EU-INDONESIA QUARREL OVER PALM OIL: QUO VADIS?

By: Yuri O. Thamrin*

Indonesia is a democratic country, and so is the European Union (EU). According to the “democratic peace” theory, democratic countries should not fight each other, they should help one another.

The EU and Indonesia have long been involved in disputes over palm oil. As fellow democratic countries, they must be able to resolve their disputes justly and effectively.

PALM OIL AS A STRATEGIC COMMODITY

Palm oil is a strategic commodity for Indonesia. It contributes significantly to Indonesia's economic growth, provides decent jobs for millions of people and is also important for national energy security. The palm oil industry (from upstream to downstream) has a "labor intensive" profile so that it absorbs a large number of workers both directly and indirectly.

The export value of palm oil reached 21 billion dollars (2018) and palm-based biodiesel can strengthen Indonesia's energy security when the country has now become a "net oil importer." Palm oil contributes 3.5 percent of Indonesia's GDP and makes its trade balance positive. Currently there are 19.5 million workers in the palm oil industry and 2.6 million palm oil planters (small holders) in Indonesia.

From the perspective of achieving Sustainable Development Goals (SDGs), palm oil contributes to: (i) job creation; (ii) alleviation of poverty; (iii) reducing income disparities; (iv) achieving national food security and energy security; and (v) reducing the impact of climate change because oil palm trees absorb billions of tons of greenhouse gases from the atmosphere.

WHO IS THE REAL CULPRIT?

According to the World Bank, 1.3 million square kilometers of forest in the world has been lost between 1990-2016 due to deforestation. This means that, every hour, forest cover equal to 800 football fields has disappeared.

The UN Environment Program (UNEP) reports that 70 to 80 percent of deforestation in the world occurs due to the expansion of agricultural production, including animal farming, soya and palm plantations.

According to a report from the European Parliament Research Service (September 2020), land clearing for agriculture is the main cause of deforestation in Southeast Asia. In this regard, palm oil plantations have spread into formerly forested land, especially in Indonesia and also Malaysia.Therefore, the palm oil sector is often described as the cause of massive deforestation in Indonesia.

Is this negative attribution of palm oil fair and justified? This question is very sensitive and we must be careful in answering it.

As an ambassador who served in the Indonesian Embassy in Brussels and took part in handling RI's palm oil diplomacy in the European Union (2016-2020), I often ask palm oil experts, including several ministers who are familiar with this issue, as well as important NGO figures.

It is important to remember that deforestation in Indonesia occurred long before the oil palm boomIng in 1980s. In fact, massive forest destruction has occurred since the early 1970s due to government policy regarding forest exploitation rights (or "hak pengusahaan hutan/HPH") via government regulation number 20/1970.

Forest exploitation and business activities that are not properly managed and monitored ultimately cause massive ecological damage in many regions of Indonesia. Forests are disturbed and their function as the world's lungs declines.

Deforestation also occurs as a result of wrong policies in the past such as “clearing one million hectares of peatland in Central Kalimantan,” as well as government efforts to relocate population through transmigration programs and permission issued for the shifting cultivation.

According to several studies (Gunarso et al, 2013; Suharto, et al, 2019), the origin of lands controlled by oil palm plantations in Indonesia in 1990-2018 shows that 62 percent came from degraded land (ie degraded forests, bushes and deforested land); around 35 percent comes from agricultural land, plantations and agro forestry. Facts also show that there has been a lot of conversion of other plantations, such as rubber plantations into oil palm plantations.

In other words, very little lands controlled by oil palm plantations originate from primary forest. Usually, the existing degraded lands are eventually converted into oil palm plantations. Thus, according to some researchers, oil palm plantations should not be viewed as a phenomenon of deforestation, but rather a phenomenon of social, economic and ecological restoration.

Currently, the total area of ​​oil palm plantations in Indonesia reaches 16.4 million hectares with a proportion of 53 percent owned by large private plantations, 42 percent by smallholder plantations, and the remainder by government plantations. Since 2019, Indonesia has permanently banned the granting of permits to clear new oil palm land.

INDONESIA'S STRONG ACHIEVEMENT AND COMMITMENT

In fact, Indonesia has succeeded in reducing the rate of deforestation significantly. Data shows that Indonesia's deforestation in 2000 was 3.5 million hectares; in 2003 it fell to 1.08 million hectares, in 2013 it fell again to 730 thousand hectares, in 2017 it was 630 thousand hectares, in 2020 it fell to 460 thousand hectares, in 2021 it fell again to 113 thousand hectares and in 2022 it lowered to 104 thousand hectares. Hence, the trend of deforestation continues to decrease significantly from year to year.

In addition, Indonesia carried out a moratorium or postponement of the issuance of new permits in primary and peat forests since 2011 and became permanent in 2019. The country also carried out better peat management, forest fire control, increased forest and mangrove rehabilitation and law enforcement.

Indonesia announced its commitment to restore 600 thousand hectare of mangrove forests (2021-2024) partly by its own budget and also assisted by the World Bank. To date, Indonesia has been approved to receive three significant results-based payments for its performance in reducing deforestation and forest degradation through the REDD+ mechanism from the Green Climate Fund (US$104 million), the FCPF Carbon Fund ($110 million) and Norway ($56 million). In the last 5 years, Indonesia has managed to reduce its forest fire areas by more than 80%.

Indonesia is also determined to achieve the FoLU Net Sink target by 2030. This means that the Forest and other Land Use (FoLU) sector will reach carbon neutrality by 2030 and Indonesia is working hard to achieve this goal, including through the National Action Plan which includes related programs to realize this vision.

Finally, there are two encouraging news that have emerged recently, first, in the World Bank report (August 2023) Indonesia's economic growth has shown "decoupling" which means it has not worsened greenhouse gas emissions and second, the average GHG emissions per capita in Indonesia is 2.6 tonnes of CO2 equivalent (CO2e), which is well below the global average of 4.8 tonnes of CO2e.

Of course, the facts above should be appreciated as clear evidence that Indonesia is a country with many achievements and also a strong commitment to advancing a sustainable environment, including reducing deforestation.

PALM OIL PRODUCTS IN EUROPE

Actually, the black campaign has been carried out for a long time and systematically by parties hostile to palm oil in Europe. In this regard, the image of palm oil is being attacked through the spread of negative information.

The aim is to instill in the public minds that palm oil is a bad product and should be avoided. The campaign to attack palm oil was broadcast on various top platforms such as CNN, BBC, New York Times and also social media and was conveyed by international public figures, whether top film stars, musicians or other well-known influencers. The use of palm-oil-free labeling also occurs to discredit food products made from palm oil.

Several issues raised to tarnish the image of palm oil include (i) environment; (ii) deforestation; (iii) biodiversity (eg extinction of orangutans); (iv) health issues; and (v) human rights (eg child labor). There is also a phenomenon commonly called "moving the goalposts" which means that when one issue that tarnishes the image of palm oil is addressed, they (the image attackers) immediately move to another issue to attack palm oil.

Basically, the reason for a fierce attack on palm oil is trade competition. In this case, palm oil is a superior vegetable oil because palm productivity is 10 times greater than other vegetable oils (for example rapeseed, sunflower and soybeans) and the price of palm oil is also relatively cheaper.

As an illustration, since 2017 exports of Indonesian palm oil and its derivative products to Europe have continued to decline until they only reached 3.5 million tons. Meanwhile, consumption of vegetable oils in the European Union has increased by 4.3 percent (2022). This means that consumers are turning to rapeseed, sunflower and soybeans produced by European Union member countries such as the Czech Republic, Bulgaria and Romania.

Meanwhile, in terms of policy, the European Commission has approved the Renewable Energy Directive (RED II) on 21 December 2018 and its Delegated Regulation on 10 June 2019. These two legal products are intended to discourage, gradually reduce and stop the use of palm oil-based biofuel into the European Union by 2030 or earlier.

In May 2023, the European Union adopted the EU Deforestation Regulation (EUDR) to prevent various agricultural commodities (including palm oil) that are indicated to cause deforestation from entering the European market. The EUDR will be fully implemented in December 2024.

In fact, the EUDR with its various "complicated" provisions will hamper various aspects of the palm oil phenomenon both as an industry, a food product and as a source of renewable energy. What is clear is that if the very demanding EUDR regulations are implemented by the palm oil industry, production costs will become increasingly expensive and palm oil will no longer be competitive. Therefore, what appears to be an effort to promote a sustainable environment essentially has another hidden goal.

Finally, the European Parliament on 18 October 2023 approved new legislation (referred to as the ReFuelEU Aviation Regulation) to increase the use of sustainable fuels, such as advanced biofuels or hydrogen, in the aviation sector. However, palm oil is not recognized as feedstock for a sustainable aviation fuel. Hence, this could be interpreted in a way as a "slap in the face" for Indonesia, which is currently trialling palm-based aviation fuels for Garuda aircraft.

WHAT NEEDS TO BE DONE?

In fact, Indonesia shares the same interests as the European Union in advancing a sustainable environment including reducing deforestation. The promotion of a sustainable environment should unite both parties and not divide them.

Considering the strategic importance of palm oil commodities for its development, Indonesia will stand up firmly to fight hindrances and discrimination against its palm oil. In this regard, efforts to defend Indonesia's interests can take the following steps:

(a) High-level lobbying (preferably at ministerial or even head of government level) to convey Indonesia's concerns. Based on experience so far, high-level lobbying tends to get European attention. For example, the ad hoc Joint Task Force involving Indonesia, Malaysia and EU on EUDR was set up after Indonesia and Malaysia lobbied at ministerial level in May 2023.

(b) Negotiations (such as through the Ad Hoc Joint Task Force on EUDR). In this regard, we are realistic that the EUDR which has been adopted by the EU cannot be withdrawn. however, we emphasize that the European Union needs to accommodate Indonesia's (and also Malaysia's) concerns in preparing guidelines for implementing EUDR. Hence, having a win-win solution is still possible;

(c) Indonesia also needs to continue the litigation process (via WTO dispute settlement body) to resolve disputes regarding RED II and its delegated regulations; and

(d) We need to consider reciprocating steps (if necessary) to respond to discriminatory measures by the European Union. However, we should not overdo this step because Indonesia basically enjoys a trade surplus vis a vis the European Union.

Finally, we also need to send a signal to Europe that the dispute over palm oil commodities should no longer be seen as "low politics" but has entered into the realm of "high politics" which could seriously disrupt relations between Indonesia and the European Union. And, it would be very unfortunate if this happened amidst the geopolitical uncertainty facing the world today.

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The writer is the Indonesian ambassador to Belgium, Luxembourg and the European Union (2016-2020); Indonesian ambassador to the UK, Ireland and IMO (2008-2011); Director General of Asia, Pacific and Africa (2011-2016); and spokesperson for the Ministry of Foreign Affairs (2004-2006)