Unpackaging the IDDRI Report for the Truth

The European agricultural sector and the governments that support it dislike palm oil. Palm oil is a cheap, efficient and sustainable product that supports the livelihoods of millions of people across the globe. Over the past decade, palm oil has become the vegetable oil of choice among many food manufacturers. As a result, there have been various attempts by European governments and their proxy organisations to denigrate palm oil on sustainability grounds.

The French Government recently funded a discussion paper and presentation by French NGO IDDRI (Institute for Sustainable Development and International Relations) to assess the role of importing countries in encouraging sustainable palm oil production. It made its presentation at a recent meeting of the European Palm Oil Alliance (EPOA) in Brussels.

IDDRI’s position has a number of significant biases. These flaws are largely informed by an ill-informed bias against palm oil in France (and the European Union) that has taken hold due to French protectionist politics and European climate policy. But there are three key flaws in IDDRI’s reasoning that must be addressed.

  • First, is that they make no distinction between palm oil from different areas, companies and countries. It assumes all palm oil is the same, and it is mostly negative. The research focuses solely on Indonesian development needs and outcomes, but assumes all palm oil producing countries have the same objectives. Focusing on one country cannot give an accurate picture of the entire palm oil sector, and you certainly cannot extrapolate one country’s results to represent all others.

          The Malaysian experience, for example, is very different, and is not reflected in the IDDRI report.        Malaysia is the second-largest global producer of palm oil – not accounting for its unique experience, for example related to higher yields, is a clear flaw at the heart of the study.

  • Second, the report is based entirely upon desk research. So at this stage, it is completely theoretical. The reality of palm oil production is nuanced, and is not reflected in IDDRI’s scratch-the-surface approach.
  • Third, IDDRI posits a false choice for palm oil: that it is either small-scale farmers or large scale plantations. The reality is that there have been pioneering models developed in Malaysia over the past fifty years that demonstrate clearly that the two can and do work together in a manner that is environmentally, socially and economically sustainable. IDDRI’s speakers admitted to this at their EPOA presentation; yet it does not appear in print. Why not?

IDDRI seems determined to:

  • Position industrial-scale operators in a negative light, in need of new regulations and other quasi-regulatory initiatives that will add costs for large scale operators, and ultimately undermine their market position and strength. This would bring about a competitive advantage for large-scale European vegetable oil producers at the expense of Malaysian palm oil producers.  This is Europe’s protectionist agricultural policy rearing its ugly head, again.
  • “De-link” small farmers/independent operators from the industrial-scale operators, even if those partnerships are beneficial – e.g. the author contends that successful and sustainable models pioneered by Malaysia, and successfully replicated across the sector globally, are unsustainable and need reform.  This would bring about deleterious effects for wealth creation for families across Malaysia.
  • Portray large producers, and the system the industry has established over the years as “insufficient”, and new regulations are required for industrial operators.
  • Provide material that will support planned current or future trade measures against palm oil in Europe, that will harm producing countries and severely limit market access.
  • Undermine the evidence that European policy efforts are in fact doing a disservice to smallholder farmers, which is a commonly held view in Southeast Asia.

Generalisations about sustainability

IDDRI has a narrow focus on sustainability outcomes. They state that they are focused on four areas: limiting the expansion of palm oil production area; social and economic outcomes for smallholders and workers; land conflicts; and the power balance between smallholders and purchasers.

Let’s consider these in the Malaysian context.

First, the land for palm oil production expansion in Malaysia is virtually non-existent. This has been well documented.  IDDRI also projects that future oil palm expansion will lead to significant forest loss; yet this doesn’t take into account the expected significant advances in yield throughout the supply chain. Malaysian yields are planned to rise to 6 tonnes of oil per hectare, a more than 40 per cent increase.

Second, the social and economic benefits of palm oil production in Malaysia have been fully realised.  Millions of people have been lifted out of poverty in Malaysia because of oil palm programmes – developed with the blessing of the World Bank – since Federation. The FELDA programs for smallholder outgrowers allocated plots of land to families. They were provided with subsidised inputs and outreach services to provide oil palm fruit for the processing facility. Outgrowers were given title to plots of land (i.e. – property rights). Downstream industries such as oleochemicals have provided the basis for a manufacturing sector.

Third, and this follows on from the previous point, land conflicts in Malaysia have been minimised. Why? Malaysia’s land tenure and cadastral systems are robust and backed by a functioning legal system; the Constitution of Malaysia supports and recognises the rights of indigenous people.

Fourth, and this follows on from the two points above, the power balance between smallholders and larger purchasers has been mitigated by a balanced approach to regulation, particularly through strong institutions.

Generalisations about smallholders and production models 

Oil palm plantations are not homogenous, and nor are production techniques. They vary significantly between region and country. There are a number of production models that are employed by different groups.

The authors identify two main production models in Southeast Asia: ‘industrial plantations’ and ‘independent smallholders’.

First, there is a generalisation about Southeast Asia. Southeast Asia is home to more than 623 million people. ASEAN comprises 10 different countries, all with different legal, political and cultural institutions. To equate the production techniques of these ten different countries – and the various environmental regulations supporting them – is simply incorrect. They are different countries with different systems. Environmental outcomes in all these countries, e.g. deforestation rates, are completely different. Malaysia’s forest area is actually increasing, as calculated by the United Nations FAO.

 

In other words, IDDRI’s conclusions on land expansion do not accurately reflect the current or future reality in the world’s second-largest palm oil producing nation. That speaks to significant flaws in both the IDDRI research method, and in the report’s conclusions.

Malaysia and Indonesia are not the only countries affected. Other producers of palm oil in the region, including Thailand and the Philippines, are themselves different.

Second, the binary ‘industrial’ and ‘smallholder’ model isn’t clear-cut. Other authors have identified multiple production models. It is also difficult to justify the statement that either smallholders or large-scale production is more ‘sustainable’ than the other. Each has its own clear benefits – and in fact, as in Malaysia, a blend of both tends to achieve the best social and economic results.

IDDRI calls for greater extension services and more support for smallholders. But aren’t these already present in Malaysia through FELDA schemes and the support of Malaysia’s palm oil institutions such as MPOB?  [For our readers that are unfamiliar with “MPOB,” MPOB is the Malaysian Palm Oil Board that is tasked by the government with regulating and licensing the palm oil sector and supporting research and development that will bring about enhanced yields, introduction of new technologies and general extension-like services].

Getting certification models right

IDDRI rightly points out that there are problems with certification. No certification system is perfect. They also rightly point out that ambitious commitments don’t always translate to great implementation – and therefore strong outcomes.

One of the key problems that IDDRI sees with voluntary systems such as RSPO and the ‘commitment’ models used by The Forest Trust is that they have difficulty certifying smallholders and only really suit large companies.

They also call for stronger state involvement in providing incentives for smallholders and other enterprises to become certified. But this is precisely what a system such as the Malaysian Sustainable Palm Oil (MSPO) standard involves.

For example, it was announced earlier in 2017 that MSPO will be mandatory for all palm oil enterprises. For companies, the compliance date is mid 2019; for smallholders it is the end of 2019. The Malaysian government now essentially has a law that mandates sustainable palm oil production. Malaysian rules regulating agricultural production already ensured their sustainability with regards to environmental regulations – this includes areas such as pesticide use, water management and land clearing. These regulations are incorporated into MSPO. Further, MSPO incorporates MyGAP, Malaysia’s Good Agricultural Practices standards.

The clear incentive here is the prospect of criminal prosecution or civil penalties. Further, the Malaysian Agricultural Research and Development Institute has flagged the prospect of soft loans for certified operations.

IDDRI also states that there is a conflict of interest in the auditing process because there is a financial relationship between the auditor and the company. But this conflict can be eradicated simply.

The problem can be solved – and has been – by ISO processes. The problem is not in the financial link between the company and the auditor. For RSPO, the problem remains. In the case of RSPO, there is not a degree of separation between the standard setting body (i.e. RSPO) and the accreditation body (the body that accredits auditors to undertake auditing work). Under the RSPO model, the standard setting body and the accreditation body are the same. This means that the RSPO can withhold accreditation to auditors if it produces results that it does not consider appropriate. This cannot happen under the ISO model (i.e. – rules adopted by PEFC, for example). Under the ISO process, the incentive for auditors to produce robust work is to remain accredited by the IAF, not the standard-setting body.

What the authors fail to note is that RSPO was established in a way that did not conform to these processes.  MSPO, on the other hand, was. Yet, this was carefully disregarded by the authors. Certification standards that are governed by national standards bodies – such as the Malaysian Timber Certification System and MSPO certification – conform with ISO and IAF best practices.

But certification in palm oil needs to be considered in context.

The authors acknowledge that there is virtually no economic incentive for producers to introduce certification schemes to their operations. However, they do not acknowledge that while the supply of certified palm oil is plentiful, there is little to no demand in any markets beyond Europe, and even there, demand at the consumer level (as opposed to the purchaser level) is similarly close to non-existent. The authors do not acknowledge that producers have been cajoled into applying and paying for a certification system by purchasers that they themselves are not willing to pay for. Despite this, the authors call for certification standards, i.e. at the producer level to be strengthened.

At the same time, there are no other agricultural commodities that have this many certification schemes in place to ensure sustainability. Beef and soy – both of which have larger deforestation footprints according to EU research – have perhaps one certification system each. Palm oil has at least three voluntary standards.

IDDRI is clearly concerned with environmental outcomes more than broader social and economic outcomes. As such, they should be advocating not for stricter certification, but for better environmental regulation, enforcement and compliance where environmental outcomes are suboptimal. This needs to take place at different governmental levels. The authors, however, do not put this forward as a solution; it is reasonably obvious they do not consider the governments in palm oil producing countries to be competent enough to do so.

But, as noted in detail above, Malaysia and the institutions that surround Malaysian palm oil are ticking all of IDDRI’s boxes.

Undoing the mistrust created by Western campaign groups

IDDRI contends that ‘beyond certification’ commitments by purchaser companies have not resulted in the expected changes in practices that have been sought by NGOs.

This may be the case. However, it should be understood that from the producer perspective a significant level of distrust has been generated by the actions of NGOs and purchasers.

NGOs (particularly WWF) and purchasers went to great lengths to convince producers that a premium would be generated by RSPO certification and that there would be high demand in Western markets. Neither has materialised. Businesses invested significantly in certification and (in some cases) segregated supply chains in order to capture this premium.

The more recent campaign by NGOs and producers to ‘double down’ and attempt to impose even tighter environmental conditions generated outside of the consensus process amplifies this level of distrust. The cost of imposing the ‘no deforestation, no peat, no exploitation’ commitments is even greater. This is not because it means significant changes in practices, but because the compliance costs associated (e.g. monitoring mechanisms and traceability systems) are massive. It has been well noted that the imposition of these systems has resulted in a large number of smallholders being excluded from supply chains.

IDDRI needs to understand that calling for higher standards or proposing elaborate solutions isn’t going to get this trust back among producer nations. There is the possibility they are simply adding to the problem.

Putting IDDRI on the right track

Despite having a knowledge of the palm oil sector, the authors of this discussion paper have clearly used generalisations about the industry to make sweeping conclusions and recommendations. The reality is much more nuanced.

Presenting ‘sustainability’ of palm oil production as an either/or choice between large plantations and smallholders in misleading. Each has their merits. Production models vary well beyond the binary position presented.  More importantly, production models vary significantly from country to country. Malaysia’s palm oil sector has got a number of things right and continues to do so. These need to be highlighted and used as a model for other countries.

The effect of presenting such false and simplistic choices is that the IDDRI analysis and conclusions simply do not stack up when compared to reality in Malaysia, one of the world’s leading palm oil producers.

It seems more likely that IDDRI has chosen this methodological path in the knowledge that it will lead to a more negative picture of the palm oil industry. In other words, the methodology has been chosen to produce a pre-desired result that will show palm oil as bad – in every country, with no exceptions.

In order to produce such negative analysis, IDDRI needed to cherry-pick, which included removing or ignoring results that showed palm oil in a positive light – such as higher yield numbers in some countries.

This obfuscation is all too clear, once the methodology and data are examined closely. Such an approach will not generate trust amongst palm oil producers, and certainly will not help to bring balance and reason back to the palm oil debate.

There is a lesson here, for EU policymakers. Taking the same approach as IDDRI – contending that palm oil producing countries and their certification systems are inadequate, even when you know that advances are being made in some countries – will fail. Instead, the EU should be honest enough to account for individual countries, rather than taking IDDRI’s blanket approach. Individual success stories should not be ignored; the national laws and development goals of each country should be treated separately. The EU must have the honesty and good sense to work with, and recognise, schemes such as MSPO.

Rather than following IDDRI’s example, EU policymakers would do well to instead examine its failings, to better avoid making those same mistakes in the future.

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