Indonesia and Malaysia collectively account for 85 to 90 percent of global palm oil production. But palm oil is often associated with various controversies including the persistent fires and haze. 

Responding to this pressure, several initiatives have emerged to steer the palm oil industry towards more socially- and environmentally-friendly practices, such as the Indonesia Palm Oil Pledge (IPOP) made in New York in 2014. 

Yet, the dissolution of IPOP in July, less than two years since it was launched, did not come as a surprise to industry observers. 

Since its inception in 2014, IPOP had met with resistance from the Indonesian government and many local palm oil companies. 

Dissenters had accused IPOP of infringing on Indonesia’s sovereignty and causing small-scale farmers to lose market access if they could not keep up with IPOP’s standards. 

Various interests are clearly at play here. The importance of the palm oil sector to the Indonesian economy and smallholders’ livelihoods means that the country prefers to be in the driving seat in setting industry standards. 

IPOP’s disbandment is a clear sign that its members lacked sufficient engagement with these key stakeholders. It has also increased the uncertainty surrounding Indonesia’s fire and haze problem.

Announced at the 2014 United Nations Climate Summit, IPOP was a landmark agreement among major palm oil producing companies — Wilmar, Golden Agri-Resources, Asian Agri, Musim Mas and Cargill — to collaborate to achieve industry-leading sustainability practices. These include banning deforestation on all forest types and working with small-scale farmers to improve their productivity. 

IPOP appeared even more promising when PT Astra Agro Lestari, Indonesia’s second largest palm oil grower, came on board in February this year. This was a significant U-turn for Astra Agro, which had previously been singled out by NGOs for deforestation and human rights violations. 

There were hopes that Joko Supriyono, a member of Astra Agro’s Board of Directors and Chairman of the Indonesian Palm Oil Association (GAPKI), would be able to influence other GAPKI members to adopt stronger sustainability practices. 

However, IPOP quickly faced disapproval from the administration. Its commitments went significantly beyond national legal requirements for sustainability, known as Indonesian Sustainable Palm Oil (ISPO). 

The Indonesian government had perceived IPOP as an infringement on its sovereignty and a possible vehicle for American interests. In addition, the government worried that IPOP could hurt local farmers, who risked having their supply excluded from the market. 

Aware of these concerns, IPOP established a Secretariat in Jakarta to engage relevant stakeholders, especially the relevant Indonesian ministries. 

Despite these efforts, Indonesia’s Business Competition Supervisory Commission (KPPU) claimed in April this year that IPOP had the potential to facilitate a cartel, which could lead to monopolistic practices and unhealthy competition. 

It was the threat of being investigated and taken to court by KPPU that eventually prompted IPOP’s disbandment. 

What does IPOP’s dissolution mean?

For IPOP signatory companies, the dissolution of IPOP does not significantly affect their commitment to sustainability. After all, these companies have each adopted individual policies that largely mirror IPOP’s environmental and social targets.

But IPOP’s dissolution has left a vacuum in that leading palm oil companies no longer have a common, forward-looking sustainability standard to push the rest of the sector towards. 

The ISPO standard has faced criticism for not being rigorous enough to drive the sectoral-level change needed by the oil palm industry. At the same time, demands for responsible palm oil are only continuing to increase, especially from some of Indonesia’s most important export markets.

In December 2015, Denmark, France, Germany, the Netherlands and the UK signed the Amsterdam Declaration to support a fully sustainable palm oil supply chain by 2020. China is also developing a Guide for Overseas Investment and Production of Sustainable Palm Oil by Chinese Enterprises, which will spur trade and consumption of certified sustainable palm oil within China. 

With IPOP gone, stakeholders must now turn to the Indonesian state-backed programme — ISPO — to drive the palm oil sector’s sustainability push. To answer its critics, it is particularly important for ISPO to follow through on its stated commitment to certify small-scale farmers, who constitute 40 percent of palm oil production. 

Most such farmers operate independently, with little knowledge of sustainable practices and limited access to productivity-increasing technology. As a state-regulated mandatory certification scheme, ISPO has the potential to help many small farmers take the first step towards more productive and sustainable farming.

To ensure that Indonesia continues leading on palm oil sustainability, we recommend the following measures:

First, since 2010, the Indonesian government has maintained a roadmap for the development of Indonesia’s palm oil derivative and downstream industries, with the aim of improving the value of its palm oil in the export market. 

Incorporating sustainability goals in the roadmap will clarify the government’s direction and invite different stakeholders to play a complementary role to advance the sustainability agenda.

Second, local authorities and companies should come together to form voluntary multi-stakeholder groups, in order to share best practices and to address common social and environmental concerns. 

One such group is the Fire-Free Alliance, which is committed to sharing information, knowledge and resources to resolve the persistent problems of fires and haze arising from land clearing. 

These groups can also address other long-standing concerns. One example is the milling process to produce crude palm oil from oil palm fruit, which leads to massive amounts of waste, and consequently localized air and water pollution. 

Third, even after ISPO certification is achieved, both the Indonesian government and the private sector should continue assisting small-scale farmers to adopt socially- and environmentally-friendly measures that go beyond existing regulations. 

For those small-scale farmers who enjoy an exclusive supply agreement with a large company, the establishment of cooperatives offers a promising model. 

Such cooperatives serve to both educate smallholders about best practices and provide the necessary logistical and financial support to implement them. 

Ultimately, it is critical to put local communities’ interests at the heart of any initiative, whether private sector-or government-led. Only then can we bring about improved livelihoods for farmers, reducing the need to burn forests and making ASEAN’s persistent fires and haze a thing of the past. 

***

Lee Chen Chen and Lau Xin Yi are respectively director (policy programs) and policy research analyst (sustainability) of the Singapore Institute of International Affairs (SIIA).

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