International Palm Oil Conference on November 27-28 of 2013, in Bandung, Indonesia

1. New Challenges for Sustainable
Production of Major Vegetable Oils
Bustanul Arifin
barifin@uwalumni.com
Professor of Agricultural Economics at UNILA
Professorial Fellow at InterCAFE and MB-IPB
Senior Economist with INDEF-Jakarta
International Palm Oil Conference on November 27-28 of 2013, in Bandung, Indonesia

2. Outline of Presentation
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Non-state regulation: Global certifying partnership
Price trends of major vegetable oils 2008-2013
Challenges of certifying partnership in CPO
Challenges in import dependence of soybean
ABGC Partnership in black soybean Mallika
Conclusion: Research agenda and policy changes

3. Introduction: Setting the Problems
• Growing importance of non-state regulations, especially
on sustainability regulations in food/agro-commodities;
• Slow and mixed responses from private, state agencies,
NGOs activists in developing country food producers;
• Research connecting the dynamics of global initiatives on
sustainability regulations to the ground-based agro-food
economy in producing countries is disappointingly scant;
• Speculations: buyer-driven regulations of environmental
governance in major vegetable oil industry have
restructured the supply chain in producing countries, but
resistance from state-affiliated agencies (and/or creating
alternate regulations) further complicate adaptation of
non-state regulations in most developing economies.

4. Why Non-State Regulations (NSR)?
• NSR: corporate codes of environmental and social conduct,
which are essentially self-regulating systems.
• Recent trends, towards legal enforceability of declared codes
and mandatory public disclosure requirements suggest that such
codes are not always as “voluntary” as they may seem
• In one hand, growing significance of NSR is expected to
“democratize” markets by increasing the role of civil society in
regulating production and trade-related activities.
• On the other hand, standard and certification institutions could
serve simply as new vehicles of corporate control over global
food production, trade and consumption.
• In food and agro-based commodities, “buyer-driven” governance
is however more dominant than “producer-driven” governance.

5. Market force in sustainable agro-food production
• Expansion of agricultural land into forest area: higher
income streams, increasing returns to land and to labor,
due to favorable price incentives (pull-factor) and
population-induced land use intensification (push-factors).
• Subsistence approach: Pressures on increasing food
demand and income requirements, so that policy
recommendation would focus on population control and
agricultural intensification.
• Market approach: Relative profitability of agricultural
production so that that policy focus is on the rest of the
economy and alternative employment, despite of very
dependence on local-specific resource.

6. Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
US Dollars per Metric Ton
Price Trends of Major Vegetable Oils 2008-2013
2500
2000
1500
CCO
SO
SFO
1000
RSO
CPO
500
0

7. Certifying Partnership of CPO in Indonesia
• Indonesia is the largest CPO producer, reaching
about 24 million ton in 2012 and growing at 5,1%
• Productivity gap between smallholders and largescale plantations is widening (2.86 ton/ha vs. 3.54
ton/ha).
• Palm oil industry supports regional development
and poverty alleviation, in rural areas of Outside
Java
• However, rapid expansion of large-scale
plantation often triggers land-conflicts and
declining natural forests, stimulating debates at
the policy level and even at the local & field level
• Two main schemes for sustainability, RSPO &
ISPO and possible enforceability at the field level;

8. Export Destination of Indonesia’s CPO (%)

9. Production of CPO by Industry Group
Tabel 1.1 Produksi Kelapa Sawit Indonesia Tahun 2004-2010*/
Productions of Palm Oil in Indonesia 2004-2010*
14 000 000
12 000 000
10 000 000
8 000 000
6 000 000
4 000 000
2 000 000
0
2004
PR/Smallholders
2005
2006
2007
2008
PBN/Government Plantations
2009
2010*
PBS/Private Plantations
• In term of production, the share of smallholders’ plantation 36% (7,6
million tons), while those of state-owned and private plantation are
12% and 52%, respectively.
• In terms of land area, the share of smallholders is decreasing to only
41%, while that large-scale plantation is increasing to 48%, and the
remaining 11% is state-own enterprise, but tend to decrease.

10. Domestic Issues in the CPO Industry
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Land conflicts, poor spatial planning and peat-land management
Policies on export tax and value added tax do not reflects the
deepening strategy of downstream industries
Regional levy and retribution for the shake of local autonomy
Poor infrastructures, connectivity and business climate
Moratorium forestry policy due to REDD schemes
Inadequate research and development (R&D) strategies
Unclear pricing policy for biofuels industry and development

11. Future Challenges of Indonesian Palm Oil
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Threats of global economic crisis, triggered by European cases
Trade protection and non-tariff barriers of destination countries
Price fluctuation does reflect traditional market mechanisms
Concerns of sustainable standards and remerging health issues
Buyer-driven supply chain, as a typical agro-based commodities
(eg: accusation from Nestle, Greenpeace etc is only a symptom)
Unpredictable responses to the alternative energy movement
Issues of foods vs. fuels are more real than it was 10 years ago

12. Soybean: Complicated Problems
• Soybean production in 2013 is 808,000 tons,
(used to be 1.8 million ton in 1990s), yield is 1.44
ton/ha, while the consumption is 3 million ton.
• Indonesia has been importing soybean from the
US, Argentina, and some from Brazil.
• During the 1980s and 1990s, soybean imports
were controlled by the logistic agency (Bulog),
but now are more open to any private sectors:
• The Indonesian Tofu and Tempe Cooperatives
(Kopti) is interested in restoring the privilege of
obtaining import rights, such as in the 1990s.
• The government has to carefully formulate trade
policy on soybean import, as this commodity is
one of SPs (special products), the country’s
commitment in the WTO negotiation.

13. Serious: Declining Area & Soybean Production
Average yield grows at 1,13 % per year
Average production declines at 3,19 % per year
Harvested area declines 4,18 % per year
Sumber: BPS, various years

14. Import Dependence of Soybean (ton)
Products
Total
Soybean
Soy-meal
Soy-oil
2001
2.720.986
1.136.419
1.570.187
14.380
2006
3.263.169
1.132.144
2.116.058
14.967
Increasing rate: 85 % in the last 10 years
1. Soybean : 84 %
2. Soymeal : 87 %
3. Soy-oil : 37 %
Source: TradeMap 2012
2011
5.046.893
2.088.616
2.938.556
19.721

15. Inter-Island Trade Map of Soybean Indonesia
Main Hubs: Jakarta, Surabaya, NTB dan Makassar
DI. ACEH
MALUKU UTARA
SUMUT
KEPRI
SULUT
KALTIM
GORONTALO
RIAU
KALBAR
SUMBAR
JAMBI
SULTENG
KALTENG
BABEL
MALUKU
SULBAR
KALSEL
BENGKULU
SUMSEL
PAPUA
SULTRA
SULSEL
LAMPUNG
DKI JAKARTA
JABAR
JATENG
DIY
JATIM
BALI
NTB
Source: Hakim, 2009
NTT

16. Price of Soybean: Domestic vs. Import
(Inefficiency, implicit protection, non-market competition, poor competitiveness)
8,000
6,000
5,000
(Rp/Kg)
7,000
IMPOR"
DALAM NEGERI
4,000
3,000
2,000
1,000
2001
2002
2003
Source: TradeMap 2012
2004
2005
2006
2007
2008
2009
2010
2011*)

17. Domination of USA Soybean in Global Market (%)
Countries
China
Mexico
Japan
Indonesia
Taiwan
Egypt
Netherlands
Korea
Spain
Germany
Thailand
Malaysia
Others
Source: TradeMap, 2012
2001
19.85
14.81
12.64
3.52
7.27
2006
36.97
14.08
12.06
3.95
7.02
6.97
4.15
4.73
5.17
1.98
0.82
18.10
4.03
1.97
0.60
4.71
1.25
0.77
12.58
2011
61.50
8.74
5.24
5.11
3.57
2.13
1.63
1.53
1.38
1.37
1.32
1.03
5.44

18. ABGC Partnership in Black Soybean Mallika

19. Unilever, UGM, Farmer,
Co-op & Government
• Unilever takes over “Kecap
Bango” company, that uses
black soybean as main
flavor. “Sustainable”
production is major concern.
• UGM does breeding on
black soybean to increase
production, flood and
drought tolerants etc.
• Government facilitates the
release of black soybean as
high-yielding variety to
support food security;
• Farmers are concerned with
price security and guarantee
while cooperatives and
farmers group encourage
participation to comply with
GAP, post harvests etc.

20. Conclusion: Research Agenda & Policy Changes
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Changes in competitiveness: Some major/strategic commodities
On market structures, trade-shocks and new protectionisms
Global certifying partnerships, Global environmental governance
Green economy perspectives and Environmental services markets
Impacts of agreements on food commodities and farmers’ welfare
Development of trade fairness, new variants of non-trade barriers
Strategies of industrial deepening vs export promotion
Governance, non-competitive behavior in imported commodities
Bureaucracy supports: legal frameworks, customs, taxation etc
National policies on R&D, innovation ecosystems and networks