(ha)
Conversion forest
in 1995
(ha)
Non-forest land
mostly already used
for other purposes
in 1995 (ha)
Oil palm planted
area
in 1995
(ha)
Applications for
release of forest
land agreed in
principle (95)
Outstanding
applications for
release of forest
land (95)
Conversion forest
deficit if all
applications
granted
(ha)
Riau
9,456,160
4,635,000
1)
4,821,160
460,571
1,650,187
4,246,076
-5,896,263
N.Sumatra
7,168,068
3,527,000
254,000
3,387,068
562,172
172,829
1,072,460
-991,289
Aceh
5,539,000
3,282,000
848,000
1,409,000
146,552
315,851
1,086,518
-554,369
S.Sumatra
10,277,500
4,028,000
1,186,000
5,063,500
174,061
127,829
1,469,008
-410,837
Jambi
5,100,000
2,220,000
727,000
2,153,000
141,110
345,142
685,212
-303,354
W.Sumatra
4,229,730
2,943,000
438,000
848,730
105,171
162,162
336,693
-60,855
Bengkulu
1,978,870
978,000
179,000
821,870
40,045
47,500
134,495
-2,995
Lampung
3,301,545
1,083,000
153,000
2,065,545
29,100
90,572
365,235
-302,807
SUMATRA
47,050,873
22,696,000
3,785,000
20,569,873
1,658,782
2,912,072
9,395,697
-8,522,769
West Kalimantan
14,680,700
7,696,000
1,509,000
5,475,700
192,595
257,059
1,265,125
-13,184
Central Kalimantn
15,300,000
10,997,000
1)
4,303,000
20,749
257,250
1,149,973
-1,407,223
East Kalimantan
21,144,000
15,952,000
1)
5,192,000
38,874
295,395
1,820,271
-2,115,666
South Kalimantan
3,700,000
2,029,000
285,000
1,386,000
28,029
257,250
524,758
-497,008
KALIMANTAN
54,824,700
36,674,000
1,794,000
16,356,700
280,247
1,066,954
4,760,127
-4,033,081
S.Sulawesi
6,292,650
3,352,000
259,000
2,681,650
45,971
107,915
191,289
-40,204
C.Sulawesi
6,368,925
4,935,000
242,000
1,191,925
11,984
82,790
305,018
-145,808
N.Sulawesi
2,751,501
1,583,000
294,000
874,501
0
10,000
94,272
189,728
SE Sulawesi
3,814,000
2,190,000
699,000
925,000
0
19,750
74,800
604,450
SULAWESI
19,227,076
12,060,000
1,494,000
5,673,076
57,955
220,455
665,379
608,166
NTB
2,015,315
1,064,000
1)
951,315
0
643
1,777
-2,420
Maluku
8,572,800
5,097,000
1)
3,655,800
0
25,780
236,314
-262,094
Irian Jaya
41,066,000
28,817,000
11,775,000
474,000
13,207
126,389
590,992
11,057,619
EAST
51,654,115
34,978,000
11,775,000
4,901,115
13,207
152,812
829,083
10,793,105
OTHER
19,982,114
5,305,000
191,000
14,486,114
TOTAL
192,738,878
111,713,000
19,039,000
61,986,000
2,010,191
4,352,293
15,650,286
-1,154,579
1) In these provinces convertible forest had not been separated from
permanent forest lands at this time.
Sources: Sumahadi (1995), DG of Estates (1996), BPS (1997).
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Conference. Commodity of the Past, Today and the Future. September 23-25,
1998. IOPRI/GAPKI.
M Hassan Su'ud, 1997. "Sawit dan Politik Pertanian Kita" (Oil palm and the
politics of our agriculture) in Suara Pembaruan, 27.4.98, internet edition
McBeth J., 1997. "El Nino gets blamed" in Far Eastern Economic Review,
October 9 1997, 80-81..
Mielke S. 1998. The Outstanding Role of Indonesia in the Phenomenal
Development of the World Oil Palm Industry in the Past and the Future.
International Oil Palm Conference. Commodity of the Past, Today, and the
Future. Bali, September 23-25, 1998.
Nababan, A. 1998. The German Involvement in and Contribution to the
Invasion of Oil Palm Plantations and Related Industries in Indonesia. Draft
report for AIDEnvironment. Telapak, Bogor.
Oil World 1998a. No. 36, Vol. 40. ISTA Mielke GmbH. Hamburg.
Oil World Annual 1998. ISTA Mielke GmbH. Hamburg.
Pamin, K. 1998. A Hundred and Fifty Years of Oil Palm Development in
Indonesia: Fron the Bogor Botanical Garding to the Industry. International
Oil Palm Conference. Commodity of the Past, Today and the Future. September
23-25, 1998. IOPRI/GAPKI.
Pantzaris, T. 1997. Pocketbook of Palm Oil Uses. PORIM, Kuala Lumpur.
PCI, 1998. The Development Study on Comprehensive Regional Development Plan
for the Western Part of Kalimantan: Progress Report (2), prepared by
Pacific Consultants International for the Japan International Cooperation
Agency and the Indonesian National Development Planning Agency (BAPPENAS).
Payne, J. 1997. Sabah Biodiversity Conservation Project. Identification of
Potential Protected Areas Component, Forests in Plantations Workshop
(October 9, 1997). WWF-Malaysia, Ministry of Tourism and Environmental
Development, Sabah and Danish Co-operation for Environment and Development.
Kota Kinabalu.
Potter L.M. and Lee J.L., 1998. Tree Planting in Indonesia: Trends, Impacts
and Directions, unpublished consultancy report prepared for the Centre for
International Forestry Research, Bogor.
Potter L.M. and Lee J.L., 1998. Oil Palm in Indonesia: Its Role in Forest
Conversion and the Fires of 1997/98, unpublished consultancy report
prepared for WWF Indonesia, Jakarta.
PT London Sumatra Annual Report 1996.
SKEPHI and Kiddell-Monroe, R. Indonesia: Land Rights and Development, in
Colchester, M. and Lohmann, L., 1993. The Struggle for Land and the Fate of
the Forests. World Rainforest Movement.
Sumahadi, 1995. "Prosedur pelepasan kawasan hutan dalam rangka pengembangan
perkebunan" (Procedures for the release of forest land to estates
development), in Prosiding Seminar Nasional Peluang dan Tantangan Industri
Kelapa Sawit Menyongsong Abad XXI, prepared by the Oil Palm Research
Centre, Medan, Indonesia.
Sunderlin, W. 1998. Between Danger and Opportunity: Indonesia's Forests in
an Era of Economic Crisis and Political Change. CIFOR, Bogor.
Tondok, R. 1998. Production and Marketing of Indonesian Palm Oil: Past,
Present and Future. International Oil Palm Conference. Commodity of the
Past, Today and the Future. September 23-25, 1998. IOPRI/GAPKI.
Tripahi, S. 1998. Natural Advantage. Far Eastern Economic Review 29.1.98.
Van Gelder, J. 1998. Capital Flows in Forestry Companies. Report prepared
for AIDEnvironment.
Universit,t fr fur Bodenkultur/European Forest Institute 1998. Potential
Markets for Certified Forest Products in Europe. Vienna.
Verbelen, F. 1996. Dankzij Paraquat heb je Voortaan Geen Zorgen Meer.
Universitair Centrum voor Ontwikkelingssamenwerking. Brussel.
Wakker, E. 1998. Introducing Zero-burning Techniques in Indonesia's Oil
Palm Plantations. Report Prepared for WWF-Indonesia. AIDEnvironment.
Amsterdam.
Wolvekamp, P. and C. de Nooij 1997. Olie op het Vuur. Both ENDS, Amsterdam.
12 June 1998.)
Wirtschaftswoche 22 October 1998. p. 206.
Sunderlin 1998
Sunderlin 1998.
Sawit Watch Indonesia (Indonesian NGO-consortium on oil palm advocacy).
Between 8 June and 23 July 1998, the Ministry of Investments approved foreign
investments worth 3.3 billion
US dollars (all sectors). Singapore Business Times 19 August 1998.
Cohen and Hiebert 1997, McBeth 1997.
BULOG in Larson 1996.
Kompas Online 20 July 1998.
Aditjondro, G. pers. comm. with Potter 4 September 1998.
Kompas Online 20 July 1998.
Carrere and Lohman 1996.
Van Gelder 1998.
Kompas Online 20 July 1998.
Verbelen 1996.
Extracted from Cargill's homepage, viewed 10 August 1998. "Cargill's Palm Oil
Plantation is Transforming
Land, Changing Lives".
EIA 1998, FAO 1997.
Government of Indonesia 1997.
CIFOR study conducted by Potter and Lee, University of Adelaide. The company
Finnantara is discussed more
fully in Potter and Lee 1998.
PCI 1998.
Jakarta Post 31 May 1998
Tondok 1998.
Jakarta Post 18 April 1998
Jakarta Post 12 March 1998, 3 April 1998.
Manuntung 15 September 1998.
Wycherley in Henson, I. 1994.
Lair, R. 1997.
Bangun in Lair 1997
Jakarta Post 29 July 1998
However, basic palm oil processing facilities are much cheaper and easier to
construct than pulp mills. This
allows oil palm estates to locate in relatively more isolated locations.
PCI 1998, supported by Potter and Lee 1998.
PCI 1998, Potter and Lee 1998.
PCI 1998.
Johnson 1991.
Pantzaris 1997, Suara Pembaruan 22 September 1998
EIA 1998, Fry 1998.
Mielke S. 1998.
Oil World Annual 1998.
Although the United States is a major consumer of vegetable fats and oils, it
does not appear in the global top ten
of largest palm oil importers. This has to do with the nutritional composition
of tropical oils, which contain
polysaturated fats which are held responsible for heart disease.
Compare Oil World Annual 1998. Butter fat does not exclusively contain palm
oil.
Mielke 1998.
Source for Figure 1: Oil World 1998a. No. 36, Vol. 40.
Larson 1996.
Oil World 21 August 1998. Oil World (4 September 1998) forecast that exports
in 1998 would actually fall by
about 500,000 tons in 1998 to 2.4 million tons due to the export ban. Theft and
smuggling would probably stop this
from being available to the domestic market.
Compare also Sunderlin 1998.
Tondok, R. 1998.
Liang, T.S. 1998.
Tripahi 1998.
According to representatives of Unilever Plc. And Plant Breeding, good
progress has been made with genetically
modified palm oil, although marketing thereof is not expected before 2015
(Corley R. and Stratford, R. 1998.)
ICBS 1997.
This list is not complete, nor does it represent any ranking in terms of
volumes used.
Aditjondro 1998, Bisnis Indonesia Daily 1 October 1997.
Wolvekamp & De Nooij 1997.
PT London Sumatra Annual Report 1998.
EIA 1998. Bank Brussels Lambert was another contributor to the project. DEG
also participates in the SIPEF
Group, see Box 2.3
Suara Pembaruan 13 May 1998.
Nababan 1998.
SKEPHI & Kiddell- Monroe 1993.
Jakarta Post 15 January 1998.
Sunderlin 1998.
Suara KalTim 2 June 1998
Sunderlin 1998.
Payne 1997.
Mr. Brown, president director PT PP London Sumatra. Pers. comm. February 1998.
New Straits Times 25 August 1998. Study on Making Paper from Oil Palm Waste,
Gurtino P. et al. Undated.
Pilot Scale Production of Kraft Paper made from Oil Palm Empty Fruit Bunches.
IOPRI Homepage.
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