Jakarta Globe | Insight

Regulatory Challenges in Peatland Management

Jakarta. Peat means different things in different countries. In Europe, the plant material is often used to power electricity systems for lower carbon emissions, while in the United States it serves not only as a common amendment for potting soils, but also in the maintenance of quality turf for golf courses and sports fields.

In Indonesia, peatlands are vital habitat to many endangered species, like orangutans or Sumatran tigers. They are also home to palm oil plantations and pulp and paper industrial plants, which contribute significantly to the country’s economy and welfare.

Although most of Indonesia’s 18.9 million hectares of peat resources are uncultivated or belong to natural forests, still much these carbon-rich areas are drained by plantations. The palm oil and the pulp and paper industries have been fiercely blamed for causing environmental damages — forest fires, destruction of biodiversity — and social problems, including child labor and local conflicts over land ownership.

Palm Oil: Why It Matters for Indonesia?

A plantation worker carries oil palm fruits. (Reuters Photo/Samsul Said)
A plantation worker carries oil palm fruits. (Reuters Photo/Samsul Said)

“Indonesians have planted oil palms in peatlands since time immemorial,” Indonesian Palm Oil Association (Gapki) chairman Joko Supriyono told the Jakarta Globe.

The association harbors major producers of the commodity that is used in everything from foods and beverages, fast moving consumer goods (like beauty products), to biofuels.

Indonesia is now a behemoth player in the palm oil sector as the world’s top producer and exporter, beating Malaysia, which previously held the lead.

According to Gapki data, about 50 million Indonesians in their everyday lives depend on palm oil and its derivatives, be it directly or indirectly, through multiplier effects the sector has created. Palm oil is a strategic commodity for Indonesia’s economic development — only last year it brought $18.6 billion in foreign exchange revenue.

“What we need is regulations that can promote sustainable use of peatland for plantations, not prohibitions to use it,” said Joko, who is also vice president director at Indonesia’s largest listed palm oil producer Astra Agro Lestari.

(Source: Ministry of Trade)
(Source: Ministry of Trade)

With increasing global and national demand for crude palm oil (CPO), not only corporations, but also local community smallholders are keen to expand oil palm plantations.

As fertile mineral soils are limited, peatlands have been targeted, with producers seeking to enlarge their plantations, which currently cover 12 million hectares of Indonesia’s land. Government data show that palm oil plantations (owned by smallholders, private companies and state-owned companies) and industrial plantations of pulp and paper enterprises have already taken about 1.8 million hectares of peatlands.

A moratorium on opening new palm oil plantations was put in place six years ago, aiming to slow unsustainable agricultural expansion into primary forests and peatlands. According to the World Resources Institute, however, it is ineffective, since it was “issued in the form of presidential instruction, which does not entail legal consequences for the perpetrators.”

Here Comes the Haze

The administration of President Joko “Jokowi” Widodo has been paying bigger attention to protection and management of peatlands after Indonesia was condemned by the international community for forest fires in Sumatra and Kalimantan, and haze that choked several Southeast Asian countries in 2015. The World Bank estimated the economic losses at $16 billion.

Local farmers were blamed for igniting the fires by practicing slash-and-burn agriculture. There were also some minor incidents involving palm oil and pulp corporations. The lack of proper monitoring of hotspots was seen as one of the major failures in disaster management.

The 2015 fires scorched forests and peatlands in Palangka Raya, Central Kalimantan. (Antara Photo/Jessica Helena Wuysang)
The 2015 fires scorched forests and peatlands in Palangka Raya, Central Kalimantan. (Antara Photo/Jessica Helena Wuysang)

In a bid to tackle the recurring fire and haze problem, in 2016 Indonesia issued a regulation on protection and management of peatlands. The government’s tougher stance on peatland management, which came with the regulation, was lauded by environmentalists.

In January last year, President Joko “Jokowi” Widodo established the Indonesian Peatland Restoration Agency (BRG), with an aim to restore within five years 2 million hectares of degraded peatlands in seven provinces.

According to Herry Purnomo, a scientist at the Center for International Forestry Research, 1 million hectares of palm oil plantations sitting on peatlands will be affected by the 2016 regulation.

“The policy is already on the right track, but I think its implementation is not easy. Synchronizing idealism with reality is difficult. Oil palms undeniably provide welfare to farmers. Do we want to move them from these areas? Where to? Corporations can do it [move their plantations], but for smallholders it would mean relocating their families and homes,” he said.

Indonesia has the fourth largest peat resources in the world, after Canada, Russia and the United States, and the largest tropical peats.

Beside the 2016 regulation, there are other national policies to protect Indonesia’s peatlands: the 2009 Law on Environmental Protection and Management, a 2008 government regulation on spatial planning, and a 2009 ministerial regulation on the use of peatlands for oil palm cultivation.

Limited access to information and the lack of commitment from related stakeholders hamper the effectiveness of the government’s efforts to stop unsustainable agricultural expansion in the country.

Why Kill the Industry?

Industry players such as Joko of Gapki, until today oppose the regulations, deeming them “unfair” and intended to “slowly kill” the industry that contributes so much to the country’s economy. The 2016 regulation is likely reduce cultivation areas, which will have an impact on palm oil production, affecting the supply and value chain of palm oil and its derivatives.

“Remember, the palm oil industry stimulates economy in rural areas,” Joko said.

Indonesia is strong in palm oil, not just in its upstream products, but also downstream. According to Joko, out of 27 million tons of palm oil exported last year, 70 percent was non-CPO production, meaning it was processed into downstream products.

Investment in the downstream part of the sector remains attractive, with the word “sustainability” keenly used by the industry’s executives.

Recently, Sinar Mas Cepsa, a joint venture of the world’s second largest plantation company Golden Agri Resources and Cepsa Quimica — a chemical unit of Spanish energy giant Compañía Española de Petróleos — inaugurated its Rp 4.77 trillion ($357 million) oleochemical plant in Dumai, Riau, to produce fatty alcohol — the main ingredient of personal and home care products.

“The investment that Sinar Mas has made over the last few years has really been driven to put the sustainability at the heart of their business,” Golden Agri Resources vice president for corporate communications and sustainable relations Anita Neville told the Jakarta Globe on the sidelines of the inauguration event.

She added that technological innovations like “cloning seeds” — approved by the Ministry of Agriculture in April for full commercial use by industry players — are now able to increase production capacity and “minimize the pressure on land expansion, which is one of the things that the industry has been criticized for internationally.”

While the industry players remain enthusiastic about their expansion plans, Budi Indra Setiawan from the Ministry of Agriculture and Falatehan Faroby from Bogor Agricultural University made a calculation in their study that if business stays as usual and the government does curb the expansion of oil palm plantations, CPO production would reach 37 million tons in 2020, and the area covered by them would soar to 14 million hectares.

As suggested in the study — which was partly funded by the Economic Research Institute for ASEAN and East Asia and was presented at the 9th Asian Society of Agricultural Economists (ASAE) International Conference on the Transformation in Agricultural and Food Economy in Asia, Bangkok, Jan. 11–13 — if the expansion scenario comes trues, the additional 2.8 million hectares of plantations will most probably come from peatlands.

However, the researchers claim”this additional land would not come from new peatlands, but from the existing degraded peats areas, which amount to 4 million hectares.”

Consequences of Tougher Peatland Management: Economic Contraction?

A part of the study says that if the government enforces tougher regulations, it should brace for “economic contraction.”

With the industry pressured and oil palm plantations reduced, the government should be prepared to “ease tensions from farmers and workers who would  lose  their jobs, and promote tax incentive/reduction to maintain reasonable incomes gained by the planters and CPO industries.”

The ERIA-funded study further suggested that the government “should also be able to convince the planters and society that the policy would achieve the sustainable development of the oil palm plantations in the longer term, with no more threats from peatland fires and forest encroachments.”

According to the researchers, the government also has some home work to do to improve the management of peatlands, including the improvement of “the spatial land arrangement, accelerating steps to rehabilitate unmanaged peatlands to be allocated for other purposes than the forest alone.”