The palm oil business is among the most contentious of all agricultural commodities. Although it has been a major contributor to economic growth and poverty reduction in Malaysia and Indonesia, it is also associated with the large-scale destruction of tropical rainforests, and the huge forest fires that have devastated peatland ecosystems and deposited toxic smoke on cities across the region.
Many of the sector’s challenges stem from its structure, where the supply from disaggregated smallholdings and large plantations feed into palm oil mills and into a mixed global supply, where traceability is difficult. Smallholders are often — but by no means always — responsible for deforestation and burning, driven by an economic imperative. Where farmers are unable to increase yields and livelihoods, they must expand, increasing their incentive to encroach into forests.
Fixing this is complex, and will require collaboration between businesses, governments and consumers at all levels, according to Agus Purnomo, managing director for sustainability at Golden Agri Resources, a major aggregator and trader of palm oil, with large concessions in Southeast Asia.
“There is no company, no agency, and definitely not just a single farmer who can change the practice of the whole industry,” Purnomo says, in an interview on the sidelines of the Responsible Business Forum in Jakarta. “We can probably influence those who are in our own supply chains, but at the end of the day, the influence is not that much to convert the whole sector.”
The government has a huge role to play, Purnomo says, in enforcing a moratorium on palm oil expansion into protected areas and in prosecuting wrongdoing — “If the law enforcement is not rigorous, then there will continue to be encroachment of forest lands, with or without the role of the industries. It will continue happening,” he says.
However, there has to be a carrot with the stick, he believes, and the market needs to provide incentives for growers and traders at all levels. That means technical assistance, financial support, and a better price for sustainable product.
“The willingness to pay on the consumer side is crucial. Without that, actually, the consumer is putting the burden of sustainability to the farmers, and unfortunately, half of those farmers are poor farmers.”
The premiums paid for certified sustainable palm oil had been falling in recent years, although the high-profile suspension of some major players in the business has reduced the amount of product available in the market, pushing prices back up in 2016. “It is safe to assume that this will not continue,” Purnomo says. “But it still matters, because a few dollars more expensive means a lot if you are talking about millions of tonnes, and it can be distributed to millions of farmers, who then enjoy $50 or $100 more of income on a monthly basis, and for those farmers, it’s already a significant increase.”
Consumer pressure does make a difference, but while campaigns against unsustainable palm oil have influenced small numbers of buyers in Europe and Japan, they have not gathered momentum in emerging markets. Indonesian consumers, for example, are not particularly engaged on the issue.
“Right now, it’s still in the brain, in the concept. It’s not in the heart and in the instinctive decisions of consumers in Indonesia,” Purnomo says. Bringing those consumers on board, and building a broad-based consensus on sustainability in the sector, is vital to sustain what progress has been made, and pull the whole industry up, he adds.
“The temptation to move backward is always there, and the scarcity of land will make it even more tempting to re-engage in the issue of converting forest land into agriculture. The challenges of sustainability are only going to be higher. And therefore the shared commitment to jointly absorb the burden will have to be also increased.”