Palm oil and challenges to Indonesia’s plantation commodities’ sustainability

According to current statistics published by the Ministry of Trade, in 2017 the plantation sector contributed USD 41.9 billion to Indonesia’s export. This value is equivalent to 27% of overall Indonesia’s export value of USD 153.2 billion. This figure shows that the plantation sector has a significant contribution to Indonesia’s economy. Any disruption to plantation commodities’ global trade, therefore, will significantly affect Indonesia’s economy. Such a disruption will not only reduce incomes from export but also can increase employment rate at the domestic level.

The decision of the European Parliament to propose a ban on palm oil has raised concern about the future of Indonesia’s plantation export commodities. The EU questioned the sustainability of Indonesia’s palm oil in making their decision. Palm oil plantation, according to them, has caused deforestation and increased greenhouse gas emissions. Based on this view the EU decided to exclude palm oil from their Renewable Energy Directive (RED) scheme. Interestingly they still allow all other oilseed crops to continue operating under the RED scheme. Considering that the European Union (EU) is the second-largest Indonesia’s palm oil export destination, EU decision will cause a considerable impact to Indonesia’s economy.

We may consider EU’s decision as an unfair one and as part of non-tariff trade barriers imposed to protect their own agriculture-based oil industry. Nevertheless, we must accept this reality as part of competition in current global trade. Instead of blaming the EU, it is better for us to convince the global audience that Indonesia in on the right track in the efforts to implement the principles of sustainability in its palm oil plantation and industry.

The Ministry of Foreign Affairs has to lead a concerted effort in encountering EU’s negative views on Indonesia’s palm oil sustainability. The Ministry also has a responsibility in preventing the spread of EU’s view to non-EU countries, particularly in countries currently importing palm oil from Indonesia. We should bear in mind that the EU as a global major power has the ability to influence other countries to follow its policy.

The effectiveness of Foreign Ministry’s efforts in encountering EU’s views will depend on two main factors. The first factor is how far the government can guarantee the sustainability of palm oil plantations in Indonesia. In 2010 the government launched the Indonesia Sustainable Palm Oil (ISPO) initiative aimed to make palm oil production sustainable and in compliance with Indonesia’s laws and regulations. There are 98 indicators which elaborate seven principles and criteria contained in the ISPO. These seven principles cover 1) the plantation licensing and management system 2) the application of technical guidelines for palm oil cultivation and processing; 3) environmental management and monitoring; 4) responsibility towards workers 5) social and community responsibility; 6) empowering the community economy and 7) sustainable business improvement.

The effectiveness of campaigns on Indonesia’s palm oil sustainability at the global level will heavily depend on the achievement of ISPO targets at the domestic level. Yet in August 2017 the Ministry of Agriculture acknowledged that only 16,7% of palm oil plantations that had met ISPO standards. This figure is alarming. It shows that after seven years we are still far from reaching ISPO standards. It is a huge task for the government and other related stakeholders in palm oil industry to accelerate the achievement of ISPO standards.

The second factor is the way the Ministry of Foreign Affairs – in cooperation with other related stakeholders – handle the campaign. There are some element the Ministry should consider in organizing such a campaign. First, EU’s decision has not been finalized. This means that there is still a room for Indonesia to maneuver by approaching the EU and its member states to reconsider their stances on Indonesia’s palm oil sustainability. Indonesia’s diplomatic missions accredited to members of the EU have crucial role to convince their respective host countries on this matter.

Second, EU’s decision was highly influenced by the interests of its business community. Indonesia, therefore, should not only get in touch with the EU and governments of its member states but also with the European business community. In approaching business community Indonesia should involve private stakeholders in the palm oil industry. Considering that not all of those private stakeholders have experiences in international negotiation, the Ministry of Foreign Affairs has crucial role in enhancing private stakeholders’ competence on international negotiation.

Third, Indonesia should continue disseminating good progress of the efforts to achieve palm oil sustainability to counter negative campaigns conducted by other parties on this issue. Indonesia should disseminate related data and information in a concerted manner and the Ministry of Foreign Affairs should take a leading role at this stage. The Ministry should enhance coordination with other stakeholders – from both government and private sectors – in developing contains of such campaign as well as in conducting the campaign.

To sum up, Indonesia has to take EU’s decision seriously. We must acknowledge that the EU has crucial role in determining the future of Indonesia’s palm oil in global market, not only because around 16% of our palm oil export goes to them, but also because their decision can influence other parties to follow suit. We should also anticipate the possibility of the application of sustainability standards by the EU in the future to other plantation commodities. It is important for the government and related stakeholders, therefore, to ensure that Indonesia’s plantation sector can meet globally-accepted standards of sustainability on the basis of equality among all members of the international society.