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The Chain: Jokowi bans peatlands, smallholders call for reform, and more

November 15, 2015

Jokowi bans peatland development in response to haze crisis

President Jokowi’s administration has taken its strongest step yet to respond to Indonesia’s ongoing haze crisis. Through a series of presidential and ministerial-level instructions, Indonesia has banned the clearance and conversion of carbon-rich peatlands across the country. The move notably extends the current moratorium on new peat permits to a total ban on peatland clearance, even in existing concession areas. The government is also issuing a ban on the use of fire for new land clearing, as well as a ban on planting in recently burned areas in order protect them for future restoration.

Civil society groups such as Greenpeace welcomed the move by Jokowi, but stated, “the policy must be made practical with a clear timeline for implementation, and given teeth through sanctions for non-compliance.” Already, new photos show palm oil plantings on recently burned peatlands in Borneo. NGOs are now calling for a legally binding presidential decree (or “perppu”) to go beyond the non-binding government instructions and formally ban peatland development. Jokowi has indicated that such a decree may still be forthcoming. While rains have helped to tamper the haze in recent days, Indonesian officials have stated that fires could return in a matter of weeks.

The costs of this year’s fires have been severe for Indonesia and the region by lowering crop yields, complicating company operations, and damaging the health of workers and residents. The Indonesian government estimates that the crisis has already cost the country over $33 billion USD (475 trillion rupiah). Several Indonesian plantation companies, including Asia Pulp and Paper, have faced legal action from Singapore’s Trans-boundary Haze Pollution Act, which allows fines up to $1.4 million for air pollution. On the market, the Indonesian Agriculture Index, which contains all listed companies in Indonesia’s agriculture sector, suffered a negative 20% return from July 1 to October 29, compared to the Jakarta Composite Index’s return of negative 8% over the same period. Indonesia reportedly shipped a record 2.61 million metric tons of palm oil in October, with a large increase in shipments to China. Industry data suggests that traders expect supply to soon drop substantially due to hampered growth caused by the haze. In a forthcoming report, Chain Reaction Research will analyze how the haze crisis may influence investment risk profiles in the palm oil industry.

Smallholders contradict government, call for conservation reform

Meanwhile, some government minsters have publicly pushed back against the wave of zero-deforestation commitments by major palm oil traders. Officials claim that small producers – who account for 40% of Indonesian palm oil output – are mostly responsible for the fires and deforestation, but have urged members of the Indonesian Palm Oil Pledge (IPOP) and other traders to exempt smallholders because they cannot afford to adopt stronger sustainability practices.

However, recent analyses have shown that big plantation companies, not small farmers, have been the largest drivers of deforestation. According to Mansuetus Darto, head of the Indonesian Oil Palm Smallholders Union, small producers are in fact eager to comply with new commitments: “IPOP will benefit the farmers; companies won’t expand their areas and this means they will instead increase cooperation with farmers to increase productivity,” Darto explained to Reuters. “Burning will still happen because the government hasn’t changed the regulations.”

ADM increases stake in Wilmar in bid for sustainable palm oil supply

Archer Daniels Midland (ADM:US) recently raised its stake in palm oil giant Wilmar International (WIL:SP), purchasing about 22 percent of Wilmar shares on the Singapore exchange (approximately 5.2 million shares), though it did not disclose its current total stake. ADM, which is Wilmar’s biggest shareholder, held an 18 percent stake in Wilmar (1.16 billion shares) as of March 10.

In April 2015, ADM adopted a new zero-deforestation policy for its soy and palm oil supply chains, putting it on par with Wilmar’s own cross-commodity policy from December 2013. Wilmar’s forest protection efforts have given ADM a greater source of responsible palm oil, while Wilmar has in turn become a large buyer of ADM’s soy from the Americas for import into China and other parts of Asia.


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