5 things about palm oil expansion in the Philippines

The Philippines has recently declared ambitions to become a major palm oil player; experts at the recently-held Responsible Business Forum on Food and Agriculture weigh in with some recommendations on how it should proceed.

The Philippines is currently a minor producer of palm oil in the Southeast Asian region, but this is set to change with the country recently declaring ambitions to convert some eight million hectares of idle lands across the country into oil palm plantations.

This will not only aid in reforesting denuded areas but also boost agricultural production in the country, said Ramon Paje, Secretary of the Department of Natural Resources, in a May announcement. Palm oil is also largely seen as an alternative to one of the Philippines’s major crop, the coconut, since there are more financial returns in cultivating oil palm in one hectare of land compared to farming coco trees. 

Paje noted that Indonesia, which only has six million hectares of oil palm, reaps US$50 billion annually from this industry – an amount that is nearly the size of the over US$50 billion (more than two trillion pesos) 2014 national budget of the Philippines.

Leaders of the palm oil industry, however, cautioned the country to tread carefully in their palm oil expansion at the recently held two-day Responsible Business Forum on Food and Agriculture in Manila on 14 July. Discussing the challenges and opportunities of the sector, they flagged social and environmental issues that the palm oil sector faces in Indonesia and Malaysia, such as continued deforestation, increased emissions from illegal burning of trees, and the marginalisation of indigenous communities.

At a panel discussion chaired by Darrel Webber, secretary general of the Roundtable on Sustainable Palm Oil (RSPO), experts made five key recommendations for increasing productivity, improving livelihoods and reducing environmental impacts of palm oil in the Philippines:

1.  Conduct social and environmental impact studies first

The government’s plan to convert eight million hectares of idle and denuded lands into oil palm plantations will not only serve as reforestation efforts but also provide communities with much needed income, said Pablito Pamplona, director and secretary of the Philippine Palm Oil Development Council, tasked to assist the government in creating the necessary framework for palm oil expansion.

Webber noted the Philippines’ good intention to help communities, but pointed out that how this will be implemented on the ground should be monitored. Landscape-level social and environmental impact studies will help identify what areas are meant for cultivation and prevent encroachment on forested areas, noted the more than 30 experts who participated in the working group.

Encroachment in sensitive areas is a high-profile issue in Indonesia and other established palm oil countries, said John Clendon, managing director of Univanich Palm Oil, one of Thailand’s leading exporters of palm oil.

If you aim to produce high quality palm oil, you’re going to look at all these best practices like looking after the soil and using less chemicals

Sebastian Sharp, BW Plantation head of investor relations

2. Implement sustainable palm oil practices

The working group also recommended that new companies venturing into palm oil in the Philippines be mindful of the financial consequences of operating their plantations unsustainably. Chaoni Huang, head of business development for Asia of British environmental consultancy Trucost, explained that there are “unpriced environmental liabilities” when a firm does not strive to meet sustainability standards or improve their processes, which could eventually hurt the bottomline. 

Huang, who helps organizations evaluate their operations through the value of natural capital or “making nature accountable in the market system”, cited a case study they conducted with Brazilian cosmetics firm Natura on agroforestry and monoculture systems of palm oil production. Based on their findings, the total environmental and financial benefits of operating a sustainable plantation is three times higher than the monoculture system, she said.

Monoculture, or the planting of one crop across a plot of land, is a common agricultural practice that negatively impacts the ecological balance of the soil and greater area, as well as affecting the traditional way of planting of rural communities.

Huang also added: “Once we account for the environmental benefits I think the higher cost of RSPO production should be justified, because companies forecast business risks all the time but it’s time for them to forecast the business risk from deforestation and other environmental challenges and price that into the market,” she noted.

In addition, other experts pointed out the potential gains from meeting global sustainability standards.  

Sebastian Sharp, head of investor relations of Indonesian palm oil firm BW Plantation, said: “If you aim to produce high quality palm oil, you’re going to look at all these best practices like looking after the soil and using less chemicals.” This better quality oil can command premium prices, just as those experienced in the organic food and extra virgin olive oil industries in recent years, he added.

There is also a reputational risk with not being sustainable, commented Max Baumann, program advisor for environment and rural development of German government-owned development company GIZ. In Norway, there was a case of palm oil being substituted by other oils due to the former’s negative image, he said. If this image continues to be bad, consumers will demand for a product without palm oil, he emphasised.

3. Government and private sector should work on a pro-farmer model

Since the palm oil expansion is aimed to alleviate the poverty of agricultural communities in the Philippines, both the government and businesses should assist smallholders in planting this crop, which is different from their usual produce of either coconut, sugar, cacao and others.

The working group recommended that the government increase education and training opportunities to farmers, set up a cooperative model, indicate a minimum price of palm oil to protect farmers’ income, and establish private-public partnerships to lease lands for building mills.

John Perrine, chairman of banana and pineapple plantation company Unifrutti Group Philippines, also noted that since sugar tariffs will be reduced to five per cent in the upcoming Asean integration in 2015 and thus bring in competition to the local market, sugar farmers in the south will most likely turn to palm oil to replace their lost business in sugar.

And since sugarcane cultivation requires more manpower than palm oil, government intervention is required to encourage mixed development of crops, along with palm oil, to soak up this excess labour and prevent a mono-crop situation, said the working group.

4. Good seeds should be public goods

There has to be a balance of several factors to improve productivity and yield. Land is one such component, noted Clendon. This is why palm oil cultivation thrived in Indonesia and Malaysia, where there are more virgin lands and the countries are nearer to the equator, unlike the Philippines, he said.

A local community in Sultan Kudarat in Mindanao, the southern area of the Philippines, cultivates oil palm. Image: Inquirer Photo

Another main component is the seed, and this can be improved through science and technology. Scientists are experimenting with a variety that is drought-resistant and sturdier against typhoons, said Pamplona.

Currently, seeds used by large growers can produce up to four tonnes of oil palm fruit per hectare, which is twice what smallholder farmers can produce, noted the working group.

The difference is all in how good the seed is, they added. Such seeds costs about 40 per cent more and is also more difficult for small farmers to acquire. The group suggested that government provide subsidies to farmers.  

5. Create financial innovation

The sustainability of palm oil needs to extend to financial sustainability as well, said Pamplona, particularly in terms of financial support that the government can provide. When farmers see the benefits of growing oil palm – which is more yield per amount of land used compared to soy, sunflower and coconut – many will demand to plant this crop and they will require capital to start.

Micro-financing through commercial banks can help farmers purchase equipment, vehicles and other farming needs, noted the experts. National banks or development banks should engage in risk-sharing with commercial counterparts to stimulate financial innovation that can boost smallholders’ productivity and livelihood, they added.

Lastly, they also flagged the gestation period of oil palm development, which is about five to seven years before the first harvest, as an area of concern. Government and other stakeholders should determine a long-term financing model that will encourage the sustainable development of palm oil in the Philippines. This will help deter farmers from being tempted to clear more forests before an initial harvest is done, said Webber and the experts.

These recommendations are part of a lengthier list presented at the last day of the forum, which featured six different working groups that discussed the sustainability of some of the world’s key commodities, including rice and palm oil. The event was organised by Singapore-based events firm Global Initiatives in partnership with WWF-Philippines.

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