- Deforestation for oil palm cultivation in Indonesia, Malaysia and Papua New Guinea dropped in 2021 to its lowest level since 2017, according to a new analysis by Chain Reaction Research (CRR).
- This marks the second straight year of declining palm-linked deforestation in this region, which produces more than 80% of the world’s palm oil, despite the price of the commodity hitting all-time highs last year and this year.
- Researchers attribute the decline in deforestation to an increasing number of companies adopting no-deforestation policies, and smaller companies without such commitments simply running out of forest to clear.
- But concerns over future deforestation persist as the Indonesian government ramps up its palm-oil based biodiesel program, which sources some of its palm oil from companies that are known deforesters.
JAKARTA — Deforestation associated with palm oil in the region covering Indonesia, Malaysia and Papua New Guinea has declined for the second straight year, a new analysis shows, dropping to its lowest level since 2017.
The decline bucks concerns that palm oil deforestation would experience a surge last year, following the 2020 downturn, on the back of rallying palm oil prices.
The analysis, by sustainability risk analysis organization Chain Reaction Research (CRR), shows that deforestation in the three countries for oil palm plantations amounted to a total of 19,000 hectares (46,900 acres), an area the size of Washington, D.C.
This represents a 50% decline from the 38,000 hectares (93,900 acres) of palm oil deforestation recorded in 2020, according to the analysis, which was coordinated by research consultancy Aidenvironment and Earth Equalizer, its Indonesian spinoff.
Glenn Hurowitz, CEO of U.S.-based advocacy group Mighty Earth, called the findings “a big deal,” noting that the figure for 2021 was less than 5% of historical levels.
“This progress happened at the same time that commodity prices are through the roof, with palm oil at an all-time record of $1,485 per ton,” he wrote on LinkedIn.
Commodity prices are often associated with deforestation. A 2021 study, not peer-reviewed, by researchers from technology company TheTreeMap and other institutions found that rates of both plantation expansion and forest loss correlated with palm oil prices.
According to the study, a price decline of 1% was associated with a 1.08% decrease in new plantations and a 0.68% decrease in forest loss.
So when the palm oil price recently rallied to a record high amid a plunge in global edible oil stocks, and is predicted to continue to climb to $1,900 per metric ton in coming months, environmentalists say this could spur the plantation industry into expand and clearing forests as the profitability of clearing for palm oil also increases.
But deforestation continued to go down for two years in a row despite the palm oil price riding on all-time highs.
This, Hurowitz said, means “the link between deforestation and agricultural expansion in palm oil seems to have been pretty much broken.”
That might be the case for companies that have commitments not to deforest or clear peatland or exploit workers, known as an NDPE policy, and operate within NDPE supply chains, according to Aidenvironment Asia program director Christopher Wiggs.
Wiggs, one of the researchers for the CRR report, said these companies are largely not deforesting anymore. But companies with no NDPE commitments are still clearing rainforests and can still sell their palm oil in the “leakage market,” which trades unsustainable palm oil from growers and producers, said Aidenvironment Asia researcher Okita Miraningrum, who was also involved in the CRR research.
“It means as long as the ‘leakage market’ still exists, it’s difficult to achieve zero deforestation,” she told Mongabay.
A continuing trend — or a blip?
Palm oil deforestation reached a historic high of 400,000 hectares (1 million acres) per year between 1997 and 2006 in Indonesia. The country is the world’s top producer of palm oil; together with Malaysia, the No. 2 producer, the two Southeast Asian countries account for eight-tenths of global supply. The high deforestation rate in Indonesia was spurred by government policies that encouraged further plantation expansion on the islands of Borneo, Sulawesi and Papua in the early 1990s.
Now that more companies have adopted NDPE policies, most deforestation is carried out by smaller companies that don’t operate within NDPE supply chains, Okita said.
In the past, some of these companies, which appeared in CRR’s lists of top deforesters, were known to supply palm oil to consumer brands with NDPE policies. In 2020, seven of the top 10 deforesting companies could definitely be connected to consumer brands with NDPE policies.
But 2021 marks the first time that none of the top 10 deforesters are actively supplying brands with NDPE policies. In other words, all top 10 deforesters in 2021 were supplying to the non-NDPE market.
“The trend is for deforestation to be carried out by small companies whose links [to the NDPE markets] are relatively unknown,” Okita said. “The sizes of their concessions are also relatively smaller than those owned by big companies. That’s why the deforestation rate also declined.”
Another possible explanation behind why deforestation declined at the time when palm oil prices surged is that these small companies have been clearing forests in their concessions for years and have essentially run out of forests. The largest deforester in 2021, PT Bengalon Jaya Lestari (BJL), for instance, was also in the top 10 in 2020. That year, it cleared 2,790 hectares (6,900 acres) on concessions held by its subsidiaries, PT Kartika Nugraha Sakti and PT Wana Jaya Abadi, in Indonesia’s North Kalimantan province, according to CRR.
In 2021, it cleared 3,200 hectares (7,900 acres) on the two concessions.
“The deforesting companies are the usual suspects,” Okita said. “My guess is that they have started running out of forests to be cleared.”
Another possible driver for the decline in deforestation is the COVID-19 pandemic and associated movement restrictions, Okita said.
“Palm oil deforestation started to decline drastically in 2020 [down by 58% from 2019],” she said. “At that time, palm oil prices were down before rocketing in 2021. So in my opinion, the decline in deforestation is more affected by the pandemic and restrictions in mobility.”
These uncertainties mean it’s too early to say whether the declining deforestation will be a long-term trend, according to Wiggs.
“We won’t know until COVID has passed whether this is a blip or a continuing trend,” he said.
One thing that will determine the future of palm oil deforestation is the size of the leakage market, Okita said.
“How big will it grow? One of the companies in the top 10 deforesters is a firm that operates in [Indonesian] Papua, and the deforestation is still ongoing. Who will buy [palm oil] from them?” she said. “The size of the leakage market will be the main determinant of the deforestation trend in oil palm concessions.”
One source of the leakage market in Indonesia is the government’s biodiesel program, which aims to increase the use of palm oil-based biodiesel in the country. However, not all of the biodiesel for the program is supplied by companies that have NDPE policies, Wiggs said.
While most of the volume will be supplied by NDPE-committed companies, that still leaves 13.3% of the supply, or 1.3 billion liters (343 million gallons) that will come from companies without an NDPE policy.
Compounding the problem, in 2019 Indonesian state-owned energy company Pertamina, a key player in the biodiesel program, ended an agreement with Italian oil major Eni to build a palm oil-to-biodiesel refinery, citing Eni’s more stringent sustainability standards: Eni, it turned out, refused to accept non-sustainable or non-traceable crude palm oil.
This leaves Indonesia’s biofuel sector with weaker standards than the NDPE market, and means it now provides the leakage market for several suppliers that would otherwise be shut out of the NDPE supply chain due to deforestation.
“We’ve seen with the case of Jhonlin that companies with substantial deforestation are being given access to the domestic biofuel market,” Wiggs said.
The Jhonlin Group, through a subsidiary, Jhonlin Agro Raya, is among the 22 refinery companies that have been awarded a biodiesel allocation by the government.
This despite the company having well-documented deforestation issues. Jhonlin was in CRR’s list of top 10 palm oil deforesters in Southeast Asia from 2018 to 2020. It cleared approximately 11,900 hectares (29,400 acres) of forest across its subsidiaries’ oil palm concessions during that period.
With Indonesia’s biodiesel program employing weaker sustainability standards, there are concerns that deforestation will pick up again as the government keeps pushing for higher biodiesel production. The government has announced that production this year will be up 6.4% from 2021, amounting to 10 billion liters (2.64 billion gallons).
“Increasing use of palm oil diesel in Indonesia and other Asian countries may increase pressure on forests,” Wiggs said.
Deforestation for palm oil in 2021 also occurred outside known concession boundaries, including in smallholder-managed plantations, which Okita said CRR doesn’t include in its analysis.
But a 2021 study shows that deforestation in smallholder plantations has also been declining. It said overall plantation expansion, both industrial-scale and smallholder, dropped in 2019 to pre-2004 levels, with the latter experiencing a sharper dip. The study attributed this to various factors, including a decline in crude palm oil prices in recent years.
Nevertheless, the study also said that demand from Indonesia’s biodiesel program could stimulate expansion, particularly at the expense of forests that aren’t covered by a clearing moratorium imposed by the Indonesian government.
Dedy Sukmara, director of data at the Indonesian environmental NGO Auriga, which also contributed to CRR’s 2021 study, called on the Indonesian government to issue a policy protecting all natural forests within existing concessions, even if permits to clear the forests have already been issued.
“If companies have acquired permits, then the forests in their concessions can’t be protected [by law],” he told Mongabay. “But they can still be protected with market mechanisms, such as high conservation value [HCV]. The Indonesian laws and regulations should have provided the protection, but instead we have to rely on market mechanisms.”
Banner image: A fire burning in oil palm plantaions in deforested Sabah, Malaysia. Image by Rhett A. Butler/Mongabay.
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