The Fight Over Palm Oil Funding 
Written by John Berthelsen    
Thursday, 02 September 2010 
The World Bank Group seeks a middle path between development and 

The global oil palm industry, providing either the world's most indispensable 
cooking oil or the last nail in the coffin of the world's rain forests, is the 
focus of an intense struggle for funding within the World Bank Group, the 
world's biggest development lender. 

The bank and its investment arm, the International Finance Corporation, are 
gingerly entering the controversy over deforestation and sustainable 
development for palm oil. The IFC is working on a new plan to determine the 
bank's direction on lending to the sector. The bank group has temporarily 
suspended its new investments in the sector, it said in a prepared statement, 
until it finalizes its common approach.

Called the Draft Framework for Engagement in the Palm Oil Sector, the 48-page 
document by the IFC seeks to provide the rationale for the bank group's 
operations in fighting poverty without compromising economic, environmental or 
social sustainability. The final draft was presented to a World Bank group 
management session in Frankfurt on Sept. 1 and is now to be disseminated to 
interested parties who will attempt to sway it in different directions.

Sources say there is a considerable controversy going on within the bank itself 
between advocates of development and environmental critics. Whatever the World 
Bank and the IFC does is bound to have a big effect on the industry. The World 
Bank and the International Monetary Fund (IMF) together probably have more sway 
in the third world than any other institutions. The path of development 
suggested by the framework on palm oil can be expected to have a considerable 
impact, for good or ill, on what is called the earth's green lung - the vast 
and endangered tropical rainforests of Africa and Southeast Asia. 

The IFC, headquartered along with its parent in Washington, DC, is the largest 
multilateral source of loan and equity financing for private development in the 
developing world, providing aid for private industry to gain financing in 
international markets and providing technical advice and assistance for 
development, both to private interests and governments.

And, despite what looks like a feverish attempt to steer down the middle 
between environmentalists and palm oil producers, the IFC's draft appears to 
have enraged the oil palm industry. World Growth, a nonprofit NGO that supports 
vastly increased oil palm planting, called the report "deeply flawed" and said 
it "undermines the response to the global food crisis." 

Oil palms are cultivated commercially on some 12 million hectares globally, 
about 85 percent of that in Malaysia and Indonesia. For consumers in China, 
Pakistan and India, among others, palm oil is by far the biggest and cheapest 
source of edible oil. Nearly three million people are employed growing oil 
palms in Indonesia and about 6 million directly worldwide, with smallholders 
managing about 49 percent of Southeast Asia's plantations and 80 percent in 

But, despite the World Growth NGO's emphasis on the plight of smallholders, 
plantation owners such as Sinar Mas in Indonesia and Sime Darby and others in 
Malaysia are vast conglomerates that can swing the way governments do business. 
In the face of the continuing passage of environmental laws and pronouncements 
from the capitols of Indonesia, Malaysia and other countries which have oil 
palm plantations, environmentalists charge, the big plantations continue to 
destroy rainforest with impunity.

The critics accuse the industry of being a major contributor to global warming 
by burning to clear land for plantations and with it destroying deep peat, 
releasing greenhouse gases into the atmosphere, and by devastating rainforest 
diversity of species including such endangered species as the orangutan 

In particular, Greenpeace has earned the enmity of the producers by persuading 
major European buyers, including Nestle and Unilever, two of the world's 
biggest consumer products companies, to stop using palm oil in their products. 

Critics accuse the bank of paying little attention to local needs and of 
funding needless environmental destruction, particularly through the 
construction of big dams. Although the bank temporarily drew back from funding 
big dams in the 1990s, it has resumed, with bank officials saying that now they 
are paying attention to the social and environmental damage wrought by big 
dams. Critics disagree.

"Since its founding, the Bank has supported more than 550 dams around the 
globe, with over US$90 billion (in 2007 dollars) in loans and guarantees," 
charged the Berkeley, Calif. International Rivers Network in a 2007 report. 
"World Bank-backed dams include some of the world's worst development 
disasters, and their legacy lives on." 

The bank has also been criticized by environmentalists for lending to build 
coal-fired plants in developing countries. A US$3.75 million package to build a 
4,800 MW facility in South Africa drew fire earlier this year, with critics 
saying the bank should seek to resolve its mission to alleviate poverty with 
its newer goal of helping reduce carbon emissions, according to the Bank 
Information Center, an NGO that seeks to influence to promote environmental and 
other causes. 

In the framework document, the IFC said that, "depending on private sector 
interest and opportunities, the IFC will, through its investments and advisory 
services products, support private sector development and promote 
environmentally and socially sustainable palm oil production. These 
interventions will be informed by the four themes identified in the present 
framework and focus in particular on broadening support for smallholders, 
expanding the number of internationally certified companies and increasing the 
supply of Certified Sustainable Palm Oil. 

The document also reports that "the process of land acquisition for large-scale 
oil palm development can generate negative impacts on communities including 
small farmers and indigenous groups, particularly when land titles are unclear 
or unrecognized," and that "about 70 percent (4.2 million ha) of Indonesia's 
palm oil plantations are on land that was at one time forested; more than 56 
percent of the expansion between 1990 and 2005 occurred at the expense of 
natural forest cover." 

The IFC, the document says, "will invest only where its interventions will meet 
IFC's Performance Standards and will have clear and measurable development 
impacts that contribute to economic growth and poverty reduction. In 
particular, IFC will only invest in plantation operations that are certified 
for sustainable palm oil production according t o an internationally-recognized 
certification scheme, or have a time-bound action plan to achieve such 

World Growth, however, argues that Greenpeace has faked its findings of 
environmental depredation and that cutting back on oil palm production will 
hurt smallholders in tropical countries and contribute to global starvation by 
ruining their livelihoods and making palm oil more expensive for the hundreds 
of millions of people who depend on it for their source of edible oil. Palm oil 
is about 30 percent cheaper for consumers than any other oil.

"The World Bank Group is bowing to the advocacy of environmental NGOs which do 
not factor development objectives into their environmental strategies," World 
Growth Chairman Alan Oxley said in a letter made public Monday. "The Bank has 
proposed a new policy approach for palm oil which will substantially alter the 
(bank) group's current approach and runs counter to formal Bank policy. It will 
reduce Bank support for private investment in palm which has been more 
successful than almost any other commodity crop in reducing poverty"

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