THE INTERNATINAL OIL PALM CONFERENCE 2014

17-19 June 2014, BNDCC, Bali, Indonesia

Toward green agriculture: the case of oil palm development1

Fitrian Ardiansyah
Crawford School of Public Policy, The Australian National University,
WEH Stanner, Room 1.38, Crawford Building, 132 Lennox Cross, Canberra, ACT 0200, Australia,
Office phone: +61-2-61256448, Email: fitrian.ardiansyah@anu.edu.au,
and
Pelangi Indonesia, Jl. Mesjid II No. 25, Pejompongan, Jakarta Pusat 10210, Indonesia,
Office phone: +62-21-5705114, Email: fitrianardiansyah@yahoo.com.au

Abstract
Over the last two decades, palm oil has emerged as one of the most significant contributors to
Indonesias economy, topped only by oil, gas, and mineral products. In 2009, Indonesia surpassed
Malaysia to become the biggest producer of palm oil in the world, with production accelerating
dramatically in recent years. Indonesia also possesses the largest area of land in oil palm plantations
in the world. The market clearly drove this oil palm boom, prompted largely by the increase in food
demand in Indonesia, India and China as well as the plan to expand biofuel markets in Europe and
other countries.
Rapid expansion of oil palm plantations, however, has been accused to have led to the conversion of
important and fragile terrestrial ecosystems, including a significant area of tropical forests and peat
lands. NGOs and the public, for instance, often accuse oil palm plantations as one of the responsible
sectors whenever forest and land fires occurring in Southeast Asia.
Some key palm oil actors, ranging from buyers, retailers, producers, financiers and NGOs, have been
active in seeking possible solutions, among others, by developing standards and best practices which
aim at transforming the palm oil sector. The creation of the Roundtable on Sustainable Palm Oil and
other similar national platforms indicate the willingness of palm oil stakeholders to change for the
better. Challenges to realise sustainable palm oil and to some extent, green agriculture, are huge,
especially in applying such standards and best practices at local level where different vested interests
may hinder the application of responsible and sustainable practices.
This paper attempts to discuss progress achieved and challenges faced by palm oil actors and relevant
stakeholders on the journey of sustainable palm oil. The scope of the paper includes discussion about
land use, reducing deforestation and peat land conversion and degradation, and stakeholder
collaboration. The intent of this paper is not to provide an exhaustive coverage of all issues of
sustainable palm oil and green agriculture; instead, the paper aims to capture strategic lessons-learnt
so that palm oil actors and relevant stakeholders can continue their efforts to improve policies and
practices in this respective sector.

Keywords: sustainable palm oil, land use, reducing deforestation, stakeholder collaboration.

This version of the paper is a first draft (not to be quoted). This draft will be reviewed and eventually revised,
taking into account comments and suggestions coming from the audience and readers at the IOPC 2014.

Toward Green Agriculture: The Case of Oil Palm Development 1

1.

Introduction

This appears to be the era when many world leaders are discussing and promoting green
economy. The concept of green economy was prominently highlighted exactly two years ago
at the United Nations Conference on Sustainable Development (UNCSD), otherwise known
as Rio+20, held in Rio de Janeiro, Brazil. The concept was coined to remind these leaders and
the general public that to address the current and future global challenges namely
widespread poverty, hunger and environmental destruction (UN 2012b, p. 1) the human
civilisation needs to consider an important tool that can achieve sustainable development and
poverty eradication, and provide options for policy making without a rigid set of rules
(UNCSD 2012, p. 9). Green economy, according to the UNCSD (2012, p. 9), can contribute
to eradicating poverty as well as sustained economic growth, enhancing social inclusion,
improving human welfare and creating opportunities for employment and decent work for all,
while maintaining the healthy functioning of the Earths ecosystems.
The current and future global challenges of human civilisation are huge. In the Millennium
Development Goals Report 2012, the Secretary General of the United Nations (UN 2012a, p.
3) indicates that more than 600 million people worldwide in 2015 will lack access to safe
drinking water, almost one billion will be living on an income of less than $1.25 per day,
mothers will continue to die needlessly in childbirth and children will suffer and die from
preventable diseases. He further mentions that hunger remains a global challenge, lack of safe
sanitation is hampering progress in health and nutrition, biodiversity loss continues apace, and
greenhouse gas (GHG) emissions continue to pose a major threat to people and ecosystems
(UN 2012a, p. 3).
In the context of addressing the aforementioned challenges and achieving sustainable
development, policies for green economy are promoted by the world leaders (UNCSD 2012,
p. 9). Such policies, as argued by the United Nations Environment Programme (UNEP),
would need to result in improved human well-being and social equity, while significantly
reducing environmental risks and ecological scarcities (UNEP 2013b, p. 1). According to the
UNEP (2013b, p. 1), green economy policies should be simply low carbon, resource efficient
and socially inclusive.
In such a context that is improving human well-being, social equity and resource efficiency
the agriculture sector has been, is and will always play a crucial role. Moreover, since a
major part of global challenges relates to issues surrounding hunger, poverty, natural resource
and biodiversity loss, and the provision of energy and water, there is no doubt that the
agriculture sector should be given a greater role and responsibility in contributing to options
and solutions. In fact, the Rio+20 outcome document The Future We Want places
sustainable agriculture as one of key sectors that can encourage a move to a greener economy
(UNEP 2013a, p. 49). In this document, the world leaders reaffirm their positions to promote,
enhance and support more sustainable agriculture, including crops, livestock, forestry,
fisheries and aquaculture, that improves food security, eradicates hunger and is economically
viable, while conserving land, water, plant and animal genetic resources, biodiversity and
ecosystems and enhancing resilience to climate change and natural disasters (UNCSD 2012,
p. 20).
As an archipelagic nation that still depends heavily on its natural resources and agriculture
sector, Indonesia is at crossroads, looking forward to its challenging future. It needs to
provide sufficient food, energy and jobs for its population. At the same time, Indonesia needs
to ensure that its agriculture production will not lead to further environmental degradation,
Toward Green Agriculture: The Case of Oil Palm Development 2

which in turn, will affect the livelihoods of the countrys current and future population.
Having a key commodity that has a global impact like palm oil, Indonesia is also required to
carefully assess its development options, particularly in this sector, so that they can both
contribute to economic development and growth of the country, and actions that safeguard the
environment at local, national and global levels.
With the intention to discuss progress achieved and challenges faced by the agriculture sector
to greening its sector, especially which relates to palm oil, this paper is structured into five
sections, including this introduction section. The second section is on green agriculture. This
section explains the concept of green agriculture and briefly elaborates challenges faced by
Indonesia to implement this concept. The third section discusses palm oil, focusing mainly on
the contribution of this commodity to Indonesian economy and the impacts resulting from its
development. The fourth section reflects on the journey of sustainable palm oil to date and
whether there are options or approaches available to strengthen the existing pathway. The
section also concludes and provides some food for thoughts for many stakeholders involved
in such a journey.

2.

Toward green agriculture and challenges for Indonesia

As mentioned in the previous section, green or sustainable agriculture is perceived to be

playing a key role in green economy and contributing to the future of human civilisation.
Realising green agriculture, however, is a herculean task. To feed the growing world
population, projected to be more than nine billion people by 2050 (see Figure 1) (UNDESA
2009, p. 1), for example, the agriculture sector needs to produce at least 40 per cent more than
the currently demanded food (in terms of calories). This calculation is derived from data from
UNDESA (2009, p. 1) and Alexandratos and Bruinsma (2012, p. 23), combining Figure 1 and
2. The complete combination of both sets of data is displayed in Figure 3.

9,000
7,000
6,000
5,000
4,000
3,000

3,500

Developing
countries
Sub-Saharan
Africa
Near East/North
Africa
LAC

3,300

South Asia

2,000

3,100
2,900
2,700
2,500
2,300
2,100
1,900

year

year

Figure 1. World population projection and Figure 2. Per capita food consumption
Note: The 2015, 2030 and 2050 figures are projection; LAC (Latin America and the Caribbean). Source:
Alexandratos and Bruinsma (2012, p. 23) and UNDESA (2009, p. 1).

Toward Green Agriculture: The Case of Oil Palm Development 3

2050

2030

2015

2005/07

1990/92

Developed
countries

1,700
1989/91

2050

2030

2015

2006

2000

1979/81

East Asia

1969/71

1,000
1970

millions (people)

8,000

World

kcal/person/day

10,000

trillion calories

10,200

World

8,200

Developing countries

6,200

Sub-Saharan Africa
Near East / North Africa

4,200

Latin America and the Caribbean

2,200
South Asia

2050

2030

2015

2006

1970

200

year

East Asia
Developed countries

Figure 3. Total food consumption

Note: The authors calculation. Source: Alexandratos and Bruinsma (2012, p. 23) and UNDESA (2009, p. 1).

Meeting such demand is challenging, especially if one considers the current limitation of land,
water and other natural resources and carrying capacity. The Food and Agriculture
Organization of the United Nations (FAO 2011b, p. 3), for example, reports that although
agricultural production has as much as tripled due to significant increases in the yield of major
crops, global achievements in production in some regions have been associated with
degradation of land and water resources and the deterioration of related ecosystem goods and
services. The report indicates that significant biomass, carbon storage, soil health, water
storage and supply, biodiversity and social and cultural services have been negatively affected
by the global agriculture production, mainly from the use of 11 per cent of the worlds land
surface for crop production that also accounts for 70 per cent of all water withdrawn from
aquifers, streams and lakes for crop production (FAO 2011b, p. 3).
With the total land for agriculture currently stands at approximately 4,600 million hectares
37.8 per cent of the total land area of the earth there is an urgent need to reform the global
agriculture and food system, among others, by applying new technologies, investments,
approaches, human and environmental safeguards, public policies and economic incentives
(Foresight 2011, p. 15). As pointed out in Section 1, this reform is expected to lead to the
agriculture sector that is more productive, low carbon, resource efficient and socially
inclusive.
To implement such a reform, transformational changes are needed. At policy level, for
instance, a fundamental change is needed, particularly the creation of a policy that can assist
small holders or farmers to get access to market, to get supply and information and to sell
their surplus crops more reliably and affordably. In the FAO report (2011b, p. 6), agricultural
policies are often viewed to have primarily benefitted farmers with productive land and access
to water, bypassing the majority of small-scale producers who are still locked in a poverty
trap of high vulnerability, land degradation and climatic uncertainty. When the majority of
farmers and existing farms are more productive, natural habitats and the biodiversity they
support can remain intact and forests can continue capture carbon and reduce overall
emissions related to climate change.

Toward Green Agriculture: The Case of Oil Palm Development 4

Another set of policies that needs to be further introduced and enhanced is land use policies
that can balance agriculture development and its surrounding natural ecosystems, helping the
sector to prevent forests and wetlands from being converted into sprawling farm lands (UNEP
2013a, p. 50). The loss of forests, peat lands and natural ecosystems will eventually
negatively impact on agriculture activities. These include a continuous loss of biodiversity
and degradation of ecosystem services that the agriculture sector needs, a constant depletion
and erosion of top soil nutrients, and an increasing scarcity of freshwater (UNEP 2013a, p.
50).
This type of policies, however, can only lead to sustainable outcome if farming practices and
technologies, as the UNEPs suggestion (2013a, p. 52), can be transformed and encouraged
toward:

restoring and enhancing soil fertility through the increased use of naturally and
sustainably produced nutrient inputs, diversified crop rotations, and livestock and crop
integration;

reducing soil erosion and improving the efficiency of water use by applying minimum
tillage and cover crop cultivation techniques;

reducing chemical pesticide and herbicide use by implementing integrated and other
environmentally friendly biological pest and weed management practices; and

reducing food spoilage and loss by expanding the use of post-harvest storage and
processing facilities.
Such policies and practices need to be exemplified by a diverse, locally adaptable set of
agricultural techniques, practices and market branding certifications such as Good
Agricultural Practices (GAP), organic farming, fair trade, sustainable commodities
conservation farming, precision farming, integrated pest management, and diversified farming
(UNEP 2013a, p. 52). If a particular country applies this set of approaches, it would likely
give the countrys agriculture sector a much competitive edge, branding itself as one of
leading nations that apply green agriculture.
Two other aspects crucial to be addressed at the global and national levels are the
consumption and investment patterns. About one third of all food production world-wide gets
lost or wasted in the food production and consumption systems, amounting to 1.3 billion
tonnes (UNEP 2013a, p. 64). It is, therefore, important to have consumers both in developed
and developing countries who can pay attention to their food consumption, as well as change
their behaviour and preferences towards consumption of sustainably produced food
commodities.
In the context of investment patterns, there is a substantive need now to reverse the big
decline in government spending and foreign aid in the agriculture sector. By comparing two
different years (1980 and 2004) and using the government spending across the globe, as seen
in Figure 4, it is clear that in the public spending for agriculture has decreased. The increase in
public sending not only will support existing activities but also finance agriculture research
and create science-based policy that gives farmers, policy makers and the private sector a
variety of innovative solutions. The increase in public spending and foreign aid for applying
green agriculture sector will also help farmers share knowledge and access the training and
inputs they need to sustainably improve the quantity, quality and diversity of the crops they
grow. Such additional resources are needed in the changing climate the farmers have
experienced and will face more. Developing countries and small-holder farmers, in particular,
are being especially hard hit by the changing of weather patterns (FAO 2011a, p. 2), and
hence new resources and support can help them adapt to these changes, particularly to help
them keep soil fertile and to tackle pest.
Toward Green Agriculture: The Case of Oil Palm Development 5

1980

U-GDP

T-GDP

A-GDP

U-PSGDP

T-PSGDP

A-PSGDP

U-PS

T-PS

2004
A-PS

percentage (%)

35
30
25
20
15
10
5
0

Categories

Figure 4. Government spending on agriculture (1980 and 2004)

Note: A (agriculture-based countries), T (transforming countries), U (urbanised countries), PS (public spending
on agriculture as a share of total public spending [%]), PSGDP (public spending on agriculture as a share of
agricultural GDP [%]), GDP (share of agriculture in GDP [%]). Source: World Bank (2007, p. 41).

For Indonesia, as a tropical, low-lying and archipelagic nation, adapting to climate change
including the changing of weather patterns can be one of major components to implement
this green agriculture concept. Indonesias agriculture sector is already very sensitive to
hydro-meteorological changes, which include flood, landslide, drought and extreme weather
events such as tropical storms and hurricanes. When an export oriented agricultural
commodity is adversely affected, the impact is felt both on the level of the local economy and
in the balance of trade and the current account, potentially upsetting a countrys
macroeconomic equilibrium.

Impacted areas (ha): pest and

diseases, floods and drought
Crop failure (ha): pest and
diseases, floods and drought

250,000
200,000
150,000
100,000
50,000
0

Aceh
North Sumatra
West Sumatra
Riau
Jambi
South Sumatera
Bengkulu
Lampung
Bangka
Riau Archipelago
Jakarta
West Java
Central Java
Yogyakarta
East Java
Banten
Bali
West Nusa
East Nusa
West Kalimantan
Central
South Kalimantan
East Kalimantan
North Sulawesi
Central Sulawesi
South Sulawesi
Southeast
Gorontalo
West Sulawesi
Maluku
North Maluku
West Papua
Papua

impacted areas (ha)

300,000

provinces

Figure 5. Annual average of paddy fields impacted by diseases, floods and drought
(2007-2011)
Source: Directorate General of Food Crops (2013, pp. 18-25).

Indonesias agriculture sector suffered from the impacts of climate change and variability,
particularly due to droughts, floods and outbreaks of crop diseases (see Figure 4 as an
Toward Green Agriculture: The Case of Oil Palm Development 6

example). According to the Ministry of Agriculture (Directorate General of Food Crops 2013,
pp. 18-25), more than a million hectares of the countrys paddy fields and more than 100,000
hectares of corn fields have been impacted by diseases, floods and drought in the period of
2007-2011. Out of these areas, approximately 140,000 hectares of paddy fields and 18,000
hectares of corn fields have suffered from crop failures (Directorate General of Food Crops
2013, pp. 18-25).
If such production losses are not dealt with seriously, not only Indonesia is difficult to apply
green agriculture but also may face further difficulties in reaching its goal to ensure food
security. Even if these losses are compensated through imports, similar imbalances may
surface in other areas, which include putting further dependencies of the countrys economy
on foreign agriculture commodities.

area harvested (000 ha)

12,350

Production (000 tons)

Consumption (000 tons)

Net (000 tons)

Areas harvested (000 ha)

50,000

12,300

40,000

12,250
30,000

12,200
12,150

20,000

12,100

10,000

12,050
0

12,000
2021-22

2020-21

2019-20

2018-19

2107-18

2016-17

2015-16

2014-15

2013-14

2012-13

2011-12

-10,000
2010-11

11,950

rice produced and consumed (000 tons)

The Ministry of Agriculture has been formulating and developing policies and programs
which aim at helping the agriculture sector cope with climate change challenges. According to
Directorate General of Food Crops (2013, p. 26), these include:

Development of crop varieties which can cope with climate challenges (i.e. resilience to
drought, flooding and diseases);

Developing integrated pest management;

Improving farmers field education on climate change and variability;

Developing crops cultivation with zero tillage;

Increasing the use of organic fertilizers and organic pesticides; and

Strengthening coordination with other sectors and layers of governments.

Such good approaches will only lead to desirable outcomes if the government implements
these in a consistent matter.

year

Figure 6. Indonesias rice production and consumption (2010-2022)

Source: Wailes and Chavez (2012, pp. 25-6).

Another set of issues Indonesia is facing to apply green agriculture is land. By using the
example of rice production, the Ministry of Agriculture projects that Indonesia would need
25.7 million tonnes of rice per year in 2015 and 30.9 million in 2030 to meet the demand of
255 million Indonesian people in 2015 and 308 million in 2030 (Directorate General of Food
Toward Green Agriculture: The Case of Oil Palm Development 7

Crops 2013, p. 32). Another projection carried out by the University of Arkansas
demonstrates that Indonesia could achieve 41.6 million tons of rice in 2021 despite of the fact
that the countrys consumption (42.9 million tons) will exceed its production (see Figure 5)
(Wailes & Chavez 2012, pp. 25-6). With the current average rice yield of 2.35-5.13 tons per
hectare, Indonesia would only be able to achieve this production if the country has
approximately 12.3 million hectares by 2021 dedicated to rice production (Directorate
General of Food Crops 2013, p. 32; IRRI 2013, p. 1; Wailes & Chavez 2012, pp. 25-6).
Finding new land for agriculture is tough since there are already many land conflicts and
disputes, unclear land tenure, as well as lack of legal protection of poor peoples rights over
land (World Bank 2013, p. 1). In addition, Indonesia also has to face a challenge of the
conversion of paddy fields (and other agricultural lands) to non-agricultural lands. Based on
1999-2002 data, the net conversion rates of paddy to non-agricultural use nationwide
exceeded 140,000 hectares per annum, out of which 107,000 hectares is lost from the most
valuable lands on Java (World Bank 2008, p. 9). To compensate for the productivity loss, for
each hectare lost on Java, the Government of Indonesia needs to encourage the development
of 2.2 hectares elsewhere in Indonesia (World Bank 2008, p. 9).
When discussing the application of green agriculture, Indonesia needs also to look at its key
commodity, namely palm oil. Dubbed the golden crop by the agriculture in the Southeast
Asia region (Dijk 2012, p. 147), palm oil has been scrutinised by many stakeholders when it
comes to its environmental and social impacts. It has, however, produces one of remarkable
lessons-learnt in the journey toward sustainability. The following two sections discuss the
impacts and the journey this commodity and its actors take toward green agriculture.

3.

Palm oil, its contribution to Indonesias economy and its social and environmental
impacts

Over the last two decades, palm oil has emerged as one of the most significant contributors to
Indonesias economy, topped only by oil, gas, and mineral products. Originating from West
Africa, where it has long been used as a traditional source of food, medicines, and woven
materials, oil palm (Elaeis guineensis) is the highest-yielding vegetable oil crop in the world,
and has thus become an important agricultural commodity in many tropical countries.
Indonesia in 2009 surpassed Malaysia to become the biggest producer of palm oil in the
world, with production accelerating dramatically in recent years. In 1967, Indonesias
production of crude palm oil (CPO) was 105.9 thousand tonnes with 0.1 million hectares of
oil palm plantations, which increased to reach 6.4 million tonnes in 1999 (3.9 million
hectares), and by 2010 production had soared to 19.8 million tonnes (7.8 million hectares)
(Directorate General of Estate Crops 2010, pp. 1-3). It is reported that last year Indonesia has
more than ten million hectares of oil palm plantations (Directorate General of Estate Crops
2014, p. 1). With regard to CPO exports and resultant revenues, the figures for Indonesia have
increased significantly over the last several decades (see Figure 7 for export figures), from 3.8
million tonnes (valued at US$1.46 billion) in 1999 to 20.4 million tonnes in 2013 (US$15.59
billion) (Index Mundi 2014, p. 1).
In the past, oil palm development was concentrated primarily on the island of Sumatra.
Today, the palm oil sector has expanded to Kalimantan, Papua, and other islands. The market
clearly drove this oil palm boom, prompted largely by the increase in food demand in
Indonesia, India and China as well as the plan to expand biofuel markets in Europe
Toward Green Agriculture: The Case of Oil Palm Development 8

25000
20000

Exports of palm oil (000 tons)

15000
10000
5000
0
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

exports of palm oil (000

tonnes)

(Fitzherbert et al. 2008, p. 538). The increase in this demand was reflected by the sharp
increase in the price of the commodity. For instance, the price of crude palm oil increased 88
per cent from US$570 per ton at the beginning of 2007 to over US$1,440 per metric ton in
early March 2008 (McCarthy & Zen 2010, p. 155).

year

Figure 7. Indonesia palm oil exports by year (1964-2012)

Source: Index Mundi (2014, p. 1).

Rapid expansion of oil palm plantations, however, has been accused to lead to the conversion
of a significant area of forests and peat lands. Wilcove and Koh (2010, p. 999) argue that oil
palm is the greatest immediate threat to biodiversity and forests in Southeast Asia. Fitzherbert
et al. (2008, p. 538) explain that oil palm expansion could in principle contribute to
deforestation in four indistinguishable ways: (i) as primary motive for clearance of intact
forests; (ii) by replacing forests previously degraded by logging or fire; (iii) as part of
combined economic enterprise, such as timber, plywood or paper pulp profits used to offset
the costs of plantation establishment; or (iv) indirectly, through generating improved road
access to previously inaccessible forest or displacing other crops into forests.
In their analysis conducted for Indonesia, Koh and Wilcove (2008, p. 62) estimated that the
minimum forest area converted to oil palm plantations was estimated to be 1.7 million
hectares between 1990 and 2005. This means over 56 per cent of oil palm expansion occurred
at the expense of natural forest cover in that period (Koh & Wilcove 2008, p. 62). An earlier
study suggests that 70 per cent of Indonesias oil palm plantations replaced forests between
the period 1982 to 1999 alone (Casson et al. 2007, p. 5). Another study conducted by Wicke
et al. (2008, p. 24) estimates that palm oil development was responsible for 11 per cent of
deforestation in Indonesia during the period of 1978-2003. Thi study argues that when
looking at the period of 1997-2003, then it can be seen that 2.6 million hectares new land has
been converted to palm oil while 9.7 million hectares of forest cover was lost (Wicke et al.
2008, p. 24).
In terms of peat land, Hooijer et al. (2006, p. 12) state that of the 10.3 million hectares of land
allocated to palm oil concessions, 2.8 million (~27 per cent) are located on peat lands.
According to the National Development Planning Agency (Bappenas 2009, p. 5), as of 2006,
plantation licenses (i.e. predominantly oil palm) on peat lands totalled 1.3 million hectares. In
its report, Bappenas (2009) further reveals that over 0.16 million hectares of peat lands
allocated for oil palm development was believed to be more than three metres deep, which is
supposed to be protected by law. As a result, a recent study published in Nature Climate
Change projects that in Kalimantan alone, oil palm plantations expansion can contribute to
1822 per cent (0.120.15 GtC yr1) of Indonesias 2020 CO2-equivalent emissions (Carlson
Toward Green Agriculture: The Case of Oil Palm Development 9

et al. 2013, p. 283). If this happens, the governments efforts to mitigate and adapt to climate
change will be in jeopardy.
Another significant environmental impact of forest conversion to oil palm plantations is forest
and land fires. Forest fires to clear land for plantations are a regular source of haze in
Southeast Asia, posing serious health problems, traffic disturbance and substantial economic
costs. With a 70 per cent chance of El Nino occurring this year and continuous land
preparation activities by using fires, it is unfortunately that Indonesia could soon be facing
massive forest and land fires again (Meijaard 2014, p. 1).
With regard to social issues, the 2010 World Bank report argues that oil palm expansion can
yield positive socio-economic benefits to local people through employment opportunities,
improved infrastructure, increases in land value, and income from cultivating oil palm (World
Bank 2010, pp. 28-9). Oil palm expansion also yields indirect or national level poverty
alleviation benefits through government allocation of tax revenues and increased monetary
stability through foreign exchange earnings. The followings are some social benefits from
palm oil development as reported by the World Bank (2010, pp. 28-9) and Sheil et al. (2009,
pp. 37-8):

The net employment impact of oil palm depends on the employment intensity of
the plantation as well as the land uses that are being replaced. Rural employment
generation is often cited as a benefit of oil palm cultivation and is one of the chief
drivers behind public support for the sector. Unemployment is a pressing development
issue in Indonesia, which had 9.5 million people, or 8.5 per cent of its labour force,
unemployed in 2008. In 2002, an average oil palm plantation employed around 1 person
for every three hectares of oil palm in Indonesia, whereas in Malaysia the ratio was 1
person per 12 hectares. The Ministry of Agriculture estimates that for smallholder
plantations one person is employed for every two hectares. In comparison, one of
Indonesias large estate companies, PT SMART, employed one person for every 6.7 ha
in 2007.

The palm oil sector is an important source of jobs in many rural areas, but critics
point to the need for improving working conditions. Most of the work is at the
plantation level, and plantations mainly require unskilled agricultural labour. Workers
in the nucleus are generally paid the provincial minimum wage, sometimes with
additional piece rate incentives (GAPKI pers. comm.) Many companies reportedly
provide better labour conditions and opportunities than are found in surrounding areas,
but some reports by NGOs claim that poor working conditions are common. Critics of
the industry point out that the minimum wage often does not cover the basic living
needs (Kebutuhan Hidup Layak) standard calculated by the government.

The positive impacts on local livelihood: In Sumatra, a company distributed three

cattle to each of its 500 employee families. The cattle were allowed to graze on
plantations, fed on oil palm waste, used for breeding, and for transporting oil palm fruit.
The cattle population doubled, harvested areas increased, incomes of workers increased
and community relations excelled.
There are, however, also potential negative impacts, including loss of access to land without
adequate compensation, loss of the benefits of mixed livelihood strategies, and loss of
environmental services from natural forests (e.g., water, game, medicinal plants) when these
are replaced by plantations (World Bank 2010, p. v). The followings are some social problems
in oil palm development as reported by the World Bank (2010, pp. 29-35) and Sheil et al.
(2009, p. 39):
Toward Green Agriculture: The Case of Oil Palm Development 10

 Problems often arise in connection with land acquisition, and the recognition of local
peoples rights to land during the establishment of industrial estates. A significant
portion of Indonesias oil palm area consists of industrial estates and these generally
consist of large contiguous areas. Especially during the Suharto era, plantations were
sometimes imposed on local people in the name of national development, leading to
displacement of rural communities and loss of livelihoods. While recent political reforms
have led to a stronger civil society movement and increased recognition of local land
rights, conflict between communities and oil palm companies are still widespread and tend
to be centered on the issue of land and compensation. Accounts of abuses against local
people by oil palm companies are common.
A large number of rural poor depend on forests for a wide range of goods and
services, and the conversion of forests may have adverse impacts on their livelihoods
and culture. Economies of scale in mills and the need to process fruits soon after harvest,
require mills to have access to sizeable tracts of land that are likely to be mono-cropped,
depriving local people of the benefits derived from mixed livelihood strategies. When
forests are replaced with palm plantations, communities lose access to timber for
construction, rattan, and jungle rubber gardens.
There are serious concerns about the impacts of oil palm expansion on indigenous
populations. Many of Indonesias indigenous people practice shifting cultivation and
companies generally prefer hiring workers with backgrounds in sedentary agriculture. This
can lead to ethnic conflict between newcomers and indigenous groups. Swidden farmers
may be particularly disadvantaged by the spread of oil palm, as their traditional claims on
land are often not formally recognized.
The biggest task for key actors in the palm oil sector is to deal with the above mentioned
challenges and find options for sustainability. By working together with policy makers,
buyers, NGOs and other key actors, producers have a good opportunity to improve both their
practices and images. If this is the case, the palm sector in Indonesia can be proud to claim to
have a cutting edge in applying green agriculture or sustainability. If not, these negative
environmental and social impacts of the palm oil industry will hinder the progress achieved
by the industry, and to a larger extent, the future development of the Indonesian society.

4.

The journey of sustainable palm oil

In Indonesia, the existence of the previous mentioned problems have been acknowledged by
key actors in the palm oil sector. The current Executive Director of PT Riset Perkebunan
Nusantara, Dr Didik Hajar Goenadi, in 2008 has recognised that the political situation in
Indonesia has allowed the commodity to be developed widely without adequate safeguards:
Economically, socially, environmentally, and perhaps politically the country has been
affected by the unbelievable booming of this so-called liquid gold commodity It is indeed
not an easy task for the government to make appropriate allocation of land which potentially
demands significant trade-offs on livelihoods and on the environments (Goenadi 2008, pp. 12).
Some palm oil producers (both large plantations and small holders), NGOs and policy makers
have been active in seeking possible solutions, such as through the development of standards
and best practices within the Roundtable on Sustainable Palm Oil (RSPO) as well as through
the development of the national platform of Indonesian Sustainable Palm Oil System. In
2001, NGOs commenced exploring the possibilities for an RSPO. The result was an informal
co-operation among Aarhus United UK Ltd, Golden Hope Plantations Berhad, Migros,
Toward Green Agriculture: The Case of Oil Palm Development 11

Malaysian Palm Oil Association, Sainsbury's and Unilever together with WWF in 2002. The
inaugural meeting of the Roundtable took place in Kuala Lumpur, Malaysia on 21 - 22
August 2003 and was attended by 200 participants from 16 countries. The key output from
this meeting was the adoption of the Statement of Intent (SOI) which is a non-legally binding
expression of support for the Roundtable process. As of 31 August 2004, forty seven
organisations have signed the SOI. On 8 April 2004, the "Roundtable on Sustainable Palm
Oil (RSPO)," was formally established under Article 60 of the Swiss Civil Code with a
governance structure that ensures fair representation of all stakeholders throughout the entire
supply chain. The seat of the association is in Zurich, Switzerland, the Secretariat is based in
Kuala Lumpur with a RSPO Liaison office in Jakarta.
GAPKI (Indonesia Palm Oil Association) had been active since the beginning of RSPOs
development and played a crucial role in getting many Indonesian producers to be part of this
newly established organisation. There are currently 98 members of RSPO coming from
Indonesia. While RSPO certification is progressing (see Box 1 below), the Ministry of
Agriculture in Indonesia has formalised its own standard, i.e. ISPO (Indonesian Sustainable
Palm Oil) that aims at shaping the industry towards sustainability on a mandatory basis. The
debate, discussion and development on RSPO vis--vis ISPO has been perceived as key in
defining the future of Indonesias actions towards sustainable palm oil. More works need to
be done to have better synergy and alignment between ISPO and RSPO so that producers and
farmers will gain the benefit from producing and trading sustainable palm oil in a credible
way.
Table 1. Milestones of RSPO. Source: http://www.rspo.org/en/milestones.
August 2003

First Roundtable Meeting (RT) took place in Kuala Lumpur, Malaysia and was attended
by 200 participants from 16 countries.

8 April 2004

RSPO was formerly established under Article 60 of the Swiss Civil Code.

August 2004

47 organizations signed a Statement of Intent declaring their intention to participate in

the RSPO Initiative.

November 2005

The RSPO Principles and Criteria (P&C) were adopted for an initial pilot
implementation period of two years by 14 companies.

2006

Creation and adoption of Members Code of Conduct; RSPO Indonesian Liaison Office
(RILO) established in Jakarta.

October 2007

The RSPO Principles and Criteria (P&C) were reviewed by the RSPO Criteria Working
Group (CWG). The review included public consultations; meetings; soliciting of public
comments; inputs from national interpretations; smallholder taskforce deliberations and
pilot field trial results.

November 2007

RSPO Certification System was approved by the RSPO Executive Board and adopted
by General Assembly (GA4) and officially launched at RT5 (the 5th Roundtable
Meeting on Sustainable Palm Oil) by the then Hon. Minister of Plantations Industries &
Commodities, Malaysia, Datuk Peter Chin Fah Kui in Malaysia.

2008

National Interpretations (NIs) of the generic Principles & Criteria for Indonesia,
Malaysia and PNG approved.

21 August 2008

Approval for the 1st P&C certification for United Plantations. Inaugural shipment of

Toward Green Agriculture: The Case of Oil Palm Development 12

CSPO arrived in Rotterdam in November.

The RSPO Supply Chain Certification Systems was developed and finalized.

August 2008
August
2008
November 2009

The RSPO Supply Chain Certification Systems was reviewed and adopted.

October 2010

RSPO membership reached 500 Ordinary Members from around the world.

2010

First RSPO certificate was issued to Latin America, Daabon Group, Colombia

June 2011

Launch of the RSPO Trademark

25 August 2011

3 years since the certification of sustainable palm oil, the industry reaches a turning
point by hitting its first I million hectares of certified production area around the world.

25 August 2011

The inaugural certification of sustainable palm oil in Brazil by Agropalma.

25 August 2011

The global production of CSPO reaches 5 million tonnes, 10 percent of global palm oil
production.

22 November 2011

A record achievement of over 1000 attendees at RT9 from over 20 countries.

8 March 2012

Launch of the inaugural 2011 RSPO CSPO Growth Interpretation Narrative (GIN)

19 March 2012

Achieved 6 million metric tonnes of CSPO in annual production capacity (~ 14 per cent
of global crude palm oil)

16 July 2012

Carrefour Indonesia and PT Musim Mas launched the nations first RSPO certified
cooking oil priced at Rp23,000 (US$2.46) per 1.8-liter container

2012

At the global level, membership of RSPO exceeded 1,000 from over 50 countries.
Worlds first independent smallholders are RSPO certified.
RSPO trademark shopping guide is now found in Australia, US, Europe, and Indonesia

Another critical aspect to ensure the development of sustainable palm oil is the continuous
work in achieving an agreed land use plan. A large number of areas utilised or planned to be
utilised by the palm oil sectors is located on land that was previously part of the forest estates.
Hence, reducing the amount of forested land allocated to palm oil will reduce the conversion
of forests and peat lands. In fact, it is now time for the palm oil industry leaders to stand out
and commit stating that they will support a globally and nationally promoted policy that calls
for no deforestation along the palm oil supply chain.
As an alternative, the industry leaders need to strengthen their work with policy makers,
scholars and NGOs to further identify land that is available and feasible, and can be allocated
for development by the palm oil sector without having to undertake deforestation and peat
land conversion. Bappenas (2009, p. 8) also suggests that there are three steps to achieve
balanced forest-plantation landscapes, which are: (i) reclassification of forests in non-forestry
development estates (Area Penggunaan Lain or APL) to protection or conservation zone
(revision of spatial plans); (ii) reclassification of remaining forests and peat lands which are
not yet licensed to protection or conservation (no new licenses on peat and a revision of
spatial plans); and (iii) relocate licenses or parts of licenses where companies have not yet
initiated operations on the ground, from forests and peat lands to mineral soils (land swapping
Toward Green Agriculture: The Case of Oil Palm Development 13

using barren or degraded lands). Land swapping is in fact a good alternative but legal reforms
may be needed.
According to Verchot et al. (2010, p. 9), Indonesia has plans for significant expansion (around
35-40 million hectares or 16 per cent of the national territory) for food production, oil palm
plantations, and timber and pulp wood plantations. If the country aims to achieve emissions
reductions while also expanding these economic activities, then opportunities such as
development on degraded, non-forested and/or non-peat lands, must be utilised. A number of
studies point to the potential for developing non-forested or highly degraded areas (World
Bank 2010, p. 24). According to national statistics, large tracts of land are classified as being
deforested or in critical state, as official statistics recognise that at least 40 million hectares of
forest estates is not forested (World Bank 2010, p. 24). The Ministry of Forestry publishes
figures for land areas considered to be critical (lahan kritis), and in 2006, the total area
identified as critical land was 77.8 million hectares, of which 47.6 million hectares was
deemed to be very critical. There are also alang-alang (imperata grasslands) which
represent an opportunity for reclamation into productive plantation areas, estimated to cover
up to 20 million hectares (World Bank 2010, p. 24). World Resources Institute, for instance,
has developed a project POTICO (palm oil, timber and carbon offsets) to help land users and
policy makers to prevent deforestation and develop land use sustainably, among others, by
diverting planned oil palm plantations away from forests and on to already degraded areas
(WRI 2014, p. 1). Other organisations are also carrying out similar activities. If done
appropriately, this type of interventions could potentially reduce the need to convert forests
and peat lands to oil palm and is a strategy that could be replicated for other land related
sectors.
Also, as mentioned in the previous section, another mean to develop the palm oil sector
without sacrificing forests and releasing significant emissions is to increase productivity of
existing land uses. Poor smallholder yields are often attributed to difficulties in obtaining
good quality seedlings, inadequate plantation management practices and lack of sufficient
capital to purchase fertilizers, pesticides and herbicides. Improving productivity would reduce
the need for land area expansion. Estimates show that growth in demand could be met by
improving yields on existing plantations by 1.5-2.0 per cent per year (Unilever 2007, p. 1)..
Last but not least, to support the overall options and proposed concepts mentioned above, new
and adequate financial and legal incentives need to be introduced (Verchot et al. 2010, p. 1).
Financial incentives can be from the government own budget, foreign aid or the private
sectors investments are crucial to support the implementation of the overall proposed steps
and concepts. Legal incentives, at the same time, will be required to support the development
of degraded land, non-forest and non-peat lands, particularly through land swaps, as well as
reforming the current governance structure and mechanisms of Indonesias land use.
In conclusion, Indonesia has a wide range of options to develop and apply green agriculture,
particularly in the palm oil sector. Key actors involved in the sector, however, need to be
more assertive, proactive, innovative and collaborative so that they can proudly claim that
Indonesia is the leader in green agriculture and sustainable palm oil. Not only such cutting
edge will provide profits for producers and economic actors involved in the sector but also
generate social and environmental benefits for wider society and the environment. Let us
show that from this region a balanced and healthy landscape can be achieved and sustained.

Toward Green Agriculture: The Case of Oil Palm Development 14

5.

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