Indonesia to Europe: Pay for sustainable palm oil

Indonesian government and business leaders say the country is committed to raise the sustainability of the palm oil industry, but European countries must be willing to pay for it too.

Indonesia’s Coordinating Minister for Economic Affairs Darmin Nasution has called on European countries to pay the premium for sustainable palm oil, saying that the cost of raising the sustainability standards of the industry “cannot be borne by producers alone”.

Speaking at the International Conference on Oil Palm and Environment (ICOPE) held in Bali last week, Darmin noted that “some European countries will not hesitate to promote a boycott on non-sustainable palm oil, however they have yet to be willing to pay (the) premium for sustainable products”.

The minister said that in the past, European countries at advanced stages of development expect Indonesia – a developing country – to adopt sustainability as a “baseline condition of business”.

“Unfortunately not many European countries (are) willing to pay extra for sustainability. Being sustainable requires effort and funding – this cannot be borne by producers alone,” he told a 400-strong industry audience on Wednesday.

He noted, however, that following the successful Paris Agreement on climate change inked in December in the French capital, “we expect this condition to improve”.

The palm oil industry – dominated by Malaysia and Indonesia which together account for about 85 to 90 per cent of global production - has enjoyed phenomenal growth in the past two decades on the back of strong global vegetable oil demand.

Palm oil – a productive, high-yielding and versatile vegetable oil – can be found in 50 per cent of products on supermarket shelves, ranging from cosmetics to food. But the industry has been tarnished by business practices that have led to deforestation, labour exploitation and biodiversity loss, among others.

We notice that the consumer has yet to show their commitment to sustainability as we have yet to see a willingness to pay for a sustainable product.

Darmin Nasution, Coordinating Minister for Economic Affairs, Indonesia

It is only in recent years that palm oil producers and traders – under growing pressure from consumers and activists – began to pledge reforms to raise the sustainability of the industry.

In his keynote speech at the three-day conference, Darmin took pains to outline Indonesia’s efforts in this area.

Emphasizing that the industry is a key economic engine for the country and plays a major role in poverty eradication by providing employment to millions of people, Darmin pointed out that since 2010, the country has established a certification called Indonesia Sustainable Palm Oil (ISPO).

The total plantation area with ISPO certification has reached 1.2 million hectares (ha), accounting for 11 per cent of total area planted, with 6 million tonnes of crude palm oil (CPO) - or 23 per cent of a total export of 25.6 million tonnes – certified.

While the price difference between non-certified and sustainable palm oil fluctuates, industry experts said the latter fetches between US$5 and US$23 more per tonne than non-certified options. Currently, a tonne of palm oil is trading at about US$560. 

“As you can see, our journey to achieve sustainability is still far to go. We cannot take the burden alone, the cost of being sustainable is not only producers’ responsibility but also consumers’ responsibility,” Darmin said.

“We notice that the consumer has yet to show their commitment to sustainability as we have yet to see a willingness to pay for a sustainable product,” he added.

Darmin also highlighted Indonesia’s B-20 biodiesel initiative, which will require a minimum 20 per cent use of bio content in diesel fuel by this year, as a national effort to both tackle climate change and support the palm oil industry.

The government has been pushing for greater use of edible oil-based biodiesel in the country’s energy mix to cut fossil fuel import bills, slash carbon emissions, and to create demand for palm oil amid recent falling commodity prices.

Under the international Paris Agreement, Indonesia has pledged to reduce its carbon emissions by 29 per cent through its own efforts – or by 41 per cent with international assistance - by 2030.

Sustainable palm oil will play a significant role in achieving this, as the country plans to “focus the replanting of crude palm oil in degraded land and low-productivity areas to boost yield”, Darmin said.

Also speaking at the event, palm oil giant Golden-Agri Resources (GAR) chairman and chief executive officer Franky Widjaja reiterated the message that the industry can play a significant role in tackling climate change.

It can do so “through sustainable production which focuses on improving productivity per hectare, conservation efforts, and participation in international certification schemes for sustainable palm oil,” he said.

Furthermore, palm oil biomass and methane capture can be used to produce electricity, reducing the use of fossil fuels, he noted.

ICOPE is a biennial event hosted by Golden Agri’s research arm PT SMART Tbk in collaboration with non-profit World Wildlife Fund (WWF) Indonesia, and research institute CIRAD France. 

Singapore-listed Golden Agri, which has a market value of US$2.9 billion, is the world’s second largest palm oil plantation company.

At the event, themed “Sustainable palm oil and climate change: The way forward through mitigation and adaptation”, Darmin also took the opportunity to express disappointment at the approach of “some developed countries which promote (an) anti-palm oil lobby”.

The minister later told reporters that Indonesia is particularly concerned by France’s recent proposal to raise import taxes on palm oil.

French policymakers say this is to address environmental concerns such as deforestation, the use of the unhealthy pesticide ‘paraquat’ and to diminish health risks such as heart diseases that stem from palm oil consumption.

If the bill is passed into law, the import tax will rise progressively from 100 euros per tonne to 900 euros in 2020. 

Darmin told reporters on the sidelines of the event that this development is “of course it’s not a good thing for us. We will discuss, we will try to convince French government not to continue to impose that tax.” 

He also said that Indonesia is considering reporting France to the World Trade Organization (WTO) should the revised taxes be implemented, as such a policy would violate WTO principles.

ICOPE 2016 is an international conference dedicated as a scientific platform for the development of sustainable palm oil to meet the environmental challenges.

Topics discussed during the three-day event included good agricultural practices and how the palm oil industry supports and engages smallholders in mitigating and adapting to climate change. 

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