CHAPTER 4: A CASE STUDY ON GLOBAL PALM OIL
3.2 Environmentally sustainable palm oil as policy goal
The palm oil value chain can be improved through policy interventions from both supply and demand side approaches. From the demand side, the first logical measure is to reduce the overall demand of vegetable oil and palm oil, and second is to eliminate the use of unsustainably produced palm oil. From the supply side, the priority is to decouple palm oil production and tropical deforestation/peat destruction, and then to increase production efficiency and minimize ecological harms through innovative agro-ecological farming practices. Before entering the discussions on supply and demand policy goals, the next paragraph first outlines the criteria for sustainable palm oil and answers the question ‘what kind of operation practices constitute sustainable palm oil production?’
3.2.1 Defining the criteria for environmentally sustainable palm oil
Currently there is no universally accepted definition for sustainable palm oil. The existing voluntary and mandatory criteria and standards for palm oil, although they cover similar dimensions of social and environmental issues, they do differ greatly in their details of ‘sustainability’. In general, sustainability encompasses achievements in social, environmental and economic aspects. Actors engaged in
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the palm oil industry, such as civil groups, governments and private sectors, have varied objectives and therefore take different actions in pursuit of ‘sustainability’, depending on their organizational priorities. This Chapter, as mentioned earlier in the beginning of Section 2, emphasizes merely the environmental aspects as well as the economic viability of sustainability. As such, the sustainability used here refers to those standards set by the leading environmental groups and proactive producers in this area. Within these groups, there are two primary approaches to the sustainability of palm oil. They are explained in the following two paragraphs:
one is based on certification standards and another alternative approach focuses on transforming supply chains with individually tailored corporate policy in collaboration with an international NGO.
One of the foremost initiatives striving for a responsible palm oil supply chain is the Palm Oil Innovation Group (POIG), which is built upon the Roundtable on Sustainable Palm Oil (RSPO) certification standards.136 The POIG is a multi-stakeholder body developed by leading non-governmental groups and proactive producers, such as Greenpeace, Worldwide Fund for Nature (WWF), Ferrero (producer of the biggest chocolate and confectionery goods in the world, including Nutella and Kinder) and L’Oreal, aiming to go beyond RSPO existing standards. Table 14 below lists the environmental responsibility requirements outlined by RSPO and POIG. The POIG Charter lays out clearer requirements for members on the protection of peat lands, High Conservation Value and High Carbon Stock forests. In addition, POIG also demands more information transparency and reporting requirements.
136 To become a POIG member, palm oil growers need to have more than 50 percent of RSPO certified plantations and further commit to have all plantation certified by RSPO. Additional requirements from the Charter will be verified through third-party certification audits (POIG, 2013).
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Table 14: Environmental responsibilities specified in the RSPO principle and POIG Charter RSPO Principle 5: Environmental
responsibility and conservation of natural resources and biodiversity
POIG Charter: 1. Environmental Responsibility
▪ Identify and mitigate negative environmental impacts on plantation and mill management, and demonstrate continuous improvement.
▪ Identify the status of rare, threatened or endangered species and high
conservation value habitats in plantation and mill management and take their conservation plan into account.
▪ Minimize waste, including recycle and reuse, in an environmentally and socially responsible manner.
▪ Maximize energy efficiency and use of renewable energy.
▪ Avoid use of fire for waste disposal and for preparing land except in specific situations.
▪ Develop plans to reduce pollution and emissions, including greenhouse gases.
▪ Breaking the link between Palm Oil Expansion and Deforestation: Forest
protection through conserving and restoring High
Conservation Value (HCV) and High Carbon Stock (HCS) areas
▪ No peat clearance and maintenance of peat lands
▪ Greenhouse gas (GHG) accountability
▪ Pesticides use minimization
▪ Chemical fertilizer minimization
▪ Genetically modified organism prohibition
▪ Water accountability
▪ Protect and conserve wildlife Source: (POIG, 2013; RSPO, 2015) Instead of going for certification, another alternative approach is a collaboration between NGOs and corporate agencies, which is different from the usual antagonistic relationship between these two groups of actors. Within this type of partnership, the NGO acts as a consultant with expertise to assist retailers or producers in solving complex issues in their supply chains, which are outside the scope of retailers’ knowledge and hence hard to be addressed by companies on their own. The NGO then further helps developing supply chain policy, mapping and traceability solutions in terms of that particular company’s leverage in the supply chain. The deliverables or outcomes of this approach is normally as straight foreword as certifications but depend on each partnership and can be rather qualitative. Cases as such can be exemplified by the forerunner collaboration between Nestlé and the Forest Trust since 2010. Later on this approach was also taken by a number of large-scale key producers and manufacturers in the palm oil industry, such as the Wilmar Group, Hershey’s, Golden Agri-Resources, Ferrero, Cargill, Bunge and ADM. Here I list an example of the world’s largest palm oil trader, Wilmar’s sustainable policy and Nestlé responsible sourcing requirements for palm oil in Table 15 to show how proactive corporates and NGOs perceive ‘sustainability’.
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Table 15: Sustainable palm oil sourcing guidelines from Wilmar and Nestlé Wilmar’s “No Deforestation, No Peat,
No Exploitation Policy” Nestlé’s responsible sourcing requirements for palm oil
No deforestation
▪ No development of High Carbon Stock (HCS) forests
▪ No development of High Conservation Value (HCV) Areas
▪ No burning
No development on peat
▪ Progressively reduce greenhouse gas (GHG) emissions on existing plantations
▪ Best Management Practices for existing plantations on peat
▪ Where feasible, explore options for peat restoration by working with expert stakeholders and communities No exploitation of people and local communities137
▪ Comply with local laws and regulations
▪ Do not come from areas cleared of natural forest after November 2005
▪ Respect the Free, Prior and Informed Consent (FPIC) of local and indigenous communities
▪ Protect high-carbon-value forests
▪ Protect peatlands
▪ Comply with the principles and criteria of the Roundtable on Sustainable Palm Oil (RSPO), the industry-wide certification body that promotes the growth and use of sustainable palm oil products.
Source: (Nestlé, 2016; Wilmar International Limited, 2015) We can see from the above that some key issues overlap in the two tables. The rigorous guideline for environmental sustainability of palm oil foremost appears to cover explicit policy on no deforestation of High Carbon Stock (HCS) and High Conservation Value (HCV) forests and no peat land development, as well as other best management practices to minimize ecological impacts. Hence the crucial question here is how to define HCS and HCV forests.
The HCS approach was initially established by palm oil company Golden-Agri Resources Limited (GAR), Greenpeace and the Forest Trust in 2013 as a practical tool to implement Zero Deforestation Commitments in oil palm and pulp and paper industries (Proforest, 2014). Now it also engages rubber, cocoa and other sectors. In 2014, the High Carbon Stock Approach Steering Group was created with a broad membership among leading NGOs, commodity producers and users, as well as technical organizations. It provides overall governance of the HCS approach and methodology (Rosoman, Sheun, Opal, Anderson, & Trapshah, 2017). As for the HCV approach, it was first developed by the Forest Stewardship Council (FSC) in the late 1990s, and it is now applied by a range of other certification schemes, private sector organizations and financial institutions. The
137 Details are not listed here given that the scope of this research excludes social aspects.
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multi-stakeholder HCV Resource Network was established in 2006 by actors from non-profit organizations, producer/supply chain companies and standards/service providers138 to promote the consistent use of HCV approach across different sectors and geographic areas. Since then, the Network has served as the main provider of tools and guidance for HCV assessors (Proforest, 2014).
These two approaches are mainly used by stakeholders involved in the palm oil supply chains as part of the sustainability criteria. The end consumers are not likely to see them directly on the products, but would have to look into, for example, the details of certification standards or company’s sustainable procurement/sourcing policies.
The HCS approach classifies forest areas into six categories ranging from high-density forest, to degraded former forest areas of scrub and open land based on the level of biomass, vegetation composition and structure and satellite data. It further advices that the zero-deforestation cultivation should only be established on scrub and open land (Rosoman et al., 2017). Table 16 below exemplifies the biometric measurements from field plot data in Indonesia, which shows that the palm oil plantation should be restricted to degraded lands with ground carbon stock lower than 35 Ct/ha. This number is in consistent with a study by Ruysschaert et al. (2011), which indicates that the time-averaged above ground carbon stock of an palm plantation is about 40 Ct/ha. Thus conversion of land below this number can actually lead to carbon stock gain. As for identifying HCV forests, here I cite the guidelines by The Consortium for Revision of the HCV Toolkit Indonesia (2009). In the guidelines, 6 high conservation values and 13 sub-values are defined, as shown in Table 17. However, the actual on the ground implementation of these approaches is still challenging as currently there exists no method to combine the HCV and HCS approaches, no standardization between companies and poor monitoring and auditing (Bregman, 2015).
138 The non-profit organizations include, for example, the World Resource Institute, the Forest People Programme and the World Wide Fund for Nature International. The supply chain company can be exemplified by the participation of the Golden Agri Resources. Standards/service providers are those such as the FSC and the RSPO. For more details please visit the HCV Resource Network website: https://www.hcvnetwork.org/.
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Table 16: The biometric measurements from field plot data in Indonesia based on the HCS approach
Vegetation Stratification Trees with DBH139 >
30cm
Canopy closure
Estimated molecular Ct/ha
High Carbon Stock Forest
High Density Forest
(HDF) >50
>50%
> 150 Medium Density
Forest (MDF) 40-50 / ha 90-150
Low Density Forest
(LDF) 30-40 / ha 75-90
Young Regenerating
Forest (YRF) 15-30 / ha 30-40% 35-75
Degraded lands (Former Forest)
Scrub (S) 5-15 <20% 15-35
Open Land (OL) 0-5 0% 0-15
Source: (Rosoman et al., 2017, Module 4, p.23) Table 17: HCVs defined in the Toolkit for Indonesia
HCV 1: Areas with Important Levels of Biodiversity
- Areas that Contain or Provide Biodiversity Support Function to Protection or Conservation Areas
- Critically Endangered Species
- Areas that Contain Habitat for Viable Populations of Endangered, Restricted Range or Protected Species
- Areas that Contain Habitat of Temporary Use by Species or Congregations of Species
HCV 2: Natural Landscapes and Dynamics
- Large Natural Landscapes with Capacity to Maintain Natural Ecological Processes and Dynamics
- Areas that Contain Two or More Contiguous Ecosystems
- Areas that Contain Representative Populations of Most Naturally Occurring Species
HCV 3: Rare or Endangered Ecosystems HCV 4: Environmental Services
- Areas or Ecosystems Important for the Provision of Water and Prevention of Floods for Downstream communities
- Areas Important for the Prevention of Erosion and Sedimentation
139 DBH refers to the tree diameter at breast height (4.5 feet or 1.37 meter from the ground). DBH measurements are used to estimate the biomass, volume, and carbon storage of trees in a local ecosystem (Ravindranath & Ostwald, 2008).
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- Areas that Function as Natural Barriers to the Spread of Forest or Ground Fire HCV 5: Natural Areas Critical for Meeting the Basic Needs of Local People HCV 6: Areas Critical for Maintaining the Cultural Identity of Local Communities
Source: (The Consortium for Revision of the HCV Toolkit Indonesia, 2009, p.14) Although the environmental ‘sustainability’ of palm oil is determined at the production sites, the global market demand is actually the major force to drive this supply chain transformation back to its source. Thus with the above more clearly understood ‘sustainability’ from the supply side of palm oil production, together with the demand side approach, three main policy goals are set out in the remaining section for designing environmentally sustainable palm oil policy.
3.2.2 Policy goals
The three main identified policy goals are:
1.) Restrict the use of unsustainably produced palm oil and increase demand for sustainable palm oil
2.) Decouple palm oil production and deforestation
3.) Increase production efficiency and reduce ecological harm
These three categories of goals in fact consist of five type of policies. However, the reason why the first two and last two are group together is because supply side and demand side measures, as well as intensification and measures to reduce ecological harms have to be considered simultaneously to avoid displacement or further deforestation caused by rebound effects (similar to Jevon’s paradox) (Alcott, 2005).
It might appear to some environmentalists that the first obvious solution is to reduce the overall consumption of palm oil (and other vegetable oils) especially in the use of confectionery and ultra-process food.140 Nearly all of these products are unhealthy, not compulsory and in fact very harmful to human health that also cause negative social, economic, cultural and other impacts (Monteiro, Levy, Claro, Castro, & Cannon, 2010; Moubarac et al., 2013; UNSCN, 2010).
Nevertheless, as crucial as this approach is, a discussion on such topic is outside of the scope of this research since it falls more likely within disciplines such as health and nutritional science, neuroscience (in terms of food addiction),
140 The majority of ultra-processed food products are also termed as ‘fast’ foods or ‘convenience’
foods with the characteristic of long shelf-lives. Examples include biscuits (cookies), cakes and pastries; ice cream; confectionery (candies), cereal bars, breakfast cereals with added sugar; chips, crisps; savoury and sweet snack products; vegetable and other ‘recipe’ dishes; stews and pot noodle, etc. (Monteiro et al., 2010).
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behavioural psychology, sociology, industry rent-seeking and the policy instruments used on public health and dietary choices in general. Thus an investigation into an overall reduction in the use of palm oil in ultra-processed food is although important, very often ignored and typically not within the direct focus of environmental groups. However, in order to fundamentally achieve the goal of minimizing the ecological impacts of palm oil, more attention and further research addressing the collaboration or linkage between these disciplines are desired.
A more direct environmentally relevant approach is to lower the demand for unsustainably produced palm oil and create more incentives for producing sustainable palm oil, for example taxing uncertified palm oil in developed countries. Recognizing that the demand and production for palm oil will increase considerably worldwide, the question hence is not to ban the use of palm oil and replace it with others but to transform the palm oil industry, taking into account its high yield efficiency and its social benefits. Currently, the demand for sustainable palm oil is primary driven by pressures from environmental NGOs, consumers in developed countries and increasingly by more and more private companies (Bregman, 2015; Hamilton-Hart, 2015b). Due to the lack of environmental awareness and the prioritized economic development in the top palm oil consumption countries, it is relatively difficult to directly advocate the importance of palm oil sustainability to the end consumers in these markets. A more feasible approach is to pressure and transform those supply chains targeting at developed countries. Because of the complexity and the numbers of actors engaged, a thorough transformation in these supply chains can already make a significant difference and covers a large overlapped part of the supply chain nodes destined for developed countries. For instance, multinational corporates with zero deforestation commitment for oil palm control more than 96 percent of all the internationally traded palm oil (Austin, Lee, et al., 2017). These corporates are either under periodic scrutiny of numerous environmental groups or in collaboration with NGOs, which signals continuous incentives for sustainable palm oil demand and the unfavourable circumstances for unsustainably produced palm oil to producer countries and markets in developing countries.
The second policy goal is the one being addressed intensely by almost all environmental groups: to break the link between palm oil production and tropical deforestation, peat destruction and to cultivate on already deforested and degraded lands. This is also the primary emphasis in the zero-deforestation commitments by multinational corporations and the reason why HCV and HCS approaches were developed. In general, this is primarily done by land use planning and mapping and accompanied with issues of tenure, degraded lands fragmentation and smallholder engagement. In Indonesia, it is estimated that there are around 7 Mha potential areas containing degraded lands in West and Central Kalimantan can be used for palm oil cultivation (Miettinen, Hooijer,
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Tollenaar, Page, & Malins, 2012; Ruysschaert et al., 2011). However, these degraded lands tend to be fragmented and patchy, consisting of land areas possible claimed ownership, ranging from 50 to 500 hectares or more (Ruysschaert et al., 2011), which are hard for large scale business-as-usual palm plantation and thus requires smallholder engagement. On the other hand, there is also research suggesting that degraded lands will not be able to satisfy the rapidly growing demand for all the tropical forest commodities (palm oil, pulp wood, rubber and timber, etc.) (Van der Laan, Wicke, Verweij, & Faaij, 2017). Hence it is still critical to bring down global consumption of palm oil and meanwhile fully utilize oil palm’s potential as a high-productive oil crop, which leads us to the third policy goal.
The third goal is to increase production efficiency and to reduce ecological harms through for example, optimal collaboration between big agri-business and smallholders, agro-forestry techniques, patchwork developments, and ecological intensification. Existing palm oil plantations often do not reach their expected oil yield. Research has demonstrated that there exists substantial potential for increased palm oil yields (Molenaar, Persch-Orth, Lord, Taylor, & Harms, 2013).
The global average is 3.7 tonnes per hectare while under optimum ecological circumstances, selected plant material at commercial scale produces around 10 tonnes per hectare per year. It is also observed that oil yields from industrial big scale plantations and mills are 50 percent higher on average than those from traditional pressing facilities (Rival & Levang, 2014). In general, the productivity of smallholders is consistently underperformed compared to large scale plantations (e.g. 11 to 14 percent lower than average large private plantation yields in Indonesia) (Molenaar et al., 2013). Although it is unrealistic to expect smallholders to obtain the same yields as commercial plantation, the potential for yield improvement is still at any rate considerable.
The next Section assesses the current policy instrument choices that are used to achieve the above stated policy goals.
4 Assessing instrument choices
Environmental policy instruments can be broadly grouped into command and control regulation and incentive-based instruments (Tol, 2014, p.44). These instruments attempt to enhance or modify the incentives held by resource managers in order to motivate the conservation and restoration of tropical forests, while fulfilling broader socially desired objectives, such as production and allocation. In the case of palm oil cultivation, as mentioned in the previous section, the incentive design should aim to reduce or stabilize market demand, restructure the food system, transform business-as-usual practice, divert production from
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primary/secondary forests along with peatlands, 141 improve forest management,142 systematically strengthen governance, and increase production efficiency (D. Boucher et al., 2011; Kissinger et al., 2012), etc. This Section discusses a number of main policy instruments taken to internalize or remove the external costs of the palm oil industry and to achieve the above objectives.
In the international arena, there is no universal forest agreement or forest treaty to govern sustainable forest management. There are a few international treaties ruling other environmental regimes that partially cover certain aspects of forests ecosystems. For example, the United Nations Framework Convention on Climate Change (UNFCCC) focuses on the carbon sequestration aspect of the forests, the Convention on Biological Diversity conserves forest and forest-related resources to ensure sustained biodiversity, and the United Nations Convention to Combat Desertification promotes the prevention and restoration of forest degradation and deforestation to avert desertification (Gupta et al., 2013). Furthermore, even though the palm oil industry is primarily a regional industry with production in South East Asia,143 there exists no authoritative regional institution governing investment, labour standards and production.144 However, there is a patchwork of public and private, formal and informal institutions across multiple governing levels supporting the industry, which are the main discussions in this Section. The first two sub-sections discuss policy measures taken by producer and consumer countries, covering mostly command and control instruments, taxation and other extra-territorial impacts. Notably, in the environmental governance of the global palm oil industry, the most prominent actors are the private sector and voluntary standards. Due to the increasing awareness and global pressures from consumers and environmental non-governmental organizations of the disastrous environmental impacts of palm oil production, the industry has responded to this demand with the creation of a certification scheme as well as the zero deforestation commitments.
Additionally, because of the immense climate footprint of palm oil production, it has drawn considerable attention from the international climate change regime.
141 In other words, to decouple the demand for deforestation and the demand for economic growth and food.
142 It is in fact hard to separate forestry governance between adjacent sectors such as policies for agriculture, timber and timber products. A well designed sustainable forest management can, for example, provide better incentives and motivations for keeping forest standing rather than converting forest lands to agricultural uses.
143 For example with major consumption in Asia and with dominant Malaysian and Singaporean ownership of transnational firms (Hamilton-Hart, 2015b).
144 Interestingly, there is a treaty by the Association of Southeast Asian Nations (ASEAN) on trans-boundary haze pollution, which is a serious issue caused by the land clearance for palm oil plantation. Nevertheless, the term “palm oil” and the industry is rarely mentioned in the relevant communiqués and documents.
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However, although the carbon mechanism Reducing Emissions from Deforestation and Forest Degradation (REDD+) under the UNFCCC is an ongoing measure that once brought a lot of excitement, so far it has made little direct progress on diverting palm plantations away from deforestation. Therefore this mechanism is discussed after the private initiatives. More specifically, Indonesia is one of the countries that has the most carbon projects labelled with REDD+. Hence sub-section 4.4 looks into how these REDD+ projects in Indonesia interact with palm oil plantations and whether they assist in reducing the GHG emissions from palm oil production. Lastly, this Section finishes with a summary.