‘No Deforestation’ Briefing – June 2014

Introduction

The ‘No Deforestation’, ‘No Peat’ is a catchy campaign slogan used by environmental campaigners. But what does it really mean? The Oil Palm provides an in-depth policy brief outlining the truth behind the slogan, including how this campaign harms the most vulnerable – the small oil palm farmers – and why the simplistic rhetoric is not supported by the facts.

  • The ‘No Deforestation’, ‘No Peat’ and Traceability policies are the current hot topic in the global palm oil industry. They have particular relevance to Malaysia’s national interests – particularly in light of new policies being enacted by companies around the world.
  • At the heart of this debate is the argument between trade-offs between economic and social outcomes in the developing world and restrictions demanded by Western campaign groups based on environmental or conservation outcomes.
  • Western campaign groups appear to be unwilling to concede that these trade-offs exist and are unprepared to back down on ‘no deforestation’ policies. They appear determined to dictate and control land-use decisions in developing countries, regardless of the negative impacts on local populations and communities.
  • The high implementation costs of these policies effectively mean that many smallholders and small growers will be cut out of major supply chains – one estimate puts the affected smallholder percentage as high as 80 per cent.
  • High opportunity costs also mean that the barriers to entry are raised, and this may represent an abuse of market dominance in the industry by ‘locking out’ new players;
  • The policies could also have a longer-term impact on government revenues – and therefore implementation of social programmes across regions.
  • Throughout history including in the West there has been a clear pattern of agricultural expansion, forest clearing and economic development – known as forest transition. This is a proven route to prosperity. The current ‘no deforestation’ campaign is a clear threat to in developing nations such as Malaysia.
  • The IPCC has noted that calls for more carbon mitigation and forest conservation increase competition for land, which can decrease food security, impact livelihoods, increase agricultural costs and increase food prices.
  • This campaign represents a clear and present threat to the palm oil industry in Malaysia, the livelihoods that depend upon it, and Malaysia’s development goals;

Background

The current round of new demands being placed upon the Malaysian Palm Oil industry has been directed by Greenpeace and TFT, and other Western NGOs..

This has been precipitated by their general dissatisfaction with the Roundtable on Sustainable Palm Oil (RSPO).

The two NGOs wanted RSPO to deliver a system that basically prevented further forest conversion or expansion and met its demands in relation to climate change emissions.

At the same time, the Consumer Goods Forum – a coalition of the West’s largest food processors – made a commitment to sustainable palm oil procurement and elimination of deforestation from supply chains.

In both cases, the demands went above and beyond those of the RSPO.

RSPO for its part was considered too costly and stringent by most growers and producers, who understood that expansion was profitable, could be managed in terms of environmental impact through a strong national legal framework, and had positive socio-economic outcomes.

At the heart of this debate was the trade-off between the social and economic benefits provided by oil palm plantations and development in rural areas, and its associated environmental costs as perceived by Western campaigners, i.e. forest loss and emissions from agriculture.

It seemed that an impasse had been reached; a stalemate emerged within RSPO.

What then emerged in November 2013 was the Palm Oil Innovations Group (POIG). POIG’s primary demand is for ‘no deforestation’. It refers to this as “breaking the link between palm oil expansion and deforestation.” Additional demands are for no peat clearance, traceability in supply chains and various social conditions including ‘free, prior and informed consent’ (FPIC).

‘No Deforestation’ as a sustainability concept runs counter to the United Nations definition of sustainable development. The United Nations states that sustainable development must have an economic and social pillar, as well as environmental. The ‘No Deforestation’ campaign focuses only on environment, neglecting the economic and social effects, and the path to achieving real sustainable development in Malaysia.

The Costs and the Impacts

What POIG wants would be an an expensive undertaking. It would require significant capital to implement these demands on land-use and implementing a traceability system, along with on-ground checks for deforestation, high carbon stock, peatland and community rights.

It also requires that a company absorb the opportunity costs of not expanding on land it already holds.

These are costs that very few companies could actually afford, particularly smaller companies that may not have the access to capital or long-term supply contracts. The policies would also increase the barriers to entry for new companies in the developing world, who wish to supply to major Western companies that have signed on to ‘no deforestation’ commitments.

For smallholders, supplying to this market is now virtually impossible. Smallholders – farmers operating on between 4-40ha – make up around 40 per cent of palm oil production in Malaysia, and represent about 1.5 million people. While the economic benefits of palm oil for smallholders and rural communities have been enormous, the ‘no deforestation’ requirements would be unsustainable and damaging for small farmers. Smallholder farmers in South East Asia simply do not have the financial, administrative or technical capacity to meet such ill-conceived requirements only suitable for the rich West.

The Forest Trust is currently doing the bulk of the work to engage companies on the POIG position and implement its policies.

The work of TFT contrasts with RSPO. RSPO is an off-the-shelf product operating in a market where firms compete to undertake certifications. RSPO is too expensive for smallholders.

TFT is a custom and tailored service with costs well beyond those of RSPO. The requirements of a system that includes ground-truthing are particularly labour intensive, requiring extensive stakeholder management and immediate response when adverse claims are made against operators. Unsurprisingly, TFT’s revenue has been growing at a staggering rate, around 25 per cent per annum to USD 9.3 million in 2012. Its profit in 2012 increased almost eight-fold to around USD 1.3 million.

This system and this arrangement, does come at a cost of excluding smallholders. Some estimates put this exclusion at as much as 80 per cent of smallholder suppliers to large companies. The question, then, is whether the idea of excluding smallholders and new entrants to the West’s consumer markets is in fact ethical.

Why Traceability?

The demand for traceability in commodity supply chains is driven by the purchaser’s desire to know that commodities have not come from sources that provide any reputational risk. The risks in this case are deforestation, carbon emissions (high carbon stock and peat) and social injustice or indigenous rights.

Originally, traceability and chain of custody systems were introduced to commodity supplies to support food safety and monitor cold storage chains in particular. These systems allow suppliers or customers to determine the source of safety or quality problems along the supply chain and remedy them if possible. This is of particular relevance for public health in the case of food contamination, for example.

Traceability has, however, become a tool for implementing other, non-essential, policy objectives that are part of a campaign group’s , particularly in the European Union.. Traceability systems can be used to exclude genetically modified substances from food, or ensure that geographical indicators (e.g. European wine regions) on products are not deceptive.

The ‘traceability’ systems that are being referred to follow the European spin on traceability. The ‘traceability’ referred to in the case of palm oil is really an attempt to define what constitutes a ‘sustainable’ or an ‘unsustainable’ procurement policy – achieving traceability per se is not the goal, but rather a useful means to achieve the wider ideological goal.

This allows an organisation – such as TFT or Greenpeace – to ensure palm oil or other commodities are sourced from areas or producers that it considers to be sustainable. This, in effect, allows TFT and others to “pick winners” in the marketplace based on their own evaluations – e.g. on carbon stock, peatland or forests.

Reducing Expansion

These sourcing policies have been driven by Western NGOs. These have had a knock-on effect on major suppliers, who effectively have been forced to comply.

Western purchasers have also been under pressure to make good on promises to source only sustainable palm oil. This has been a problematic commitment in some respects; around half of the world’s existing supply of CSPO remains un-purchased.

These policies aim to set a ‘cut off’ date. It will not affect producers that do not develop in forest and peat areas in the near future. The policy will impact Sarawak planters that plan to expand in forest and peat areas in future, to secure the social and economic needs of the State.

The new policies effectively state that the world’s largest handlers of palm oil will not accept palm oil from new plantings. This places a significant curb on how the industry can expand and grow in the immediate future.
New planting in Sarawak is generally expected to take place on peat soils and in forested areas – much of which is under Sarawak’s Native Customary Rights (NCR) program.

Smaller companies in the developing world that sell to Western purchasers indirectly through other channels will be negatively affected, as will smallholders that sell to these companies.

The longer-term impacts may be significant. Sarawak may lose some RM400m in sales tax revenue per year. There are around 18,000 smallholders in Sarawak and 300,000 people involved in palm oil production. Their livelihoods will be affected by either increased compliance costs or opportunity costs.

Impacting Economic Development

Deforestation has gone hand in hand with economic development. “Forest transition” –
when a subsistence society deforests as it grows, then gradually reforests as it industrialises –
is generally accepted.

Forest historian Michael Williams puts this into context. Between 1700 and 1920 approximately 82 million ha of forest was lost across North America. Cropland area went from 3 million ha to 179 million ha in the same period.

In Europe, where industrialisation took place earlier, 25 million ha of forest was lost between 1700 and 1850, while cropland doubled from 67 million ha to 132 million ha. In both cases the deforestation rate is higher than current FAO estimates of deforestation in Indonesia — generally considered the highest deforester in the region.

In both cases a significant amount of forest switched to agriculture. This was the Western growth model. The POIG model wants this to end, particularly in Sarawak.

One of its key arguments is that agricultural expansion will have negative consequences for greenhouse gas emissions.

According to the latest IPCC estimates in its most recent major report, around 24 per cent of global greenhouse emissions are from agriculture, land use and forestry. Of this, around one third is from land-use change. Most of this is associated with crop expansion. This in turn is driven by population growth and increased food demand.

The report notes two things. First, that attempts to mitigate greenhouse emissions through conservation areas, etc., increase competition for land, which can have an impact on food security and livelihoods. Second, it notes that this may further increase costs of agricultural production and raise food prices.

The question of land use, land efficiency, and ability to guarantee food security is often poorly characterized. Palm oil is the world’s most efficient oilseed crop. More oil – and, therefore, more fats, calories and nutrients – can be provided from one hectare of oil palm than any other competing oilseed. In fact, palm oil’s average yield of around 4 tonnes per hectare per year is spectacularly superior. Rapeseed oil produces around 0.8 tonnes p/ha per year; sunflower is around 0.7 tonnes; and soybean is 0.4 tonnes.

Palm oil’s superior yield produces a major positive impact for food security, land conservation, and land use. More food is produced, using less land. Expansion of palm oil – to provide necessary foodstuffs for a growing population – is therefore empirically more desirable than that of less efficient competitor oilseeds.

This brings us back to the initial contention – much of this debate is about tradeoffs between economic and environmental outcomes.

Of Sarawak’s 12 million ha, half of this has been set aside as permanent forest estate or reserves; there are another 1 million ha for conservation areas. A total of 1.6 million ha is set aside for native communal rights, which is mostly forested but to be used for agriculture. The balance – 3.7 million ha – is already classified for urbanisation and agriculture.

Despite having more than half of the state set aside for reserves and conservation of forest, this is not enough for ‘no deforestation’ advocates. Western groups oppose the opening of new lands – which will support Sarawak and Malaysia’s development objectives – for agriculture and food production. This is an absolutist position, and is effectively pretending that the tradeoffs do not exist.

Preventing market access for smallholders or halting economic development is not sustainable by anyone’s measure. It is a lop-sided way to force environmental standards on to the people who can afford it least.

Further, the POIG model is creating a small group of hand selected winners in the marketplace – a de facto monopoly – that reduces competition and could raise consumer prices for food. This raises concerns about anti-competitive behavior, and it also raises significant ethical concerns.

Emerging Certification Models

As stated above, the demands on the POIG go well beyond those under RSPO.  They also, therefore, go beyond those of new certification systems such as the Malaysia Sustainable Palm Oil (MSPO) certification system and its Indonesian counterpart.

This is because the key demand – ‘no deforestation’ or ‘deforestation free’ – cannot be met by any of the certification systems, including RSPO.

The development of the MSPO will be a boon for producers of palm oil in Malaysia. A government-endorsed system that will provide certainty and security, as well as ensuring that all sections of the palm oil value chain, including smallholders, will be able to participate and achieve certification.

A major criticism of some voluntary schemes – such as RSPO – has been that they are an unfavourable environment for smallholders, primarily due to high costs, high levels of administration, and continuous additional restrictions being added. RSPO has also suffered from a lack of uptake by purchasers, meaning that costs have been borne by producers, without reciprocal efforts by purchasers.

The MSPO standard points the way forward for developing nations looking to introduce sustainability standards, and ensure that their industry can be seen to be setting internationally-accepted standards for palm oil production.

Conclusion

For the reasons outlined above, the ‘no deforestation’ slogan should be considered unsustainable, because it runs contrary to the social and economic components of sustainable development. It runs counter to the United Nations definition of sustainable development.

The positions of POIG and TFT could also be considered unethical for four reasons.

  • First, there appears to be a direction towards preventing new players from entering the market — and therefore engaging in anti-competitive behavior by using dominant market players to achieve their goals. This locks out the majority of Malaysian producers, particularly small holders and farmers.
  • Second, pursuing the traceability model directly threatens the livelihoods of small farmers and local communities.
  • Third, the POIG model closes off to producer countries the broader development pathways that have been previously enjoyed by the Western world.
  • Fourth, the POIG model explicitly rejects the consensus models of certification that have been either voluntary enacted (RSPO) or through democratically based legislative and regulatory processes (MSPO and ISPO).

It is vital, then, that the ‘no deforestation’ campaign be presented as such.


1 See: http://www.theconsumergoodsforum.com/PDF/WorkingGroups-Accordion/Sustainability/10.Board_Resolutions_on_Deforestation_and_Refrigeration.pdf

2 See: http://www.csrinternational.org/Smallholders-challenges-costs-small-farmer-certification

3 See: http://www.greenpeace.org/international/Global/international/photos/forests/2013/
Indonesia%20Forests/POIG%20Charter%2013%20November%202013.pdf

4 https://www.duedil.com//company/03842323/the-forest-trust/financials

5 http://wle.cgiar.org/blogs/2013/10/09/push-for-traceable-supply-chains-threatens-smallholder-farmers/

6 Mather, A.S. 1992. The forest transition. Area 24(4): 367-379

7 Michael Williams. Deforesting the Earth: From Prehistory to Global Crisis. 2003. 689 pp. London: The University of Chicago Press Ltd. 2003.

8 http://report.mitigation2014.org/drafts/final-draft-postplenary/ipcc_wg3_ar5_final-draft_postplenary_chapter11.pdf

9 http://www.theborneopost.com/2010/12/12/s%E2%80%99wak-committed-to-curbing-illegal-logging/

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