Orangutans and the prosperity approach on palm oil

Vincent Lingga, The Jakarta Post, Medan | Opinion | Mon, November 18 2013, 10:19 AM

Palm oil was on the minds of more than 600 delegates from multinational companies, conservation NGOs as well as smallholder representatives from some 30 countries who gathered in the Roundtable on Sustainable Palm oil (RSPO) conference here last week.

For good reason. In Indonesia, the industry is booming with annual production of over 27 million tons, netting more than US$20 billion in export earnings and creating badly needed employment and opportunities for farmers across the country, notably in Sumatra, Kalimantan and Sulawesi.

Financial returns for larger investors have also been outstanding, making the owners of the large palm oil groups among the richest businesspeople in the country, and seem likely to remain buoyant as demand grows.

However, Trade Vice Minister Bayu Krishnamurti seemed irritated by the seemingly perpetual accusations of many international NGOs, which tended to link the palm oil industry’s expansion in Indonesia with deforestation and the destruction of biodiversity, wildlife.

“It is in our best interests that we implement best practices for sustainable palm oil. It is for the sake of our future, not because others told us, to do it,” Krishnamurti told the opening of the RSPO 11th annual meeting on Tuesday.

Richard Whitehead, the editor of the FoodNavigator Asia newsletter, also acknowledged the palm oil controversy in the developed countries, especially Europe and the United States, set off by a seemingly endless series of bad headline stories.

Unfortunately, these headline stories more than often hide the complex issues behind the rapid development of oil palm plantations and make meaningful, sensible debates difficult.

Adam Harrison, a policy officer with conservation organization the World Wildlife Fund (WWF) recognized that oil palm plantations had produced 65 percent of the world’s traded vegetable oils, and that palm oil was a key ingredient in many foods, cosmetics, soaps, detergents and biofuel.

RSPO Secretary General Darrel Webber also acknowledges that oil palms have particularly high yields, providing almost 40 percent of global vegetable oil production while only occupying 7 percent of the total oil seeds’ agricultural lands.

According to the United Nations Food and Agriculture Organization (FAO), global vegetable oil production in 2012 totaled 144 million tons, of which 50 million tons was palm oil, 36 million tons soybean oil, both accounting for 60 percent.

The remainder consisted of rapeseed, peanut and corn and sunflower oils.

But typical of an NGO activist, Harrison also was apprehensive that the rising demand would increase the pressures on tropical forests and biodiversity, risking dangerous levels of carbon emissions from tropical peats and increased community conflicts.

Hence, according to Webber and Harrison, the best solution to address the negative externalities of palm oil cultivation is to ensure that products that contain palm oil meet the sustainability criteria, notably best farm practices, as defined by the multi-stakeholder organization RSPO.

The problem, though, is that the several of the principles and criteria applied by RSPO and the Indonesian Sustainable Palm Oil (ISPO) are different in their priorities, especially with regard to issues on environments, wildlife and biodiversity conservation.

Environmental NGOs, which seem to be the most assertive among the RSPO stakeholders, put biodiversity, wildlife and other high-conservation values, virtually on top of the list of their concerns.

These concerns certainly mean little to farmers in Sumatra and Kalimantan who earn less than $2 a day. Their priority is to put food on their tables and send their children to school. They cannot understand as to why conservationists in Europe claim the rain forests around them to be part of the world heritage of biodiversity.

To conservationists in the UK or the US, the loss of orangutans somewhere in the Sumatra jungles might be the end of the world. But to the poor farmers living near those jungles, such a loss does not matter much.

But the inability of the Indonesian government to enforce its own rules, the pervasive corruption within the bureaucracy and greedy businesses, often validate NGOs critics.

Despite these shortcomings, Krishnamurti still considers the perpetual wave of criticism of oil palm development ridiculous as the detractors’ bone of contention could easily shift from deforestation, to peatland destruction, the loss of biodiversity and high-conservation value areas.

So disproportionate was the wave of criticisms that many within the government and business world suspect the negative campaign was sponsored by producers of soybean, rapeseed, corn and sunflower oils, who see oil palm as a threat to their hegemony.

Such suspicion is simply understandable because, as Krishnamurti noted, oil palm is nine times more productive than all other vegetable oils.

In this context, the joint study currently being conducted by an independent certifying agency to clarify the disparities as well as to identify the synergies between RSPO and ISPO, could be the first major step to improving communications and understanding between the government and international NGOs as well as other private sector stakeholders.

Focusing on potential damages to the environment and other high-conservation value areas, as most international NGOs have done, is neither the right nor effective way to convey the message.

A disproportional adversary approach would only irritate policymakers and law enforcers in Indonesia because oil palm development involves complex issues of poverty, unemployment and inadequate institutional capacity of regional administrations.

International NGOs should not expect everything to be settled in one night, because such irrational expectations would not help build confidence in the vital importance of sustainable palm oil.

The best way to address the complex issues of sustainable palm oil is to implement an integrated prosperity approach to empower poor people living around primary forests to improve their living standards through best farm practices.

If international NGOs and multinational companies are really concerned about environmental degradation they should focus their energy on capacity building programs to enable regional administrations to better enforce laws and regulations and to empower local NGOs and other civil-society organizations to monitor and oversee the environmental impact of oil palm development by big companies.

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A disproportional adversary approach would only irritate policymakers and law enforcers in Indonesia.

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The writer is a senior editor of The Jakarta Post.

The RSPO engine for sustainable palm oil seems to be sputtering 

Vincent Lingga, The Jakarta Post, Jakarta | Opinion | Mon, November 11 2013, 8:47 AM

More than 600 delegates from 30 countries are gathering in the Roundtable on Sustainable Palm Oil (RSPO) 11th annual conference opening in Medan, North Sumatra, today when the multi-stakeholder organization itself is facing bigger challenges to its own sustainability as the market watchdog of socially and environmentally sustainable palm oil.

Even though most big palm oil companies in Malaysia and Indonesia, which together account for over 85 percent of global production, and most consumer product giants, such as Nestle, Unilever and major environmental NGOs remain RSPO members, its effectiveness as the vanguard of sustainable palm oil is increasingly under scrutiny.

The establishment of the RSPO in 2004 by plantation companies, processors, manufacturers of consumer products, retailers, banks and environmental conservation NGOs was prompted largely by market forces or the mounting consumer demand for green products.

However, more than five years after the RSPO began its certification program, the volume of RSPO certified palm oil remains very small, amounting to only 8.3 million tons or 15 percent of global output.

Yet even more disappointing, both the market uptake of certified palm oil and the premium price gained by this supposed ‘green’ commodity are also negligibly small.

In fact since several RSPO members were implicated in the June-July forest fires in Riau, which caused the worst haze that Malaysia and Singapore had ever faced. This organization has been criticized for what several NGOs see as weak enforcement of its principles of sustainability.

The Indonesian government countered the RSPO with its own program called the Indonesia Sustainable Palm Oil (ISPO) in 2011 and Malaysia is also reportedly preparing its own sustainability initiative called the MSPO. 

Even though the credibility of both programs are questionable due to the non-involvement of NGOs and independent auditors, the ISPO certification has been made compulsory for all companies.

The principles of sustainable management promoted and assessed by the RSPO for its certification process includes elements, such as transparency, legal and regulatory compliance, best production practices, environmental responsibility, commitments to local community development, human rights as well as land rights to name a few. 

By and large, these principles and criteria are precisely the best practices for agricultural development that the ISPO itself has been trying to promote. 

The good news is that earlier this month, the RSPO and ISPO signed an agreement on strategic cooperation to eventually develop a unified certification program for sustainable palm oil.

At present, companies in Indonesia deal with two different certification programs: RSPO certification, which is voluntary but recognized by the consumers in the developed countries, and ISPO certification, which is mandatory but lacks international credibility due to the absence of environmental NGOs and independent auditors as well as weak law enforcement. 

But it will probably take a long time before the RSPO and ISPO can finally develop a unified certification plan, which will be globally recognized, especially if the Indonesian government is not willing to involve environmental NGOs and other private-sector stakeholders, such as consumer products and retail giants. 

But without government involvement in or co-ownership of its certification program, the RSPO would find it extremely difficult to influence policies in Indonesia and Malaysia.

In fact, the RSPO has been perceived in many quarters in both countries mainly as a forum of multinational buyers and international NGOs despite the active participation of smallholders.

Despite these differences, it is nevertheless totally misguided to say that the green campaign for agricultural commodities will weaken. On the contrary, the clock of the global green-consumer drive has been ticking faster and can no longer be turned back. 

The force of the gren consumer drive has also been quite strong within the 21-member Asia Pacific Economic Cooperation, which held its annual summit in Bali last month.

APEC has drawn a list of 54 Environmental Goods that are eligigible for deep import tariff cuts as low as five percent.

Indonesia, as the host of the summit, lobbied hard to enter palm oil and rubber to the list, but failed miserably. 

The rationale for the green campaign for agricultural commodities is this: because the prominent role of agriculture in the use of natural resources — notably land, water and biodiversity — ensuring sustainable resource use has become an important challenge.

The allegations that the RSPO movement is a subterfuge by the producers of vegetable oils, such as soybean, sunflower, rapeseed and corn oil in the rich countries in coping with the fierce competition from palm oil seem misplaced.

Independent product certification has earlier been used in the forestry industry as a market-based instrument to supplement the regulatory system in curbing illegal logging.

The Bonn-based Forest Stewardship Council (FSC), which groups the representatives from environmental and conservation groups, timber industry, forestry professions, forest certification organizations and forestry communities, has developed forest certification standards and accredits independent certifiers.

The Indonesian government has launched an official timber legality certification program, called SVLK, and has made this program compulsory for all forestry products under an agreement with the European Union. 

The green consumer campaign for socially, environmentally and economically sustainable farm commodities has escalated around the world and covered other agricultural commodities, such as soybeans and sugar cane. 

Soybean growers and processors in North and South America and Australia, grouped in the Roundtable on Responsible Soy Association (RTRS), and sugarcane growers and processors under their Bonsucro organization, have also begun similar certification programs.

Industrial users in Europe, which consume more than six million tons of palm oil a year, have committed to using only RSPO certified palm oil by 2015.

The Singapore-based International Rubber Study Group (IRSG) has embarked on an ambitious initiative to draw up a plan for the industry, much like what the RSPO has been doing in palm oil.

IRSG said recently all stakeholders of the rubber supply-chain system should come up with a sustainability plan, especially because over 85 percent of rubber production comes from small growers. 

The campaign for sustainable agricultural commodities, especially palm oil, still has still a long way to go, especially because India and China, the world’s largest palm oil consumers, have yet to realize the urgency of this green consumer agenda.

But as the experiences of several the RSPO members who have certified their plantations have shown, the primary beneficiaries of sustainable oil palm development are the growers themselves.

Several RSPO certified palm oil companies have showcased that their best agricultural and corporate governance practices immediately generated benefits like higher efficiency, higher productivity, peaceful labor relations, good relations with local communities, better pest management and certainly better reputations (corporate image).

The biggest challenge now is how to integrate the RSPO, ISPO and the imminent MSPO and put the sustainability agenda under government leadership, while also including the involvement of private-sector stakeholders.

Because a global platform, even if it is led by multinational companies or NGOs, cannot be seen as dictating or influencing the policies of sovereign countries. 

The writer is a senior editor of The Jakarta Post

View Point: Now we reap
what we sowed

Vincent Lingga, The Jakarta Post, Jakarta | Opinion | Sun, November 10 2013, 12:27 PM

The global economic slump certainly played its part in Indonesia’s growth falling to 5.6 percent in the third quarter, the lowest in the past four years.

However, we should blame ourselves for most of the strong headwinds currently hitting our economy. We are in fact reaping what we sowed during the rosy period of robust growth of more than 6 percent annually over the last three years.

Instead of riding on the strong momentum created by the gushing of cheap capital inflows from the US quantitative easing program and booming commodity markets between 2010 and the first half of this year, our policymakers and many politicians were lulled into hubris.

This complacency bred a series of distortive policies in mining and banking, protectionist measures in the trading sector and reawakened xenophobic sentiments amid the increasingly pervasive corruption in such key sectors as the law enforcement agencies and the strategic oil and gas industry.

These distortive policies, combined with the acute infrastructure deficit as well as the inefficient and corrupt bureaucracy already inherent within our economy, caused our economic engine to overheat easily even at an annual speed of just 6 percent, as we have experienced over the past three years, whereas, our potential growth is between 7 and 8 percent.

This is really quite unfortunate because based on our national incremental capital output ratio (ICOR); we need at least 7 percent growth to absorb the estimated 2.5 million new job seekers entering the labor market every year.

The ballooning current-account deficit, which set off a sudden reverse of capital flows between June and September, was caused largely by the widening trade deficit, which in turn was brought about by declining exports due to the global economic slowdown and rising imports.

Our imports increased sharply over the past three years to fulfill the rapidly expanding domestic market demand for consumer goods, basic materials and capital goods for new investment ventures.

The import of consumer products and industrial inputs should not have increased so sharply had our manufacturing industries built up adequate capacity and had our factories not depended so heavily on imported basic materials.

But again the slow development of the manufacturing capacity should be blamed on high logistics costs, which are in turn caused by the big infrastructure deficit, making our supply-chain management grossly inefficient.

Therefore, we can see how the acute lack of sense of urgency on the part of the government to develop infrastructure and reduce bureaucratic and regulatory barriers has created a vicious circle and made our economic engine prone to overheating.

When the US Federal Reserve hinted in May that it would begin to cut (tapering) its massive quantitative easing program, which pumps US$85 billion a month mainly into the global market, Indonesia therefore became the most vulnerable to capital outflows, compared to its Southeast Asian neighbors.

It was the overheating that forced Bank Indonesia (BI), the central bank, to put the brakes on growth, tightening its money policy by raising its benchmark interest rate.

We may console ourselves by considering the slower growth as a timely reality check to cool down the economic engine, thereby reducing imports and curbing trade and current-account deficit.

The government may be right in reiterating the importance of slowing down the pace of growth and focusing on economic stability, seeing an expansion of less than 6 percent as a new path of sustainable growth.

After all, an optimistic growth-rate estimate of 5.8 for this year, compared to the International Monetary Fund projection of 5.3 percent and World Bank’s 5.6 percent, would still be respectable and could be among the highest in the region, except for China and some other much smaller economies in the region.

The fact is that our economic growth could have been higher had we have been determined to do our homework, accelerating, instead of reversing, the pace of reforms to improve the overall efficiency and competitiveness of the economy.

The gross inefficiency of our economy, combined with the international perception of rampant corruption within our system, made Indonesia the hardest hit during the recent reverse of capital flows, making the rupiah one of worst performing currencies in Asia and the Jakarta stock price index suffer a sharp fall.

We should not overdo our concern over the slowdown, especially if we look into the long-term potentials of the economy.

But domestic consumption and capital expenditure, which have underpinned growth, are still expected to further slow in the coming months as households and companies feel the effects of higher borrowing costs.

The government needs to accelerate the pace of its bureaucratic and regulatory reforms to remove the “fats” that makes the economy grossly inefficient and susceptible to overheating.

But successful reforms require strong leadership and a sense of urgency when things are not as quiet and smooth as they appear. The Fed’s tapering policy still lingers on, threatening another wave of capital outflows.

We already experienced the extreme volatility in our financial and equity markets amid the mere hint of a reduction in Fed bond-buying last May.

The best way to brace ourselves for economic turbulence is by speeding up the pace of our bureaucratic and economic reforms.

Considering the elections next year, we are afraid that reforms will likely be the last thing on the minds of most politicians as the country’s economic management has been set on automatic pilot.

The writer is senior editor at The Jakarta Post.