http://www.globeasia.com/cover-story/fighting-future-palm-oil/
- *Fighting for the future of palm oil * Indonesia scored a victory in March with a ruling by the European Court of Justice that the European Union must scrap anti-dumping duties on imports of Indonesian and Argentine biodiesel products. The decision has sparked predictions of a boost for Indonesian palm oil derivative exports. The industry, recognizing that while it may have won this battle, it still has not won the war, has re-elected Joko Supriyono for a further five years at the head of the Indonesian Palm Oil Producers Association (Gapki). *By Muhamad Al Azhari* The Indonesian palm oil community breathed a deep sigh of relief on March 21 when Director General of Foreign Trade at the Trade Ministry Oke Nurwan announced that the European Court of Justice (ECJ) had ruled that the European Union must scrap anti-dumping duties of between 8.8% and 23.3% on imports of Indonesian biodiesel products. The duties had made exports of biodiesel uncompetitive and, along with pressure in other markets including the United States, had represented a critical challenge for an industry believed to provide sustenance for up to 50 million Indonesians. In the wake of the ECJ decision, the Palm Oil Producers Association (Gapki) in April re-elected its chairman, Joko Supriyono, by acclamation to serve a new term at the head of the business lobby. The association’s national assembly decided to extend the term of the chairmanship and executive board from the previous three years to five. Industry players realize that the organization, which unites major producers in the country, continues to face more challenging work as more and more markets for the commodity are raising trade barriers. Joko’s long experience in the industry was seen as suited for the job. As well as leading Gapki, Joko is also vice president director at Indonesia’s largest listed plantation company, PT Astra Agro Lestari, and an agriculture graduate from Gajah Mada University in Yogyakarta. While at home the industry is considered the pride of the nation, providing millions of people with jobs and now representing the largest source of foreign exchange, on the international stage it is often linked to major negative issues such as deforestation, climate change, destruction of biodiversity, child labor and human rights abuse of indigenous people. Indonesia is the world’s top producer of palm oil. It exported 31 million tons of the commodity last year, 75% of its total production, bringing in $22.9 billion in foreign exchange. The palm oil price has enjoyed a steady rise this year, as it tracks strength in crude oil prices and its price trails movements in rival edible oils as they fight for a market share in the global vegetable oils market. Speaking to GlobeAsia at his office at Astra Agro’s headquarters in Pulogadung, East Jakarta, Joko highlighted the importance of making palm oil a priority in Indonesia’s economic diplomacy. He pointed out that Gapki is important: hundreds of member companies provide jobs directly to about 5 million people and are responsible for the incomes of about 20 million smallholder farmers. Some studies state that, combined with activities in downstream industry, the lives of as many as 50 million people depend on the commodity. *The Dominance of Palm Oil* The veteran executive defended the industry, stating that negative campaigns against the commodity are a form of unfair trade practices by producers of other vegetable oils like rapeseed, soybean and sunflower oil that compete with palm oil, the most widely used vegetable oil in the world. “Of all the battles we are facing, we feel the nuance in Europe is more political,” said Joko, whose career in the agriculture industry stretches back to the 1980s, when he was working with state-plantation company Perkebunan Nusantara II in Medan. Palm oil is a presence in people’s everyday lives. Its by-products are used in cooking, baked products, cosmetics, soaps and as a fuel. But negative publicity about how palm oil plantations operate in the world’s top two palm oil producers, Indonesia and Malaysia (which together contribute 85% of world output), appears to have shaped the perspectives of policymakers in Europe. In January, the European Parliament issued a resolution aimed at prohibiting the use of palm oil in renewable energy by 2021, due to reports stating that the commodity was linked to deforestation. The EU also plans to ban vegetable oil altogether from its renewable energy program by 2030. Some prefer to take a tough line in combating the opposition to the industry. Trade Minister Enggartiasto Lukita on April 18 was reported to have warned Norway's Fisheries Minister Per Sandburg that Indonesia could reject fish imports from Norway if a ban on palm oil proposed by the country's parliament was adopted. Sandburg responded that the proposal was mainly supported by opposition parties in Norway, which dominate the parliament, but would not be taken up. In the past, Lukita has talked about Indonesia needing to be ready for a trade war should the EU curb palm oil imports. Coordinating Minister for Maritime Affairs Luhut Panjaitan is taking a more diplomatic tone. After talks with EU trade commissioner Cecilia Malmström during a working visit to Brussels on April 23, he said he wants to build an “equal partnership” with the EU on the issue. “We want to build dialogue between partners and we hope whatever the decision they make, it will be a win-win solution for every party involved," Panjaitan said, noting that issues such as palm oil’s role in reducing poverty was one factor that would be emphasized. The momentum to ban palm oil is strong, however. Also last month, British supermarket chain Iceland announced it had decided to remove palm oil from its own-brand food products. “For the European market, it seems to us more like unfair trade practices,” said Joko. *Rapeseed, sunflower* In the early 2000s, palm oil was still the second biggest contributor to the world’s vegetable oil market, with a 35.64% share. Rapeseed and sunflower sat in third and fourth spots, with 20.2% and 13.62% market share respectively. Indonesian producers believe the EU threat of a ban is a means of boosting the role of the two important European crops. They argue that palm oil has many advantages. It is the highest-yielding vegetable oil crop, making it cheaper for consumers. That helped it take the lead in the global vegetable oil market in 2008, with 41.47% market share. Over half of the supply came from Indonesia. In that year, soybean oil’s market share declined to 32.03%. However it was sunflower oil that was the most affected by rising demand for palm oil, with its market share dwindling to 9.4% from a high of 18.14% in 1990. Industry players believe a push from the EU’s domestic agriculture sector is behind various policies, including a renewable energy directive in the EU in 2009, that discriminated against palm oil. Gapki and the industry players can’t understand why their super-efficient crop, which produces 4-10 times more oil than other crops per unit of cultivated land, can be beaten by other crops like sunflower, rapeseed oil and soybean. Producers argue that replacing palm oil with other types of vegetable oil would need a much larger amount of land and this could lead to serious environmental damage as more forests would need to be cleared for agricultural land. *Europe’s Biodiesel Market* Considering the vital role of the sector to the nation, Gapki has constantly pushed the government to strengthen efforts to lobby the EU. The association believes a government-to-government approach will be most effective. “I recently met Arif Havas Oegroseno, Indonesia’s ambassador in Germany,” said Joko. “I told him that it is not just a battle of the industry anymore. We have done our homework. Today it is more about politics and I urge diplomats to come to the front line.” In a bid to change the perceptions of the international community, industry players have to loudly promote their ‘no deforestation’, ‘no peat’, ‘no child labor’ policies and they must secure various certification, including from the United Nations Global Compact, the International Sustainability and Carbon Certification and the Roundtable on Sustainable Palm Oil. A number of palm oil producers have put a ‘sustainability dashboard’ in their official websites to promote their commitment to sustainable practices. The visit of Luhut Panjaitan to Europe demonstrates that the government has got the message and realizes it has to work hard to defend the industry. The EU, up until today, has been a stable market, contributing the second biggest demand after China. But opposition has been growing to the commodity. In 2013 the grouping applied anti-dumping duties, which until they were overruled by the ECJ, saw the value of Indonesia’s biodiesel exports to EU countries contract to just $14.7 million in 2015 from $1 billion in 2012. And while China continues to outstrip Europe as a market for palm oil products, the biodiesel market in the economic grouping is important, with a requirement for about 11.36 million tons of biodiesel annually. The push for renewables is gaining strength in Europe as the region intensifies efforts to reduce its dependency on fossil fuels. *THE US MARKET* Another battle has to be faced in the US market. The US Commerce Department in February imposed punitive import duties on biodiesel from Indonesia and Argentina. That priced Indonesia’s biodiesel out of the market. The US insists that Indonesia subsidizes its biodiesel industry. Industry players believe the US under President Donald Trump may have misunderstood the role of semi-government agency the Oil Palm Plantation Fund Management Agency as a subsidy for biodiesel producers. Indonesia plans to take the case to the World Trade Organization, but analysts say fighting the US policy under protectionist President Trump could be tiring work. “For the US, I think it is purely a misunderstanding. We have to explain that it is not dumping,” Joko told GlobeAsia. This is not the first time the US has been tough with palm oil. In 2012, the US Environmental Protection Agency announced a plan to exclude palm oil from its biodiesel program. It’s no coincidence that the US is the world’s biggest producer of soybean. Losing the market would be a blow to the industry. In 2016 Indonesia exported 350,000 tons of palm oil-based biodiesel to the world’s biggest economy. Efforts to diversify export markets have been made, including by boosting shipments to China and looking at the prospects in the domestic market. Indonesia, with its big population, is a major consumer for anything, after all. According to M. Fadhil Hasan, director of corporate affairs at Asian Agri Group and a board member of Gapki, the biggest markets to consider are Indonesia, India and the EU. The government is helping. It has made it mandatory for all biodiesel to contain a minimum 20% blend of bio-content in its B20 program. However, in practice not all biodiesel producers can afford to comply as blending means higher costs. In the short term, according to Fadhil, the price of palm oil will be determined by crude oil prices, the difference in price of palm oil versus soybean and EU and US policy on palm oil. Indonesia’s mandatory B20 program isn’t strong enough to push prices of the commodity. According to a Reuters report on April 20, the benchmark palm oil contract price for July delivery on the Bursa Malaysia Derivatives Exchange rose 0.5% to 2,414 ringgit ($619.77) a ton. Fadhil is projecting the price of palm oil in 2018 to hover at $710-$720 per ton. The industry experts say not too much can be expected from the China market. The giant country is forecast to experience flat consumption growth due to moderation in GDP growth. There is still a slight hope the country will boost its biodiesel demand as authorities are considering adopting a B5 policy that requires biodiesel to be mixed with 5% renewable products. Like India, China is considered a friendly market for the palm oil industry. The country imported 3.2 million tons of palm oil products in 2016. *Never-Ending Lobby* Despite a more friendly face toward the industry from the government, illustrated by the participation of President Joko Widodo in a palm-oil replanting program in Musi Banyuasin regency in South Sumatra, the government has implemented a moratorium on licenses for new plantations, on concerns over potential environmental degradation. The replanting program, in which the government is giving free seeds to smallholders, seeks to improve the quality of palm oil fruit, which in turn means better production volume. Speaking to reporters after he was re-elected as chairman of GAPKI in the association’s national assembly on March 16, Joko said the organization is grateful to the president for his support for the industry. Operators will bow to the government’s policy curbing palm oil plantation expansion by focusing on intensification of cultivation through increased productivity, he said. Gapki is committed to support acceleration of the government program, including by looking at options to help finance replanting activities, said Joko. Smallholders control 42% or around 11 million hectares of oil palm plantations. Joko said Gapki is also committed to fighting the negative narratives hanging over the palm oil industry. After scoring a loss during President Susilo Bambang Yudhoyono’s administration when a moratorium was placed on new plantation permits, Gapki has been more successful under President Jokowi, blocking demands from NGOs for a review of existing palm oil concession permits under the mechanism of the moratorium. The group’s lobbying led to the formation of an inter-ministerial coordination program that includes a campaign to counter the attacks of the environmentalists. Indonesia moved to establish the Council of Palm Oil Producing Countries, or CPOPC, a body sponsored by Indonesia and Malaysia that serves as a platform against policies that aim to hurt the industry or the interests of producer countries. Clearly, there is no end in sight for the battle for palm oil’s place in the world. Dono Boestami: Indonesian Oil Palm First *i* *By Defrizal Muhammad and Tri Listyarini* Dono Boestami, 55, has tended to take a relaxed view of life, preferring to see where his destiny wants to take him. No planning was involved in any of his various career moves from finance and banking, mining and infrastructure to transportation. Now he has been appointed to head the Indonesian Oil Palm Estate Fund ((BPDP KS) aimed at maintaining sustainability of the oil palm industry, now the nation’s number one foreign exchange earner. Born in Surabaya on January 13, 1963, Dono graduated in civil engineering from the University of Wisconsin. He then joined PT Bank Niaga, which later became PT Bank CIMB Niaga Tbk. In 2006, Dono had the opportunity to enter the mining business at state-owned coal miner PT Bukit Asam. He then became the president director of PT MRT Jakarta before being appointed to the Palm Estate Fund. Through his many visions, he has come to believe that the key to success is communicating and maintaining credibility. All problems can be solved with effective communication. That has made it easier for him to adapt to any business environment while maintaining credibility. His motivation is to do the best he can to achieve the best results. “Good is not good enough when better is expeted,” Dono told GlobeAsia’s Muhammad Defrizal and Investor Daily’s Tri Listiyarini in an interview at his office. Excerpts: *GA: Can you tell us more about the early part of your career in finance and banking?* DB: After I graduated I joined Bank Niaga through its PPE (executive training program). Then Citibank, Barclays and Danareksa, in the field of investment banking, commercial banking, multifinance. Then at Bukit Asam, I helped in the company’s initial public offering (IPO). What I have been doing did not relate to my formal education as engineer except for MRT which needed a technical background. Now I am in an entirely different world, plantations. *How did you come to work at the Fund?* All that, in my career, I never planned, just followed my destiny. God’s will. At times I was asked to help like when I was at Interpac, a joint venture between Japanese, French and BRI banks. Also at Barclays and Danareksa. Then at MRT. I joined MRT in 2013 after the project had stalled for eight years. I was asked to meet the governor and deputy governor at that time. The first thing I did was to review the project. The same goes with the Fund. The program had stalled. I joined the Fund in February last year. It took six months until October before the Fund’s program was running again. *So your career journey was unintentional?* I wanted to be a lawyer or accountant. Both professions were in my mind. I did not hunt for a job but the job hunted me. But it was difficult during my university student days whether to choose to study law or accountancy. Both require heavy memorizing. If I chose engineering, it’s more about logic. It’s easier. It was only MRT which was in line with my studies and where project and construction management was needed. *Did you meet difficulties in adapting to the Fund?* Actually no. My career in banking and finance exposed me to various industries. I happened to have a client who was in the oil palm business. I went out to the field, the plantation to see the process from planting to production. The problem now, which many people don’t understand, is what the Fund is all about. We have to continue explaining to people. There is no other organization such as the Fund. In Malaysia, they have the Malaysian Palm Oil Board (MPOB) and the Malaysian Palm Oil Council (MPOC). The Fund can be said to be a combination of the two Malaysian organizations. In Malaysia, they are the regulators but in Indonesia the Fund is not. We manage funds for sustainability of the plantations. One of the programs is providing funding for replanting so that the players, the farmers and the industry are sustainable. Since October last year, we provided the funding involving the government. The money doesn’t come from the government but from the businesses and collections from exports. We manage the funds from exports to execute the government program in the interest of the oil palm industry. The legal umbrella is the Plantation Law. I studied it and discovered that it was simple. We sat down with the minister, the director general and formulated the People’s Oil Palm Replanting Program (PSR) and we were able to begin implementing it last October. *What is your strategy in advancing the Fund?* The challenges are quite complex and unique, bureaucratic and organizational. The main objective is to formulate a national program which will work but without funding from the state budget. We don’t lead but provide funding support. If an oil palm replanting program stalls, it is not our responsibility. But if the program isn’t working due to lack of funding, that’s where we have to come in. *What is the most crucial problem faced by the national oil palm industry?* There is a gap, especially in diplomacy and communicating on oil palm. When I first came, I discovered an empty room in diplomacy and communicating on oil palm. No systematic campaign had been formulated. Existing campaigns are conducted without coordination. This is the area we are fixing. We are working with the Ministry of Information and Communications. We prepare the information on oil palm obtained from the industry players, associations, analysts and academics. We see that the associations have their own interests. So do the industry players. Oil palm is a complex issue. We need to sit down together for a unified goal to promote the welfare of the oil palm farmers. If there were no other interests, it would be simple. Replanting works now but why didn’t it in the past? If these interests want to be on their own, have their own programs and own funding, go ahead. We can’t restrict them. But if they want to work with us with the same goal, they are welcome. We have the resources, huge sums of money; the only thing is how to use the funding as efficiently as possible for the sake of the oil palm industry. It’s Indonesia oil palm first. For external affairs, we work with the Ministry of Foreign Affairs, especially for high-level diplomacy. We will provide our diplomats abroad with the ammunition they need to campaign on the image of Indonesian oil palm. On the home front, naturally we work together with the Trade and Industry Ministeries. *What are the hurdles?* Again, it’s communication. In the past, when I first joined Bukit Asam, coal share prices plummeted. With proper communication, the problem could be solved. The same with biodiesel. Why must biodiesel be prioritized instead of oil palm replanting? This must be explained. Currently there are many smart people. But the problems of oil palm still remain. Why didn’t they solve it? If they had done that, maybe there was no need for the Fund to exist. Now there are still many government and local government offices which still don’t understand why we have to sustain the oil palm industry. *How do you stay healthy and deal with the stress?* I like good food, walking, biking and golf. Walking and golf are still routine while biking only once a while. I want to live a healthy life. I have a passion for mountain bikes. I used to have at least five bicycles and ride with the biking community. Dono Boestami, president director of BPDP Kelapa Sawit (Photo: Muhammad Fadli Rizal/kumparan) He believes that if Indonesia loses its palm oil markets, the biggest losers will be the farmers. And, he adds, if compared with any other form of oilseed, palm oil has the largest productivity per hectare. He believes that will make it difficult for the European Union to switch away from palm oil, especially considering the limited land available in Europe. Box (for Dono Boestami piece) EU Delegation Visits Jambi In Dono Boestami’s view, the visit of the EU ambassador and his delegation to an oil palm plantation in Jambi showed that Indonesia has a strong commitment to carry out the principles of sustainability and that the management of Indonesia’s oil palm industry has nothing to hide. “What more can we do to have this transparency. We facilitated the EU delegation to see for themselves what they probably have never seen,” Dono commented. On April 15, a number of ambassadors from European Union countries, led by EU Ambassador to Indonesia and Brunei Darussalam Vincent Guerend, visited Jambi to inspect oil palm plantations. Ambassador Guerend was accompanied by Austrian Ambassador to Indonesia Helene Steinhausl, Irish Ambassador Kyle O’Sullivan, Polish Ambassador Beata Stoczyska and Swedish Ambassador Johanna Brismar-Skoog. Also included in the delegation were EU climate change and environment counselor Michael Bucki, senior advisor at the Danish Embassy Per Rasmussen, head of the science and technology division of the German Embassy Edmond Svann-Marie Langguth, head of the economic department of the Dutch Embassy Siebe K Schuur, and UK lead forestry adviser at the British Embassy, Paul Eastwood. Dono explained that Europe is an important oil palm market for Indonesia and ranks third after India and China. Europe is also an important partner for Indonesia but the EU also needs Indonesia as trading partner in Southeast Asia. “This is where mutual understanding and mutual respect are needed. Both sides lose if a boycott is implemented,” said Dono.
