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Good and Bad Palm Oil: Food Security, Paradigm Shift and Stakeholder Negotiations in Indonesia and the EU
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- [00:01]
A
Welcome to the new books network. This is the Nordic Asia Podcast. Welcome to the Nordic Asia Podcast, a collaboration sharing expertise on Asia across the Nordic region. I'm your host, Ariona Spitkanen, a doctoral researcher at the center for East Asian Studies at the University of Torko in Finland. In this episode, we'll discuss the controversial issue of palm oil production in Southeast Asia by focusing on the dynamics between various stakeholders in Indonesia and the European Union. I'm joined by Dr. Ayu Pratiwi, a docent in Economic Geography at the Department of Marketing and International Business and senior researcher at the Department of Biodiversity Sciences at the University of Torko. Dr. Pratiwi has an extensive background in research dealing with the intersection of economics and sustainability, and she's currently working in a project at the Turku School of Economics titled Good and Bad Calm Oil, Food Security, Paradigm Shift and Stakeholder Negotiations in Indonesia and the EU. Dr. Patewi, welcome to the Nordic Asia Podcast.
- [01:06]
B
Thank you, Arionas. It's really an honor to be here and I'm very pleased to share about our project and hopefully everyone would also enjoy and get informed about what is happening with palm oil production in Indonesia and beyond.
- [01:21]
A
Thank you. Okay, so, well, the main topic of this episode obviously comes from this project you're currently working in, which is called Good and Bad Palm Oil. And obviously the name reflects the somewhat controversial nature of palm oil production. There's been a lot of discussions in recent years around this topic. So first of all, why is there this controversy and such a debate around palm oil? What is the good and what is the bad when it comes to palm oil production?
- [01:55]
B
Yeah. So basically this project, we had this idea that when you look at palm oil, like, based on production and consumption, we always think that maybe palm oil is not that bad. Right. It's not entirely the villain. The governance maybe is. So I'll start with what's really good about palm oil. So palm oil, if you see like, as a crop, is extremely efficient, so it can produce far more oil per hectare than most of the alternatives. So in principle, it can meet really big global demand with really less land. And when you compare like palm oil with the other alternatives, like soybean, rapeseed and sunflower oils, those alternatives, they require far more energy and far more cost for chemical processing. And this difference is very important. When you think about, you know, food production, energy and manufacturing, that's just really big. And when you think about these fruit oils like palm oil, they have really high oil concentration and it could really yield many multiple co benefits. You see the kernel of these plants, you can use it for soaps and the fruit bunches, you can use it for biomass and everything. But the seed oils, like the alternatives, it depends on the solvent extraction. The it can consume more energy and generate higher emission per ton of oil. And this really matters because you know, vegetables oils are used everywhere. You see the food, cosmetics, ingredients, detergents, biofuels. So the world will really keep to be needing the large volumes of this oil. And I think this is where the debates get really misleading. People often talk about palm oil as some kind of a moral category. You see in the supermarket, you see everywhere like labeling no palm oil or like less palm oil, free palm oil. But this is not really it, right? Sustainability is really less about what really grows in the field and more about who really do the production, how it's traded and how does these incentives who get the profit and everything. And if you think about this good thing about palm oil and if you really want to be sort of placing or getting moral, being moral polish you want to replace this palm oil with other oils, then the emission footprints or these problems didn't entirely disappear, right? So this problem can even shift elsewhere and they might require more land and inputs. And in that sense like this palm oil free label, they can what is it then? Like it's like a comfort purchase, like. But so as a consumers like you and me, if you look at this labeling, you need to think about what replaced the palm oil and what are the impacts and then what's bad about it. So we think that, you know, as the project goes, we think that palm oil is not necessarily bad, but it's the political economy that came from the production and then the supply chain come with it, like land conversion, like many of the forests are cleared because of opening of plantation and then because of this monoculture culture palm oil there would be biodiversity loss. And of course at the same time there are carbon emissions. And we talk about conflicts over land rights, like indigenous land, land rights, smallholders, they were getting, you know, the land was lost to the companies. And there are many labor abuses in part of the supply chain because people want to get the labor and production as cheap as possible. But these are not about the crops, right? This is governance failures, they're weak enforcement by the government. There are really very fast supply chain sourcing. And also there are some imbalances between really large buyers and the small scale producers. But then of course again there's this controversy, everyone want to moral on palm oil and then some very market shaping leader they want to really comply on sustainability. So they think that probably if we impose more certification and, and due diligence, maybe it could improve the palm oil production. Right. But it's really on the other way around. It could be exclusionary. Who can afford certification? Because in the end what matters is that who produce in the local level, the smallholders are producing it. And then all of these major producers, they want certification, they want the label to be traced. You know, no deforested land, and then very fair supply chain, but who bear the cost of it. The small holders are the ones who would be responsible for that. So I think there really mismatch here. The question is not whether palm oil is good or bad, but it's more like under what rules it's good or bad, under whose benefits it could be good or bad, and what kind of transparency across actors that we need to be quite honest with all of this processing. And again, I'll say that if we want to be very serious about sustainability, we should hold all the vegetable oils to be comparable in terms of scrutiny. You take the case of the soybean, for example. Like soybean expansion has eaten hectares of Amazonian forest, and then olive oil, you know, in Mediterranean they killed many millions of maybe biodiversity and indigenous birds. And coconut oil also, like somewhere in Pacific island or even sesame, has been linked to human rights abuses in different parts of Africa. So please. Right. When it comes to the production of oil, we need to be quite fair in really asking ourselves, like why all of these standards, why all of these bad things are only labeled to palm oil and not to other alternatives as well.
- [07:59]
A
Yeah, okay. Well, sounds like a really complicated dynamic there. And you make a good point that it really isn't so much about the crop, palm oil in itself, but rather more about political economy, the politics and various different interests around it. That's a really good point. But then if we think about the specific focus of your project, you're specifically focusing on relations between Indonesia and the European Union in this context of palm oil production. So what role does Indonesia specifically play in the palm oil market? If I understand correctly, it's one of the world's biggest palm oil producers.
- [08:37]
B
Yeah. So when we think about it, Indonesia is like the major producer. Like almost 60% of the palm oil is produced in Indonesia, but it's also the largest exporters in the world. So when you think about global supply chain stories, Indonesia of course became the center of it. But then the export is not the whole story because Indonesia has also some domestic policies that shape the Market through domestic absorption. So the palm oil is not really, you know, now even the domestic market really want the palm oil for domestic consumption. And I think like this way, like the EU buyer in essence, EU didn't really have much trade volumes with Indonesia, but it has power to shape the market because it has so much regulation and it, it is the trendsetter of regulation and market access. So in this case, like there is this sort of negotiation because the like in the world, the world needs palm oil. Right. And the EU serve as a market shaping regulatory bodies. And Indonesia, at the same time they can keep the palm oil for themselves. Right. Because there's so much demand for domestic consumption in terms of food, ingredients, manufacturing and also the source of energy, biodiesel. Now they use like 40% of the blending is using palm oil. Yeah, so that's the connection.
- [10:07]
A
Okay. Obviously you talked a bit about the European Union as well and its role in this dynamic and as a buyer and regulatory entity as well. Can you talk a bit more about the EU's role? You know, I would imagine that it has a really big impact, specifically if we think about regulatory aspects related to for example environmental concerns around palm oil, which seems to be a big thing in recent years especially.
- [10:34]
B
Yeah. So the eu, I think they're more like rule setting than volume driving. So the export to eu, as I said, is actually quite small. But then EU is the trendsetter in and they set the rule book for market access. And what EU does it might be followed through by the US market and the Australian market and also other markets. So EU has that power and for example, this importing palm oil to the eu. There are recently debates going on about the plans for EU deforestation regulation. But the law essentially say that the palm oil entering or leaving the EU must be deforestation free and it must be legally produced. It must be backed by traceability geolocation. But of course the implementation has been really challenging. It kept on postponed to late this year for larger firms and then next year for smaller firms. And even the EU level there is this EU domestic regulation, if you know about this Renewable energy directive framework R82 and there is this provision for indirect land use change. So basically like in order to be considered as a renewable energy, it has to be coming from some renewable energy materials. Right. And palm oil is now labeled as the high indirect land use change risk crop biofuels. And so the EU plan to just limit the use of palm oil for this biodiesel. And then it's planned to be phased down to zero by 2030. And so I think in this case, like there's also changes within the eu, the import of the palm oil is getting restricted. But at the same time, even if the palm oil biodiesel is available anywhere, then the EU fuel suppliers might have little incentive to use it because now the regulation change that it's not really considered renewable anymore to meet the mandated quota.
- [12:42]
A
Okay, well you make a really quite interesting point there about the EU's role in the sense that it might not be such a big buyer, but it's a big trendsetter. And in this sense the EU has this global power, which is interesting to think about in the context of EU is nowadays perhaps seen as a not such a powerful actor in the global stage, considered in many ways weak. But in terms of setting this regulatory standards and trends, it seems like the EU still has quite a quite a big role. So that's a really interesting dynamic there. Well, if we think about the subtitle of your project, it is Food Security paradigm shift and stakeholder negotiations in Indonesia and the eu. And as this implies, there has been this sort of paradigm shift in approaches to palm oil recently that has something to do with food security in particular. So could you talk a bit about what sort of paradigm shift we're talking about?
- [13:40]
B
Yeah, so it actually happened in 2022. There was this paradigm shift in that year or starting from that year surrounding palm oil. There is a move from seeing palm oil as mainly a sustainability problem into treating it as a food security and strategic commodity issue where the domestic demand from Indonesia and global supply security have become very central in the debates and very central political priorities. Because there's something happening in 2022. So first look at what happened in 2022. So in Indonesia in that year, the turning point was that there is this domestic cooking oil crisis. So basically the government wanted to keep all the supply of palm oil domestically. They banned export. In late April, they tightened the supply rules to protect the availability of palm oil for domestic consumption. And at the EU at the same year, at the same time there is an internal driver of this biodiesel mandates. They expand this debate of food versus fuel tension because the same feedstock like is pulled into the energy policy. Most of these commodities in the EU that were previously, you know, used for feedstock, now they are really because they're lower supply of palm oil. Then the feedstock is used to meet the demand for this energy renewable energy policy. But at the same time there is this amplified happening shocks by the Ukraine, Russia war in 2022. There are reduced imports of the sunflower oil and revolated oil seed or products from Ukraine. And this made the EU food processing and feed market. They raise prices. And these processors and companies then were pushed to seek some substitutes of this vegetable oil. And now when we have this paradigm shift, we have many, many different stakeholders from different industries at every level. And now the stakeholders negotiation became the cornerstone of our project. In Indonesia, the debates became who gets the priority of these palm oil products. We prioritize domestic consumers or do we prioritize the domestic biofuel targets or do we focus on the export market? While in the eu, the debate center on deforestation and traceability, like can we really have this palm oil even though they are really labeled as deforested, but we really need this supply as well. Right, because the supply of vegetable oil is disrupted due to the war. And then there is also changes globally about consumption. So that was the idea of this paradigm shift.
- [16:34]
A
Okay, well, it really sounds like the year 2022 was a pivotal year in this regard. There is various different changes happening both in Indonesia and the eu. And then obviously on top of that, you have the war in Ukraine. So 2022 really seems like an important year in this regard. Well, you mentioned there about the different stakeholders and the negotiations and dynamics between different stakeholders that your project focuses on. Obviously we've been talking about Indonesia as a state and then EU as a sort of, you know, multi state entity. But then if we think about the various different stakeholders, the other stakeholders as well that are part of this dynamic, what sort of stakeholders are we actually talking about in terms of your project?
- [17:20]
B
Yes, so this project, we treat the palm oil as the cornerstone at the center of this multi level negotiation system. So we look at scales because the palm oil is contested across scales. First you have local level producers, right? So local level actors, then you have national actors and then the EU and the global, global level actors. So this palm oil controversy is not only one on one negotiation, but the bargains like linked over different kinds of rules and what kind of revenues and what kind of legitimacy. So I'll go down by like each, each scales to provide some perspective. So first at the local level, at the producers level, it's always being produced at the local level, right? There are producers, there are local governance, there are smallholders. They bargain over who gets the land, who get the credits, who get the access to the market. And there's also the local level firms or plantation mills. They bargain over what kind of standards we have to follow, who pay for the traceability cost and then how do we share the profit to the farmers? And there's also this free government who bargained? Because where, how can we give the licensing or the land claims, land permit, do we give it to the state owned company, do we give it to the individual plantation or farmers? You know, there is this bargaining. And then when you think about the upper level, there is this national political economy actors like the state, in this case like Indonesia, they think about, okay, we have local level district government officials, the rules and regulations at the local level, but we also have some regulation at the national level, right? So how do we like kind of negotiate between state level interests and district government interest? And then that was one level. And then at another level you have to, as a state, you have to bargain what kind of trade, you know, what, how do we come up, how do we deal with the other buyers or exporters, importers, how to make it more fair, how not to lose our sovereignty and then how to shape the development narratives. Because the government is seen as, you know, pretty bad in this. If you look at the narratives of palm oil in the newspaper or based on some public discourse, it's always that the government is quite bad in this governance. So they have to also bargain how to, you know, how to increase their narratives. And then there are also some market gatekeepers and standard setters like the eu and it begins over some credibility of its green governance. You know, when you have really low volume of import, how do you exert your power and influence, right? Because you always, you also have these different kinds of importers like China and India. Probably they really consume a huge amount of palm oil, but they don't really care about those standardization. I mean, of course they care. But then it's not really, you know, it wasn't as harsh as the eu and this EU as the gatekeepers, they also have to make themselves credible. They are firms, ibottas member states. So how to also get some sort of palm oil in this debate, but at the same time, how to keep their credibility over this green governance that they always talk about. And lastly there are actors that operate in cross scale. You see, like civil society actors, there are some brokers, financiers, so there are NGOs, certifiers, some researchers. They are also kind of having interests, right? Like, because when you have these civil society actors supporting your cause, then you will be seen as credible. So they also play across scales to help on the legitimacy of each actor. And then our project will examine how these actors at the different level, with the different interests at the different scales, how they negotiate, how they bargain. And we want to really find out how to manage or how to achieve their aims and goals, like how to align and what not to align. And then we really hope that we could see some of the connecting threads across actors. And we really want to aim for seeing how to achieve good governance from palm oil, not only at the EU level, but also at the local level producers and local level governance.
- [22:04]
A
Yeah, right. Well, it sounds like a really sort of complex network revolving around palm oil as the core. And obviously it sounds like your project has a really comprehensive focus and you know, in trying to bring these different stakeholders into the, into the mix. But if we continue a bit about the different stakeholders, the palm oil discussion often focuses industry, policies, governments and so forth. And this might sometimes mean that the people and the local communities who actually do the practical production of the palm oil are somewhat left in the shadow. And so if we think about, for example, these Indonesian smallholder farmers, who or among the stakeholders that your project focuses on, what can we say about the socioeconomic significance of palm oil production for the farmers and their communities in Indonesia?
- [23:00]
B
Yeah, so from a smallholder's perspective, palm oil is really a primary income system for them. And when you think about farmers and their alternatives, palm oil actually has the most major governance system compared to other cash crop commodities like coffee and cocoa. Like palm oil can be hard harvested monthly as opposed to coffee. They can be harvested annually and cocoa also couple of months. So in this case, like it's pretty profitable for farmers. If you plant oil palm, it leads to stable earnings in rural area. And then the returns offered by this farming palm oil plantation is higher, much higher than the alternatives. But when we think about smallholders, there are many kinds of smallholders, right? Some are very well connected, some are kind of landowners and rich and they can assess some sort of to the meals and then they can access credits, they can access some support schemes, cooperate with the companies. But then there are also many independent farmers who face weaker access to the credits to get inputs and for, to get like better information and this affect their yield, like palm oil yield, as well as bargaining power. Like how do you, how do you access all of these, you know, inputs, credits if you don't have bargaining power? And when we talk about social justice angle here is that I think that the debate on certification, for example, it really want to put sustainability at the core. It really want to sort of make the palm oil production more environmentally friendly, more equitable, and they do it via certification. But decertification of course, I mean, like they are, they really mean well. Right? They have the social justice angle, but the compliance of this, the cost, they fall very disproportionately to the smallholders. All of these compliance requirements by eudr, EU deforestation law and some other certification schemes like mapping the plots and then some paperwork, checking and auditing and then joining the cooperatives or organization is felt into the producers. And most of these producers are smallholders. So what is intended to be good decertification and all of this labeling, this might create a risk of exclusion from the market unless they're really good credible financing and extension supports to the farmers. So the, for smallholders, the core issue is that not whether sustainability matters, but whether all of these system that is labeled as social justice, whether they are designed to really protect the livelihood and rights rather than shifting the burden of proof into the downstream producers.
- [26:03]
A
Yeah, yeah, that's a really good point that you make there. That applies to other dimensions as well. When it comes to sustainability or environmental protection versus then the socioeconomic situation of local communities and the people actually doing the production, there's always this kind of tension there and how, how to square that circle. That's, that's always a big problem. Well, our time is almost up. But as a sort of final question then, what does the future look like in terms of the Indonesia EU dynamic in palm oil? Do you for example, have some preliminary conclusions from your project that might suggest something about the direction where the palm oil business is headed?
- [26:47]
B
Yeah, so I think when we talk about the future, we have to be very careful because there might be many uncertainties when talking about the future. You never know what happened with all of these trade wars. But based on these, our preliminary results, we might identify some of these possible futures, like for example, the relationship between EU and Indonesia. It might move from merely volume and tariff trade debate into more of a compliance and capacity debate. So the question is not whether the trade would continue, it will continue, but who can really meet the requirement and who pay for traceability, especially for smallholders, that would decide whether the EU market became more inclusive for everyone or more exclusionary. And also like when the EU make the traceability and this geolocation as outlined in the EU deforestation law, the core arguments of this market access is not, is not about volume anymore, but it's about the access, who can have the access, who can pay more to get the access. And because of this, as the market became too difficult for the EU market, there might be some partial decoupling and market Routing particularly to India or China market as well as the domestic biofuel. And by doing this, the EU is kind of seen as shifting the procurement towards more into segregated supply and it might create a two tier market of palm oil in this global trade, whether you're EU compliant versus rest of the world. Yeah, because it gets really complicated. And then at the EU Indonesia CEPAH trade negotiation, they actually have these references on palm oil protocols as one of the issues for dialogue on regulatory development and sustainability cooperation. And so the trade will continue at the same time, but at the same time, even though trade is continuing, we really anticipate there will be more trade disputes at the WTO level. Now there are many things from the EU and both Malaysia and Indonesia, many things related to palm oil are contested. So all of these trade disputes will go at the same time with the trade negotiation, at the same time with the development of these segregated market access. Yeah, I think that was like, at least in the future we envision that it gets more complicated, but maybe, maybe it's getting better for everyone. Yeah, that's a positive way of looking at things.
- [29:50]
A
Yeah, it's good to hear that there can be a positive perspective on this aspect. Especially nowadays when we think about the current global environment and certainly the current trade environment globally, there's a lot of uncertainty, a lot of tension and really, as you say, really hard to predict the future because of this. And who knows, we just had this paradigm shift that you talked about in 2022. Who knows when the next paradigm shift will come in the future? So definitely an interesting thing to keep an eye on. But that's basically it for this episode of the Nordic Asia Podcast. Once again, it's been a really interesting discussion on a really timely topic concerning the Asian region. So Dr. Pratiwi, thank you very much for joining the podcast.
- [30:37]
B
Thank you Adionas and good luck for everyone and then enjoy. Thank you.
- [30:42]
A
Thank you. Thank you for joining the Nordic Asia Podcast showcasing Nordic collaboration in studying Asia. You have been listening to the Nordic Asia Podcast.