RESTRUCTURING PALM OIL GOVERNANCE IN INDONESIA

(A National Action Plan of Indonesia Palm Oil Governance towards Green Economy
Governance)

“Green growth” has been proposed as a new way of pursuing economic growth and
development. This concept — which purportedly avoids environmental degradation, loss of
biodiversity, and unsustainable use of natural resources — has been connected to the “green
economy for sustainable development and poverty reduction”1
Joni Jupesta2 - United Nations University

The Context of the Problem

Palm oil3 in Indonesia was first introduced in the Botanical Gardens in 1884 from Mauritius

(Africa) by Johannes Elyas Teysmann who served as Director of the Botanical Garden. The first

oil palm plantation was built in Tanahitam, Hulu North Sumatra by Schadt, a Germany in 1911.

Around 1958, several Dutch companies were nationalized and taken over as State Plantation

Companies. The people become the perpetrators of oil palm plantation business only around

1980 with the development of the PIR program (Perkebunan Inti Rakyat) in order to accelerate

1
Jupesta, Joni (17 October 2011) Green Economy and Transition in Indonesia, Our World, United Nation
University. Accessed on 6 March 2018. Retrieved from https://ourworld.unu.edu/en/green-economy-transition-in-
indonesia
2
Joni Jupesta is a Japan Society for the Promotion of Science-UNU Postdoctoral Fellow at the United Nations
University Institute of Advanced Studies. An Indonesian citizen, in 2010 he gained his PhD in Management Science
and Technology from Tohoku University, Japan. He was one of 25 scientists selected to receive the 2012 Green
Talent Award from German Federal Ministry of Education and Research.
3
Palm oil (Elaeis) belongs to the palm plant species. Palm became popular after the Industrial Revolution at the end
of the 19th century which caused the demand for vegetable oils for food and soap industries to be high. The Palm
Oil tree consists of two species of Arecaceae or palm family used for commercial farming in oil palm expenditure.
African palm oil, Elaeis Guineensis, originated in West Africa between Angola and Gambia, when the American
palm tree, Elaeis oleifera, originated from Central America and South America. The Ministry of Trade, the potential
of palm oil in Indonesia. Warta Ekspor, DJPEN/MJL/002/06/2011, June 2011, p. 4. Accessed on 6 March 2018.
Retrieved from http://djpen.kemendag.go.id/app_frontend/admin/docs/publication/2481336970842.pdf
the plantation development program.4 The production of Indonesia crude palm oil increased

extremely in 1980 which produced 752.000 MT with growth rate 7,12%.5

In 2004, the regulation on plantation development in Indonesia is specifically regulated through

Law no. 18 of 2004 on Plantation.6 The production of crude palm oil in 2004 reached 13.560.000

MT with growth rate 13.8%. Today, Indonesia is the biggest production of the crude palm oil

with total production 38.500.000 MT in 2017 and growth rate 6.94%.7 According to the World’s

Top Exports, Indonesia is the market leader of the palm oil exporter. In 2017, Indonesia export

of the crude palm oil is 28.000.000 MT increasing from the export in 2016 as big as US$14.4

billion and it is 51.7% of the total world palm oil export.8 Meanwhile although Indonesia has the

highest surplus in the international trade of palm oil but the net export surplus down -18.4%

since 2012.9

It was started with the Presidential Instruction of the Republic Indonesia number 10 of 2011 on

the Moratorium on Issuing New License and the Improvement of the Primary Natural Forests

and Peat lands Governance on 20 May 2011 which was issued by the Former President, Susilo

4
Ibid, p.4-5.
5
Index Mundi, Indonesia Palm Oil Production by Year. Accessed on 7 March 2018. Retrieved from
https://www.indexmundi.com/agriculture/?country=id&commodity=palm-oil&graph=production
6
One of the considerations underlying the birth of the Act No.18 / 2004 are earth and water and wealth the nature
contained therein is potential which is huge in economic development including national development plantation in
realizing prosperity and the welfare of the people in justice. To use realizing the welfare and prosperity of the people
in fairness, the plantation needs to be guaranteed its sustainability as well as enhanced functionality and its role Law
No.18 / 2004 provides that to do plantation business, good cultivation of plantation crops as well as the plantation
processing industry, with area and a certain production capacity shall have a license plantation business from the
Governor for cross-territory regencies / municipalities and Regents / Mayors for the region district / city. However,
specifically for planters (who are is defined in the general provisions of Law No.18 / 2004 as an individual
Indonesian citizen who doing a plantation business with 2 uses the word "and or" in this article implies intent that
the plantation business should not be done on a regular basis integrated between the cultivation of the plant and the
business plantation processing industry. scale enterprises not reach a certain scale) except from the provisions such
licensing, or is not required to obtain (take care of) the plantation business permit. See Ibid, p.5.
7
Index Mundi, Indonesia Palm Oil Production by Year. Accessed on 7 March 2018. Retrieved from
https://www.indexmundi.com/agriculture/?country=id&commodity=palm-oil&graph=production
8
Ibid.
9
Ibid.
Bambang Yudhoyono. This moratorium is part of a $ 1 billion agreement between Indonesia and

Norway to reduce emissions from deforestation and forest degradation which also known as

REDD +. The moratorium covered 65 million hectares.10

The issuing of the moratorium as the response of the critics which is came from home and

abroad. Critics argue that palm benefits are generated at the expense of forests and forest-

dependent rural communities,11 resulting in large greenhouse gas (GHG) emissions from land

conversion and destroying habitat rich in biodiversity.12 In some cases, rural communities are

disadvantaged by development, loss of access to land and livelihoods without adequate

compensation or legal assistance. Indigenous ethnic groups may be more vulnerable because

they depend more on natural ecosystems and are inexperienced in complex business transactions

or oil palm plantations. Critics also note that in many cases, local communities are not consulted

adequately before palm clearance, which weakens their position when negotiating land

compensation and business agreements with the company.13 The moratorium ended in the

beginning of 2013 but it has been renewed for the next two years as the government effort to

support the reformation of forestry and agriculture governance. 14

Facing the critics, the government of Indonesia under the Ministry of Agriculture issued a policy

which was called Indonesia Sustainable Palm Oil (ISPO) in 2009 to ensure that all palm oil

10
Gingold, Beth; McLeish, Moray; Austin, Kemen and Prasodjo, Rauf (22 April 2011). Moratorium Indonesia:
Kesempatan Bagi Hutan dan Industri, World Resource Institute, p. 1. Accessed on 7 March 2018. Retrieved from
http://pdf.wri.org/indonesias_moratorium_id.pdf
11
Corley, R.H.V. and Tinker, P.B. (2016). The Oil Palm Fifth Edition. West Sussex: Wiley Blackwell, p. 523.
Accessed on 6 March 2018. Retrieved from
12
Ibid, p. 519-520.
13
Paoli G.D., P. Gillespie, P.L. Wells, L. Hovani, A.E. Sileuw, N. Franklin dan J. Schweithelm (2013) Sawit di
Indonesia: Tata kelola, Pengambilan Keputusan dan Implikasi bagi Pembangunan Berkelanjutan. The Nature
Conservancy, Jakarta, Indonesia, p. 13. Accessed on 8 March 2018. Retrieved from
14
Gingold, Beth; McLeish, Moray; Austin, Kemen and Prasodjo, Rauf (22 April 2011). Moratorium Indonesia:
Kesempatan Bagi Hutan dan Industri, World Resource Institute, p. 1. Accessed on 7 March 2018. Retrieved from
http://pdf.wri.org/indonesias_moratorium_id.pdf
entrepreneurs meet the permitted farming standards. The policy aims to improve the

competitiveness of Indonesian palm oil in the world market and to participate in fulfilling the

President of the Republic of Indonesia's commitment to reduce greenhouse gases and to pay

attention to environmental issues.15 Through this policy, the government requires all plantation

owners to be certified until 2015. The government will also ban the export of crude palm oil

(CPO) products if the company does not pocket the ISPO certificate starting 2014. Although it

has been mandatory and the government of Indonesia is targeting 100 percent of certified

companies before 2014 ends, but the plantation company sawn ISPO certificate holder in April

2014 only 40 companies out of 1500 total.16 Indonesia continues to promote ISPO in the

European Union and lobby for the elimination of palm oil discrimination compared to other

vegetable oils produced in Europe. But the EU responded by requiring CPO exporters to label

RSPO on its CPO products. The owners of oil palm plantations in Indonesia incorporated in the

Indonesian Palm Oil Entrepreneurs Association are planning to terminate export to Europe due

to the RPSO certification obligations. However, the director of RSPO Indonesia stated that the

ISPO certificate holder will be granted the ease of obtaining RSPO certificates as they

complement each other in the world's palm oil business.17

15
Wikipedia, Indonesia Sustainable Palm Oil. Accessed on 7 March 2018. Retrieved from
https://id.wikipedia.org/wiki/Indonesia_Sustainable_Palm_Oil
16
Ibid.
17
Wikipedia, Indonesia Sustainable Palm Oil. Accessed on 7 March 2018. Retrieved from
https://id.wikipedia.org/wiki/Indonesia_Sustainable_Palm_Oil
Another set of criteria has been published by the Palm Oil Innovation Group,18 which aims to

‘break the links between [palm oil and] deforestation, and human, land and labor rights

violations’, building on the RSPO foundations to improve best practice over greenhouse gas

emissions reduction, conflict resolution and protecting wildlife. The criteria include the

identification and exclusion of ‘high carbon stock’ forest and peat soils (see

www.carbonstockstudy.com), minimizing use of ‘chemical fertilizers’ and no genetically

modified organisms (GMOs). There is greater emphasis on ‘free, prior and informed consent’

(FPIC), with independent expert advice to be offered to local communities, and requirements for

a smallholder support scheme and for all FFB to be from traceable sources. Other criteria deal

with transparency and corruption, workers’ rights and food security.19

The Main Problems

Indonesia palm oil industry is a vital and controversial issue in Indonesia economic growth. The

discussion on the economic benefit and the social and environment costs more polarize and this

situation is worse by the debate between pro and contra on the issue in extremely different

position which pursue their own agendas. The hidden common debate is on the same perspective

18
The Palm Oil Innovation Group (POIG) is a multi-stakeholder initiative that strives to achieve the adoption of
responsible palm oil production practices by key players in the supply chain through developing and sharing a
credible and verifiable benchmark that builds upon the Roundtable on Sustainable Palm Oil (RSPO), and creating
and promoting innovations. Founded in 2013, the initiative was developed in partnership with leading NGOs as well
as with progressive palm oil producers. The vision of the Palm Oil Innovation Group (POIG) is a responsible supply
chain that has broken the link between palm oil production and the destruction of forests and peatlands, the
exploitation of communities and workers, and climate change. The mission is to achieve the adoption of responsible
palm oil production practices by key players in the supply chain through developing and sharing a credible and
verifiable benchmark, and creating and promoting innovations. The four key areas which became the focus are (1)
the Palm Oil Innovation Group (POIG) aims to support the RSPO through building on RSPO standards and
commitments and by both demonstrating innovation to implement RSPO existing standards as well as with
additional critical issues; (2) POIG focuses on the three thematic areas of environmental responsibility, partnerships
with communities including workers’ rights, and corporate and product integrity; and (3) POIG focuses
on creating innovations in the palm oil industry and the promotion of these innovations. Accessed on 8 March 2018.
Retrieved from http://poig.org/.
19
Corley, R.H.V. and Tinker, P.B. (2016). The Oil Palm Fifth Edition. West Sussex: Wiley Blackwell, p. 523.
Accessed on 6 March 2018. Retrieved from
between the polarizations that it could be fixed significantly through the palm oil governance in

Indonesia which will give benefit to the environment, local communities, overall performance

and reputation of the industry. The ISPO, the RSPO and the Palm Oil Innovation Group have

build their own criteria for a sustainable palm oil industry. The ISPO has to promote of its

criteria and standard to be achieved in international forum which is dominated by the RSPO and

the Palm Oil Innovation Group as the additional forum. Thus the problem is how to fix and

endorse the palm oil governance Indonesia domestically at the local and national governance

levels and to promote it to be accepted in international forum.

Sustainable Palm Oil Industry and Green Economy: Searching the Way Out for

sustainable palm oil industry governance in Indonesia.

In October 2013, the ISPO and the RSPO has signed a strategic cooperation as a first

collaborative initiative to conduct a joint study on RSPO and ISPO towards mutual vision of

promoting sustainable palm oil.20 This is a positive progress towards building a common

perspective on the sustainable palm oil industry.

Oil palm plantations are biologically sustainable; the first plantations were established in

Malaysia and Indonesia early in the twentieth century and are still in operation after several

generations of replanting. Some plantations in Africa have closed for political reasons, but

almost all plantations, once established, continue to operate. The greatest threat to biological

sustainability is disease: fatal yellowing in Latin America, Fusarium wilt in Africa and

20
HRT (1 November 2013) RSPO and ISPO conduct a Joint Study. Accessed on 8 March 2018. Retieved from
http://www.ispo-
org.or.id/index.php?option=com_content&view=category&layout=blog&id=14&Itemid=211&lang=ina
Ganoderma in Asia. However, the sustainability criteria of the RSPO place more emphasis on

social and environmental responsibility than on longevity.21

In this regards, the quest for the sustainable palm oil industry demand has shifted to the

implementation of the green economy vision, which purportedly avoids environmental

degradation, loss of biodiversity, and unsustainable use of natural resources. The green economy

concept has been connected to the “green economy for sustainable development and poverty

reduction”, a theme of next summer’s Rio+20 United Nations Conference on Sustainable

Development.22 Joni Jupesta proposed several key strategic elements are identified as being

required to achieve green growth, all of which apply to Indonesia, they are phasing out oil

subsidies, acceleration of innovation and diffusion of green technologies, supporting a

sustainability transition through policies aimed at upgrading skills and capabilities of workers,

strengthening of international cooperation, and measuring progress by development of a

transparent and responsible accounting framework involving social, economic and environment

indicators.23 In the case of the ISPO in Indonesia, the key strategic elements mentioned above

has to be induced in the ISPO criteria and standard which can be implemented and achieved

through a national action plan of Indonesia palm oil governance.

National Action Plan of Indonesia Palm Oil Governance

In regards to set a framework of a national action plan of Indonesia sustainable palm oil industry

governance to achieve the green economy vision, some problems in achieving the sustainable

21
Corley, R.H.V. and Tinker, P.B. (2016). The Oil Palm Fifth Edition. West Sussex: Wiley Blackwell, p. 536.
Accessed on 6 March 2018. Retrieved from
22
Jupesta, Joni (17 October 2011) Green Economy and Transition in Indonesia, Our World, United Nation
University. Accessed on 6 March 2018. Retrieved from https://ourworld.unu.edu/en/green-economy-transition-in-
indonesia
23
Ibid.
palm oil industry in Indonesia have to be identified in the first place. Some of the steps for the

development of a national action plan for palm oil governance in Indonesia in the face of

international criticism and pressure are as follows;

1. To conclude the study cooperation between ISPO and RSPO in developing criteria of

sustainable palm oil industry in Indonesia;

2. Translating these criteria into policy and its implementation from the regional to the

national level;

3. To socialize policies and their application in the export destination countries of

Indonesian palm oil; and

4. Provide periodic reports on the progress of implementation of sustainable palm oil

industry policy in Indonesia to destination countries of Indonesian palm oil exports.