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Palm oil

Palm oil
Published: Sep 22, 2007
Palm oil destroys forests and people

Eric Wakker

Tropical timber campaigns have been highly effective in raising awareness over the loss of the world’s last primary forests. As a result, tropical timber consumption in Europe has fallen by 30-50% since the early 1990s, putting the heat on the trade and loggers.

This awareness came late. Southeast Asia has little ‘productive’ (primary) rainforest left after decades of severe overlogging. The logged-over forests should, in theory, be left to regenerate to produce secondary harvests in 20 to 50 years from now. That’s what the forestry policies say and that’s what Indonesian timber tycoon Bob Hasan said during his trips to the West to lobby for Indonesia’s forestry sector. But that is not what is happening!

Convert it

It does not take a college degree to understand the economics of opportunity costs in Indonesia’s forestry sector. Suppose you have the following options:

1. Manage a heavily logged-over forest concession in lowland Sumatra for, say, 30 years without being able to re-log it for exportable meranti-plywood as it needs to regenerate; protect it from the provincial authorities who are eager to develop the area into productive land, protect it from the Ministry of Transmigration and other players in the agricultural and pulp and paper sector; and invest heavily in forest recuperation, set aside ecologically valuable sites, negotiate do’s and don’ts with local communities, and survive on the promise of a market which will pay green premiums for any timber it can absorb from well-managed forests in 30 to 35 years time. Or:

2. Convert the logged-over site into an oil palm plantation and generate positive cash flows 7 years after planting! 

What would you do?

Of course, it takes an investment to realise the oil palm plantation too: negotiate with provincial authorities, identify investors and markets, a strategy to win the support of local leaders and find people to help burn the site. But all that effort, compared to the first option, pays off. Have a close look at the first graph and you will realise how much pressure there is on the Indonesian authorities to re-allocate Permanent Forest as Conversion Forest!

The graph shows that companies have applied for approval to convert a huge amount of forest to other uses - far more land than the forest area that is legally available in Sumatra and Kalimantan. Even on a national level, there is a ‘Conversion Forest deficit’. Various cases of dubious re-allocations of ‘Permanent’ Forest into ‘Conversion’ Forest have already been recorded, especially in Kalimantan.

Indonesia already has about 2.4 million hectares of forest land converted into mature and immature oil palm plantations as of early 1998. The government plans to have yet another 3.1 million hectares converted in the coming years, particularly in Eastern Indonesia (Irian Jaya, Sulawesi) as these regions still have ‘plenty’ of undeveloped land available. It is questionable to what extent applicants for plantation development will be willing to invest in these regions, as they are far off the international Crude Palm Oil (CPO) shipping centres. However, whether by timber felling or palm oil conversion, Indonesia’s forests and its local inhabitants are now literally threatened with total destruction.

According to Oil World, the palm oil industry’s primary source of market intelligence, the rate of oil palm plantation establishment in Indonesia is likely to experience a major downfall as a result of the economic crisis. Early in the next millennium, however, conversion will return to its pre-crisis levels.


The crisis in Indonesia brings about hardship for many of its peoples and its forests. At the same time, it has also created unprecedented opportunities. For example, four oil palm plantation companies belonging to the Salim Group were in the process of obtaining concessions in biodiversity-rich swamp and tidal forests in East Kalimantan in early 1998. But since the Salim Group had close contacts with the Suharto regime, all applications for land from this group have been suspended by the reformation government pending investigation over corruption and nepotism.

The Worldwide Fund for Nature (WWF) and its partners EPIQ and the American official development agency USAID lobbied Forests and Estates Minister Nasution to completely cancel the applications and include the swamp and tidal forests in the proposed Sebuku-Sembakung Reserve. And they succeeded! Late in August Minister Nasution decided to cancel nine oil palm concessions in East Kalimantan. He announced that the 100,000 ha. area would be classified National Park instead. 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.

Early in 1998 I worked with WWF-Indonesia on their Forest Fire Project, which aimed to investigate the disastrous fires of the previous year. A spokesman from Rabo Duta Indonesia, a branch of Rabobank Netherlands, told me his bank was closely monitoring a study into allegations that PT Mahapala Gelora had deliberately burned forest in East Kalimantan. The mother company, PT PP London Sumatra, had received credits from a range of banks to expand its oil palm estates to well over 200,000 hectares (starting with its current 70,000 ha.). The Dutch bank was concerned that its debtor might be prosecuted for practising open burning during the ban on burning announced by then-President Suharto in September 1997. Although the case remains unresolved to date, PT London Sumatra will be very sensitive to external screening of its activities in the years to come.

I also received a phone call from a private investor, who wanted to know WWF’s position on the ‘oil palm issue’ and the fires. I suggested to him he should be reluctant with his investment and should consider the ecological and social components of the investment plan. What struck me at the time was that this was not an investor from ‘ecologically aware’ Europe or Australia, but a private corporate investor based in Hong Kong.

A few months later, WWF-Germany asked me to coordinate a study on the relations among Germany’s palm oil consumption, Indonesia’s oil palm plantation sub-sector, and the forest fires. When the study’s report was launched, WWF requested European palm oil processing industries to expose their CPO imports from Indonesia. Some of them did, and this activity alone was enough to alarm major players in the edible oils industry, who are already plagued by campaigns against genetic modification and overfishing.

Normally, the first step in turning forest land into an oil palm plantation is burning. This so-called controlled burning significantly contributed to the 1997-98 forest fires and haze, in addition to wildfires and arson associated with expanding oil palm plantations (see Inside Indonesia no. 53, January-March 1998). However, for various reasons, the forest fires in Indonesia are likely to attract less international attention in the years to come. While the momentum is still there, NGOs have a window of opportunity to redirect the attention, away from ‘just-more-fires’, and towards deforestation, marginalisation of local peoples’ livelihoods, and the international trade, consumption and financing of palm oil. It looks like this may be the way in which things may evolve.

Various initiatives are now developing towards a campaign:

  • In 1998, a range of Indonesian grassroots NGOs founded Sawit Watch, an NGO network which aims to monitor developments in the oil palm sub-sector;
  • On the initiative of the Dutch environmental funding lobby group Both ENDS and Greenpeace Netherlands, a number of NGOs in the Netherlands (WWF-Netherlands, Netherlands Centre for Indigenous Peoples, Skephi Europe) and several individuals now have regular meetings to monitor developments in the oil palm sector in Indonesia and Malaysia and to identify approaches and activities.
  • Greenpeace Netherlands funded a study to assess the needs of Indonesian NGOs and to confirm whether or not these NGOs felt that campaign work in Europe would support their cause.
  • NGOs in the UK, Germany, Belgium and the USA expressed explicit interest in being informed about the oil palm issue and may be able to contribute to research and campaign efforts;
  • A project proposal is being developed to look into the involvement of Dutch financial institutions in oil palm plantation development in Indonesia. The final objective of this project is to have at least one commercial bank to review its current investments and adopt the strictest possible guidelines for funding oil palm projects;
  • WWF is planning to develop strategies and approaches to address the issue.

There are many opportunities to help Indonesian NGOs and other interested parties to promote their goals towards ecologically, socially and economically responsible forest and land use management in Indonesia. Of course, any campaign work on the expansion of Indonesia’s oil palm sub-sector will have to reach beyond the issue of who started fires where, when, how, and what zero-burning techniques are all about. And of course, a focus limited to Indonesia would do injustice to the problems associated with oil palm development elsewhere (e.g. PNG, Solomon Islands, Africa and South America). In the meantime, any ideas and proposals will be greatly appreciated, not least from Australia.

Eric Wakker is a consultant for Foundation AIDEnvironment in Amsterdam, the Netherlands. He will also be pleased to direct enquirers to the other NGOs mentioned here.

Inside Indonesia 58: Apr-Jun 1999

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