A new report explores innovative steps being taken by several of the industry’s largest firms to improve social and environmental practices
Oil palm plantation in Riau. Photo by: Rhett A. Butler.
Indonesia’s palm oil industry has gained a notorious reputation in recent years. Palm oil companies are routinely accused of clearing primary forests, destroying the habitats of endangered species, releasing massive amounts of carbon by draining peat swamps and fueling land conflicts with local communities.
In the face of this widespread criticism, some palm oil companies are exploring ways to clean up their operations by implementing innovative programs to minimize harm to the environment and ensure local communities benefit from palm oil investments, according to a new study.
In a report released last month, Daemeter Consulting explored six programs being carried out by some of the biggest players in Indonesia’s palm oil industry – Asian Agri, Astra Agro Lestari, Musim Mas, Cargill, PT Rea and Wilmar.
The programs featured in the report, which was funded by the Climate and Land Use Alliance, address some of the most serious criticisms leveled against the industry.
Some are designed to reduce pollution and carbon emissions, while others help support local communities, increase yields or protect key habitats that house some of Indonesia’s most threatened species.
And, according to the report, they show that improving practices in the palm oil industry is not only possible, but in some cases can help increase profits by giving companies access to buyers demanding sustainably-produced products.
“Sustainability is increasingly seen by industry as a source of innovation and growth rather than simply risk management,” Gary Paoli, the lead author of the 73-page report,Best Management Practices in the Indonesian Palm Oil Industry, said in a statement accompanying the report’s release on Feb. 12.
“These trends should be rewarded and strengthened,” Paoli added.
Deforestation for oil palm plantation development in Riau. Photo by: Rhett A. Butler.
Keys to success
One common thread found in many of the case studies was broad support for social and environmental reforms from company staff at all levels – including among senior management.
This high-level support was particularly important when Musim Mas Group, a company managing nearly 120,000 hectares (297,000 acres) of established plantations and which owns one of the world’s largest palm oil refineries, decided to build a biogas capture facility in Pangkalan Lesung, Riau province.
Much attention has been focused on the high carbon emissions from land conversion for palm oil. However, the composting of palm oil mill effluent (POME), one of the by-products in manufacturing crude palm oil, also releases large amounts of methane and other greenhouse gases into the atmosphere.
Technology exists to capture this methane and convert it to electricity, but the cost of installing and maintaining these capture systems can be high.
Building the pilot capture facility in Pangkalan Lesung and the later facilities at other Musim Mas mills could not have succeeded without strong support from upper management, the report said.
“When we started the project, our primary motivations were our president director’s commitment to mitigate the environmental impact of our operations and the opportunities that can be derived from sustainable practices,” Gan Lian Tiong, group head of sustainability for Musim Mas said in the Daemeter statement.
After it implemented its zero-waste practices, however, the firm saw added benefits. “We find that our customers prefer to work with us, because our project helps our customers to lower their products’ carbon footprint,” Tiong said.
Oil palm plantation in Riau. Photo by: Rhett A. Butler.
Not just a box to check
Making programs to address social and environmental issues a key part of company operations seemed to be another factor that could lead to success.
The case studies looked at two programs focused on community engagement – Asian Agri Group’s award-winning smallholder schemes on its PT Inti Indosawit Subur plantations and a corporate social responsibility program being carried out by PT Astra Agro Lestari.
In both of these cases, the report said, the programs were seen as a core part of the company’s business and led to meaningful results.
The Indonesian government currently requires all palm oil plantations to release 20 percent of the land in their concessions to small farmers in “plasma” schemes. The smallholders, or plasma farmers, then plant and cultivate oil palms on 2-hectare plots, selling the fresh fruit bunches (FFBs) they harvest back to the company.
Indonesian law also requires companies to provide development assistance to communities living in or around their plantations through corporate social responsibility programs, which typically aim to provide health, education or livelihood assistance to communities.
But while these programs are required by law, many companies seem to see them as an administrative box to check – taking few steps to ensure that smallholders are able to make a profit or that CSR programs meet the needs of the community. And with weak government oversight, other companies fail to implement these programs entirely.
As a result, failed or nonexistent programs often end up exacerbating conflicts or leaving debt-ridden smallholders worse off, rather than helping improve the welfare of local communities affected by the plantations.
In both of the case studies featured, however, the companies went to great lengths to make sure the programs succeeded in helping targeted communities.
Land-clearing for an oil palm plantation in Riau. Photo by: Rhett A. Butler.
For PT IIS, palm oil fruits from its 29,000 smallholder farmers form an important part of the supply base for its mills. The company provides technical assistance and training for plasma farmers and farmer cooperatives and has set up a formal grievance mechanism to address complaints.
As a result, the report argued, many of the farmers and cooperatives supplying PT IIS have seen financial success and the company has access to high-quality FFB’s from the 60,200 hectares of planted area managed through its plasma scheme.
In PT Astra Agro Lestari’s case, the company reportedly spent a number of years working to refine its CSR program until eventually settling on its current Income Generating Activity program.
“After years of experimentation, Astra developed a model Income Generating Activity (IGA) program that supports farmers to grow oil palm (or other commercial crops) on land they own,” the report said.
Daemeter said that in part due to Astra’s commitment to finding a program that works, the IGA program has “proven to be extremely financially rewarding for participating farmers” and has “created a foundation for shared benefit” and improved relations between the company and communities.
“It’s not a legal requirement to ensure all these facets of small holder operations run successfully,” Paoli said in an email to Mongabay-Indonesia in reference to the PT IIS plasma program. “Rather it reflects their commitment to making sure it’s a success quite apart from the need to be compliant.”
Astra’s IGA program, Paoli said, also represents a significant commitment to build social capital, particularly when you consider that the 10-year-old program has been around much longer than the law requiring CSR.
Clearing for a plantation in Riau Province. Photo by: Rhett A. Butler.
Highlighting the positive
Critics of the palm oil industry often point to the numerous examples where communities have not only failed to benefit from plantations, but have seen their quality of life significantly degrade – losing their land and livelihoods as forests were cleared for palm oil.
By focusing on success stories, the report does not mean to downplay the negative social impacts often associated with palm oil expansion, Paoli said.
“We are not saying that negative social impacts are overstated, or that perceptions are unwarranted,” he told Mongabay-Indonesia.
However, since positive examples where local communities or plasma farmers do benefit are rarely featured in the media, “industry members fail to learn extremely important lessons from the success of their colleagues/competitors.”
Many of the six companies featured in the report – which include some of the industry’s largest players – have themselves been targets of harsh criticism by environmental and human rights groups in the past, and the report’s authors stress that they do not claim to give a stamp of approval to all aspects of each company’s operations.
“We’re not endorsing the companies themselves beyond the practices that we profile,” Paoli told Mongabay-Indonesia, adding that the report was not meant to defend the industry.
By shining a spotlight on what they believe to be highly successful programs, however, study authors hope to provide a model for best management practices that can be emulated by others in the industry.
“This is one of the main motivations of the study – to raise awareness about good practice as a basis for building learning networks, and accelerating the dissemination of knowledge to promote adoption of better practice,” Paoli said.
Total mean annual emissions stratified by source of emissions for above ground carbon (AGC) due to land use change (LUC) and the oxidation of peat soils due to drainage and conversion; excludes emissions from peat fires due the lack of fire data for all land cover types.
Positive trends
While the report was meant to highlight leaders in the industry, it also pointed to several key steps government or industry bodies were taking that would hopefully make these interventions more widespread in the future.
When Cargill began experimenting with ways to improve yields from its plantations in 2002, few companies were prioritizing increased yields and, according to the report, senior management was initially skeptical of the potential benefits.
This changed as they began to see significant results, and now the company works to implement best management practices for improved yields through all its holdings.
Today, average yields on Indonesia’s palm oil plantations are still low. However, the Indonesian government and the country’s palm oil producer association (GAPKI) are taking steps to help support yield improvement and make it mandatory for all firms.
In particular, the Indonesia Sustainable Palm Oil (ISPO) standards, which all firms in the country will eventually need to meet in order to be certified, include requirements that firms track productivity and begin implementing best management practices to improve yields.
The mandatory ISPO certification scheme also requires producers to reduce their carbon footprints by tracking, reporting, and mitigating greenhouse gas emissions.
In this area, the report examined a program already being implemented by PT REA Holdings – one of the first palm oil companies in Southeast Asia to make its carbon footprint report available to the public – which the author’s said can be used as a model to help other firms meet ISPO requirements to track and mitigate emissions.
Clearing for a plantation in Riau Province. Photo by: Rhett A. Butler.
Mixed messages
While some Indonesian government policies support more a more sustainable palm oil industry, other laws make it difficult for companies to make their operations environmentally sound.
In West Kalimantan province, the local government revoked several concessions belonging to the palm oil giant Wilmar after the company implemented a policy to preserve valuable ecosystems within its concessions.
Citing a law requiring concession holders to develop land they have been allocated, the local government revoked Wilmar’s permits after it chose not to develop areas determined to be High Conservation Value (HCV) forests.
While other provincial governments have been more understanding of Wilmar’s policy, this law has been a serious obstacle for environmental groups urging more firms to avoid converting HCV land and high carbon stock (HCS) forests.
Wirendro Sumargo, a forest campaigner for Greenpeace Indonesia, said that while each of the programs examined in the report were good examples of innovation in the industry, being a leader in sustainable palm oil requires comprehensive action.
Deforestation for oil palm plantation development in Riau. Photo by: Rhett A. Butler.
“I think potentially [these companies] are leaders,” he told Mongabay-Indonesia in an interview on Feb. 17. He explained that focusing on isolated policies – even successful ones – was not enough to determine real leadership in sustainability.
“One company should implement all of these cases,” he said. “And it would still not be enough to say it is sustainable and responsible in the palm oil sector”
Greenpeace has been pushing companies to adopt comprehensive no-deforestation policies, which include commitments to protect both HCV forests and forests holding large amounts of carbon – a pledge that goes beyond the interventions outlined in the report.
The policies Greenpeace is advocating would also require companies to seek free, prior and informed consent from local communities before beginning operations, another step that goes beyond the programs Daemeter featured.
But getting companies to commit to zero deforestation has not been easy – in part because of government regulations requiring that concession land be converted and a system where large areas of forest in Indonesia have been zoned for agricultural use.
“Companies say that if they follow [no-deforestation policies] they will be violating the regulations, they will be anti-government,” Wirendro said.
Greenpeace has been working with Golden Agri-Resources, the palm oil arm of Indonesian conglomerate Sinar Mas, since the company became the first major Indonesian palm oil firm to commit to zero deforestation in 2009.
“This is a good initiative, a good commitment, beyond the regulations,” said Wirendro, one of a number of Greenpeace staff monitoring the GAR policy.
Oil palm in Central Kalimantan. Photo by: Rhett A. Butler.
“We hope that other companies can follow,” he added. “This is the power of industry. It can push the government to change the regulations.”
Wilmar, one of the firms featured in the report, announced its own no-deforestation policy in December last year, a move Wirendro hopes will cause a ripple effect throughout the industry.
Wilmar is the world’s largest palm oil trader and its no-deforestation commitment will apply to all the firm’s suppliers.
Groups like Greenpeace will no doubt be monitoring the company closely in the coming months to see how it implements the policy. If enforced, it could be an opportunity for some of the positive practices featured in the report to be implemented more widely throughout the industry.
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