Blind spot in palm policy raises deforestation risk in Malaysia: Report

A blind spot in the sustainable production policies of major palm oil companies is allowing plantation owners clearing rainforest in Malaysia to continue feeding the former’s 'deforestation-free' supply chains.

oil palm fruitlet
An oil palm fruitlet. Image: Rhett A. Butler/Mongabay

A “blind spot” in the sustainability policies of major palm oil conglomerates is allowing plantation companies clearing rainforest in Malaysia to continue feeding ostensibly “deforestation-free” supply chains, according to a new report by eco-watchdog Chain Reaction Research (CRR).

Over the past decade, most of the world’s largest processors, traders and users of palm oil have adopted “zero-deforestation” policies, pledging to sever the link between their sprawling supply chains and the destruction of rainforests, especially in Indonesia and Malaysia, which together account for most of the world’s production of palm oil, used in consumer goods ranging from chocolate to laundry detergent.

In Indonesia, the government long ago banned standalone logging concessions. A forest there can only be cleared if it is explicitly linked to another type of development — like an oil palm plantation. This makes it easy to establish when a rainforest has been cleared for the purpose of setting up a plantation, and to label the operator of that plantation ineligible to supply buyers with “zero-deforestation” pledges.

In Malaysia, however, state governments can issue forest clearance permits that have the clear-felling of forests as their sole purpose. Because such permits do not then require companies to disclose what the cleared area will be used for, be it an oil palm plantation, mining project, or some other undertaking, they have led to situations where one company clears an area only to have a different one start an oil palm project there later, the report said.

“This results in a confusing situation as to whether the [oil palm] grower can still be held responsible for the deforestation,” the report said. This creates a loophole for growers to exploit, and a “blind spot” in the sustainable production policies of traders and refiners, one of the researchers involved in the study, Albert ten Kate, told Mongabay.

“[In Indonesia] you can address the palm oil, industrial tree or mining company, as the clearing is on behalf of them,” ten Kate said. “[In Malaysia] you simply do not know the ultimate purpose of the clearing. The forests are cleared … some years later you see small oil palm trees … and the oil palm grower will say that it was cleared by somebody else.”

Deforestation can be detected in near real-time, yet… refiners cannot determine who to engage to stop deforestation.

Oil Palm Expansion in Peninsular Malaysia is Guided by Non-Transparency

CRR’s report, released May 7, analysed five deforestation case studies in degazetted forest reserves in Pahang, Johor and Terengganu states, cumulatively responsible for some 40,000 hectares (99,000 acres) of forest cleared since 2015.

It found that, in addition to the clear-felling permits, another factor has been limiting buyers from enforcing their “no-deforestation” policies: a lack of public information identifying the companies clearing forests within concession boundaries.

With only a fraction of environmental impact assessments conducted for forest conversion projects released on government websites, “deforestation can be detected in near real-time, yet… refiners cannot determine who to engage to stop deforestation,” the researchers wrote, a phenomenon they termed “ghost deforestation.”

Eight of Peninsular Malaysia’s largest palm oil refiners, which together cover 70 per cent of the region’s refining capacity, have “no-deforestation” policies in place. These policies cover not only their own plantations but also those of third-party suppliers — though enforcement usually comes too little, too late due in part to ghost deforestation.

In one of the case studies in the state of Pahang, the researchers detailed how trading and refining giants Wilmar International and Mewah International, both of which have “no-deforestation” policies in place, met with a plantation company in their supply chains linked to deforestation activities in 2020; most of the forest had already been cleared between 2015 and 2019.

Malaysia is the world’s second-largest palm oil producer, accounting for more than a quarter of total global output in 2020. Within the country, Peninsular Malaysia makes up 47 per cent of a total planted area of 5.9 million hectares (14.6 million acres) of oil palm plantations. That is to say, nearly half of an area more than 17 per cent the size of the entire country.

Today, the vast and orderly rows of oil palm plantations continue to encroach on forested land. Some 84 per cent of Peninsular Malaysia’s remaining forest is classified as permanent forest reserves, and of these, more than three-quarters are concentrated within the four states of Perak, Pahang, Kelantan and Terengganu. Yet Pahang, Kelantan and Terengganu, as well as Johor, are also the states where plantations have been expanding the most rapidly between 2018 and 2020.

The expanding plantations in these states could derail the central government’s ambitions to keep oil palm planted area at a ceiling of 6.5 million hectares (16.1 million acres) by 2023. They also highlight possible governance gaps and conflicts of interest between the central government’s direction and state authorities’ enforcement, where the latter have full control over the use of their permanent forest reserves and can degazette them at will — in contrast to countries like Indonesia, where the central government largely controls forest policy.

In Peninsular Malaysia, most large oil palm growers are also majority-owned by government institutions. The four biggest growers, which together run 31 per cent of the planted area, are majority-owned by the central government, according to CRR data. Many of the other large growers are owned by state governments, with ownership corresponding to the jurisdiction state authorities have over their land. Some growers are also owned by the sultans of states or their relatives, including in Johor, Terengganu and Pahang.

In one of the case studies, the researchers recorded a 2,190-hectare (5,410-acre) oil palm plantation that appeared in a degazetted forest reserve in Johor after the area was cleared. The plantation was developed by AA Sawit, a company 51 per cent owned by the sultan of Johor, the researchers said. In another case study, 1,800 hectares (4,400 acres) of forest in Terengganu were cleared to make way for an oil palm plantation owned by the sultan of Terengganu and his relatives, the researchers wrote. For both cases, main refiners took little action, they said.

Ten Kate said that since the study was published, the researchers have linked another 8,500-hectare (21,000-acre) oil palm and industrial tree plantation project within the degazetted Bukit Ibam reserve in Pahang to a company 50 per cent owned by a nephew of the sultan of Pahang.

“The sultans … officially have a ceremonial role that is separate from the government that decides [on forest policy],” ten Kate said.  “But in reality, they have a lot of influence.

“Palm oil refiners are tracing deforestation to the mills in their supply chains. But we say they should also pay attention to the plantations that the mills buy from.”

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