will indias curb on malaysian palm oil hurt indonesian forests - Will India’s curb on Malaysian palm oil hurt Indonesian forests?

India’s curb on Malaysian palm oil could have adverse ramifications on Indonesian forests. Image:

India’s palm oil dispute with Malaysia could undo progress made on sustainable palm oil and put forests in Indonesia and elsewhere at greater risk if it drags on, experts said.

Last month, India—Malaysia’s largest palm oil market for the last five years—began restricting imports of refined palm oil, a significant proportion of which is from Malaysia. Refined palm oil will now require an import licence from the Indian government, a measure seen by the industry as tantamount to a ban. Crude palm oil can, however, still be freely imported.

The restriction could drive greater demand for cheaper crude palm oil from Indonesia, bringing with it several risks, experts told Eco-Business.

Sustainable palm oil struggles

India has traditionally exhibited little interest in palm oil certified by the Roundtable on Sustainable Palm Oil (RSPO)—the industry’s leading certification to prove the commodity is responsibly sourced—and this could hamper efforts to switch Indonesian farmers to ethically produced palm oil, said Arkian Suryadarma, forest campaigner at Greenpeace Indonesia.

Given that certification is a difficult process that requires oil palm growers to learn sustainable farming techniques and commit additional resources and time, this could mean that farmers and companies will be less inclined to seek certification in the first place, he said.

Indonesia and Malaysia together produce 85 per cent of the world’s palm oil, while only 19 per cent of global palm oil supply is RSPO-certified.

If exports to India grow, deforestation rates could increase, even with Indonesia’s palm oil moratorium in place.

Arkian Suryadarma, forest campaigner, Greenpeace Indonesia

As pro-sustainability markets like the European Union become more restricted, the biggest challenge for the palm oil sector is to maintain its momentum towards sustainability, said University of Malaya senior lecturer Helena Varkkey, who has conducted research on oil palm plantation management, transboundary haze and palm oil market trends.

“Sustainable palm oil is more expensive than regular palm oil, so the absence of markets willing to pay that premium is the biggest barrier for the shift to more sustainable practices,” she said. In a move that hurt RSPO-certified producers last year, the European Parliament approved a measure to phase out palm oil-based biofuel by 2030 to curb the use of transportation fuel linked to deforestation.

“With a large part of the global palm oil market still not willing to pay a premium for sustainable palm oil, the risk is that there could be a slowdown or even reversal of the progress made towards sustainability, with more palm oil produced in an unsustainable manner,” said Dr Varkkey.

The RSPO declined to comment on the impact of India’s trade restriction.

India’s stance on sustainable palm oil may already be changing. A spokesperson at Singapore-headquartered palm oil company Golden Agri-Resources told Eco-Business it was “only a matter of time for Indian demand to tip towards only accepting sustainable palm oil.”

“Indian consumers are increasingly calling for sustainably-sourced products. The forming of the India Sustainable Palm Oil Coalition reflects this trend in consumer interest,” he said.

With a large part of the global palm oil market still not willing to pay a premium for sustainable palm oil, the risk is that there could be a slowdown or even reversal of the progress made towards sustainability.

Dr Helena Varkkey, senior lecturer, University of Malaya

Deforestation fears

The trade dispute could also hurt Indonesia’s beleaguered forests, said Greenpeace’s Suryadarma.

If Indonesian palm oil exports to India grow, deforestation rates could increase, even with Indonesia’s palm oil moratorium in place, he said. The moratorium, a freeze the government imposed on new licenses for palm oil plantations two years ago, is slated to run for just another year. Even so, its effectiveness has been questioned due to lack of baseline data, monitoring and sanctions for violations.

Indonesia’s palm oil suppliers are also, on average, less productive than Malaysian farmers. This could put additional pressure on forests as more land is needed to produce the same quantity of the commodity, which is found in many everyday items from toothpaste to chocolate.

Before the moratorium, the government had already handed out significant tranches of land for development and these would be the first in line for plantation expansion, said Varkkey.

Could Indonesia’s sustainability efforts turn things around? Golden Agri’s spokesperson thinks so. “The Indonesian government has been stepping up its efforts to lift the industry’s sustainability performance,” he said, adding that late last year, President Jokowi signed a presidential decree mandating government agencies, governors and district heads to roll out its palm oil national action plan, which prioritises smallholder capacity building, the adoption of the Indonesian Sustainable Palm Oil (ISPO) certification and responsible peatland management.

An attempt to address palm oil’s many social and environmental ills, the ISPO certification is Indonesia’s national sustainability scheme. Industry observers, however, rate the ISPO as inferior to the RSPO scheme, saying that it essentially certifies that a company is abiding by Indonesian law, with little consideration for protection of human rights and community livelihoods.

The scheme also still allows plantations on carbon-rich peatlands, although with certain restrictions, while RSPO does not, raising the risk of deadly and climate-wrecking fires started by farmers to clear forests, Varkkey pointed out. Compared to fires on dry soil, fires on peat generally burn longer, produce larger volumes of toxic smoke, and spit more carbon into the atmosphere.

The size of Indonesia’s forests lost between 2000 and 2012 was equivalent to 83 times the size of Singapore, but the latest threat extends to forests beyond the archipelago.

In reaction to the restriction, Indonesian suppliers have started to charge a premium, causing Indian palm oil purchases to drop, while imports of sunflower or soybean oil have increased. “This is a worrying trend for forests, as land-use demands for alternative oils are higher than that of palm oil,” said Varkkey.

If Malaysia competes on price with Indonesia to export more crude palm oil to India, there is a risk that oil palm farmers could expand their plantations to make up for falling incomes, said Suryadarma. Poverty has been identified as one of the key reasons why oil palm farmers clear land with fire.

Meanwhile, it remains unclear how long the dispute could last. Malaysia said this week that India’s move to cut back on palm oil purchases was temporary and would be resolved amicably, while an Indian trade ministry official told China Dialogue that the restrictions will continue unless Malaysia stops commenting on India’s internal affairs.

Ties between both countries have been frosty since Malaysian Prime Minister Mahathir Mohamad last September condemned Delhi’s move to revoke Jammu and Kashmir’s constitutional autonomy. He also slammed India’s new religion-based citizenship law as discriminatory to Muslims in December.

Some analysts are of the view, however, that India’s move is also an attempt to boost its palm oil refining business.

India is acting in the interest of its agribusiness sector, said consultant Khor Yuleng, an independent director at Malaysian market research company Khor Reports Data and Maps, which publishes data, maps and reports on Southeast Asian finance, agribusiness and infrastructure.

“Indian (companies) can make money refining palm oil themselves. Currently, domestic refineries only operate at 40 per cent of their capacity, so this restriction presents a huge opportunity for them. If refinery utilisation rates increase, their (companies) could make a much better profit,” she said.

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