Palm Oil Case Study - Defra Science Search

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SCP Evidence Base: Sustainable Commodities Case Studies
Case Study
PALM OIL
December 2006
Development of the Evidence Base:
Sustainable Commodities
Final Report
Case Study – Palm Oil
TABLE OF CONTENTS
EXECUTIVE SUMMARY ...........................................................................................II
1
COMMODITY OVERVIEW..............................................................................1
2
SUPPLY AND DEMAND STATISTICS AND TRENDS ..................................6
3
POLICIES AND INITIATIVES .......................................................................12
4
SUPPLY CHAIN ANALYSIS ........................................................................21
5
IMPACT ASSESSMENT...............................................................................33
6
SUMMARY....................................................................................................43
APPENDIX I – LITERATURE REVIEW ...................................................................46
APPENDIX II – ASSESSMENT FRAMEWORKS....................................................47
LIST OF TABLES
Table 1: Imports of palm oil products to UK in 2004, UN ComTrade, Reporter is UK
(except categories indicated by*, where reporter is exporting country) ......2
Table 2: Examples of food products marketed in the UK containing palm oil ............4
Table 3: Refined palm oil imports to the UK in 2004 ..................................................7
Table 4: Crude palm oil imports to Netherlands in 2004 ............................................8
Table 5: Crude palm oil exports from Netherlands in 2004 ........................................8
Table 6: Major palm oil plantation companies operating in Malaysia .......................23
Table 7: Land Holding of Top Oil Conglomerates, 1997 ..........................................24
Table 8: Environmental Impacts of Oil Palm Establishment.....................................38
Table 9: Employment in primary commodities sector – Malaysia.............................41
LIST OF FIGURES
Figure 1: Crop Suitability for Rainfed Oil palm, High Input Level, source: FAO .........1
Figure 2: Production and uses of crude palm oil and palm kernels............................3
Figure 3: Extractions of palm kernel oil ......................................................................5
Figure 4: Actual and projected global demand for CPO up until 2020 Source: Oil
World...........................................................................................................9
Figure 5: Growth in Area of Oil Palm Plantations 1967 - 2000.................................10
Figure 6: Plantation establishment inputs and outputs.............................................27
Figure 7: Cultivation inputs and outputs...................................................................28
Figure 8: Processing inputs and outputs (Milling) ....................................................30
Figure 9: Processing inputs and outputs (Refining) .................................................31
Figure 10: Processing inputs and outputs (Crushing) ..............................................32
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Executive Summary
Palm oil is a leading oil in the edible oils market and is estimated to be used in 1 in
10 products on UK supermarket shelves. It is also a contender for use in the future
biofuel market and palm kernel oil is currently used in a range of other chemical
applications including detergents and toiletries. Palm oil, obtained from the fruit of
the oil palm is the greatest import to the UK out of oil palm products and of this, 58%
is in the form of crude palm oil and 14% in the form of refined palm oil.
Global demand for palm oil is forecast to double from 2000 figures by the year 2020.
This increasing trend will mainly be due to the needs of the food and biofuel sectors.
UK demand is likely to contribute to this increasing trend, as palm oil is predicted as
the favoured oil to meet increasing processed food needs and is one of the oils
which could potentially help meet government targets for biofuel use. The four
countries examined in this case study, Malaysia, Indonesia, Colombia and Papua
New Guinea, are among the top global exporters of palm oil and are the four largest
exporters to the UK.
Taking into account the staging country, the Netherlands and inter-country trade
between producers, Malaysia and Indonesia export the greatest quantities of palm
oil products to the UK. However, the percentage share of UK imports within their
palm oil sectors are small relative to Colombia where 39% of their palm oil products
for export are exported to the UK, compared to 2% for both Indonesia and Malaysia
(comparable data is unavailable for Papua New Guinea). Economically, changes in
demand and trade with the UK will impact more greatly on Colombia, however
environmental impacts will be proportionate to the actual land take and extent of
cultivation which is high for all four countries, in particular Malaysia, Indonesia and
Papua New Guinea. Social impacts will be dependent both on land take and on the
reliance of the economy on UK palm oil imports, however, the extent of these
impacts will depend on the structure of the industry and governance of the sector.
Malaysia and Indonesia both dominate global exports, however increase in demand
is more likely to be met in Indonesia and to some extent Colombia and Papua New
Guinea. Malaysia is the main foreign investor in the establishment of plantations in
Indonesia where cheaper land and labour costs relative to Malaysia, together with
the proximity to Malay processing facilities, make this an attractive area for
investment. Foreign investment has been substantial in all four countries’ palm oil
sectors and is likely to influence increased planting areas, in order to increase
returns on investment.
The increased demand for palm oil will be met by further establishment of
plantations, rather than increased productivity on existing plantations. This will
result in large impacts associated with forest conversion in Indonesia, Colombia and
Papua New Guinea, whilst cultivation impacts will continue to affect all four
countries.
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The main environmental and socio-economic impacts from palm oil production are
associated with the establishment of the plantation. Oil palms can only be cultivated
in tropical areas and the original habitat on the land most suitable for oil palm
production is lowland evergreen tropical rainforest. Worldwide, this is the most
species rich terrestrial habitat type. These factors, together with oil palm production
being a land-intensive industry result in significant impacts to biodiversity. Habitat
conversion to monoculture and threats to key species are the greatest
environmental concerns associated with large-scale palm oil production.
Plantations are promoted and established in inhabited locations by government
agencies, national and foreign businesses, multilateral banks, or other organizations
external to the area. They will typically occupy areas already being used in various
ways by local people. Indigenous populations in areas of land undergoing
conversion to oil palm plantations lose the natural resources available to them in the
natural forest habitat. Other social impacts include employment and labour and are
influenced by the national policy and governance of the palm oil sector.
The economic benefits from palm oil production and their impact on the populations
of exporting countries will depend in part to the structure of the industry, particularly
the proportion of state owned and smallholder owned plantations. This, together
with the extent to which smallholders are connected to markets and the risks they
bear relative to larger exporting and processing companies, will impact on the gains
they receive from increasing demand for palm oil. The increase in cash crop
production will impact on local food security, as reliance on world palm oil prices will
dictate smallholder income and less land is available for local food production.
Increase in cash crop production will increase foreign revenue, however, it will be
necessary to implement appropriate initiatives and governance structures to ensure
this is equitably distributed and that any adverse impacts of cash crop production,
both social and environmental, are removed.
Impacts have been widely documented by a range of non–governmental
organizations (NGOs) and international bodies and industry organisations. There is
consensus on the significance of establishment impacts and industry bodies have
concluded that initiatives are required to prevent further impact on endemic forest
and species. There are reports of social impacts among both NGOs and bodies
such as the International Labour Organisation (ILO).
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1
Commodity Overview
1.1
Background
1.1.1
Palm oil, extracted from tropical oil palms, is the world’s largest oil crop after
soy. The variety Tenera, cultivated in nearly all the world’s plantations,
gives the highest yield of any oil or oil seed crop, and is the main source for
vegetable oil for many tropical countries 1 . The oil palm is now grown as a
plantation crop in most countries with high rainfall (minimum 1 600 mm/yr) in
tropical climates within 10° of the equator 2 .
Figure 1: Crop Suitability for Rainfed Oil palm, High Input Level, source: FAO
1.1.2
1
2
Indonesia and Malaysia dominate the world export market, and, along with
Papua New Guinea (PNG) and Colombia, are the principal exporters to the
UK over the five classifications of palm oil products (see Table 1 below for a
summary). Although in developing economies, such as Malaysia, the
contribution of agriculture is declining, palm oil continues to be a strong
sector and a significant source of foreign revenue. In Indonesia, PNG and
Colombia, forecasted trends predict that global demand for palm oil will
increase, particularly within the food and biofuel sectors, and these countries
will be looking to meet this demand through further establishment of
plantations.
RSPO (2004) Roundtable on Sustainable Palm Oil, 2004 RSPO Factsheet, Roundtable on Sustainable Palm Oil, Revised Version
FAO(2002) FAO Agricultural Services Bulletin, Small-Scale Palm Oil Processing in Africa
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1.1.3
This case study will examine the impact of palm oil cultivation on the major
producing countries outlined above, and the impact of further plantation
establishment in light of predicted increases in demand. The impact
analysis will be undertaken with due regard to the policy and governance
context in each case study country, Colombia, Indonesia, Malaysia and
Papua New Guinea (PNG).
1.1.4
Palm oil products include oil from the pulp of the fruit and from the kernel in
either crude or a refined form, palm nuts and kernels and palm oil cake. UN
ComTrade data, SITC Rev 3, classifies palm oil into the following 6
categories:
Table 1: Imports of palm oil products to UK in 2004, UN ComTrade, Reporter is UK
(except categories indicated by*, where reporter is exporting country)
Commodity
Imports to the UK in 2004
%
of
total
palm oil
SITC Total value product Netherland
Rev 3 ($)
imports s
Indonesia
Palm nuts and
2232
kernels
8,165,859 1.7
273,916,25
Palm oil, crude 42221 6
57.5
Palm
oil,
refined, and its
fractions
42229 65,739,728 13.8
Palm kernel or
babassu
oil,
42241 34,992,712 7.3
crude
Palm kernel or
babassu
oil,
refined,
and
fractions
42249 11,044,436 2.3
thereof
Oilcake
and
other
solid
residues of oil
from palm nuts
0813 82,345,420 17.3
or kernel
Total palm oil
476204411 100
products to UK
Total palm oil
products
to
world*
All commodity
exports*
%
palm
oil
products to UK
% palm oil of
total commodity
exports
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3,520,994
Malaysia
PNG
Colombia
1,526,776
80,205418 34,145,992
62,527,70 46,347,56
48,317,419 6
8
5,444620
12,283,787
21,176,17
18,840,513 7
2,219,208
17,545,481
4,084,152 5,857,220 4,199,414
6,158,960
-
2,590,613 -
3,286,796
20,329,808
97315002
87,826,062
54,789,344 130,148,81
50,54698
89,561103 2
7
-
4,055,645,31 6,805,461,2 Not
129,601,3
5
24
available 18
64,483,516,6
Not
1.673E+1
1.26E+11 available 0
67
2%
2%
39%
6%
5%
1%
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1.1.5
The Netherlands, although not a producer, is a significant importer to the
UK. This is due to its role as a staging country. An analysis of the countries
that import to the Netherlands will identify the location of production impacts
of palm oil imported to the UK via the Netherlands. In addition, the amount
of palm oil exported from Malaysia and Indonesia is not necessarily
indicative of the relative areas of plantation in each country. Malaysia
imports a significant amount of crude palm oil from Indonesia. See section 3
for further analysis and discussion of these issues.
1.2
Uses
1.2.1
The pulp of the palm fruit produces an edible vegetable oil and the kernel
produces a non-edible oil. The oils are used in a wide variety of products
across the food, chemical, cosmetics and detergents industries. Palm oil
and palm kernel oil have a wide range of applications, around 80% are used
for food applications whilst the rest is feedstock for a number of non-food
applications.
Figure 2: Production and uses of crude palm oil and palm kernels
Food Industry
1.2.2
Among the food uses, refined, bleached and deodorised (RBD) olein is used
mainly as cooking and frying oils, shortenings and margarine while RBD
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stearin is used for the production of shortenings and margarine. RBD palm
oil (i.e. unfractionated palm oil) is used for producing margarine,
shortenings, vanaspati (vegetable ghee), frying fats and ice cream. Several
blends have been developed to produce solid fats with a zero content of
trans-fatty acids. In the production of ice cream, milk fats are replaced by a
combination of palm oil and palm kernel oil. A blend of palm oil, palm kernel
oil and other fats replaces milk fat for the production of non-diary creamers
or whiteners. It is estimated that 1 in 10 products on supermarket shelves
contain palm oil 3 . Unilever state that they buy over one million tonnes of
palm oil, 6-8% of the total world production, every year, mainly from
Malaysia and Indonesia 4 .
1.2.3
The following table gives some examples of the use of palm oil in food
manufacture.
Table 2: Examples of food products marketed in the UK containing palm oil
Product Type
Margarines
Soups
Chocolate
Snacks
Crisps
3
4
Company Name
Unilever
H J Heinz UK
Limited
Cadbury
Schweppes
Jacob’s Bakery
Walkers Snack
Foods
Product Name
Flora
Heinz soups
Cadbury’s Fruit ‘n’
Nut
Twiglets
Walkers Crisps
FoE (2005) Friends of the Earth 2005, press release 16 December 2005 ‘Asda joins roundtable on palm oil’
Unilever, Palm Oil: A Sustainable Future
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Cosmetics and detergents industry
1.2.4
Palm oil is widely used in the cosmetics and detergents industry, particularly
for its lathering properties. Palm oil closely resembles coconut oil in its fatty
acid formulation and characteristics and is therefore a cost effective
subsititute for crude coconut oil in the manufacture of soap. Other products
that contain palm oil include make-up, such as lipstick, and shampoo. The
oil is also rich in lauric acid and can be used in the synthesis of lauryl
alcohol for the detergent industry.
Chemical industry
1.2.5
An emerging market is that of biofuel, where crude palm oil is used as a
diesel substitute. CPO serves as a biofuel, and methyl esters (derived from
palm olein) can mix with diesel fuel to make biodiesel. Increased demand
for this may become a significant competitor with the food industry for palm
oil products.
Animal Feed
1.2.6
Palm kernels are crushed to yield Palm Kernel Oil and Palm Kernel Cake
(PKC). There are two types of PKC depending on the process used to
produce it, either by mechanical, metabolic or digestive methods. Its high
nutritional value and competitive price ensure its widespread use throughout
Europe.
Figure 3: Extractions of palm kernel oil
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2
SUPPLY AND DEMAND STATISTICS AND TRENDS
Crude Palm Oil Imports to UK 2004, ComTrade Data
Country
Imports to UK
Value ($)
Netherlands
80,205,418
Papua New Guinea
62,527,706
Weight (kg)
178,822,61
9
120,450,05
2
Top 5
markets
export
Belgium,
UK,
Germany,
France, Spain
Not available
Netherlands,
India, Germany,
UK, Bangladesh
48,317,419
Malaysia
reports half
this
Malaysia
Colombia
46,347,568
Indonesia
Other partners
34,145,992
2,372,153
102,493,75
0
96,286,746
UK,
Mexico,
Germany, Peru,
Dominican
Republic
India, Malaysia,
Netherlands,
Singapore,
Germany
74,356,290
UK
represents %
of
this
country's
export market
(by value) for
this
commodity
18%
Not available
%
of
country's
exports (by
value)
represented
by
the
commodity
Not
available
4%
-Malay
report,
8%
UK
and
Malay(excl
Netherlands)
539812081*
reporter
exporter
43%
world
92657139
Require
Netherlands
and Malaysia
Total exports
to world 1444421812
2.1
Key points
2.1.1
Malaysia imports $348,212,702 from Indonesia.
2.1.2
Malaysia exports $270,266,824 to Netherlands.
2.1.3
Indonesia exports $193,559,397 to Malaysia and $179,287,634 to
Netherlands.
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Table 3: Refined palm oil imports to the UK in 2004
Refined Palm Oil Imports to UK 2004, ComTrade Data
Country
Imports to UK
Value
Papua New Guinea
Malaysia
Weight
Top 5
markets
37,683,184
Not available
36,543,523
China, Pakistan,
India,
Jordan,
Japan
China,
India,
Jordan, Pakistan,
Netherlands
Belgium,
Germany,
France, Poland,
Austria
Denmark, Italy,
Poland,
Czech
Republic,
Romania
21,176,177
18,840,513
25,789,965
Indonesia
12,283,787
8,530,904
Netherlands
5,444,620
3,831,728
Germany
Other Partners
export
UK
represents %
of
this
country's
export market
for
this
commodity
Not available
3,236,805
4,757,826
%
of
country's
exports
represented
by
the
commodity
Not
available
Total world
exports
1997354171
2.2
Additional analysis – staging country
2.2.1
The Netherlands is a key exporter to the UK, this is due to its role as a
staging country. An examination of crude palm oil flow to the Netherlands
identifies Indonesia, Malaysia and Papua New Guinea as key exporters.
The UK’s consumption of palm oil will include a proportion of these imports
to the Netherlands.
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Table 4: Crude palm oil imports to Netherlands in 2004
Crude Palm Oil Imports to Netherlands 2004, ComTrade Data
Country of export
Import to Netherlands
Value ($)
Weight (kg)
$180,957,722
Top of Form
Bottom of Form
Indonesia
Malaysia
Papua New Guinea
Singapore
UK
Other
$169,664,820
$7,791,169
$3,483,067
$2,813,581
$11,616,441
385,666,250
358,178,687
14,583,433
7,700,433
6,001,074
Table 5: Crude palm oil exports from Netherlands in 2004
Crude Palm Oil Exports from Netherlands 2004, ComTrade
Data
Country of import
Belgium
UK
Germany
France
Spain
Other
Export from Netherlands
Value ($)
Weight (kg)
$31,045,827
60,112,957
$8,568,956
16,505,941
$4,344,823
8,279,933
$1,704,584
3,362,937
$848,559
1,717,500
$665,657
2.3
Global Trends
2.3.1
Global demand for palm oil has doubled in the last decade. World demand
for palm oil is forecast to rise 40.5 million tonnes by 2020, nearly twice the
output in 2000, this shows a growth of total area planted to oil palm from
200,000 to 3m hectares 5 . Malaysia and Indonesia are both increasing their
production and processing of palm oil due to forecasts of further increases in
demand 6 . In many regions, further rainforest conversion to plantation is
planned. Due to cheaper land and labour costs in Indonesia relative to
Malaysia, it is anticipated that most of the demand will be met here. UK
demand is increasing and future demand from the UK may be for biofuel.
The UK government reports that 5.75% of transport fuel will be from plants
5
Oil World, 2001 FWI World Resources Institute 2002
6
MPOB (2006), Malaysian Palm Oil Board website, http://www.mpob.gov.my/ , accessed 27 April 2006
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by 2010 7 . Although it is anticipated by market analysts that rapeseed oil will
be the oil of choice for biofuel in Europe, palm oil will be a significant
competitor due to its low cost and the capacity for supply. Whether it
becomes economical to use palm oil to produce biofuel or biodiesel will
depend on the oil markets and the costs of other available agro-based
alternative fuels. It has also been predicted that palm kernel oil will replace
coconut oil as the major lauric oil in the global market 8 . Unilever state that
palm oil is going to be the oil and fat resource which will enable them and
other users to respond to the growing global demand for food ingredients
and nutritional value 9 .Therefore, a key issue around future trends in global
palm oil demand is substitutability.
Figure 4: Actual and projected global demand for CPO up until 2020 Source: Oil
World
45000
40000
35000
1000t
30000
25000
20000
15000
10000
5000
0
1976-1980 1981-1985 1986-1990 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015 2014-2020
Indonesia
2.3.2
Indonesia's 2006 production is expected to rise to 14.7 million tonnes 10 . Oil
palm investors have been keen to establish plantations in Sumatra since it
possesses the best climate and soil conditions in the country for cultivating
oil palm and has necessary infrastructure already in place for initial
Department for Transport (2005) Renewable Transport Fuel Obligation Feasibility Report
Pantzaris and Ahmad, T P Pantzaris and Mohd Jaaffar Ahmad Palm Kernel Oil, Palm Oil Research Institute of Malaysia, PORIM
Europe
7
8
9
Ibid, 4
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processing. Areas for likely future develop in Sumatra include the provinces
of Riau, Jambi and South Sumatra 11 . Eexpansion is proceeding rapidly in
Kalimantan, Borneo, especially West Kalimantan.
Further rapid
development of this crop is expected to occur in East Kalimantan, Sulawesi,
and Irian Jaya, the Indonesian province on New Guinea 12 . Foreign investors
interested in oil palm production have been mainly from Malaysia. Land
availability for this type of production is very limited in Malaysia and
Indonesia is close to their processing facilities 13 .
2.3.3
Any slowdown in the growth of oil palm production in Indonesia would occur
due to high export tax, reduced foreign investment resulting from political
instability and fears of supply glut 14 .
Figure 5: Growth in Area of Oil Palm Plantations 1967 - 2000
Malaysia
2.3.4
According to industry projections, Malaysia's CPO output will rise by about
500,000 tonnes in 2006. The Malaysian government has approved around
11 Casson (2000) the Hesitant Boom: Indonesia’s oil palm sub sector in an era of economical crisis and political change, Centre for International Forestry
Research
12 The State of the Forest: Indonesia FWI/WRI 2002
13 Kartodihardjo et al Occasional Paper no. 26e Centre for International Forestry Research (CIFOR) The Impact of Sectoral Development on Natural
Forest conversion and Degradation: The Case of Timber and Tree Crop Plantations in Indonesia
14 as above ibid 35
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14 biodiesel projects. A National Biofuel Policy was announced by
the Government in August 2005 to spur the development of the biofuel
industry in Malaysia 15 . The Malaysian government is subsidising the use of
palm oil as a renewable source of energy. In addition, Malaysia has
announced plans to switch from using diesel oil to a part bio-fuel alternative.
Commodities Minister Peter Chin said laws were being drafted to make the
use of such fuel compulsory by 2008. Malaysia has lost much of its ancient
rainforest to palm oil plantations, and Malaysian companies are thought to
be behind moves to expand palm oil production in Indonesia.
PNG
2.3.5
Prime Minster, Michael Somare described the oil palm industry as “a silent
achiever and is now the leading vibrant, dynamic industry with reputable
status in the country, because of its professional managers, and board of
directors, who have the vision for the industry for the nation, and to make it
the biggest ever industry for the country in the 21st century.” Somare has
recently declared tax breaks for companies interested in developing the oil
palm industry in PNG. Plans for the expansion of oil palm plantations were
announced for nearly every province in PNG 16 .
Colombia
2.3.6
The palm oil sector is Colombia is expanding as other export sectors are
reducing their outputs. Output of palm oil has risen over 100% in the last
ten years. Soybean output in Colombia started the decade at 194,000
tonnes but dropped steadily and is forecast to be 75,000 tonnes in 2000/01.
The largest producer of cottonneseed, Colombia has seen a decline in
cottonneseed output from 285,000 tonnes to 68,000 tonnes over the
decade. The regional trend to palm oil and away from soybeans and
cottonneseed may continue. The region exports essentially all palm oil
production to Mexico and Europe as local consumers still have not
developed a taste for palm oil 17.
MPOB 2006 at http://www.mpob.gov.my/
PNG RSPO project proposal
FAS online feature commodity article Central America and Northern South America Switch to Palm Oil
www.fas.usda.gov/wap/circular/2000/00-10/wap2.htm
15
16
17
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3
POLICIES AND INITIATIVES
3.1
Policy Framework
Background
3.1.1
The palm oil sector is a major source of foreign revenue and is seen as an
important and strategic industry in major producing countries. Larger palm
oil companies and value chain stakeholders can therefore wield substantial
economic and political influence and rarely have difficulty accessing credit
facilities 18 .
3.1.2
The sector does not receive direct subsidies in most palm oil producing
countries, unlike other oil crops such as soy, rape and sunflower in the EU
and US. However, significant amounts of indirect support are received
through assistance to smallholders as part of rural development plans,
infrastructure support such as roads and ports and government investment
in the establishment of plantations. In order to provide for any adjustments
in management or practice, comparable levels of support and structural
changes will need to take place.
Indonesia
3.1.3
Indonesia has a well balanced economy in which all sectors play a
significant role, including industries such as oil and natural gas, textiles and
tourism, natural resources such as tin and nickel and agricultural cash crops
such as palm oil, peanuts, rubber, cocoa and coffee 19 . Indonesian
agricultural policy since 1967 has focused on achieving food self-sufficiency.
Cash crops such as palm oil, however, are produced predominantly for
export. Palm oil is an important export revenue for Indonesia, in 1999
generating more than US$1 billion (at 1993 constant prices). Government
investment in the sector has been significant.
3.1.4
The palm oil industry consists of three classes of producer:
•
•
•
3.1.5
18
19
state-owned
smallholder, and;
large-scale private
The Suharto government (1967 –1998) invested, with World Bank
assistance, in state-run companies from the late 1960s. The area of state
IFC, WWF (2004) Better Management Practices Project for IFC and WWF-US: Phase 2 Commodity Guides IIED, Proforest, Rabobak, March 2004
New Agriculturalist on line country profile; Indonesia, at www.new-agri.co.uk
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owned plantations then rose steadily over the following decade.
Smallholder estates expanded after 1979, again due to government
intervention and World Bank support 20 . The large-scale private plantation
sector grew most rapidly after 1986, again with government encouragement.
Companies were given a range of incentives, including access to credit at
concessionary rates for estate development, planting and processing. The
Yudhoyono administration has emphasised the need to lift economic growth
and investment and to create jobs. The administration's other stated priority
is to stamp out corruption. The Economist Intelligence Unit states that this
will significantly raise producers' costs and deter investment.
3.1.6
Rural development policy includes partnership working of large scale
plantation companies with smallholder plantations. Large companies are
obliged to take part to give technical advice to farmers. This involvement
has also provided opportunities for large companies to take advantage of
the scheme by taking on the role as contractors for the plantation
development owned by farmers, selling the timber produced from land
clearing and obtaining a special fee to assist farmers in getting access to
this credit.
3.1.7
Indonesia currently receives funding from the UK government for assistance
on projects within the forestry sector 21 .
Malaysia
3.1.8
The Malaysian economy no longer relies primarily on the export of
agricultural products and is steadily being dominated by manufacturing and
services. Malaysia has undergone rapid industrialisation over the past 30
years and manufactures now account on average for 85% of gross export
earnings 22 . However, Malaysia remains the world lead in palm oil exports.
3.1.9
Government schemes have been implemented to support smallholders.
The Federal Land Development Authority (FELDA) was established in 1956
to develop land in order to improve the economic situation of the rural poor.
The government has also supported the development of value adding
opportunities. This has resulted in a well-established palm oil processing
sector. The government is also very active in export financing so as to
promote Malaysian palm oil. For example, loans have been provided to
Egypt and Russia in return for buying Malaysian palm oil 23 .
FWI,WRI (2002)
DFID country profiles at www.dfid.gov.uk
22 Economist Intelligence Unit, country profiles: Malaysia, April 2004
23 Ibid, 5
20
21
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PNG
3.1.10 NG is the largest island economy in the Pacific and has been growing palm
oil over the last 40 years. Oil palm is now the third most important
agricultural export and is growing rapidly. It is expected that in the short
term outlook, oil palm could rival coffee in importance 24 . The establishment
of the oil palm industry has been based on the estate-smallholder model
with a central parent palm oil company, predominantly foreign owned. This
has facilitated private investment in PNG. Substantial private investment
was required to establish estates and associated processing and marketing
facilities. The establishment of the industry also received substantial
financial support from government and international donors, including the
World Bank and the Asian Development Bank. In 2001, the government
and overseas donors were continuing to provide substantial financial
support to the industry 25 . It is reported that the estate-smallholder model
puts the risk of palm oil production on growers as they are dependent on
world palm oil prices and bear the costs of production 26 .
3.1.11 Key issues around its economic performance are the lack of opportunities
for diversification and industrialisation as well as relative isolation from
markets. Commentators have stated that there is also a significant lack of
dynamic institutions and progressive policy formulation that could
compensate for these disadvantages 27 . The Global conference on the
Sustainable Development of Small Island Developing States 28 concluded
that small island developing states were most vulnerable to economic and
environmental shocks. The relative openness of Pacific island economies
(in terms of contribution of trade to the economy), compared to many
developing countries tends to exacerbate this vulnerability 29 .
Colombia
3.1.12 Colombia has a diversified economy. In 2002, Agriculture accounted for
around 14% of GDP and manufacturing for about 16% of GDP 30 . Colombia
started growing oil palm on a large scale in the 1980s. Expansion of the
sector is expected, with the establishment of a research station by the
Embassy of Papua New Guinea to the Americas, website at http://www.pngembassy.org/agriculture.html 26 May 2006
Koczberski, Curry, Gibson Improving Productivity of the Smallholder oil palm sector in PNG: A socio-economic study of the Hoskins and Popondetta
schemes
26 NGO forum on Asian Development Bank at www.forum-adb.org/PDF-Manila/oilpalm-png_lee-jun03.pdf retrieved 11 July 2006
27 Duncan et al, 1999 in Hunt, Economic Globalisation impacts on Pacific island Environments and aid implications, Marine Policy
Volume 27, Issue 1, January 2003, Pages 79-85
28 United Nations General Assembly, 1998
29
Hunt,
Economic
Globalisation
impacts
on
Pacific
island
Environments
and
aid
implications,
Marine
Policy
30 Economist Intelligence Unit, country profiles: Colombia, December 2003
24
25
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centre for Oil Palm Research, Cenipalma. This has been funded by the
Colombian government, a loan from a national bank (Banco Agrario) and
some private sector funding from oil farm farmers 31 .
3.2
Governance Framework
3.2.1
Known trade agreements and trade organisations:
•
•
•
•
•
•
31
32
Malaysia, Indonesia and PNG are all members of the WTO and the
Asia-Pacific Economic Cooperation (APEC)
Malaysia and Indonesia are members of the Cairns Group of
Agricultural Exporting Nations
Colombia is one of the 34 countries participating in Free Trade
Area of the Americas
The Andean Community is a sub-regional organization endowed
with an international legal status that pursues economic integration
among its members - Bolivia, Colombia, Ecuador, Peru and
Venezuela
The UK has Investment Promotion and Protection Agreements
(IPPAs) with Malaysia, PNG and Indonesia.
IPPAs are
international bilateral agreements between governments, which
can protect and encourage British investment overseas. IPPAs are
designed to encourage investor confidence by setting high
standards of investor protection applicable in international law. Key
elements include provisions for equal and non-discriminatory
treatment of investors and their investments, compensation for
expropriation, transfer of capital and returns and access to
independent settlement of disputes 32 .
Other current and future anticipated Bilateral agreements include:
− The Australia PNG Trade and Commercial Relations
Agreement (PATCRA);
− Australia and Malaysia are in negotiation over a bilateral Free
Trade Agreement; and
− The Bush administration hopes to initiate more free-trade
agreement negotiations in 2006, possibly with South Korea and
Malaysia.
Science and Development Network, report 4 July 2006
Department for Trade and Industry at www.dti.gov.uk
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3.2.2
Relevant ILO conventions to the oil palm sector:
•
•
•
•
•
•
•
3.3
ILO Convention 100 Equal Remuneration Convention 1951
ILO Convention 110 on Plantations
ILO Convention 111 Discrimination (Employment and Occupation)
Convention 1958
ILO Recommendation 132 on Tenants & Sharecroppers
ILO Convention 138 Minimum Age Convention
ILO Convention 169 on Indigenous and Tribal Peoples' rights
ILO Convention 182 Worst Forms of Child Labour Convention
Other relevant agreements
International Covenant on Economic, Social and Cultural Rights
Indonesia
3.3.1
By law, plantations are required to be established only on forest land that
has been officially designated for conversion to other uses. In practice, two
factors undermine the law. First, most conversion forest in Indonesia is
available in the relatively undeveloped eastern part of the country, but most
companies prefer to be in the west, closer to a labor force, processing
infrastructure, and markets. Second, establishing plantations in forest land
is doubly attractive because, having acquired a land clearing licence (IPK), a
company can clear-cut the area and sell the timber to wood-processing 33 .
3.3.2
Indonesia has not signed up to the International Covenant on Economic,
Social and Cultural Rights. Nor has it ratified ILO Convention 169 on
Indigenous and Tribal Peoples' rights; ILO Convention 110 on Plantations or
ILO Recommendation 132 on Tenants & Sharecroppers. ILO Conventions
138, 132 are ratified.
Malaysia
3.3.3
33
The Malaysian Palm Oil Board (MPOB) was established in 1998 and is
responsible for developing and promoting the Malaysian palm oil sector.
The MPOB carries out research related to planting, production, harvesting,
WRI Earth Trends
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extraction, processing, storage, transportation, use, consumption and
marketing of oil palm and oil palm products
3.3.4
The Federal Land Development Authority (FELDA) is responsible for
arranging the finance for palm oil production on behalf of its members.
3.3.5
Malaysia has not signed up to the International Covenant on Economic,
Social and Cultural Rights. Nor has it ratified ILO Convention 169 on
Indigenous and Tribal Peoples' rights; ILO Convention 110 on Plantations or
ILO Recommendation 132 on Tenants & Sharecroppers.
PNG
3.3.6
PNG has a track record of weak institution of governance. It is reported to
have virtually no capacity to monitor or regulate its industries. It is therefore
unrealistic to expect effective institutional intervention for a sustainable oil
palm industry. However, communities wield considerable discretionary
power in land use allocation and access from the customary land tenure
system 34 .
3.3.7
Papua New Guinea is rich in natural resources including water. However,
due to a lack of both human resources and political interest, and also to
underlying financial constraints, it has not been able to achieve sustainable
development in the water sector. The water sector in Papua New Guinea is
fragmented and poorly coordinated. The Water Resources Act (1982)
regulates the use of water 35 .
3.3.8
The existing palm oil exporting companies in PNG are international
companies that self-regulate to minimise environmental controversy 36 . One
commentator states that ‘forest administration in PNG is notoriously corrupt’
and that it has been carried out ‘in an unregulated manner, precluding forest
recovery and has tended to be concentrated in certain provinces’ 37 .
Roundtable for Sustainable Palm Oil (RSPO) Sustainable Oil Palm for Papua New
Guinea (PNG), RSPO Project Proposals
34
FAO Land and Water Division at http://www.fao.org/landandwater/default.stm
Hunt, Economic Globalisation impacts on Pacific island Environments and aid
implications,
Marine
Policy
35
36
Hunt 2002b in Hunt, Economic Globalisation impacts on Pacific island
Environments
and
aid
implications,
Marine
Policy
37
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Colombia
3.3.9
The state in Colombia has three levels of government at the central,
departmental and municipal level. Colombia has undergone state reform
involving the decentralisation of the agriculture and rural sector. There is
now an agricultural extension municipal office (UMATA) in each municipality,
which is responsible for the delivery of extension services to small farmers.
Colombia has also implemented the liberalisation of the land market. This
has consisted of a grant and loan program for the redistribution of land.
3.4
Initiative Framework
3.4.1
The following initiatives include schemes and programs in countries other
than the case study countries and in other plantation and related sectors to
give examples of better practice worldwide.
Eradication of Child Labour on Plantations
National level (Ghana)- Oil Palm
The General Agricultural Workers Union has negotiated a collective
agreement with the Ghana Oil Palm Development Company, which commits
management to the eradication of child labour in and around its plantations 38 .
International level - Tobacco
Joint Statement signed by International Tobacco Grower’s Association and
the IUF 10/06/990
Roundtable on Sustainable Palm Oil
This initiative was set up by the palm industry and WWF. It is industry led
and membership includes Consumer Goods Manufacturers, Retailers,
Banks/Investors, Environmental NGOs and Social/Development NGOs. The
principal objective of the RSPO is to ‘promote the growth and use of
sustainable palm oil through co-operation within the supply chain and open
dialogue between its stakeholders’. During the development of the RSPO
Principles & Criteria for Sustainable Palm Oil Production, it was recognised
that smallholder producers, who make up roughly 30% of palm production in
Indonesia for instance would need special attention when drawing up the
specifically for this sub-sector’s use. A smallholders task force has been set
up.
International Finance Corporation (IFC) WWF-US Initiative
38
International Labour Organisation (ILO) 2003 Background Paper Decent work in agriculture
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This joint project will research the environmental and social issues associated
with the production of a number of agribusiness commodities, these are, palm
oil, sugar, soy and cotton. The project aims to understand how useful the
development and application of ‘Better Management Practices’ (BMPs) would
be for these commodities.
National Roundtable on Biofuels in Colombia
Fedepalma, with the assistance of the Ministry of the Environment, Housing
and Territorial Development, organised this roundtable event.
World Bank Oro Expansion Project
This began in 1993 in PNG and had received in excess of $27m in funds as
at 2001 39 .
Industry voluntary standards
•
•
The Swiss retailer, Migros, in collaboration with WWF has
committed to source palm oil only from plantations that have not
been established at the expense of tropical forests. It has set up a
set of minimum standards for environmental and social criteria; and
Unilever has developed indicators for agricultural practices within
their palm oil plantations.
3.4.2
SAWIT watch in Indonesia major Dutch banks (ABN AMRO, Rabobank and
Fortis) have decided to stop financing or substantially restrict the financing
of the development of oil palm plantations which purposely destroy tropical
rainforests. http://www.wrm.org.uy/index.html.
3.4.3
Pacific Rim Palm Oil (PRPOL) manages five plantations, two in Indonesia
and three in Papua New Guinea. PRPOL was the first oil palm company in
the world to put in the ISO14001 environmental management system across
its whole production process from nursery to CPO leaving the mill. All five
companies are certified to ISO14001.
3.4.4
The 1997 Clean Production Agreement has been signed between
Colombia’s environmental authorities and the oil palm sector.
Other
3.4.5
39
A variety of international bodies, NGOs and stakeholders have set up
campaigning initiatives around palm oil production, including the following:
Ibid, 12
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•
•
•
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GRASP is the flagship project of the UNEP and UNESCO set up to
bring together global business and governments to save the world's
great apes - man's closest relatives - from extinction in response to
an appeal for their support. (Indonesia doc);
Global Forest Watch (GFW), in collaboration with Conservation
International, would like to increase the ability of the oil palm sector
to contribute positively to regional development plans that balance
needs of the private sector, government, local communities, and
environmental interests GFW; and
International and local campaigning NGOs which have been very
active in this area include WWF and GFW.
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4
SUPPLY CHAIN ANALYSIS
4.1
Industry Structure
4.1.1
The industry structure and supply chain of palm oil is complex. Whilst
production and initial processing of fresh fruit bunches at a crude palm oil
mill takes place in the tropical countries of production, further processing of
palm oil is largely completed in Europe. Initial processing of fresh fruit
bunches will take place in the country of production, since processing is
required within 24 hours of harvesting due to rapid deterioration of the fruit.
Each cluster of oil plantations will therefore usually have a Crude Palm Oil
(CPO) mill. On the other hand, palm kernel crushing plants can be located
in either producer or consumer countries 40 .
4.1.2
The supply chain includes international traders, EU trading subsidiaries of
Indonesian and Malaysian oil palm plantations, trading arms of European
edible oil refining companies, procurement divisions of major European
food, detergent and chemical companies and independent edible oil traders
and brokers. The end users are ultimately consumers who buy products
that contain palm oil, however, the key node for intervention at this end of
the supply chain is the manufacturers who buy palm oil as a discrete
product.
4.1.3
Multilateral Development Banks, donors, technology suppliers, state
investment and export credit agencies are among the main external actors
that provide the impetus and the financial and technical support for the
spread of plantations. The number of banks involved in the financing of the
sector is substantial, both at the level of the initial production stage through
to the food manufacturers. For example, financers of Kraft include ABN
AMRO, BNP Paribas, Dresdner Bank, Credit Suisse, Deutsche Bank,
Citibank, JP Morgan, Banco espirito Santo, Lehman Brothers, ING, HSBC,
NAB Captial Markets, BBVA Securities, Den Norske Bank and Societe
Generale.
4.1.4
The internal palm oil industry structure varies considerably across the
different countries examined in this case study. The differences occur in the
proportion of large plantations and small holder plantings, the proportion of
palm oil area owned by the government and the extent to which processing
is undertaken in the country of production. An interesting observation is that
although Malaysia has given substantial support for smallholders, their
40
Food and Agriculture Organisation (FAO) at www.fao.org
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proportion of market share and land use relative to large plantations is
small and much less so than in Indonesia. Factors other than finance and
access to credit are, to some extent, having an influence on the structure of
the sector. One area of uncertainty is the extent to which each type of
producer contributes to the export market of palm oil. Although a third of the
palm oil area in Indonesia is managed by smallholders, this may not equate
to a third of exports, for two possible reasons, that productivity varies
between different types of producers and cultivation and varying degrees of
access to export markets.
Malaysia
4.1.5
Although production in Malaysia is dominated by plantation estates,
individual smallholders 41 still account for about 320,818 hectares of oil palm
or 9.5% of the total planted area. The interests of individual smallholders
are represented by the National Association of Smallholders (NASH). The
government owns around 31% of plantation area.
4.1.6
The Federal Land Development Authority (FELDA) is responsible for more
than 1.1 million hectares of plantations. FELDA is well positioned to
influence the plantation sector to improve best management practice 42 .
4.1.7
The government has given substantial support and encouragement for the
establishment of refining facilities in Malaysia. At the end of 2002, 46
refineries were operating in Malaysia. Major refining companies in Malaysia
include MPOA, Golden Hope, Kumpulan Guthrie, Sime Darby, Felda and
United Plantations.
4.1.8
The processing of palm oil outside of Malaysia is undertaken by a large
number of processors, including multinationals such as Cargill and ADM
and local companies in countries of import.
4.1.9
Financing is provided by a range of institutions including, local and
international banks and the World Bank.
4.1.10 The equity of plantation companies in the country is largely under Malaysian
ownership, the largest investors being the national equity corporation,
Permodalan Nasional Berhad (PNB) and the Employees Provident Fund
(EPF). PNB has substantial holdings in seven major plantation companies
while EPF which provide retirement benefits for its members has made
substantial investments in more than 14 plantation companies listed on the
41
42
Under the RISDA Act 1972, a smallholder is defined as the owner of legal occupier of any land that is 100 acres (40.5 ha) in area
Ibid, 5
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Kuala Lumpur Stock Exchange. Only a few companies have substantial or
controlling foreign shareholding, notable examples being United Plantations
Berhad and Pamol Plantatins Sdn Bhd which is Unilever’s plantation interest
in Malaysia. However, the latter had recently announced to dispose all its
plantations in the Malaysia.
Table 6: Major palm oil plantation companies operating in Malaysia
Indonesia
4.1.11 More than a third of Indonesia’s palm oil area is managed by smallholders.
Around 16% of the area is owned by the government and the remaining
area is owned and managed by private, large scale plantation companies 43 .
Foreign investors interested in oil palm production have been mainly from
Malaysia. Land availability for this type of production is very limited in
Malaysia and Indonesia is close to their processing facilities 44 . Indonesia’s
palm oil industry is dominated by some of the same conglomerates that
control the logging, wood processing, and pulp and paper industries. In
Ibid,5
CIFOR (2000) Centre for International Forestry Research, 2000, Occasional Paper No 26E, The Impact of sectoral development on Natural Forest
Conversion and degradation: The Case of Timber and Tree Crop Plantations in Indonesia
43
44
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1997, the private estate sector was dominated by 10 groups that, together,
owned about 64 percent of the total planted area owned by private firms. In
addition, these 10 groups owned land banks, land that has been approved
for development as plantations, totalling nearly 3 million ha. Four of these
groups also held major logging concessions in 1997 45 .See table below:
Table 7: Land Holding of Top Oil Conglomerates, 1997
PNG
4.1.12 A large proportion of the population is in subsistence or in subsistence
mixed with small scale production and trading. However, the existing palm
oil exporting companies in PNG are international companies 46 . In 2000,
smallholders accounted for 33% of total palm oil production 47 .
4.1.13 The estate companies own and operate the processing mills and their own
plantation estates. Some also transport smallholder fruit to their mills and
provide seedling and technical advice to smallholders. Smallholders sell
their fruit to the company.
Ibid 33
Ibid, 16
47 Ibid, 13
45
46
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4.1.14 PNG now has five major plantations, established through loans provided by
major lenders such as the World Bank and the Asian Development Bank.
All oil palm in PNG is grown under the Nucleus Estate Smallholder Scheme,
whereby a central company and plantation contracts small farmers to supply
them with oil palm fruit. The structure of the Nucleus Estate Smallholder
Scheme and the nature of oil palm itself are raising serious concerns
amongst oil palm growers and PNG civil society alike 48 .
Colombia
4.1.15 Colombia is the largest producer of palm oil in Latin America.
Discussion
4.1.16 Key issues include the location of food manufacturers. For example,
Unilever imports 6-8% of world palm oil.
If most production and
manufacturing takes place in Europe, for example the company is registered
in the Netherlands, food imported to the UK will increase overall palm oil
consumption figures.
4.1.17 A further issue is the link between logging and timber harvesting and the
palm oil industry. In Indonesia palm oil companies are interested in the
timber that can be harvested from oil palm concessions in Irian Jaya and
Kalimantan. An executive of North Sumatra’s leading palm oil producer said
that most of the small amount of land newly planted with oil palm in North
Sumatra resulted, in fact, from logging. He explained that after clearing the
land, the logging companies plant oil palm in the deforested areas.
Although logging companies did not intend to begin palm oil production, oil
palms proved a cheap way to meet reforestation regulations.
4.1.18 The structure of the supply chain includes the amount of smallholders, large
plantations and state owned plantations. This analysis and the impacts on
these different types of land owners requires consideration of their relative
links to global markets and the proportion they are able to export.
4.1.19 Although intervention may concentrate at a specific point in the supply
chain, as Unilever identify ‘Quality assurance of palm oil and Unilever’s
related environmental sustainability project is a supply chain issue. We aim
to act as a catalyst for change by leading this initiative, but much change
has to occur with third parties. All stakeholders have a role to play in this’
48
http://www.acfonline.org.au/default.asp?section_id=96
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4.2
Production Stages
Pre-cultivation
Figure 6: Plantation establishment inputs and outputs
4.2.1
Nursery Establishment commences as soon as the land is found to be
suitable and approved by the respective agencies for development to
proceed. Good quality seedlings are raised in a polybag nursery for about
12 months.
4.2.2
Site Preparation can include the conduction of a land survey, clearing of
existing vegetation, establishment of a road and field drainage system, soil
conservation measures such as terracing, conservation bunds and silt pits
and sowing of leguminous cover crops. From the early 1990s, the zero
burning technique for land clearing has been in place in Malaysia and
Indonesia, however, it has been reported that burning continues in
Indonesia for clearing land in preparation for oil palm.
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4.2.3
It is important that effort is made to obtain full ground coverage by
leguminous cover crops such as Pueraria javanica and Calopogonium
caeruleum to minimise soil loss through runoff as well as to improve the soil
properties through nitrogen fixation.
Cultivation
Figure 7: Cultivation inputs and outputs
4.2.4
Field Maintenance operations include weeding, water management, pruning,
pest and disease management and manuring or fertilizing. A mix of cultural,
physical, chemical and biological control approaches to minimise crop
losses to pests is commonly adopted in plantations. Examples of biological
control measures applied include the use of baculovirus and Metarhizium
anisopliae to control the rhinoceros beetle (Oryctes rhinoceros), control of
leaf-eating bagworms and nettle caterpillars by their natural predators and
parasitoids and the use of barn owls (Tyto alba) as the biological agent to
control rats.
4.2.5
Harvesting of Fresh Fruit Bunches (FFB) commences between 24 to 30
months after field planting, depending on the soil type and agronomic and
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management inputs. Harvesting is carried out manually. Various systems
for in-field collection of FFB and transportation to the palm oil mill. In view of
increasing shortage of workers as well as the need to increase worker
productivity, mechanised approaches have been adopted by plantations, an
example being the tractor-mounted ‘grabber’.
Replanting
4.2.6
The economic cycle of the oil palm is about 25 years, after which the old
stand is replanted. The zero burning technique of replanting is now
common commercial practice. However, in some situations, plantations
consider underplanting, whereby new seedlings are planted under the old
palms which are thinned out progressively to allow the development of the
new stand.
Processing
4.2.7
5.3.1 After harvesting, it is important that the fresh fruit bunches (FFB) are
processed as soon as possible to prevent a rapid rise in free fatty acids
(FFA) which could adversely affect the quality of the crude palm oil (CPO).
Palm oil mills are generally located in the plantations to facilitate timely
transportation and effective processing of FFB.
4.2.8
Once ripe, the fresh fruit bunches must be processed quickly to prevent a build up
of acid in the oil. The palm oil milling process involves the physical extraction
of palm products namely, crude palm oil and palm kernel from the FFB. The
process begins with sterilization of the FFB. The fruit bunches are steamed
in pressurised vessels up to 3 bars to arrest the formation of free fatty acids
and prepare the fruits for subsequent sub-processes. The sterilised
bunches are then stripped of the fruitlets in a rotating drum thresher. The
stripped bunches or empty fruit bunches (EFB) are transported to the
plantation for mulching while the fruitlets are conveyed to the press
digesters.
4.2.9
In the digesters, the fruits are heated using live steam and continuously
stirred to loosen the oil-bearing mesocarp from the nuts as well as to break
open the oil cells present in the mesocarp. The digested mash is then
pressed, extracting the oil by means of screw presses. The press cake is
then conveyed to the kernel plant where the kernels are recovered.
4.2.10 The oil from the press is diluted and pumped to vertical clarifier tanks. The
clarified oil is then fed to purifiers to remove dirt and moisture before being
dried further in the vacuum drier. The clean and dry oil is ready for storage
and dispatch. The sludge from the clarifier sediment is fed into bowl
centrifuges for further oil recovery. The recovered oil is recycled to the
clarifiers while the water/sludge mixture which is referred to as Palm Oil Mill
Effluent (POME) is treated in the effluent treatment plant.(ETP). The press
cake is conveyed to the depericarper where the fibre and nuts are
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separated. Fibre is burned as fuel in the boiler to generate steam. The nuts
are cracked and the shell and kernel are separated by means of a winnower
and hydro-cyclone. The clean kernels are dried prior to storage.
Processing (milling)
Figure 8: Processing inputs and outputs (Milling)
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Processing (refining)
Figure 9: Processing inputs and outputs (Refining)
4.2.11 The refining process removes free fatty acids, phosphatides, odouriferous
matter, water as well as impurities such as dirt and traces of metals from the
CPO; the objective being to produce an edible oil of consistent quality that
meets industry’s standards and satisfies customer requirements, moisture
and impurities, Iodine Value, Peroxide Value, melting point, colour and
flavour. The refined oil must tasteless and have a bland flavour.
4.2.12 CPO is processed by either physical or chemical refining to produce either
refined, bleached and deodourised palm oil (RBDPO) or neutralised,
bleached and deodourised palm oil (NBDPO). These are subjected to
fractionation to obtain the respective liquid olein fraction and the solid stearin
fraction. (Figure 6). Of the two processes, physical refining is the
predominant approach adopted by the refineries as it is simpler, less capital
intensive, more efficient and produces a lower effluent load.
4.2.13 Physical or steam refining begins with degumming when the CPO is treated
with food grade phosphoric acid or citric acid to remove natural gums in the
form of phosphatides , followed by bleaching with activated earth (Fuller’s
Earth) under vacuum to remove colouring matters as well as to adsorb any
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metal ions. The treated oil is then heated to 240 C - 260 C under 2- 6 mm
Hg (MEOMA, 2002) for simultaneous deacidification and deodorisation. The
FFA is stripped off by live steam and is recovered together with the
entrained oil is as palm fatty acid distillate. The steam distillation process
also removes odours and off-flavors from the CPO (‘Deodorisation’). The oil
is then cooled to 55°C before polishing. In the chemical refining process,
the FFA present in CPO is removed by neutralisation with caustic soda
(sodium hydroxide), the concentration of the latter being dependent on the
quality of the CPO feedstock. This chemical reaction produces neutralised
CPO and a soap stock; the latter is separated from the oil by a high-speed
separator. The neutralised oil is subjected to earth bleaching to remove
colour pigments and metal ions followed by deodorisation - steam distillation
under vacuum to remove odoriferous matters such as aldehydes and
ketones.
4.2.14 The refined oil contains triglycerides of various compositions and melting
points, the main fractions being palm olein and palm stearin. These
fractions can be separated by dry fractionation, detergent fractionation and
solvent fractionation. Dry fractionation is commonly used whereby the
refined oil is allowed to crystallise under controlled temperature and the
resultant slurry is pumped through a membrane filter press to obtain the
liquid olein fraction and the solid stearin portion. The olein could also be
fractionated for a second time (‘double fractionation’) to produce a ‘super
olein’ and a solid palm mid-fraction (PMF) which is the feedstock for
production of specialty fats and other products.
Processing (crushing)
Figure 10: Processing inputs and outputs (Crushing)
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5
IMPACT ASSESSMENT
5.1
Background
5.1.1
The magnitude of impact and risk of impact of tree plantations depends on
the scale, the aimed objective and the type of plantations, as well as on the
natural and socioeconomic environment where they are implemented. The
impact assessment will therefore take account of discussion in previous
sections including the structure of the industry, future trends and the
governance framework.
For example, the structure of the industry
determines the proportion of smallholders and proportion of large scale
commercial plantations. The export sector is dominated by industrial scale
oil palm production. Smallholders’ planting rarely exceeds a few hectares
and is interspersed with other land uses, the level of imported
agrochemicals is minimal and overall the environmental impact of small
scale agriculture is generally low 49 . The cumulative impact of smallholder
resource use will impact on the environment, however, the mix of land use
may provide mitigating factors.
5.1.2
Synergies and links between impacts should be considered, for example,
monoculture plantation, use of agrochemical, soil erosion and further need
for increased inputs. A key factor determining the magnitude of impacts is
the governance of the sector, in particular local governance and planning.
This will influence issues such as how the trees are planted, where roads
are situated and the management of effluents.
5.2
Pre-cultivation
Biodiversity
5.2.1
Oil palms can only be cultivated in tropical areas and the original habitat on
the land most suitable for oil palm production is lowland evergreen tropical
rainforest. Worldwide, this is the most species rich terrestrial habitat type.
These factors, together with oil palm production being a land-intensive
industry result in significant impacts to biodiversity. Habitat conversion to
monoculture and threats to key species are the greatest environmental
concerns associated with large-scale palm oil production 50 .
5.2.2
The impacts at this stage are the removal of vegetation and old growth
forest in the initial land clearing stage and the inadequacy of the
49
Ibid, 16
FoE (2004) Friends of the Earth, Greasy Palms, the Social and Ecological Impacts of Large Scale Oil Palm Plantation Development in
South East Asia.
50
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Final Report
monoculture palm plantation to support the variety of animal species that the
forest provided a habitat to. This is due to habitat degradation and habitat
fragmentation.
5.2.3
Unilever is one manufacturer advocating the sustainable production of palm
oil. Land clearance is recognised as a key sustainability issue and it is
suggested that the productivity and yield of existing plantations must be
increased in order to reduce the need for new plantations 51 . However, as
discussed in previous section, projected future increases in oil palm demand
are being anticipated by further land conversion in producer countries.
Landscape
5.2.4
Landscape impacts are great, as natural forest area is converted to uniform
monoculture across large tracts of land. Tree crops cover 17% of
Malaysia’s land area 52
Soil Erosion
5.2.5
Traditional practices used to establish oil palm plantations can lead to
considerable soil erosion. Erosion occurs during forest clearing and
plantation establishment when the soil is left uncovered. Uncovered land is
vulnerable to rain water washing the top soil away, resulting in soil erosion
and nutrient depletion. Erosion is accentuated by planting trees in rows up
and down hillsides rather than on contours around them, by not properly
siting or constructing infrastructure such as roads, and by establishing
plantations and infrastructure on slopes of more than 15 degrees.
CO2 and transport
5.2.6
Indirect impacts of land conversion include reduced CO2 absorption from
tree cover. Plant biomass also represents a sink for atmospheric carbon
dioxide. CO2 emissions from oxidation processes associated with swamp
area conversions. Methane?
Socio-economic and cultural impacts
5.2.7
51
52
Although palm oil production brings in extensive revenues for the private
sector, there are significant negative impacts on livelihoods and resources of
local populations. Plantations are promoted and established in inhabited
locations by government agencies, national and foreign businesses,
multilateral banks, or other organizations external to the area. They will
Ibid, 4
New Agriculturalist online at www.new-agri.co.uk
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Final Report
typically occupy areas already being used in various ways by local people.
Indigenous populations in areas of land undergoing conversion to oil palm
plantations lose the natural resources available to them in the natural forest
habitat. Forests often supply water and compost for crops, fodder for
livestock, and vegetables, game, honey, fruit, mushrooms, fibre, firewood,
building wood, and medicine for local communities, and in addition are
frequently a source of spiritual values.
5.2.8
Human rights abuses and conflict have been reported in areas undergoing
conversion. These impacts vary according to geographic location. In PNG,
the impacts are less marked due to more formal protection given to
traditional rights. In Indonesia and Malaysia there have been extensive
reports of human rights abuses, and people being forcibly moved off the
land.
5.2.9
The magnitudes of the impacts are very high at a local level. The
cumulative impact of palm oil plantations can also result in social impacts at
a national level. Involuntary resettlement, if unmitigated, often gives rise to
severe economic, social and environmental risks including long term
hardship 53 .
5.2.10 Disputes can arise in several circumstances. Customary land boundaries
can be crossed in the establishment of oil palm plots. In other instances
disputes arise from the conversion of land which has been traditionally used
for communal benefit, to uses which benefit only those working for the
plantation company. The sudden introduction of a cash economy introduces
inequalities amongst villagers. Downstream, waterway pollution may impact
on other communities and provide another source of local dispute.
5.2.11 The agroexport development model on which large-scale tree plantations
are usually based can also create economic problems on a national scale.
One problem is concentration of wealth. Occupying large areas of fertile
land, industrial plantations require state support and heavy, long-term
investments. In the vast majority of cases, they require some or all of the
following: direct subsidies, tax exemptions, soft loans from foreign creditors,
forestry research, road construction, improved port installations, and other
subsidies which are extracted from the nation as a whole.
5.2.12 All countries in this case study import food and some have been in receipt of
food aid, the following information is for the period 1998-2000, FAO:
53
World Bank Involuntary Resettlement Policy, OP/BP 4.12, Appendix 1
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Final Report
•
•
•
•
Malaysia, 63.9% net cereal imports as percentage of total
consumption, 18% of children were undernourished 1995-2000;
Indonesia, 10.5% net cereal imports as percentage of total
consumption, 10.5% of this food aid, 26% of children
undernourished 1995-2000;
Colombia, 47.1% net cereal imports as percentage of total
consumption, 0.4% of this food aid, 7% of children undernourished
1995-2000; and
Papua New Guinea, 96.9% net cereal imports as percentage of
total consumption, 1.2 % of this food aid, 35% of children
undernourished 1995-2000.
Country specific:
5.2.13 In Indonesia and Malaysia there is worldwide concern over habitat loss and
threats to key species such as the orangutan, proboscis monkey, Sumatran
rhino and tiger 54 .
Malaysia
5.2.14 In Peninsular Malaysia, forest conversion was identified as the most serious
threat to the survival of the elephant population 55 . It is reported that the
estimated forest cover has been reduced from 84% in 1958 to 44% in 1990
and attributed the decline in the elephant population to forest conversion to
monoculture plantations, especially oil palm, with the area earmarked for oilpalm plantations rising from 543,000 ha in 1960 to more than 1,625,000 ha
in 1990. According to the Malaysian Palm Oil Board (MPOB), in 2003, the
area planted with oil palm was 2,202,166 ha in Peninsular Malaysia and
3,802,040 ha in the whole of Malaysia, but not all of this expansion was
converted from forests. Malaysia's plantations mostly found on the Malay
Peninsula
Indonesia
5.2.15 The most common method for establishment of plantations is the conversion
of forest land. The process of land acquisition is relatively easy and
marketing of timber cut from the forest is profitable 56 .
FoE (2005) Friends of the Earth, The Oil for Ape Scandal, How Palm Oil is Threatening Orang-utan Survival
WWF (2005), Guidelines on the better management practices for the mitigation and management of human-elephant conflict in and around oil-palm
plantations in Indonesia and Malaysia., version 1 July 2005, WWF
56 CIFOR (2000) Centre for International Forestry Research, 2000, Occasional Paper No 26E, The Impact of sectoral development on Natural Forest
Conversion and degradation: The Case of Timber and Tree Crop Plantations in Indonesia
54 54
55
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5.2.16 In Indonesia, the majority of oil palm plantations are located in Sumatra but
expansion is proceeding rapidly in Kalimantan, especially West Kalimantan.
Further rapid development of this crop is expected to occur in East
Kalimantan, Sulawesi, and Irian Jaya 57 .
According to the Ministry of
Forestry and Estate Crops, approximately 4.1 million hectares of forest land
has been converted to plantations since 1982. 58 Most of the land converted
(3.3 million hectares) was on conversion forest land, forest area allocated for
conversion to plantations (Hutan Produksi yang dapat dikonversi, HPK).
However, plantations were also developed on 166,532 hectares of limited
production forest (Hutan Produksi Terbatas, HPT), 59 455,009 hectares of
production forest (Hutan Produksi, HP), 60 and 129,449 hectares of forest
land designated for other uses (Penyediaan Area Penggunanan Lain, PAPL)
61
.
5.2.17 The development of estate crop plantations over the past 30 years has
clearly been a major factor in deforestation, but it is difficult to present
definitive data on the amount of forest that has been converted to estate
crops. Official data sources vary widely and are inconsistent from year to
year 62 . Friends of the Earth Indonesia are warning that the European
biofuel market is threatening Borneo's remaining rainforests 63 . A report
released on 13 April 2006 reveals how the Indonesian government could
develop up to three million hectares of oil palm plantations on the island of
Borneo, threatening wildlife and local livelihoods to cater for international
demand for cheap palm oil [1] 64 .
5.2.18 As late as 2001 in the Riau Province of Sumatra in Indonesia, fallen trees
were bulldozed into piles that went straight up and down the hillsides (as
opposed to contour rows). Such practices tend to funnel the water into
channels and thereby increase soil erosion.
FWI, WRI (2002) The State of the Forest: Indonesia
It’s important to note that this figure includes rubber, coffee, tea and other estate crop plantations, as well as oil palm.
59 According to the government, limited production forest can only be selectively logged. Only logs more than 50 cm diameter can be extracted from
limited production forest.
60 Production forest is designated for timber extraction.
61 Ibid 33
62 http://earthtrends.wri.org/text/forests-grasslands-drylands/map-447.html
63 http://portal.campaigncc.org/?q=node/584&from=30&comments_per_page=30
64 http://www.foe.co.uk/resource/press_releases/demand_for_palm_oil_trigge_12042006.html
57
58
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Final Report
Papua New Guinea
Table 8: Environmental Impacts of Oil Palm Establishment
5.2.19 The bacteriological and chemical quality of most of the groundwater in
Papua New Guinea is good 65 . The internal renewable water resources are
estimated at 801.0 km3/year 66
5.2.20 The growing, collecting and hunting of food is an important part of PNG
culture. Women sell goods in the village markets, a valued time for
socialising with other village women. When customary lands are converted
to oil palm many of these traditions become obsolete.
5.3
Cultivation
Biodiversity
5.3.1
The area of cultivation of a palm plantation will be a far simplified structure
that that of natural forest. The ecosystem functions are no longer taking
place in the same way for example, soil, water, microclimate processes.
This will result in impacts on biodiversity as well as requirement s for human
intervention to compensate for loss of function, such as chemical use,
irrigation and drainage measures, possibly exacerbating the impacts.
Chemical Use
65
66
FAO Land and Water Development Division, Aquastat
FAO country profiles: Papua New Guinea at http://www.fao.org/ag/agl/aglw/aquastat/countries/papua_n_guin/index.stm 26 May 2006
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Final Report
5.3.2
Herbicides are used yearly in plantations, mainly for grass control.
Insecticides used mainly in the nursery before the oil palm seedlings are
transplanted. 67 Pesticides are used to control rats. Palm oil production
requires less fertiliser per unit of output than other oilseed crops, however,
the constant removal of nutrients from the plantations in the form of fruit
bunches requires fertiliser inputs so that the production does not decline
over time. For that reason the standard nutrients nitrogen, phosphorus, and
potassium, plus other trace elements, are applied regularly to oil palm trees.
5.3.3
A number of factors affect the amount of any type of fertiliser that is applied
to oil palm plantations. The key variables include the amount or type of
ground cover, the slope of the land cleared for the plantation, and whether
the empty fruit bunches or other organic matter are used to mulch the area
where fertilisers are applied.
5.3.4
If these factors are not addressed then more agrochemical inputs will be
required because those used will tend to leach out of the plantation and into
fresh water systems.
Water resources
5.3.5
Polluted water run off, due to inefficient chemical use and drainage, can
have implications for local water resources including impacts on local rivers
and marine environments.
Soil Health
5.3.6
Prime sites for planting are becoming more rare and planting on marginal
and fragile soils is increasing. Impacts include:
•
•
•
deep peats – vulnerable to drying, oxidation CO2 emissions,
alterations to local hydrology
riparian areas – flooding and erosion
steep slopes – erosion
5.3.7
It is expensive for plantations and local governments to correct problems
caused by erosion. Eroded areas require more fertiliser and other inputs
including repair of roads and other infrastructure.
5.3.8
Oil palms take a large amount of nutrients out of the soil, depleting nutrient
levels. It is probable that the land will be useless after the oil palm
plantation is abandoned.
Blix, Mattsoa 1998 in Mattson et al (2000) Agricultural land use in life cycle assessment (LCA): case studies of three vegetable crops, Journal of Cleaner
Production 8 (2000) 283-292
67
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Final Report
Waste
5.3.9
An additional impact to those stated above is the effluent generated by the
concentration of worker housing (200 workers per 1000 hectares of palms) 68
Climate Change
5.3.10 Emissions from local and international transportation. Mills generally use
waste from the plantation to fuel mechanical processes.
Socio-economic
5.3.11 International NGOs have criticised working conditions for labourers on oil
plantations in south east Asia, in particular, exposure to pesticides and
health risks to the mainly female workforce and reports of low pay and
worker exploitation 69 .
5.3.12 The use of child labour, either as part of a ‘family team’ or as individual
workers, in plantations and commercial agriculture is an entrenched
practice. Oil palm production is included in this 70 . Children will work
alongside parents, particularly when schooling or childcare is unavailable or
not affordable. The money earned will often be allocated to the male head
of the household, which in effect prevents women and children from
receiving their earnings. IPEC’s field experience over the last ten years
suggests that child labour cannot be eliminated without effectively
addressing two other important issues: lack of accessible education and lack
of adequate income for parents. Trade Unions have shown a causal link
between gender inequalities and child labour.
5.3.13 Reliance on cash crops can have adverse impacts on smallholders and
carries a high risk. Smallholders rely on world prices for palm oil and have
to buy in a large proportion of household food rather than producing it
themselves.
Women are especially disadvantaged by poor working
conditions and lower wages for their labour.
68
Ibid, 16
70
Ibid 1
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Final Report
Country specific:
Malaysia
Table 9: Employment in primary commodities sector – Malaysia
Year
1980
1990
1995
2001
Oil Palm
92,352
115,285
240,422
315,000
5.3.14 These figures do not include the 72,000 households in public sector land
schemes.
5.3.15 Work is increasingly found through labour contractors and migrant labour
accounts for 40% of all workers. In July 2002, 181,000 migrant workers
were ‘registered’ on plantations. In oil palm, half the workers are migrant.
This results in difficulties for trade union organisation.
Indonesia
5.3.16 Ethnic unrest can occur can this is often attributed to the government’s PIRTransmigration programme, which established plantations with transmigrate
labour in the outer islands of Indonesia and often resulted in social conflict
between local people and transmigrants. These conflicts have increased
during the reform era 71 .
5.3.17 Production of food is impacted; Indonesia is now a net importer of rice. The
link with palm oil production expansion is uncertain. Rice is commonly
grown in hilly areas.
5.3.18 The FAO estimates that 40,000 hectares of agricultural land were lost in
Indonesia due to the tsunami in December 2004. This was mainly in the
northern tip of Sumatra. Livestock and poultry were also lost, together with
more than 200,000 human lives. Harm to fisheries and pre-tsunami, nearly
quarter of Aceh population required food aid 72 .
5.4
Processing
Waste
5.4.1
71
72
The processing of fresh fruit bunches, to produce palm oil takes place at the
palm oil mill. The process produces a significant amount of biomass waste
Ibid 33
New Agriculturalist on line, country profiles: Indonesia at www.new-agri.co.uk
Scott Wilson
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Final Report
and wastewater, Palm-Oil Mill Effluent (POME). Wastewater from palm oil
mills is often discarded in disposal ponds, resulting in the leaching of
contaminants that pollute the groundwater and soil, and in the release of
methane gas.
5.4.2
POME mainly comprises organic compounds. It is readily decomposed by
anaerobic and aerobic bacteria. However, if it is discharged to water
courses, the biological reaction depletes oxygen levels in the water, causing
adverse impacts to the aquatic ecosystem.
5.4.3
Run-off and waste disposal are usually completely unregulated. However,
they can be re-used and applied to land or burned as a biofuel.
5.4.4
Processing effluent from palm oil can be reapplied to plantation and is an
excellent soil additive.
5.4.5
At a large oil palm plantation near Bangun Bandar, North Sumatra, the
company burns the empty
husks that held the oil palm fruits. Efforts,
however, have begun to develop a method to compost the husks and use
the mulch as tree fertiliser.
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Final Report
6
SUMMARY
6.1
Trends in demand
6.1.1
Palm oil is a leading oil in the edible oils market and demand for its use is
predicted to rise as consumption of processed foods, detergents and soap
products continues and future markets such as biofuel emerge.
6.1.2
UK demand is likely to contribute to this increasing trend, as palm oil is
predicted as the favoured oil to meet increasing processed food needs and
is one of the oils which could potentially help meet government targets for
biofuel use.
6.2
Current exports to UK
6.2.1
The four countries examined in this case study, Malaysia, Indonesia,
Colombia and Papua New Guinea, are among the top global exporters of
palm oil and are the four largest exporters to the UK.
6.2.2
Taking into account the staging country, the Netherlands and inter-country
trade between producers, Malaysia and Indonesia export the greatest
quantities of palm oil products to the UK. However, the percentage share of
UK imports within their palm oil sectors are small relative to Colombia where
39% of their palm oil products for export are exported to the UK, compared
to 2% for both Indonesia and Malaysia (comparable data is unavailable for
Papua New Guinea).
6.3
Distribution of impacts of change in demand
6.3.1
Economically, changes in demand and trade with the UK will impact more
greatly on Colombia, however environmental impacts will be proportionate to
the actual land take and extent of cultivation which is high for all four
countries, in particular Malaysia, Indonesia and Papua New Guinea. Social
impacts will be dependent both on land take and on the reliance of the
economy on UK palm oil imports, however, the extent of these impacts will
depend on the structure of the industry and governance of the sector.
6.4
Trends in supply
6.4.1
Malaysia and Indonesia both dominate global exports, however increase in
demand is more likely to be met in Indonesia and to some extent Colombia
and Papua New Guinea. Malaysia is the main foreign investor in the
establishment of plantations in Indonesia where cheaper land and labour
costs relative to Malaysia, together with the proximity to Malay processing
facilities, make this an attractive area for investment. Foreign investment
has been substantial in all four countries’ palm oil sectors and is likely to
influence increased planting areas, in order to increase returns on
investment.
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Final Report
6.4.2
The increased demand for palm oil will be met by further establishment of
plantations, rather than increased productivity on existing plantations. This
will result in large impacts associated with forest conversion in Indonesia,
Colombia and Papua New Guinea, whilst cultivation impacts will continue to
affect all four countries.
6.5
Main impacts of palm oil production
6.5.1
The main environmental and socio-economic impacts from palm oil
production are associated with the establishment of the plantation. Oil
palms can only be cultivated in tropical areas and the original habitat on the
land most suitable for oil palm production is lowland evergreen tropical
rainforest. Worldwide, this is the most species rich terrestrial habitat type.
These factors, together with oil palm production being a land-intensive
industry result in significant impacts to biodiversity. Habitat conversion to
monoculture and threats to key species are the greatest environmental
concerns associated with large-scale palm oil production.
6.5.2
Plantations are promoted and established in inhabited locations by
government agencies, national and foreign businesses, multilateral banks,
or other organizations external to the area. They will typically occupy areas
already being used in various ways by local people. Indigenous populations
in areas of land undergoing conversion to oil palm plantations lose the
natural resources available to them in the natural forest habitat. Other social
impacts include employment and labour and are influenced by the national
policy and governance of the oil palm sector.
6.5.3
The economic benefits from palm oil production and their impact on the
populations of exporting countries will depend in part to the structure of the
industry, particularly the proportion of state owned and smallholder owned
plantations. This, together with the extent to which smallholders are
connected to markets and the risks they bear relative to larger exporting and
processing companies, will impact on the gains they receive from increasing
demand for palm oil. The increase in cash crop production will impact on
local food security, as reliance on world palm oil prices will dictate
smallholder income and less land is available for local food production.
Increase in cash crop production will increase foreign revenue, however, it
will be necessary to implement appropriate initiatives and governance
structures to ensure this is equitably distributed and that any adverse
impacts of cash crop production, both social and environmental, are
removed.
6.6
Complexity of supply chain
6.6.1
The industry structure and supply chain of palm oil is complex. Whilst
production and initial processing of fresh fruit bunches at a crude palm oil
mill takes place in the tropical countries of production, further processing of
palm oil is largely completed in Europe.
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Final Report
6.6.2
The supply chain includes international traders, EU trading subsidiaries of
Indonesian and Malaysian oil palm plantations, trading arms of European
edible oil refining companies, procurement divisions of major European
food, detergent and chemical companies and independent edible oil traders
and brokers. The end users are ultimately consumers who buy products
that contain palm oil, however, the key node for intervention at this end of
the supply chain is the manufacturers who buy palm oil as a discrete
product.
6.6.3
Multilateral Development Banks, donors, technology suppliers, state
investment and export credit agencies are among the main external actors
that provide the impetus and the financial and technical support for the
spread of plantations. The number of banks involved in the financing of the
sector is substantial, both at the level of the initial production stage through
to the food manufacturers.
6.6.4
The internal palm oil industry structure varies considerably across the
different countries examined in this case study. The differences occur in the
proportion of large plantations and small holder plantings, the proportion of
palm oil area owned by the government and the extent to which processing
is undertaken in the country of production. Factors other than finance and
access to credit are, to some extent, having an influence on the structure of
the sector.
6.6.5
One area of uncertainty is the extent to which each type of producer
contributes to the export market of palm oil. Although a third of the palm oil
area in Indonesia is managed by smallholders, this may not equate to a third
of exports, for two possible reasons, that productivity varies between
different types of producers and cultivation and varying degrees of access to
export markets.
6.7
Robustness of information
6.7.1
Impacts have been widely documented by a range of non–governmental
organizations (NGOs) and international bodies and industry organisations.
There is consensus on the significance of establishment impacts and
industry bodies have concluded that initiatives are required to prevent
further impact on endemic forest and species. There are reports of social
impacts among both NGOs and bodies such as the International Labour
Organisation (ILO).
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Final Report
Appendix I – Literature Review
See footnotes 1 to 72 in main body text.
In addition, search terms used:
Palm oil / environmental impacts
Palm oil cultivation
Palm oil biodiversity
Palm oil industry structure
Sustainable palm oil
Palm oil social impacts
International Labour Organisation
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Final Report
Appendix II – Assessment frameworks
The tables outline magnitude and likelihood of impacts without intervention or
mitigation measures.
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Final Report
Indonesia
Commodity:
Subject
1.1 Policy Framework
Scott Wilson
December 2006
Elements
National
Commentary
Risk Factor
Magnitude
Likelihood
occurrence
of
Palm oil is an important export revenue
for Indonesia
The Suharto government (1967 –1998)
invested, with World Bank assistance, in
state-run companies from the late 1960s
Smallholder estates expanded after
1979, again due to government
intervention and World Bank support
Large-scale private plantation sector
grew most rapidly after 1986, again with
government
encouragement.
Companies were given a range of
incentives, including access to credit at
concessionary
rates
for
estate
development, planting and processing
Rural development policy includes
partnership working of large scale
plantation companies with smallholder
plantations
Indonesia currently receives funding
from the UK government for assistance
on projects within the forestry sector
48
Final Report
International
1.2 Initiative Framework
Scott Wilson
December 2006
National
The sector does not receive direct
subsidies in most palm oil producing
countries, unlike other oil crops such as
soy, rape and sunflower in the EU and
US
Significant amounts of indirect support
are received through assistance to
smallholders
as
part
of
rural
development
plans,
infrastructure
support such as roads and ports and
government
investment
in
the
establishment of plantations
Pacific Rim Palm Oil (PRPOL) manages
five plantations, two in Indonesia and
three in Papua New Guinea. PRPOL
was the first oil palm company in the
world to put in the ISO14001
environmental management system
across its whole production process from
nursery to CPO leaving the mill. All five
companies are certified to ISO14001
SAWIT watch in Indonesia major Dutch
banks (ABN AMRO, Rabobank and
Fortis) have decided to stop financing or
substantially restrict the financing of the
development of oil palm plantations
which
purposely
destroy
tropical
rainforests
49
Final Report
International
•
•
•
•
Eradication of Child Labour
on Plantations, Ghana Oil
Palm national initiative
International Child Labour
plantations initiative for
tobacco
Roundtable on Sustainable
Palm Oil
TInternational
Finance
Corporation (IFC) WWFUS Initiative
Industry voluntary standards, e.g. the
Swiss retailer, Migros, and Unilever
A variety of international bodies, NGOs
and
stakeholders
have
set
up
campaigning initiatives around palm oil
production, including GRASP, the
flagship project of the UNEP and
UNESCO to save the world's great apes
and
Global Forest Watch (GFW), in
collaboration
with
Conservation
International
2.0
Supply
and
statistics and trends
Scott Wilson
December 2006
demand
Compilation of the UK’s
demand for commodity and
sources of production
50
Final Report
Analysis of future market
trends
Global demand for palm oil is forecast to
double from 2000 figures by the year
2020. This increasing trend will mainly
be due to the needs of the food and
biofuel sectors. UK demand is likely to
contribute to this increasing trend, as
palm oil is predicted as the favoured oil
to meet processed food needs and is
one of the oils which could potentially
help meet government targets for biofuel
use
3.0 Supply chain structure
a. Institutional structure
Basic structure (nodes and
networks)
Timeline
4.0 Production Stage
Sector
Scott Wilson
December 2006
Quantitative
Qualitative
51
Final Report
a) Extraction*
Biodiversity
• 0.8 million hectares
converted
since
1982 on land not
designated
for
plantations
• Total area converted
since 1982 is 4.1
million hectares
Conversion of forest land.
Loss of old growth forest.
Habitat degradation and
habitat fragmentation leading
to species loss.
Further expansion expected
in Sumatra, Sulawesi and
Indonesian provinces on
Borneo and New Guinea
Species at risk include
Orangutans and Sumatran
elephants.
High magnitude. High
number of species per
hectare of natural
forest.
Trend:
Magnitude
likely to increase.
Global demand for
palm oil increasing,
therefore large areas
of new plantations
expected. Indonesia,
main area for growth
High
likelihood.
Land most suitable
for
plantations,
lowland
tropical
forest.
Poor
governance
increases likelihood.
Likelihood
Trend:
increase,
will
expansion of sector
due to less available
land in Malaysia,
close by processing
facilities in Malaysia.
Slowdown
factors
could include high
export tax, reduced
foreign investment
resulting
from
political
instability
and fears of supply
glut.
Water quality
Scott Wilson
December 2006
52
Final Report
Climate Change
Decrease
in
CO2
sequestration due to loss of
tree cover and net biomass
CO2
emissions
from
oxidation
processes
associated with swamp area
conversions
Poverty (labour,
vulnerability)
•
Landscape
Scott Wilson
December 2006
Decreases
resource
base for local and
indigenous populations
• Land
take
from
• Loss of home, people
removed forcibly off land
• Loss of cultural/spiritual
resources
• Long
term
impacts
include
cultural
sustainability
Large amounts of natural
forest converted to uniform,
monoculture
Unknown magnitude.
Depends
on
difference
in
sequestration
between monoculture
plantation and natural
forest
cover.
Depends on extent of
swamp areas and
amount
of
CO2
emitted during their
cultivation.
High magnitude for
resource loss and
land take. Uncertain
magnitude for future
land
take
issues.
Large areas of land
likely to be converted,
unknown extent of
populations on this
land.
High
magnitude.
Large
areas
of
conversion
to
plantation Trend: Area
of
plantations
to
increase.
High likelihood of
loss of tree cover
and net biomass.
Unknown extent of
swamp areas.
High likelihood due
to poor governance
and
difficult
to
enforce land rights.
Plantations
by
established
organisations
not
local to area. Low
level of consultation.
High likelihood.
53
Final Report
Soil Health
b) Cultivation*
Soil left uncovered during
forest clearing and plantation
establishment results in soil
erosion
and
nutrient
depletion
Flow of water changed
relative to natural forest,
uniform tree planting funnels
water and increases soil
erosion
• Chemical use associated
with cultivation
• Monoculture use of land
over period of up to 20
years
leaves
land
degraded and unfit for
use
Soil Health
•
Socio-economic
and cultural
•
•
•
Waste
Scott Wilson
December 2006
•
200 workers per
1000 hectares
of palms
•
Medium magnitude.
Extent of adverse
impact depends on
rainfall, slope of land
and planting spacing.
Medium likelihood.
Depends
on
management
practices
during
establishment
stage.
High magnitude after
cultivation of site.
Trend:
increasing
magnitude as prime
sites rare and planting
on
marginal
and
fragile
soils
increasing.
Medium likelihood.
Long term impact
and
could
be
mitigated by soil
management
strategies.
Health
impacts
of
agrochemical use
Gender
inequalities
around
wages
and
working conditions
Conflict
caused
by
transmigration
labour
policies
Child labour issues
Effluent generated
the concentration
worker housing
by
of
54
Final Report
c) Processing*
Waste
•
•
d) Transportation*
Climate Change
•
•
•
Scott Wilson
December 2006
Effluent released from
palm kernel processing.
Effluent and biomass
waste from palm oil
processing mills impacts
on local watercourses
and reduces oxygen
levels
Small
impacts
of
transportation in country,
processing
plants
located
close
to
plantations
Palm oil shipped to UK
and
emissions
associated with this
Road transport between
traders, manufacturers,
end users.
Quantities and weight
large
therefore
significant volumes to
ship.
Distance
travelled from initial
EU port to end user
great due to number
of
stages
in
manufacture
and
delivery
of
final
products.
55
Final Report
Scott Wilson
December 2006
56
Final Report
Malaysia
Commodity: Palm Oil
Subject
Scott Wilson
December 2006
Elements
National
Commentary
Risk Factor
Magnitude
Likelihood
occurrence
of
Malaysia
has
undergone
rapid
industrialisation over the past 30 years
and manufactures now account on
average for 85% of gross export
earnings.
Malaysia remains the world lead in palm
oil exports
Government schemes have been
implemented to support smallholders.
The government has also supported the
development
of
value
adding
opportunities, resulting in a wellestablished palm oil processing sector.
The government is very active in export
financing so as to promote Malaysian
palm oil
57
Final Report
International
National
International
2.0
Supply
and
statistics and trends
Scott Wilson
December 2006
The sector does not receive direct
subsidies in most palm oil producing
countries, unlike other oil crops such as
soy, rape and sunflower in the EU and
US
Significant amounts of indirect support
are received through assistance to
smallholders
as
part
of
rural
development
plans,
infrastructure
support such as roads and ports and
government
investment
in
the
demand
•
Eradication of Child Labour on
Plantations,
Ghana
Oil
Palm
national initiative
• International
Child
Labour
plantations initiative for tobacco
• Roundtable on Sustainable Palm Oil
• International Finance Corporation
(IFC) WWF-US Initiative
Industry voluntary standards, e.g. the
Swiss retailer, Migros, and Unilever
A variety of international bodies, NGOs
and
stakeholders
have
set
up
campaigning initiatives around palm oil
production, including GRASP, the
flagship project of the UNEP and
UNESCO to save the world's great apes
and Global Forest Watch (GFW), in
collaboration
with
Conservation
International
Compilation of the UK’s
58
Final Report
trends
Global demand for palm oil is forecast to
double from 2000 figures by the year
2020. This increasing trend will mainly
be due to the needs of the food and
biofuel sectors. UK demand is likely to
contribute to this increasing trend, as
palm oil is predicted as the favoured oil
to meet processed food needs and is
one of the oils which could potentially
help meet government targets for biofuel
use
networks)
•
The Malaysian Palm Oil Board
(MPOB) was established in 1998
and is responsible for developing
and promoting the Malaysian palm
oil sector.
The
Federal
Land
Development
Authority (FELDA) is responsible for
arranging the finance for palm oil
production on behalf of its members.
Timeline
Scott Wilson
December 2006
Sector
Quantitative
Qualitative
59
Final Report
a) Pre-cultivation
Biodiversity
•
•
Reduction of 75
to 10 species per
hectare due to
conversion from
rain forest to oil
palm plantation
Reported that the
estimated forest
cover has been
reduced
from
84% in 1958 to
44% in 1990,
significant
amount
of
deforestation due
to
oil
palm
plantation.
•
Conversion of forest
land
Loss of old growth
forest
Habitat
degradation
and
habitat
fragmentation leading
to species loss
High
number
of
endemic species in rain
forest areas in Malaysia
High
magnitude.
Impact on high number
of species per hectare.
Trend:
little
net
increase
since
Malaysian
investors
looking to Indonesia for
further
plantation
establishment.
High likelihood.
Decrease
in
CO2
CO2
emissions
from
oxidation
processes
associated with swamp
area conversions
Unknown magnitude.
Depends on difference
in
sequestration
between monoculture
plantation and natural
forest cover. Depends
on extent of swamp
areas and amount of
CO2 emitted during
their cultivation.
High likelihood of
loss of tree cover
and net biomass.
Unknown extent of
swamp areas.
•
•
•
Water Quality
Climate Change
Scott Wilson
December 2006
60
Final Report
Socioeconomic
cultural
Landscape
Soil Health
Scott Wilson
December 2006
•
In July 2002,
181,000 migrant
workers
were
‘registered’
on
plantations.
•
Tree crops cover
17%
of
Malaysia’s land
area
and
•
Decreases
resource
base for local and
• Land
take
from
removed forcibly off
land
resources
• Long term impacts
include
cultural
sustainability
monoculture
forest
clearing
and
plantation
establishment
results in soil erosion and
nutrient depletion
Flow of water changed
relative to natural forest,
uniform
tree
planting
funnels
water
and
increases soil erosion
High magnitude for
resource loss and land
take.
Reduced magnitude for
future land take issues.
Unknown
likelihood, depends
on effectiveness of
governance
Plantations
established
by
organisations not
local to area. Low
of
level
consultation.
High magnitude. Large
areas of conversion to
plantation
Trend:
Reduced
magnitude,
unlikely to be extensive
further conversion
Medium
magnitude.
Extent
of
adverse
impact depends on
rainfall, slope of land
and planting spacing.
High likelihood.
Medium likelihood.
Depends
on
management
practices
during
establishment
stage.
61
Final Report
b) Cultivation*
•
Soil Health
•
Socioeconomic
cultural
Soil erosion 7.714 tonnes per ha
and year. Lose
soil
organic
matter
during
establishment
period.
3900 mg per ha
and
year
Cd
added to soil
through
phosphorous
fertiliser
•
•
•
and
•
•
•
c) Processing*
Waste
•
Waste
•
•
d) Transportation*
Scott Wilson
December 2006
Chemical
use
associated
with
cultivation
Monoculture use of
land over period of up
to 20 years leaves land
degraded and unfit for
use
High
magnitude
after cultivation of
site.
Trend:
increasing
magnitude as prime
sites
rare
and
planting
on
marginal and fragile
soils increasing.
Medium
likelihood. Long
term impact and
could
be
mitigated by soil
management
strategies.
Health
impacts
of
agrochemical use
Gender
inequalities
around wages and
working conditions
Conflict
caused
by
transmigration
labour
policies
Child labour issues
Effluent generated by
the concentration of
worker housing
Effluent and biomass
waste from palm oil
processing
mills
impacts
on
local
watercourses
and
reduces oxygen levels
Transportation
62
Final Report
Scott Wilson
December 2006
63
Final Report
Papua New Guinea
Commodity: Palm Oil
Subject
Elements
National
International
Scott Wilson
December 2006
Commentary
Risk Factor
Magnitude
Likelihood
of
occurrence
The establishment of the oil palm industry has been
based on the estate-smallholder model with a
central parent palm oil company, predominantly
foreign owned.
This has facilitated private
investment in PNG.
Substantial private investment was required to
establish estates and associated processing and
marketing facilities The establishment of the
industry also received substantial financial support
from government and international donors, including
the World Bank and the Asian Development Bank
The sector does not receive direct subsidies in most
palm oil producing countries, unlike other oil crops
such as soy, rape and sunflower in the EU and US
Significant amounts of indirect support are received
through assistance to smallholders as part of rural
development plans, infrastructure support such as
roads and ports and government investment in the
64
Final Report
National
International
2.0 Supply and demand statistics
and trends
Scott Wilson
December 2006
Pacific Rim Palm Oil (PRPOL) manages five
plantations, two in Indonesia and three in Papua
New Guinea.
PRPOL was the first oil palm
company in the world to put in the ISO14001
environmental management system across its
whole production process from nursery to CPO
leaving the mill. All five companies are certified to
ISO14001
World Bank Oro Expansion Project
• Eradication of Child Labour on Plantations,
Ghana Oil Palm national initiative
• International Child Labour plantations initiative
for tobacco
• International Finance Corporation (IFC) WWFUS Initiative
Industry voluntary standards, e.g. the Swiss retailer,
Migros, and Unilever
A variety of international bodies, NGOs and
stakeholders have set up campaigning initiatives
around palm oil production, including GRASP, the
flagship project of the UNEP and UNESCO to save
the
world's
great
apes
and
Global Forest Watch (GFW), in collaboration with
Conservation International
Compilation
of
the
UK’s
65
Final Report
Analysis
trends
of
future
market
Global demand for palm oil is forecast to double
from 2000 figures by the year 2020. This increasing
trend will mainly be due to the needs of the food
UK demand is likely to
and biofuel sectors.
contribute to this increasing trend, as palm oil is
predicted as the favoured oil to meet processed
food needs and is one of the oils which could
potentially help meet government targets for biofuel
use
Basic structure
networks)
(nodes
and
PNG has a track record of weak institution of
governance. It is reported to have virtually no
capacity to monitor or regulate its industries
The water sector in Papua New Guinea is
fragmented and poorly coordinated
The existing palm oil exporting companies in PNG
are international companies that self-regulate
Timeline
Scott Wilson
December 2006
Sector
Quantitative
Qualitative
66
Final Report
a) Pre-cultivation
Scott Wilson
December 2006
Biodiversity
•
•
•
Conversion of forest land
Loss of old growth forest
Habitat degradation and
habitat
fragmentation
leading to species loss
High number of endemic
species in rain forest areas in
Malaysia
Extensive and diverse coral
reef and fringing reef systems
increasing land clearing for
timber and subsequently for oil
palm will increase the amount
of pollutant and sedimentation
entering the coastal region.
PNG forest is the largest intact
remaining tropical rainforest in
the Asia-Pacific and third
largest in the World
An estimated 5 percent of the
world’s biodiversity is found in
PNG
High
magnitude.
on
Impact
high number
of
species
per hectare.
Trend:
Possible
future
high
magnitude
due to further
establishment
of plantations
High
likelihood.
67
Final Report
Scott Wilson
December 2006
Water Quality
Pollution
of
waterways,
Siltation, sediment run-off and
eutrophication
during
construction and operations of
oil palm are common
In PNG, rural community
depend on the extensive
waterways
for
their
subsistence living – they drink,
bath, wash & collect aquatic
and marine resources
Unknown
High:
The
water sector
in
Papua
New Guinea
is fragmented
and
poorly
coordinated
Climate Change
Decrease
in
CO2
CO2 emissions from oxidation
processes associated with
swamp area conversions
Unknown
magnitude.
Depends on
difference in
sequestration
between
monoculture
plantation
and natural
forest cover.
Depends on
extent
of
swamp areas
and amount
of
CO2
emitted
during their
cultivation.
High
likelihood of
loss of tree
cover and net
biomass.
Unknown
extent
of
swamp
areas.
68
Final Report
Scott Wilson
December 2006
Socio-economic and
cultural
•
Decreases resource base
for local and indigenous
populations
• Land take from indigenous
populations
resources
Long term impacts include
cultural sustainability
The growing, collecting and
hunting of food is an important
part of PNG culture
Lands are communally owned
and
shared
within
and
between clans in PNG
Plantation projects change the
relationship of land and the
community
High
magnitude for
resource loss
and
land
take.
Trend:
potential
increase
in
land take
High
likelihood,
poor
governance
and
policy
institutions
Landscape
monoculture
High
magnitude.
Large areas
of conversion
to plantation
Trend:
potential
increase due
to
further
establishment
of plantations
High
likelihood.
69
Final Report
b) Cultivation*
Soil Health
erosion and nutrient depletion
Flow of water changed relative
to natural forest, uniform tree
planting funnels water and
Soil Health
•
•
Socio-economic and
cultural
Waste
Scott Wilson
December 2006
Chemical use associated
with cultivation
Monoculture use of land
over period of up to 20
years
leaves
land
degraded and unfit for use
Medium
magnitude.
Extent
of
adverse
impact
depends on
rainfall, slope
of land and
planting
spacing.
High
magnitude
after
cultivation of
site.
Medium
likelihood.
Depends on
management
practices
during
establishment
stage.
Medium
likelihood.
Long
term
impact, could
be mitigated
by
soil
management
strategies.
•
Health
impacts
of
agrochemical use
• Gender inequalities around
wages
and
working
conditions
• Conflict
caused
by
transmigration
labour
policies
• Child labour issues
Effluent generated by the
concentration
of
worker
housing
70
Final Report
c) Processing*
Waste
•
•
Effluent
and
biomass
waste from palm oil
processing mills impacts
on local watercourses and
reduces oxygen levels
Waste pollution, oil palm
processing mills are usually
located close to urban centres
for ease of transportation and
access to infrastructures
d) Transportation*
Scott Wilson
December 2006
71
Final Report
Colombia
Commodity: Palm Oil
Subject
Scott Wilson
December 2006
Elements
Commentary
National
Colombia started growing oil palm on a large scale
in the 1980s
Expansion of the sector is expected, with the
establishment of a research station by the centre for
Oil Palm Research, Cenipalma. This has been
funded by the Colombian government, a loan from a
national bank (Banco Agrario) and some private
sector funding from oil farm farmers
International
The sector does not receive direct subsidies in most
palm oil producing countries, unlike other oil crops
such as soy, rape and sunflower in the EU and US
Significant amounts of indirect support are received
through assistance to smallholders as part of rural
development plans, infrastructure support such as
roads and ports and government investment in the
The 1997 Clean Production Agreement has been
signed
between
Colombia’s
environmental
authorities and the oil palm sector
National Roundtable on Biofuels in Colombia
National
Risk Factor
Magnitude
Likelihood
of
occurrence
72
Final Report
International
2.0 Supply and demand statistics
and trends
Compilation
of
the
UK’s
trends
•
Eradication of Child Labour on Plantations,
Ghana Oil Palm national initiative
• International Child Labour plantations initiative
for tobacco
• International Finance Corporation (IFC) WWFUS Initiative
Industry voluntary standards, e.g. the Swiss retailer,
Migros, and Unilever
A variety of international bodies, NGOs and
stakeholders have set up campaigning initiatives
around palm oil production, including GRASP, the
flagship project of the UNEP and UNESCO to save
great
the
world's
apes
and
Global Forest Watch (GFW), in collaboration with
Conservation International
Global demand for palm oil is forecast to double
from 2000 figures by the year 2020. This increasing
trend will mainly be due to the needs of the food and
biofuel sectors. UK demand is likely to contribute to
this increasing trend, as palm oil is predicted as the
favoured oil to meet processed food needs and is
one of the oils which could potentially help meet
government targets for biofuel use
Scott Wilson
December 2006
73
Final Report
networks)
The state in Colombia has three levels of
government at the central, departmental and
municipal level
Colombia has undergone state reform involving the
decentralisation of the agriculture and rural sector
There is now an agricultural extension municipal
office (UMATA) in each municipality, which is
responsible for the delivery of extension services to
small farmers
Colombia has also implemented the liberalisation of
the land market
Timeline
Sector
a) Pre-cultivation
Biodiversity
Quantitative
Qualitative
•
Conversion
of
forest
land
•
Loss of old
growth
forest
•
Habitat
degradatio
n
and
habitat
fragmentati
on leading
to species
loss
High
magnitude.
Impact
on
high number
of
species
per hectare.
Trend:
Possibly
future
high
magnitude
due to further
plantation
establishment
High
likelihood.
High number of endemic
species in rain forest areas in
Malaysia
Scott Wilson
December 2006
74
Final Report
Water Quality
Climate Change
Socio-economic
and cultural
Pollution
of
waterways,
Siltation, sediment run-off and
eutrophication
during
construction and operations of
oil palm are common
Decrease in CO2 sequestration
due to loss of tree cover and
net biomass
CO2 emissions from oxidation
processes associated with
swamp area conversions
•
•
•
•
•
Scott Wilson
December 2006
Decreases resource base
for local and indigenous
populations
Land take from indigenous
populations
Loss of home, people
Loss of cultural/spiritual
resources
Long term impacts include
cultural sustainability
Unknown
Unknown
magnitude.
Depends on
difference in
sequestration
between
monoculture
plantation
and natural
forest cover.
Depends on
extent
of
swamp areas
and amount
of
CO2
emitted
during their
cultivation.
High
magnitude for
resource loss
and
land
take.
Trend:
potential
increase
in
land take
High
likelihood of
loss of tree
cover and net
biomass.
Unknown
extent
of
swamp
areas.
Unknown
75
Final Report
b) Cultivation*
Scott Wilson
December 2006
Landscape
Large amounts of natural forest
converted
to
uniform,
monoculture
Soil Health
erosion and nutrient depletion
Flow of water changed relative
to natural forest, uniform tree
planting funnels water and
Soil Health
Chemical use associated with
cultivation
Monoculture use of land over
period of up to 20 years leaves
land degraded and unfit for use
High
magnitude.
Large areas
of conversion
to plantation
Trend:
potential
increase due
to
further
establishment
of plantations
Medium
magnitude.
Extent
of
adverse
impact
depends on
rainfall, slope
of land and
planting
spacing.
High
magnitude
after
cultivation of
site.
High
likelihood.
Medium
likelihood.
Depends on
management
practices
during
establishment
stage.
Medium
likelihood.
Long
term
impact, could
be mitigated
by
soil
management
strategies.
76
Final Report
Socio-economic
and cultural
•
•
•
•
Waste
c) Processing*
Health
impacts
of
agrochemical use
Gender inequalities around
wages
and
working
conditions
Conflict
caused
by
transmigration
labour
policies
Child labour issues
Effluent generated
concentration
of
housing
by the
worker
Waste
Effluent released from palm
kernel processing
Effluent and biomass waste
from palm oil processing mills
impacts on local watercourses
and reduces oxygen levels
Waste pollution, oil palm
processing mills are usually
located close to urban centres
for ease of transportation and
access to infrastructures
d) Transportation*
Scott Wilson
December 2006
77
Final Report
Scott Wilson
December 2006
78

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