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How Sustainable Are Sustainability Transitions in the Indonesian Palm Oil Sector?

02 Jun 2023
By Dr Helena Varkkey
View of palm oil plantation in Cigudeg, Bogor. Source: Achmad Rabin Taim from Jakarta, Indonesia/

Current shifts towards more socially equitable and environmentally friendly modes of palm oil production in Indonesia seem to be motivated by external pressure rather than genuine internal sustainability concerns. Making the sustainability transition permanent and tangible rather than temporary and superficial is an ongoing challenge.

Palm oil is the cheapest, most produced, and most consumed vegetable oil in the world. However, palm oil production has been linked to various unsustainable environmental and social practices. As palm oil plantations grow well in tropical climates, major production centres are located largely in heavily forested countries in the global South. The recent palm oil boom has therefore coincided with periods of intense deforestation. In addition, there have been highly publicised cases of child labour and worker abuse on plantations.

Indonesia is the world’s largest palm oil producer, producing around 59 percent of all palm oil in the world. It is also the world’s largest consumer of palm oil. Out of the 51.3 million tonnes of palm oil produced in Indonesia in 2022, around 35 percent was consumed domestically, and 65 percent was exported. The major destination countries of Indonesian palm oil are India, China, and Pakistan. However, as a group, the European Union is the second largest importer of Indonesian palm oil.

Within Indonesia, various civil society groups have tried to bring attention to local negative externalities of the sector like transboundary haze pollution from peat fires and native customary land conflicts. However, these issues are often overshadowed by nationalistic creeds supported by domestic campaigns like “Sawit Baik” (Palm Oil is Good), which promote palm oil as Indonesia’s “golden crop” – a mechanism for poverty alleviation among rural populations and an important source of GDP.

Black Campaigns: Is All Palm Oil Bad?

The sustainability of Indonesia’s palm oil first became a global issue in the early 2000s when mainly global North-based non-governmental organisations (NGOs) launched campaigns to encourage consumers to boycott products that contained palm oil. Using the plight of charismatic species like the orangutan losing their tropical forest homes, they promoted the idea that palm oil was a “dirty” oil. The consumer pressure was so great that several major palm oil buyers like Burger King, Unilever, and Nestle had to cancel their contracts with palm oil suppliers in the global South.

The Indonesian government responded harshly to these boycotts, describing them as “black campaigns” (kampanye hitam) by foreign agents in the global North who were set on keeping Southern countries like Indonesia poor and underdeveloped while protecting the markets of their own oilseeds.

Over time, NGOs like Greenpeace and World Wide Fund refined their campaigns to target only unsustainably produced palm oil. Boycotts, they realised, were not a good strategy as palm oil is the most efficient vegetable oil for land use. Moving away from palm oil would only shift deforestation and land pressures elsewhere; to other less land-efficient oilseeds like sunflower and rapeseed.

In recognition of this concession, Indonesia began to align its industry with the sustainable palm oil movement in what can be regarded as the real beginning of its sustainability transition in this sector. Indonesia’s industry association, GAPKI, joined the Roundtable for Sustainable Palm Oil, and Indonesia created its own mandatory certification system, the Indonesian Sustainable Palm Oil (ISPO). Jakarta also made several drastic industry-changing policy decisions, like declaring a moratorium on new palm oil plantation permits and peat land use change (a land use type closely associated with palm oil) to give the sector time and space to shift towards more sustainable modes of production.

Convincing the North: Palm Oil Can Be Good!

However, earlier campaigns had already severely soiled the reputation of palm oil worldwide, and many consumers remain under the impression that all palm oil is “bad.” Hence, even though corporate buyers were demanding certified sustainable palm oil, they often could not justify paying the premium asking price due to low consumer interest. As a result, a lot of certified sustainable palm oil is sold at non-premium prices, which means producers have to absorb the higher costs associated with more sustainable modes of production. This and other factors led to the decision of GAPKI to quit RSPO in 2011.

Anti-palm oil sentiments also trickled upwards into the policy-making space. The European Union put in place several regulations like the Renewable Energy Directive II (RED II) and the European Union Deforestation-Free Regulation (EUDR), which, while do not explicitly target palm oil, make it increasingly difficult for palm oil to be imported into the European Union.

Indonesia again responded critically to these developments. It filed a WTO lawsuit against the European Union on RED II, which it describes as discriminatory. The lawsuit is still pending a decision. Indonesia also founded, together with Malaysia, the Council of Palm Oil Producing Countries (CPOPC) to, among other objectives, push back against such trade impediments in a coordinated manner.

Supporting Indonesia’s Sustainability Journey

Sustainability is a journey and does not happen overnight. It is extremely challenging for a huge country like Indonesia to facilitate sustainability transitions in such a massive sector, especially since such transitions work against traditional developmental prerogatives. However, consumers and governments in the global North remain suspicious of Indonesia’s efforts and achievements towards more sustainable modes of production in the palm oil sector and continue to shift sustainability goalposts. Market access remains threatened.

The fact remains that such markets are not the only, nor the most important, importers of Indonesian palm oil. Indonesia’s other (often bigger) major importers – China, India, and Pakistan – are notably less concerned about sustainability. Lack of support from the global North runs the risk of Indonesian producers eventually losing interest in pursuing these markets and shifting to focus on other, less sustainability-concerned markets. Clawbacks are already beginning to occur within the country’s palm oil industry policy space, like the palm oil moratorium, which expired in 2022 without a clear extension or replacement. Furthermore, Indonesia has been focusing more on shoring up the domestic palm oil market through domestic trade and biofuel policies to hedge against global market access issues.

Sustainability-conscious importers, like the European Union and the USA, thus have an important role to play in supporting Indonesia on its sustainability journey. External market support is extremely important as it will provide the financial incentive to bolster the transition in the immediate term. Such support may also help to encourage Indonesia to genuinely internalise sustainability concerns to the long-term benefit of Indonesia and the world.

Dr Helena Varkkey is an Associate Professor of Environmental Politics and Governance at Universiti Malaya, Malaysia. Her areas of expertise include transboundary haze governance in Southeast Asia and global palm oil politics. She was conferred a PhD from the University of Sydney, Australia, in 2013. Her PhD monograph, “The Haze Problem in Southeast Asia: Palm Oil and Patronage” was published by Routledge in 2016.

This article is published under a Creative Commons License and may be republished with attribution.