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New Project: Domestic Market Transformation of Palm Oil Sector Indonesia

In line with the New York Declaration on Forests 2020 target, 447 globally operating companies have made a total of 760 commitments to reducing deforestation impacts in their commodity supply chains (as of March 2017). In the past three years, such commitments, known as “No Deforestation, No Peat, No Exploitation” (NDPE) policies, have been adopted in Southeast Asia. Chain Reaction Research estimated that as of 2017, three-quarters of SE Asia’s palm oil trading-refinery companies have adopted NDPE procurement policies. A trickle-down effect to the main growers has also taken place in Malaysia and Indonesia, albeit modestly, where the larger domestic integrated company groups have adopted NDPE policies (e.g.: Indonesia – Astra Agro Lestari Tbk., Malaysia: Sime Darby Plantations Berhad).

Unfortunately, the transformation of the domestic industry in Indonesia still lags behind international developments. In fact, the domestic palm oil market may well develop into a second-tier market, with far less stringent sustainability requirements. This would represent a leakage market for any palm oil grower, refiner and retailer wanting to avoid compliance with internationally accepted performance standards. Such a market would likely come at the expense of remaining natural forests and peatlands and/or communities who have not granted their consent to plantation development. Should such a market continue to exist, then international efforts to transform the industry towards better practice could easily be undone.

Source: Indexmundi.com

 

This prospect is realistic. In 2017, the domestic market was Indonesia’s primary market for Crude Palm Oil (CPO), consuming over 9 million tons. Internationally, Indonesia’s own market ranked second only after India. About a third of all CPO consumed domestically is used for cooking oil, whilst the remainder is processed into oleochemicals (for processed food and cosmetics) and biodiesel.

All this points to a crying need to proactively understand the motives of key decision-makers in companies and institutions that service Indonesia’s domestic palm oil market, and to engage them to adopt responsible (transparent, accountable and sustainable) practices.

To address this need, Aidenvironment started implementing the new program Domestic Market Transformation: Promoting transparency, accountability and sustainability in the domestic palm oil industry of Indonesia. The project runs for 30 months (2018-2020) and implementation will be largely done from our Asia office in Indonesia.

This project intends to contribute to significant reduction in GHG-emissions from deforestation and peatland development. The project will do so through research, engagement and advocacy that is directed towards seeing key decision-makers (corporate actors, policy makers) that are active in Indonesia’s domestic market for oil palm endorse and implement NDPE policies.

The major impacts of the project are:

  • Reduced deforestation, peat development and/or exploitation by domestic palm oil producers;
  • Palm oil sector in Indonesia as a whole becomes more compliant with NDPE objectives, including domestic markets;
  • Leakage effects / risks due to domestic market palm oil and biodiesel supply are avoided.

 

For more information about this project, please contact Christopher Wiggs.