Indonesia halts all new palm oil plantations for 3 years

September 22, 2018 |

Like a big red stop sign in your face, the palm oil debate seems to be unyielding. It’s in newspapers, in documentaries like Leonardo DiCaprio’s Before the Flood movie, even dinner table conversations as families and friends munch on chocolate desserts made with palm oil. The battle continues between the European Union and its anti-palm oil stance due to deforestation and environmental issues, and Indonesia, the leading palm oil producing country whose farmers and businesses rely heavily on palm oil.

With Indonesia fighting hard to keep palm oil shipments going to Europe and expanding their growth to China, the Middle East, and other areas, needless to say it was a shock to hear that the Indonesian president signed a moratorium on new palm oil development and ordered a review of existing plantations. The palm oil industry might be having a heart attack right about now.

The ban

Palm oil gets a bad name thanks to the industry’s environmental destruction and worker exploitation, especially over the last 20 years as demand for palm oil ballooned. Environmental organizations all over the world, and not just Greenpeace, have been trying to get the leading palm oil producing countries to stop deforestation, especially after devastating fires in 2015 from slash and burn practices used to clear forests for palm oil planting. Those fires emitted unprecedented amounts of pollutants and carbon dioxide into the air – breaking records for the largest amount of climate-changing carbon and producing more carbon emissions than the entire European Union. The fires and resulting haze across the region led to school closings, flights to be cancelled or diverted, and many sick people.

When president Joko Widodo first announced a palm oil plantation moratorium back in 2015 after the record-breaking fires, no one was sure if it would really happen considering the country’s dependence on palm oil, but there is no question now.

Prabianto Mukti Wibowo, a deputy minister at the Coordinating Ministry for Economic Affairs, said the moratorium will last three years and told the Associated Press that “it’s needed because many planned plantations are inside natural forests and also to clarify the legal rights of villagers and smallholders.”

“In this presidential instruction, all central and provincial governments, including governors, mayors and district chiefs were ordered to re-evaluate permits,” Wibowo told the Associated Press. “It also instructs (them) to delay the opening of new palm oil plantations to reduce conflict.”

MOUs up the wazoo

Indonesia’s government is definitely moving in the right direction by addressing and analyzing the environmental and land ownership aspects to the palm oil issue. In July, there was a signing of an MoU between Solvent Extractors Association of India, the Indonesian Palm Oil Board and Solidaridad during a high-level meeting with the Coordinating Ministry for Economic Affairs, in Jakarta, Indonesia. The MoU for the first time recognizes the Indonesian Sustainable Palm Oil (ISPO) and the Indian Palm Oil Sustainability (IPOS) Framework as legitimate sustainability frameworks for palm oil production and trade between Indonesia and India. While it may not be an all-encompassing solution, it is a move in the right direction with sustainability and impacts at least being considered now.

The Indonesian government-owned palm oil plantation company PT Perkebunan Nusantara (PTPN) signed an MoU with Unilever in February, as reported in The Digest, to work together in Indonesia to support local mills and smallholder farmers to produce palm oil according to the standards of no deforestation, no development on peat and no exploitation of people and communities (NDPE). Unilever has committed to sourcing 100% of their palm oil sustainably by 2019 as well as eliminating deforestation from their supply chain.

Palm oil growth

With this three-year moratorium, it is interesting to look at palm oil’s recent growth, which makes the halt on new plantations even more surprising. After all, Indonesia saw palm oil production hit a four-year high in August at more than 4 million metric tons, as reported by The Digest in September. Exports also slid slightly from July to 2.83 million tons while domestic consumption rose to 1.05 million tons, 100,000 tons more than the month prior.

It makes sense that domestic use rose, and may continue to rise, since, in July, the Digest reported that the president asked for a feasibility study into increasing the domestic biodiesel blending mandate to 30% from the current 20% that could add an extra 500,000 metric tons of palm oil demand annually. The industries minister said increasing the blend is meant to reduce the country’s reliance on foreign oil imports and help to isolate it in the face of growing trade friction and the trade war launched by the U.S.

In fact, Indonesia is offering incentives to developers of drop-in diesel made from 100% palm oil and has already identified a process that will be ready to go commercial in three years, as reported in The Digest in July.

Indonesia is further playing hardball with the U.S. and France to up their palm oil consumption, demanding that its companies be able to set up aviation biofuel production plants using palm oil as feedstock in those countries in exchange for buying Boeing and Airbus planes, respectively, as reported in The Digest in August.

So there is a whole lot of growth going on for palm oil in Indonesia, but how will this three-year stoppage on new plantations affect that increased demand for palm oil? And not just outside Indonesia with exports to other countries, but also internally thanks to the B20 to B30 mandate possibility. Will the increase to B30 mandate proposal be dropped? Will exports decrease?

The EU could unintentionally help Indonesia handle the three-year stop on new plantations since it won’t be importing as much palm oil anymore. In France, the Environment Ministry is allowing a limited use of palm oil at Total’s new La Mede biofuel refinery, as reported by The Digest in May. Palm oil was capped by France after concerns about deforestation was voiced by the Environment Ministry. In June, negotiators from the European Parliament, Council and Commission agreed on a new target for renewables in transport which set a target of 14% renewables in transport by 2030 and freezed the use of high-ILUC risk biofuels such as palm oil at current levels and phase it out by 2030, while capping crop-based biofuels at Member States’ 2020 levels, with a maximum of 7%.

Bottom Line

Indonesia’s news signals a positive change in thinking and action for the palm-oil producing leader. Sustainability certifications and increased transparency along the supply chain to verify where the palm oil came from, if it was planted on deforested land, how it was produced, if labor and human rights were safeguarded, what the GHG impact is, and other metrics, can help move forward with palm oil in a more sustainable manner.

While certifications and more transparency aren’t an end-all, be-all solution, they are a part of a framework that together with the government’s analysis, improved innovation in growing and processing palm oil, enforcement and protection of tropical forests and the diverse flora and fauna that rely on them, will benefit us all. It all relates to climate change and global warming, impacting our own livelihood and health.

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