Commentary: EU moves to wipe out palm oil from the European economy

• Vincent Lingga

  The Jakarta Post

Jakarta | Wed, April 12 2017 | 12:09 am

The European Union has since 2013 been slapping anti-dumping countervailing duties on Indonesian exports of palm oil-based biodiesel, despite a lower EU court ruling last year that annulled the duties. 

Then early last week, the European Parliament voted overwhelmingly to totally ban biofuels made from palm oil by 2020 to prevent the EU target of sourcing 10 percent of its transport fuels from renewables from inadvertently contributing to deforestation.

While the motion is not yet legally binding, EU lawmakers are now drawing up amendments to EU legislation that would be legally enforceable if approved by the European Commission.

We see this move and its objective simply as an illusion. Certainly, the EU cannot take a farm commodity out of its economy and think that would solve its problems. The political move would instead only damage EU ties with Indonesia and Malaysia, which together supply more than 80 percent of the world’s palm oil, and many other smaller producing countries in Africa and Latin America.

Yet more worrisome, the palm oil issue could become a perpetual thorn in the side of Indonesia-EU relations at a time when they are negotiating a comprehensive economic partnership agreement.

The EU Parliament’s motion seems to have been prompted mostly by the strong lobbying of the EU vegetable oil (soybean, rapeseed and sunflower) industry, which naturally would never be able to compete with palm oil. 

Palm oil, which now accounts for almost 50 percent of global vegetable oil consumption, has increasingly been leading the market as its yield per hectare is estimated by agronomists at nine times as high as soybean, five times as high as rapeseed and eight times as high as sunflower.

Palm oil is now the most widely used vegetable oil in the world. It is almost impossible for most consumers to go a day without using or eating something that contains palm oil. Some analysts in Europe have even predicted that palm oil will steadily grow to be a US$88 billion industry by 2022.

Palm oil has been developing as one of the biggest non-oil exports from Indonesia and a very important part of the economy, as 40 percent of the estimated 11 million ha of oil palm estates are owned by smallholders. Indonesia exported around 26 million tons last year, or almost half of the global palm oil trade.

In fact, data submitted to the EU Parliament showed that palm oil lately accounted for two-fifths of all global trade in vegetable oils, and the EU is the second largest consumer, with annual imports of 7 million tons. Almost half of these imports are used to make biofuels.

True, in the first decade after the beginning of the palm oil boom in Indonesia in the mid-1990s, oil palm estate development had caused deforestation and sometimes community 
conflicts.

But due to strong pressure from international consumers with the full support of green NGOs and the increasing awareness on the part of the government of climate change impacts, the industry has been subjected to much tougher rules designed to make the commodity sustainable economically, socially and environmentally. 

Palm oil producers are now overseen and ruled under the sustainability standards of the Indonesian Sustainable Palm Oil (ISPO) program, which is legally compulsory; and the international multi-stakeholder Roundtable on Sustainable Palm Oil (RSPO), a market-driven certification scheme. 

A nationwide sustainability certification program has been implemented since the early 2000s under RSPO and ISPO principles and criteria by accredited certifying bodies supported by independent social and environmental auditors. In fact, oil palm cultivation is arguably the most transparent industry now, as its farm practices are periodically examined by auditors and constantly scrutinized by 
green NGOs.

Chain Reaction Research (CRR), which is partly funded by the Norwegian Agency for Development Cooperation (Norad), concluded after a study last year of the 10 biggest oil companies listed in the Indonesia Stock Exchange (IDX) that major palm oil growers have increasingly found that what is bad for the environment is also bad for business.

The financial risk of losing buyers committed to sustainable supply chains has helped motivate four of the biggest planters to mend their ways, according CRR, which conducts sustainability risk assessment for financial analysts and investors in environmentally intensive commodities, especially palm oil, and pulp 
and paper.

The survey shows the No Deforestation, No Peat, No Excessive Exploitation (NDPE) policies do have an effect on suppliers to strengthen their sustainability policies and practices.

Despite the progress, green NGOs have constantly attacked the sustainability campaign, either motivated by real concern about environmental damage or influenced by lobbyists funded by EU and United States vegetable oil producers who are afraid of the palm oil competitive advantage. 

Certainly, the achievement of the sustainability campaign is still short of expectations as the program is an ongoing development process, especially as the industry also involves millions of smallholders with complex poverty problems. The problem has been made more complex by the huge gap in land titling in the country.

But a blanket ban, as the EU Parliament recommended, is destructive, only reflecting a stance of bad faith that tends to see a glass-half-empty situation instead of half full.

A constructive engagement modeled on the scheme EU and Indonesia have established under the EU Forest Law Enforcement, Governance and Trade (FLEGT) is much more productive for the global economy. This program audits the entire supply chain in Indonesia, up from the source of timber to downstream processing until the point of exports to ensure social and environmental sustainability.

Read full post »

Commentary: Still waiting for long-delayed reform of logistics services

• Vincent Lingga, The Jakarta Post

Jakarta | Thu, April 6 2017 | 12:19 am

A raid by the police at the East Kalimantan port of Samarinda on March 17 uncovered massive rent-seeking practices and confiscated Rp 6.1 billion (US$450,000), believed to be illegal fees collected by stevedores from coal mining companies. 

A preliminary investigation found that most coal companies had been extorted by stevedores organized under the Komura cooperative. Some firms even claimed having to pay up to $220,000 in monthly illegal fees, otherwise their coal exports were not loaded. Police also found that stevedores charged up to Rp 180,000 per 20-foot container and Rp 350,000 per 40-foot container, more than 15 times the fees charged at other major seaports. 

The massive illegal levies are only a small part of the labyrinth of seaport handling in Indonesia, which has made our logistics costs the highest in Southeast Asia. 

But as the world’s largest archipelagic country with over 14,000 islands, ports as the key part of sea transportation play a vital role within the logistics system. 

There are two main constraints in the system. One is the lack of physical infrastructure and the crumbling of a lot of existing infrastructure. This problem is being solved through the development of infrastructure, such as ports, airports and roads, which has been accelerated since 2015.

The second constraint, inefficiency caused by regulatory and bureaucratic barriers and corruption, is supposed to be the main target of the 15th reform package. 

It is now almost four months since chief economics minister Darmin Nasution pronounced that “the 15th reform package, which will focus on the logistics system, will be issued within a few days.” Yet the launch date remains uncertain.

The long delay only shows the complexity of the tangled regulatory and bureaucratic web affecting the logistics system. The port-handling process alone involves more than a dozen institutions and service providers apart from land transportation.

The utter inefficiency in port handling and sea transportation in Indonesia has often been exposed by studies by national and foreign institutions. But even incremental improvement seems difficult.

After a few months in office President Joko “Jokowi” Widodo set up in early 2015 a special task force in charge of expediting dwell times — the total time spent releasing containers from the port after a vessel berths — at major seaports to two to three days from as long as one week.

But after two years, the dwell time even at Tanjung Priok, Indonesia’s largest port that handles almost 70 percent of the country’s imports, remains one of the most inefficient in the ASEAN region.

No wonder a 2016 World Bank report cynically noted: “It is cheaper to ship a container from Shanghai, China, to Jakarta than from Jakarta to the West Sumatra capital of Padang, though Shanghai and Jakarta are six times farther apart than Jakarta and Padang.” 

Inefficient port handling and sea transportation hinder connectivity between the islands, preventing least developed regions from linking to growth centers on other islands. Poor sea freight logistics makes it very difficult to connect resource-rich regions on the outer islands such as Sulawesi, Kalimantan, Papua, Maluku and Nusa Tenggara to the more developed Java and Sumatra.

This connectivity problem has been among the main barriers to the development of manufacture on the sparsely-populated outer islands, because manufactured products have to be transported either to the most-populated islands of Java and Sumatra or be exported.

However, poor sea transportation makes the supply chains extremely fragmented and prevents manufacturing companies from integrating into global value chains.

The 2016 World Bank study concludes that manufacturers estimate logistics costs account for 20 percent of their sales, comprising 40 percent for transportation and cargo handling, 17 percent each for administration and warehousing and 26 percent for inventories, also the highest in Southeast Asia. 

The high inventory costs reflect the uncertainty in supply chains, as many industrial companies often simply don’t know when their inputs or parts will arrive due to uncertainty in port handling, bureaucratic paperwork and inefficient road transportation. 

A 2013 study by the Bandung Institute of Technology and the Association of Indonesian Logistics concluded that transportation accounted for almost 50 percent of logistics costs. This study also blamed price differences between regions on poor connectivity, as unreliable supply chains prevent traders and local producers from responding timely to price changes. 

Logistics services also suffer from an extremely fragmented regulatory and licensing system as too many institutions issue and implement too many regulations.

“We operate in a highly fragmented regulatory environment, as each service component of the logistics system requires permits from different institutions and is subject to different laws and regulations,” says H. Syarifuddin, the executive director of the Association of Courier, Postal and Logistics Service Providers (Asperindo).

For example, trucking, freight forwarding and warehousing need to be registered with different government agencies, thereby preventing the integration of supply chain services. This fragmentation means laws and regulations are developed separately by each ministry. Worse, the logistics sector also is subject to the different regulations of local administrations.

This is quite inimical to enhancing efficiency, because as a growing sector, the logistics services industry is constantly evolving to meet new demands that need a more integrated approach that ensures efficiency throughout the supply chain.

In today’s increasingly complex logistical industry and particularly in Indonesia, a comprehensive solution to managing multiple aspects of a business is urgently needed. Under such a framework, companies, instead of organizing supply chains with multiple service providers, would only need to deal with a single business entity that manages the entire supply chain.

Read full post »