An Indonesian worker handles palm oil seeds at a plantation in Pelalawan, Riau province on Sumatra island. Photo: AFP/ Adek Berry
Indonesia's protectionist ban on palm oil exports has caused a spike in global prices of the commodity. Photo: AFP / Adek Berry

About a quarter of Indonesia’s 49 million hectares of agricultural land is now given over to palm oil, which last year racked up a record-high US$22.9 billion in foreign exchange earnings. That alone explains why the Indonesian government has reacted so strongly to the European Union’s (EU) recent decision to restrict imports of the prized vegetable oil.

Both President Joko Widodo and Vice President Jusuf Kalla have called on the EU not to discriminate against palm oil, with the latter even hinting at a retaliatory trade war that would rebound on French plane-maker Airbus, which has 112 jetliners now operating in the country and over 300 more on order with Indonesian carriers.

The EU Parliament passed legislation last January setting 2020 as the deadline for banning all EU crude palm oil imports destined for conversion to biofuels. That amounts to 40% of the 4.2 million tons Indonesia exported to the EU’s 28 member states last year.

With 36.5 million tons made last year, Indonesia is by far the world’s largest palm oil producer. But for environmentalists, the sharp rise from the 8.3 million tons harvested in 2001 has come at a high cost of lost rainforest and damaged peatland across vast areas of Indonesia’s Sumatra and Kalimantan islands.

Palm oil plantations now cover 11.9 million hectares, more than double the amount in 2012 when production accelerated in response to the increased demand for biofuel, which one market analyst now calls a “hare-brained” idea given the extra pressure it has put on the environment and perhaps the world’s food supply.

A giant SOS carved into an oil palm plantation in Sumatra by Lithuanian artist Ernest Zacharevic to draw attention to the damage caused by deforestation to wildlife and indigenous people in Indonesia. Picture courtesy: Ernest Zacharevic
A giant ‘SOS’ carved into an oil palm plantation in Sumatra to draw attention to the damage caused by deforestation to wildlife and indigenous people in Indonesia. Photo: Wikimedia

Price-wise, palm may be the most efficient of the crops to use for biodiesel production, but even the growers say it only makes sense when crude oil is over US$70 a barrel – a level it is only nudging now for the first time in four years.

The EU, in fact, accounted for only 14% of last year’s total exports of 29 million tons, far below the 65% that goes to Asian markets. But even if the EU ban only applies to biofuels, Indonesia fears it represents the thin edge of the wedge.

Pointing to a moratorium on forest felling, the restoration of damaged peatland and efforts to improve productivity and develop already-degraded land, Jakarta’s arguments dwell heavily on the socio-economic impact the ban will have if it goes ahead.

According to official figures, 41% of palm oil plantations are currently managed by 2.5 million smallholders who in turn support as many as seven million dependents; moreover, the sector as a whole employs 5.5 million workers and 12 million indirect workers.

The Council of Palm Oil Producing Countries, headed by former deputy trade minister Mahendra Siregar, estimates palm oil has lifted 10 million people out of poverty over the past two decades, a significantly higher rate than in regions where the oilseed is not grown.

“We would like to see a dialogue, not a zero-sum policy of my farmers against your farmers,” Maritime Coordinating Minister Luhut Panjaitan told a sustainable development conference in Rome last month where he accused the EU of discrimination.

A worker unloads palm fruit at a plantation in Peat Jaya in Jambi province on the Indonesian island of Sumatra. Photo: Reuters/ Wahyu Putro
A worker unloads palm fruit at a plantation in Peat Jaya, Jambi province, Sumatra, Indonesia. Photo: Reuters/Wahyu Putro

Palm oil producers say the importance of sustainable management should not only focus on palm and its impact on forests and peatlands, but also on soil contamination, water and ocean pollution from fertilizers used in Europe’s production of rape, soybean and sunflower oil.

They also claim the soybean and cattle industries are doing little to tackle similar deforestation issues, pointing to the huge increase in soybean production in Brazil’s Amazon Basin, where the jungle is being felled to plant a less efficient oil crop.

World Oil news magazine forecasts that the EU’s share of global palm oil consumption will drop from 7.2% at present to 6.9% in 2025, trailing far behind Indonesia and India at 13-14%, while China is expected to take its place as the world’s second largest importer.

Some analysts believe US President Donald Trump’s looming trade war with China will have its benefits, given Beijing’s recent decision to stop buying US soybeans and, at the same time, to raise Indonesia’s palm oil import quota from 3.7 million to 4.2 million tons.

“You don’t like to see a decline or a potential loss of any market,” says one palm oil executive. “But the EU is only fourth behind China, India, and the Indonesian domestic market and is forecast to be even less important as time goes on.”

Only 17% of palm oil plantations have so far been certified under the Indonesia Sustainable Palm Oil (ISPO) scheme, introduced in 2011 as a first step towards meeting the internationally-recognized standard laid down by Roundtable on Sustainable Palm Oil (RSPO) association.

FILE PHOTO: An aerial view shows a palm oil plantation in South Sumatra province, Indonesia, October 16, 2010. REUTERS/Beawiharta/File photo
An aerial view shows a palm oil plantation in South Sumatra province, Indonesia, October 16, 2010. Photo: Reuters/Beawiharta/File photo

“The palm industry has been doing a lot towards creating a more sustainable product,” says the palm oil executive. “One can argue whether the RSPO is effective, but it is difficult to argue that the industry and the government aren’t moving in the right direction.”

While that may be true, progress has been slow and faced setbacks. A recent Greenpeace investigation found the Yemen-based HSA Group, supplier of palm oil to Unilever, Nestle, PepsiCo and Mars, cleared 4,000 hectares of rainforest along southeast Papua’s Digoel River in the space of two months last year.

HSA Group told Asia Times is has not invested in palm oil concessions in Indonesia, or elsewhere, and as such the organization could not be involved in site clearing activity at this concession, or any other. It said Greenpeace’s allegations were founded on “outdated” information. The company’s website says it is only involved in palm oil “refining” and “manufacturing.”

Sol Gosetti, a Greenpeace communications officer, said that HSA’s own website states that it has “recently purchased 160,000 acres [sic] of Indonesian land to be used for sustainable palm oil cultivation.”

Gosetti noted that HSA does not disclose the concession name(s) or location, but that company deeds show that various members of the controlling Hayel Saeed Anam family have management control of four concessions in Indonesia’s Papua province – including PT MJR – with a total land bank of 154,527 ha.

Either way– and in an indication even the remotest area is open to scrutiny — Unilever announced amid the competing reports that it had suspended any new orders until HSA had done more to meet the retail giant’s sustainable palm oil sourcing policy.

Palm is a far more efficient crop in terms of yield per hectare and price than all vegetable oils and oil seeds, and does not cause the same damage to the land itself, given that the trees are in place for 20 to 25 years.

But the need for increased mechanization has taken on new importance, and Indonesia and Malaysia are now also facing the challenge of replanting 160,000-190,000 hectares a year between 2019 and 2025 to maintain current production levels.

Editor’s Note: This report is updated from the original published version to incorporate HSA’s denial that it has invested in palm oil concessions in Indonesia and Greenpeace’s response to that denial.