Trase
Trase
Jul 9 · 6 min read

Romain Pirard, Senior Research Associate with Global Canopy/Trase, and Caspar Timmer, Science Writer and Editor with SEI/Trase

Photo by Icaro Cooke Vieira/CIFOR under Flickr creative commons license

For some people, and in some parts of the world, the Indonesian palm oil sector has an almost toxic reputation. Since the 1990s, Indonesian palm oil has become one of the world’s most demonised agricultural commodities. But how far is this reputation justified? Are positive changes being ignored? And what do current plans mean for the future sustainability of the sector? Forthcoming Trase data could bring some much needed clarity.

Brickbats and trade barriers

Indonesia faces a seemingly constant barrage of criticism, mainly from Europe, about environmental and social damage linked to its palm oil industry: deforestation, peatland destruction and fires, annual palls of smoke blanketing cities hundreds of kilometres away, land grabs, the unequal distribution of profits between large companies and local farmers, climate emissions, and more.

While the criticism comes mostly from campaigners, consumer groups and NGOs, it has translated into policy change at the highest levels in the European Union (EU). Most recently, a revised delegated regulation was adopted by the European Commission in March 2019, as part of its review of the EU Renewable Energy Directive (RED II), that could see Indonesian palm oil-based biofuels effectively barred from the European market by 2030. The regulation tightens the rules on how to define high and low indirect land use change (ILUC) risk fuels. Indonesian palm oil is likely to be categorized as high ILUC, meaning it cannot be counted towards member states’ renewable energy targets. Discussions will likely continue until at least 2021, when the Commission will review the delegated regulation. In the meantime, palm oil imports for energy uses in the EU have increased.

Moreover, some individual European consumer countries were behind the Amsterdam Declarations on phasing out imports of deforestation-risk commodities, one of which deals specifically with palm oil. France recently adopted a National Strategy Against Imported Deforestation, which also explicitly targets palm oil.

Unacknowledged progress?

Many inside Indonesia accuse critics of unfairly stigmatising the country for past mistakes, and ignoring the many positive steps that have been taken, as well as significant improvements in the sustainability of palm oil production. For one thing, palm oil-linked deforestation is thought to have been declining since 2012, at least in the main area of expansion, Borneo. Furthermore, Indonesia introduced an ambitious oil palm moratorium in 2018, which required plantation licenses to be reviewed. The government also introduced the One Map initiative to avoid overlaps between land uses, land ownership and licenses, among a raft of other policies.

And while the candidate debates leading up to the re-election of Joko Widodo (aka Jokowi) as president this year highlighted some (legal) links between the political elite and some major oil palm investments, far more significant was the alignment between the candidates’ proposed policies and stated objectives regarding palm oil. The new government has ambitious plans for the sector as a whole, including support to smallholders, the widespread adoption of the Indonesian Sustainable Palm Oil (ISPO) standard, and subsidies to increase productivity on existing plantations.

At the same time, both candidates asserted that stimulating domestic biofuel markets with the so-called Biodiesel Mandate policy was a priority, mostly to reduce Indonesia’s costly dependence on imported fossil fuel. A major question for sustainability is how the new palm oil industry will meet this new demand.

There has also been an unprecedented wave of sustainability commitments by private sector actors in the global palm oil trade in the past few years, as well as an increase in the share of the exports of crude palm oil with Roundtable for Sustainable Palm Oil (RSPO) certification — the most common sustainability standard in the sector, which also saw positive changes to its rules adopted in 2018.

In fact, up to 86% of palm oil exports from Indonesia are now covered by at least one zero-deforestation commitment (ZDC) according to Trase analyses. The first version of Trase showing links from individual production districts to global import markets of Indonesian palm oil will be released on www.trase.earth in autumn.

Some traders have gone further, committing to eliminate not only deforestation but also peatland conversion and labour exploitation in its supply chains.

Uncertainty breeds mistrust

With a deficit of clear, credible information about the Indonesian palm oil sector — particularly its links with deforestation, and the roles of the various actors along the supply chain — it is no wonder that such divergent narratives about sustainability can persist.

One problem is that the complex web of overlapping sustainability pledges, voluntary commitments or codes of conduct, certification schemes, policies, import measures etc. makes monitoring their implementation and impacts very difficult. This is all the more important as the 2020 deadline of the high-profile New York Declaration on Forests for ending deforestation in the production of agricultural commodities looms — with little hope of success, according to the on-going Progress Assessment.

And the complexity and lack of clarity themselves tend to breed scepticism. Uncertain which companies are associated with deforestation, and which schemes commitments are credible, many consumers simply try to avoid products containing palm oil.

At the same time, some traders and most companies downstream in the supply chain (consumer goods companies, retailers etc.) have little information about their suppliers, which can make it difficult to meet zero-deforestation commitments and to defend themselves against public accusations of bad practice. And even those who are monitoring and successfully reducing sustainability problems in their supply chains may find their claims greeted with suspicion in the absence of independent data to back them up.

An aerial view of a palm oil plantation

Clearing the air

Trase could radically reduce the uncertainty about the sector. Trase links diverse sets of data to map flows of entire forest-risk agricultural commodities like palm oil from the production localities to the countries of import, identifying the traders involved. It also provides indicators of deforestation risk and other sustainability impacts in the producer jurisdictions, and allocates “embedded” impacts to the different trade flows and the companies involved in the supply chain.

The forthcoming Trase data on Indonesian palm oil will provide an accessible, non-partisan overview of the performance of the whole sector, and of the individual companies, actors, jurisdictions and import markets involved, year on year.

It will help companies to identify supply chain risks and engage directly with traders and producers, as the platform now does for Brazilian soy and a range of other commodities. And help others to monitor their performance.

Furthermore, Trase data could help the Indonesian government to make key decisions on, say, funding allocations. It could also benefit emerging jurisdictional approaches — plans to improve practices within administrative units with consistent policies — as Trase could help to showcase good practices in frontrunner jurisdictions (which could receive incentives from the government), while also creating the opportunity for progressive companies to engage wherever the situation requires more investment.

And it will help to illuminate the impacts associated with key export markets for palm oil beyond the EU, which do not yet make strong sustainability demands: India, the top importer of Indonesian palm oil; China, which looks set to overtake the EU for second place; Pakistan and Bangladesh, also emerging as major importers. Furthermore, a third of Indonesia’s total palm oil production is consumed in the domestic market. All of these markets could have a major influence over the future of sustainable palm oil production in Indonesia.

Trase is not the only transparency initiative active in the sector. The Indonesia’s Anti-Corruption Agency (KPK, acronym in Indonesian) is collecting information and working with the Ministry of Agriculture to manage a license database for palm oil plantations — even if the government has also shown some resistance to greater transparency. And, under pressure from civil society and consumer groups, an increasing number of major companies in the sector have also been opening their books and disclosing more information about their supply chains.

These increased transparency efforts around the Indonesian palm oil sector have the potential to bring much needed clarity, demystify assumptions, and identify concrete ways forwards.

Decisions taken in the next few years may well shape the sustainability and image of the sector for decades to come.

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Transparency for sustainable economies

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Transparency for sustainable economies

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