The Future of Indonesian Palm Oil

On Nov. 19, 2008, an orangutan with a tranquilizer dart in his side is made to sleep before rangers relocate him to another place on Borneo island, away from this palm oil plantation.

If there were any doubts about the fierceness of the debate over Indonesia's palm oil controversy, they were silenced effectively outside the Jakarta's House of Parliament on December 21. Ten protestors joined 18 of their fellow migrants and activists from Riau province in the ultimate act of protest against a government concession to a pulp and paper company near their land on Padang Island. They sewed their mouths shut.

This is merely the latest, if most macabre, chapter in a protracted tug of war at the heart of the world's biggest palm oil producer. Squaring off are environmentalists—domestic and foreign—local populations and indigenous farmers, and an industry worth billions.

Palm oil's benefits to Southeast Asia's biggest economy, coupled with mineral and gas reserves, are tough to overstate. Production is anticipated to surge by 6.5 percent—or between 1 million and 1.5 million—to 24.5 million tons by next year, nearly half the world's output, according to World Wildlife Federation statistics.

Palm oil, and its refined version, or "olein," is an edible cooking oil used highly in leading, fast-growing food-consumer nations—mainly China, India and Pakistan—and domestically. Increasingly, with E.U. countries steering away from oil, it also has value as a bio fuel.

The mechanics of Indonesian palm oil reverberate across the globe. This fall, for instance, Jakarta reduced olein export tariffs to spur investment and boost production. Ever since, Indian refinery capacity has been convulsing while the Malaysian market, which Indonesia overtook in 2007, struggles bitterly to recover.

But Indonesian palm oil faces the crosshairs over other, higher-profile reasons: The world's fourth-most-populous nation is under immense pressure to curb forest and peatland clearing—for the sake of endangered species, livelihoods and reduced carbon emissions.

The sheer volume of Indonesian palm oil has drawn criticism. An announcement of a 1.3 million-hectare increase in land devoted to palm oil production between 2000 and 2008, up to 7.3 million hectares, hasn't helped. This comes amid a 2,000 percent increase over 30 years, according to Indonesia's Center for International Forestry Research. 

In May, President Susilo Bambang Yudhoyono tried to counter concerns via a Norway and UNDP-backed deforestation initiative. The two-year REDD+ moratorium, coupled with assurances of continued economic growth, however, has proven unsatisfying to most stakeholders.

Still, many foreign companies are moving ahead with individual promises to use only sustainable palm oil by 2015—Nestle, McDonald's and Anglo-Dutch consumer giant Unilever among them.

But the industry has far to go. Indeed, fewer than 50 percent of all companies are now certifiable by the Roundtable on Sustainable Palm Oil, a coalition of growers, manufacturers and environmentalists setting global standards.

Even environmentalists admit difficulties in the march toward sustainability, however: Palm oil certification, for one thing, requires complicated changes in tracking, usage and handling in addition to recipe changes. Then there's the inconvenient fact that 90 percent of Indonesian palm oil is consumed by the giants China and India. With huge, unsophisticated markets any effort promoting sustainability in North and South Asia is difficult at the best of times.

Alternatively, even the concept of sustainable palm oil has proven fair game. In particular, a report by the Center for International Forestry Research found that, for each hectare of forest or peatland cleared in Indonesia, 473 to 1,744 tons of carbon was released into the atmosphere.

Perhaps most disconcerting of all is the direct human cost: population displacement among Indonesia's 17,500 islands. Along with companies, the government itself stands accused of bullying residents and landowners for the sake of production. "No land conflict in the country takes place overnight," Abetnego Tarigan, director of Sawit Watch, an Indonesian palm oil industry watchdog, told The Jakarta Globe. "The criminalization of community figures to intimidate others is just the start."

With Indonesia establishing the world's biggest plantation along the Borneo border, this issue portends to be more explosive than ever. "The tendency for conflict will continue to rise," Tarigan said. "People's living space is getting smaller and smaller. There isn't much left for wildlife, either."

But despite immense challenges, Indonesia's producers seeking sustainability at least have motivation for their long-term reputation—if not near-term profit. Overall international demand for sustainable palm oil, roundtable Secretary-General Darrel Webber said in June, has doubled in the past year.

Joseph Kirschke is an Asia-Pacific-based writer and analyst.