Southeast Asia gears up for palm oil boom

Jakarta, Sept 16, 2007 - Southeast Asian nations are gearing up for a palm oil boom as interest in biofuels soars, but activists warn the crop may not satisfy a global thirst for energy that is both clean and green.

They caution that oil palm plantations require massive swathes of land -- either what's left of the region's disappearing forests, denuded plots that would be better off reforested, or land critical to supporting local people.

Governments and companies have been scrambling to cash in since palm oil prices jumped last year due to spiking demand from China, India and Europe, where biofuels should comprise 10 percent of motor fuels by 2020.

Indonesia has launched a particularly ambitious biofuels expansion programme, which aims to see Southeast Asia's largest economy source 17 percent of its energy needs from renewable sources by 2025.

Evita Herawati, an assistant to Indonesia's minister of energy, said 5.5 million hectares (13.5 million acres) will be set aside for biofuel plantations by 2010, 1.5 million hectares of which are for oil palm.

The main objective is "to create jobs and alleviate poverty," with some 3.5 million new jobs being eyed by 2010.

"A lot of forest has been cut down but they didn't use it at all. We would like to use it for this programme," she told AFP, adding that so far 58 deals worth a total of 12.4 billion dollars have been signed with companies.

She estimated that just in Kalimantan, the Indonesian portion of Borneo island, about 5.5 million hectares are available for use -- an area far larger than Denmark and a bit smaller than Sri Lanka. Nine million additional hectares are available elsewhere, Herawati said.

The issue of where the land will come from worries activists, who point out that much of Indonesia's peatland forests have already been destroyed, releasing huge amounts of carbon dioxide.

Rully Syumanda, of Indonesia's environmental watchdog Walhi, said proposing palm oil plantations has been used in recent years in Indonesia "as a pretext to clear land and take the more valuable logs".

He estimates that nearly 17 million hectares of Indonesia's forests have been cleared ostensibly for oil palm plantations since the 1960s, but only six million hectares have been cultivated.

Though he concedes that the government is now making efforts to reforest, catch offenders and audit the industry, Syumanda said these were "insignificant compared to the damage that is being inflicted on the environment".

Rudi Lumuru, from Sawit Watch, an industry monitor, meanwhile said much of this "empty" land is actually used by local people. He reckons more than 500 communities have been embroiled in conflicts with more than 100 palm oil companies, typically from Malaysia.

"This land has been used since a long time ago by the people. They live on the land, they grow on the land," he said. "The government says people can make money, but it's about transition of culture. The culture of the farmers, it's rice, coffee, cocoa -- it's not palm oil."

Compensation too little to deter corruption

While compensation payments may be meted out, they end up being meagre thanks to endemic corruption, he added.

The Indonesian industry says it is cleaning up its act.

"The industry now is trying to avoid destroying land," said Derom Bangun, executive chairman of the Indonesian Palm Oil Association. "Companies no longer clear land by burning or in ways that harm the environment or wildlife."

Indonesian companies have joined the Roundtable on Sustainable Palm Oil (RSPO), a WWF-led initiative to engage palm oil companies, and is trying to abide by their principles, he said.

Technology minister Agusman Effendi said that economic factors as well as "sustainability of the environment and the way the government can give extra support to the poor" needed to be considered.

"The 'what' has been defined clearly, but the 'how to' is the thing that has been criticised by the public," he said.

Companies in Malaysia, the world's largest palm oil producer -- expected to be eclipsed by Indonesia this year -- are being lured here by the vast expanses of already-cleared land.

Malaysian plantations minister Peter Chin insists palm oil production does not damage the environment and said Malaysian companies will boost productivity by replanting with higher yielding clones and adopting good agronomic practice.

"We are committed to ensuring that whatever we do now is not at the expense of the environment and our future generations," he said.

According to the Malaysian Palm Oil Board, 65 percent of Malaysia's total land area of almost 33 million hectares is comprised of forest. Palm oil plantations use 12 percent.

Alvin Tai, plantation analyst at OSK Securities, said most of the companies listed on the Malaysian bourse are expanding in Indonesia as landbank in Malaysia is limited.

He said most major plantation firms were RSPO members and "they have the resources to maintain those standards. It's the smaller plantation owners that are a concern".

As prices rise, farmers devote more land to palm oil

Meena Rahman from Friends of the Earth Malaysia disputes the government's claims and says the group is particularly concerned about projects in Sarawak, on the Malaysian side of Borneo island.

She says there is evidence that 1.5 million hectares of land that was to be set aside for protection and water catchment purposes has been planted with oil palm as well as pulp and wood trees.

"Maybe what Peter Chin is saying is that they are planting palm oil in areas that have already been logged -- but they should allow reforestation to take place instead of allowing palm oil expansion," she said.

Malaysia's northern neighbour Thailand is also getting in on the game.

High prices for palm oil, driven by Bangkok's search for alternative fuels, have driven more and more farmers to convert rubber and fruit plantations to grow oil palm, an official from Thailand's agriculture ministry said.

Local prices of palm oil have almost doubled to more than four baht (seven cents) per kilogramme (2.2 pounds) from two baht last year.

Last year Thailand had some 32,000 hectares planted with oil palm, but the area is expected to jump to 81,000 by year end. An additional 400,000 hectares of unused farmland in the south could also be used, the official said.

The government has provided soft loans to help farmers make the switch, and is considering a floor price for the crop, she said, adding that "we don't have environmental issues" linked to palm oil, like Thailand and Malaysia.

The Philippines meanwhile has about 25,000 hectares under cultivation, but some 454,000 hectares of "disposable land" -- pasture or shrubbery -- mostly in the south, has been earmarked as well, the agriculture department said.

So far however, only one Singapore-based company has come sniffing, seeking at least 25,000 hectares of land.

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