Onward with oil palm, but in due balance

Onward With Oil Palm, but in Due Balance

Jakarta Globe: Opinion: Anna M. Ruman: 16 April 2009

Over the last 40 years, global oil palm cultivation has increased exponentially, with 43 percent of the total cultivated oil palm crop currently produced in Indonesia. This inception of palm oil as a valuable commodity, particularly as biofuel, has dramatically accelerated deforestation in Borneo, with only a third of the original forest cover expected to remain by 2020. However, the country’s economic reliance on oil palm products and the present fragility of international markets make addressing this environmental crisis a rather sticky situation.

Extensive deforestation in Indonesia threatens the region’s unique biodiversity as well as efforts to mitigate climate change. Scientists estimate that the production and use of palm oil biofuel over time will lead to greater carbon dioxide release and more pronounced climate change than equivalent refinement and use of fossil fuels.

Not only does destruction of forest carbon reserves release carbon dioxide into the atmosphere, but the frequent use of fire to clear land exacerbates greenhouse gas release. Given the extent of environmental destruction associated with oil palm, aggressive plantation expansion appears unethical and unwise.

However, despite recent calls by environmental groups for a moratorium on land clearing for plantation expansion, mediating oil palm’s spread has proven daunting. Today, oil palm cultivation and processing is a major sector of the national economy. Although revenues from palm oil make up only 2 percent of the GDP, cultivation and processing support directly and indirectly the livelihoods of approximately five million people. In addition, these figures have been on the rise; during the late 1990s, Indonesia experienced an explosion in global market share of oil palm crop, with production of crude palm oil increasing 114 percent between 1995 and 2002.

Based on these statistics, it is not surprising that the government has touted oil palm expansion as a solution for high unemployment, low living standards and violence in rural areas, particularly in Kalimantan, where few other viable economic options are available to local populations.

Corporate support for large-scale plantation development has also been enthusiastic. Not only does Indonesia possess an abundance of labor, but corporate access to credit at concessionary rates during the late 1980s facilitated the crop’s quick uptake. In addition, crude palm oil prices remained high throughout the 1990s and experienced exponential growth between 2005 and 2008. This combination of factors has facilitated a favorable economic climate for low-risk investment by large-estate owners, with studies indicating an annual internal rate of return of 26 percent over a 25-year period for oil palm plantations larger than 10,000 hectares.

However, the worldwide market downturn is putting a squeeze on the industry as well as on Indonesia’s economy. Between June and October 2008, the price of crude palm oil plummeted, and as of April 2009, recovery has been minimal. Although the sales volume of palm oil has remained stable despite global financial turmoil, the national economy may expand as little as 3 percent this year, the slowest in a decade.

Given the country’s reliance on oil palm as well as the current state of international markets, reconciling conservation concerns and economic expansion seems more difficult than ever. However, the following interventions provide grounds for compromise.

•Regulation. Despite efforts by the government to regulate oil palm cultivation, a large percentage of plantation expansion is illicit. The oil palm industry’s self-regulatory nature and the consequent lack of industry oversight do not encourage sufficient accountability. Increased industry surveillance by the government is necessary.
•“Carrot.” Despite government regulation, incentives must also be provided to the industry itself. Most likely, these “carrots” will stem from consumer demands, particularly from Europe, for sustainably grown and processed palm oil for biofuel. The government must work in conjunction with international demands for effective industry regulation.
•Carbon credit trading. A buzz phrase in environmental circles, carbon credit trading could provide an alternative source of income for local communities while preserving the country’s rainforests for their biodiversity, carbon storage and potential ecotourism value. Although in its early stages, the UN’s Reducing Emissions from Deforestation and Degradation program fund shows promise in addressing the connection between carbon dioxide emissions and forest destruction.

Through multifaceted efforts to improve accountability and regulation, the government can effectively balance conservation and economic objectives. Despite concerns regarding the mutual exclusivity of these supposedly disparate interests, recognition of their entwined nature remains essential to their successful management. However, Indonesia cannot achieve success alone. Rather, international commitment to conservation issues will remain crucial, and rectification will certainly require more than oily speech.

Anna M. Ruman is affiliated with the Department of Organismic and Evolutionary Biology at Harvard University.