This JEI Working Paper provides an overview of the current state of the palm oil industry in Indonesia, and demonstrates how unsustainable business practices on the part of oil palm growers and the complicity of other actors in the palm oil supply chain pose a serious threat to the health of Indonesian rainforests and peatlands.
Palm oil is one of the most important and fastest-growing cash crops in Indonesia. This is due to its efficiency of production, versatility and increasing popularity as a bio-fuel. However, poor industry oversight, corruption and ineffective government regulations have enabled unsustainable business practices to proliferate among producers. These include slash-and-burn deforestation, land-grabbing, encroachment into protected areas, failing to perform adequate environmental impact assessments and ignoring government procedures and the instructions of regulatory bodies. Unless significant measures are introduced to reform the oil palm industry, Indonesia is likely to face a loss of biodiversity, threats to its indigenous peoples, worsening climate change, significant health problems and decreased water security.
Though palm oil producers are directly responsible for carrying out deforestation, this paper finds that other actors in the palm oil supply chain play a significant role in enabling it. Local governments are guilty of corruption and inadequate legislation of oil palm growers. Suppliers and distributors purchase the produce of illegal oil palm growers. Banks and institutional investors provide loans to and own interests in unsustainable palm oil companies. Consumers fail to commit to purchasing palm oil exclusively from traceable sources. Finally, the Roundtable on Sustainable Palm Oil (RSPO) is ineffective as a governing body as it fails to define the specific types of forest that require protection, lacks adequate mechanisms of accountability and oversight, contains conflicts of interest within its membership structure, and promotes flawed certifications for sustainable palm oil that have been exploited as a form of “greenwashing.”
On the other hand, each actor in the palm oil supply chain also has the ability to exert pressure on offending growers to cease their illegal business practices. Advocacy by NGOs has led to successes, such as institutional investors divesting from unsustainable companies and the introduction by both suppliers and growers of more stringent guidelines for environmental evaluation and protection. This paper recommends that entities within the palm oil supply chain take a firm stance against illegally produced palm oil by introducing concrete measures to ensure accountability, traceability and oversight. Such measures may include removing loopholes in legislation to prevent exploitation, stricter punishments for offenders, insistence upon purchasing traceable palm oil, lobbying and divesting from unsustainable companies, and the adoption of stricter standards and greater transparency by the RSPO.