Development of Palm Oil in Indonesia

w

Coordinating Ministry for Economic AffairsThe Republic of Indonesia

Development of Palm Oil in Indonesia

April 2019

Table of Content

Part 2 The Importance of Palm Oil Sector for Indonesia

Part 3 Smallholders Farmers

Part 4 Palm Oil Sector Contribution to SDGs Achievement

Part 5 Palm Oil and Other Vegetable Oil

Part 1 Palm Oil, Forest Area and Biodiversity in Indonesia

| 2

wTHE KEY IS ALWAYS YOU!

Part 1Palm Oil, Forest Area and Biodiversity in Indonesia

More Than 60% of Indonesia Total Land Are Still Forest Area

22.1

29.7

68.8

Conservation Forest

Protection Forest

Production Forest 36%

15.7%

11.7%

188.8

120.6

Total Land Forest Area

63.9%

Distribution of Indonesia Forest AreaBased on Functions (in Million Ha)

Proportion of Indonesia Forest Area of Total Land (in Million Ha)

Indonesia is managing a very strict forest conservation policy to maintain its forest asthe biggest portion of its land. With total forest area of 120.6 Million Ha, Palm Oil Plantation Shares only 7% of total land, way less than production forest (36%), Protection Forest (15.7%)

and Conservation Forest (11.7%)

| 4

The conversion of primary forest into other purposes has started way before the expansion of oil palmplantation started. Oil palm plantation grew and occupied the already degraded land.

Oil palm turned the degraded land into productive area. Oil palm plantation converted directly from production forest is only around 3%.

Oil Palm Plantation

Forest

Timber and Pulp

Mining

1900 1950 1973 1985

2000 2005 2015

Degraded Land

Palm Oil Are Not the Cause of Deforestation

| 5

Much plantation development, especially in Indonesia, has occurred in areas that were cleared before 2000, long before the plantations were installed. So clearly, not all plantation developments caused conversion of forests to plantations.

Douglas SheilThe Norwegian University of Life SciencesGreen to white = forest loss

Most of forest clearance in Indonesia occurred in mid 1980s to 1990s, while expansion of oil palm plantationstarted in 2000. Most of oil palm plantation are converted from already degraded Land.

Palm Oil Are Not the Cause of Deforestation

Green to blue = forest permanently flooded by hydropower dams

Green to black = forest cleared and converted to plantations in the same year

Source: CIFOR, 2019

“

”2000 2017

| 6


Part 2The Importance of Palm Oil Sector for Indonesia

Palm Oil Is Indonesia’s Most Strategic SectorAs a labor intensive industry, Palm Oil Sector contribute significantly to the Economy.

This sector drives economic growth, increases export and trade balance, reduces inflation andsubstitutes fossil fuel with renewable energy to strengthen national energy security.

*) Source: Stanford University & The National Team For The Acceleration of Poverty Reduction (TNP2K), 2016

LaborIntensive

Total Export ValueUSD 21.4 Billion

(Year 2018)

IndustryProfile

Export Value Energy Security

Replace the use ofDiesel Fossil Fuel

9.1 Million KL Through biodiesel mandatory

program since 2015

of National GDP

EconomicShare

3.5%

[+]

Trade Balance *) Inflation*) Government Expenditure *)

Real Capital Return*)

0.62%0.63% 1.75% 1.74%

[+]

| 8

On Going 2007 2011 2014 2015 2016 2017 2018

We care about sustainability more than othersMore than any other countries, Government of Indonesia has implemented all necessary measures to ensure sustainability

management of its palm oil sector, because we care about our palm oil sustainability more than others, because it’s our life. And the efforts still continue.

Establishment of CPO Fund

Presidential Regulation 1/2015

ISPO CertificationMinister Regulation No

11/2015

Joint Conservation Agreement

Indonesia, Brunei and Malaysia to conserve

Borneo Island

Establishment of Peatland Restoration

AgencyPresidential Regulation

1/2016

One map policy implementation

Presidential Regulation 9/2016

On going regulation1. Strengthening ISPO2. Continuous Moratorium

for Primary Forest & Peatland

3. Etc

Implementation of Indonesia Sustainable

Palm Oil (ISPO)Minister Regulation

No.19/2011

Moratorium and improvement of management of

Primary Forest and Peatland

Presidential Instruction 10/2011

FLEGT LicenseIndonesia is among

the first countryto implement Voluntary Partnership Agreement

with EU

Launch of smallholders Replanting

Program

By President Joko Widodo. National

target 2.4 Million Ha in 20 Provinces

Management of Forest Fire Prevention


Moratorium and improvement of management of

Primary Forest and Peatland


Policy on Primary

Forest land settlement

Launching of Single Map

Portal

| 9


Part 3Smallholders Farmers

Sumatera

1,976,773 Borneo

449.000

Sulawesi

140,879

Papua & Maluku

35,914

Java

6,076

Source: Ministry of Agriculture, 2018

Smallholders Farmers Play Significant Role

in Indonesia Palm Oil Sector

| 11

Smallholders Farmers ShareAlmost Half of the Plantation

Smallholders farmers share almost half of Indonesian palm oil plantation.They exist in every island of the country. Sumatera and Borneo share are the biggest,but eastern part islands of Sulawesi, Maluku and Papua also have significant share.

SmallholdersFarmers

41%

State Owned6%

PrivateCompanies

53%

Total Plantation

± 14.3 Million

7.7Million

5.8Million

0.71Million

Total 2.6 Million FarmersEmploying 4.3 Million Plantation Workers

| 12Source: INOBU, 2016

Profile %

Land ownership

Inherited land 37

Certificate 63

Land size

1 - 2 Ha 63

2 - 4 Ha 37

Level of EducationElementary to

Junior High School

Age 26 – 58

Year to start 2008 - 2010

Who are Indonesian Smallholders Farmers?

Profile of Smallholders Farmers in Seruyan and

Kota Waringin Barat District, Central Kalimantan

Most of smallholders farmers are from mid-to-low income family. They control less than 4 Ha of land.

They consist of both local and transmigrant people with low level education. However, they can have

decent work in Palm Oil Plantation and has been in this job for around 10 years.

Profile

Gender Male 70 %

Family Size 3 – 4 Individual

Land size 2 Ha

Level of Education Elementary School

Age ≤ 49

Length 10 Year ≤

Profile of Smallholders Farmers in

13 Districts in 6 Provinces

Source: Yanto Santosa, Bogor Institute of Agriculture, 2017

Smallholders FarmersAverage Income*

IDR 4 MillionMinimum Income

Minimum Wage#

IDR 2.5 MillionNational Average

2019

Smallholders Farmers Earn More Than Minimum WageDespite having low level education, income of most of Indonesian Smallholders Farmers are higher compare to the national average

of minimum wage, ensuring a good living for the smallholders farmersand their family members

#) Source: Ministry of Manpower*) Source: Yanto Santosa, Bogor Institute of Agriculture

| 13

$

$

| 14

Solutions for Smallholders FarmersTo support the smallholders farmers, Indonesian solution is through its massive smallholders replanting program which aim

to assist smallholders farmers to renew its oil palm plantation with a more sustainable and higher quality of oil palm and reducing the risk of illegal land clearing

(Land Use, Land-Use Change and Forestry -LULUCF)

To ensure sustainability principle, participants of this program are

required to get Indonesia Sustainable Palm Oil (ISPO)

certification in the first harvest.

Smallholders Replanting

Program

ISPO CertificationSustainability Principle

Legality Productivity

Smallholder farmers that participate in this program should be following land legality aspect. Those who are not, will receive entitlement assistances.

The replanting program is following sustainability

principles, which include: land, conservation, environment and

institution.

Productivity standard for replanting program 10 ton

of fresh fruit bunch/ha/year.

Plant Density< 80 tree/ha.

27 November 2017Serdang BedagaiNorth Sumatera

91,000 Ha4,400 Farmers

13 October 2017Musi BanyuasinSouth Sumatera

40,000 Ha 1,800 Farmers

The Launch of Smallholders Replanting ProgramThe smallholders replanting program has been officially launched by President Joko Widodo in Musi

Banyuasin, South Sumatera; Serdang Bedagai, North Sumatera; and Rokan Hilir, Riau. The program will continue to cover 2.4 Million Ha of land in 20 Provinces.

20Provinces

2.4Million Ha

National Target

9 May 2018Rokan Hilir

Riau15,000 Ha

5,000 Farmers

| 15


Part 4Palm Oil Sector Contribution to SDGs Achievement

| 17

The Role of Palm Oil Sector To Achieve SDGsOil Palm Sector contribute to the achievement of SDGs in Indonesia

Supportthe reduction of poverty and inequality

Support the providing of food and food fortification

• Play role in the development of renewable energy and emission reduction

• Support the moratorium of primary forest

• Support the prevention management of forest fire

Play significant role in the economic development, generating millions of employment and save foreign exchanges

Support national energy security by increasing renewable and clean

energy use

| 18

Indonesia Has Successfully Reduced Poverty & Inequality70

.00

54.2

0

47.2

0

27.2

0

25.9

0

34.0

1

49.5

0

47.9

7

38.7

4

37.8

7

31.0

2

29.8

9

28.5

9

28.5

5

27.7

3

28.5

1

27.7

6

26.5

8

25.9

5

25.6

7

60.0

0

40.1

0

33.3

0

15.1

0

13.7

0

17.4

7 24.2

0

23.4

3

19.1

4

18.4

1

13.3

3

12.3

6

11.6

6

11.4

7

10.9

6

11.1

3

10.7

0

10.1

2

9.82

9.66

-5

5

15

25

35

45

55

65

0

10

20

30

40

50

60

70

80

1970

1976

1978

1990

1993

1996

1998

1999

2000

2001

2010

2011

2012

2013

2014

2015

2016

Sep-

17M

ar-1

8Se

p-18

Number of Poor People% Poor People

Num

ber

of P

oor

Peop

le (I

ndiv

idua

l)

% Poor People

Source : National Statistics Agency 2019

Indonesia Poverty Rate 1970 - 2018

0.40

8

0.40

2

0.39

7

0.39

4

0.39

3

0.39

1

0.38

9

0.38

4

Mar

-15

Sep-

15

Mar

-16

Sep-

16

Mar

-17

Sep-

17

Mar

-18

Sep-

18

Indonesia GINI coefficient2015 - 2018

Poverty rate in Indonesia has seen a significant reduction from 60% in 1970 to only 9.66% in March 2018. In addition, GINI Coefficient also shrink from 0.4 to around 0.3 in

the last 3 years.

Palm Oil Sector has played a significant role in poverty reduction since 2000.

| 19

Out of povertyHelped by Palm Oil

Expansion

10Million

Regions with palm oil expansion have more significant reduction of poverty compare to other region and national.

How Indonesia Palm Oil Supportthe Reduction of Poverty and Inequality

Region with palm oil expansion

Region with no palm oil expansionNational

2001 2004 2007 2010

12

14

16

18

20

Aver

age

Pove

rty

Leve

l (%

)

Since 2000, Indonesian Palm Oil Sector has helped 10 million people out of poverty because of the factors related to palm oil expansion and at least 1.3 million people in

rural area lifted out of poverty line directly because of palm oil expansion.

Source : Ryan B. Edwards, Center on Food Security and the Environment, Stanford University & The National Team For The Acceleration of Poverty Reduction (TNP2K), 2016

People

Indonesia Palm Oil Sector Support in Creating Decent Work & Economic Growth

As a labor intensive industry, millions of Indonesians depend on Palm Oil Sector. More than 16 million people work in Palm Oil Industry, in addition to 2.6 million

smallholders farmers.

| 20

12 MillionIndirect Employment

Employing

4.3 Million Individuals

Palm Oil Industry

Palm Oil Smallholders

2.6 MillionSmallholders Farmers

4.2 MillionDirect Employment

| 21

Part of Climate Action, Emission Reduction is Indonesia’s main priority based on Paris Agreement. The emission reduction target is difficult to be achieved without

direct contribution from oil palm sector.

Indonesia Palm Oil Support Climate Action

Smallholders Replanting Program to increase productivity and reduce illegal land clearing, implementation of ISPO, Moratorium primary forest & peatland

Forest Fire Prevention Management and increase people’s participation for forest conservation

Implementation of Biodiesel Mandatory program, to increase the use of renewable energy and reduce emission, as well as development of Palm Oil to Bio-Hydrocarbon Fuel Program

BIODIESEL

The use of POME (Palm Oil Mill Effluent) to increase electrification ratio in rural area. POME has potential of electrifying 1.4 million households and capable of reducing 9.8 Million Ton C02

Indonesia Emission Reduction Target by 2030(in Percentage - %)

29 41

Unconditional WithInternational

Support

Oil Palm Sector Initiatives

| 22

To Support The Emission Reduction,Palm Oil Based Biodiesel Mandatory Program

Has Been Launched Since 2015The program successfully increase the use of renewable energy,

reduce CO2, creating jobs, and improve smallholders farmers income

BIODIESEL

13.6 Million TonCO2e 9.12 Million KL IDR 2.47 Trillion

Tax Paid To The CountryUse of Palm Oil Based Biodiesel For Domestic

Use

Reduce GreenhouseGas Emissions (GHG)

Foreign Exchange Saved due to less fossil fuel imported

Implementation of Biodiesel Mandatory Program also helps to generate jobs in biodiesel industryas well as in the oil palm plantation sector. It increase demand of CPO, stabilize CPO price and

improve smallholders farmers income with the increase of Fresh Fruit Bunch (FFB) Price.

Impact of Biodiesel Mandatory Policy August 2015 to December 2018

USD 3.82 Billion

| 23

“ “President Joko Widodo has called for the immediate implementation of a plan to widen the use of biodiesel in all sectors, include Non-PSO Transportation.

High-Level Commitment For Existing Biodiesel Mandatory Program

To Support Climate Action

Sector April 2015 January2016

January2020

January2025

SME, Fishery, Agriculture, Public Transportation (PSO) 15% 20% 30% 30%

Transportation - Non PSO 15% 20% 30% 30%

Industry and CommercialBusiness 15% 20% 30% 30%

Power Generation 25% 30% 30% 30%

Roadmap of Biodiesel Mandatory Program Implementation

| 24

Palm Oil for Renewable Energy: Next ProgramIn addition to existing Biodiesel Program using FAME. Indonesia is now developing new plan to convert Palm Oil into Bio-Hydrocarbon Fuel to produce Green Diesel, Green Gasoline and

Green Fuel Jet.

`PalmOil

FAME

Bio-Hydrocarbon

Fuel

Green Diesel

Green Gasoline

Green Fuel Jet (Avtur)

Biodiesel

• 20% Full in 2018• 30% in 2020

Current Program

Future Program

Technology

Plantation

Special Seed

2nd Generation Industrial Palm

Oil Treatment Plant

Research and development to develop catalyst is now underway

Planning to allocate dedicated plantation for energy around 8.8 Million Ha from existing palm oil plantation

Development of special variety seed of Palm Oil

Incentive to invest 2nd Generation Industrial Palm Oil Treatment Plant (IPO – TP = Oil Extraction & degumming)

Preparation of IVO (Industrial Vegetable Oil)

Pilot Project in 2019

Big Production, Sufficient for Food Demand

| 25

With current average growth and the on-going smallholders replanting program, we expect more than 50 million ton of Palm Oil to be produced in 2025.

Source: BPDPKS, TNP2K 2018

Indonesian Palm Oil Production Projection2018 – 2025

(Million Ton)

41.67 42.14

44.63

55.28

2018 2019 2020 2025

5.4

8

5.4

2

5.8

4

6.0

0

6.0

0 7.4

0

7.9

8

8.1

9

8.0

3

8.2

4 9.3

3

8.9

2

9.2

1

9.4

4

9.6

6

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Indonesia Domestic Palm Oil Consumption (As Cooking Oil) 2002 - 2016

Co

nsu

mp

tio

n (

Lite

r/P

er

Ca

pit

a)

4,3%

Average Growth

Source: National Statistic Agency, Said Achmad Kabiru Raffie (2018)

This will give more supplies for food industry, include cooking oil and palm oil-based food.

| 26

Palm Oil Sector Support Stunting Prevention Indonesia has high stunting prevalence with 7.4 million children below 5 years old (30%) is

stunted#. Indonesian Government has launched a massive stunting prevention through many interventions include Food Fortification.

Indonesia Palm Oil Sector fully support the cooking oil fortification with vitamin A.In 2017, 35 of 48 cooking oil brands has been fortified with sufficient vitamin A standard.

*) Source: KFI – Indonesia Nutrition Foundation For Food Fortification, 2017

2015 2017

Number of Palm OilBased Cooking Oil Brand Fortified with Vitamin A*)

3519

• Food Fortification is part of National Stunting Prevention Strategy. It reduces micro malnutrition, including vitamin and minerals, specifically for child and pregnant woman

• Fortified Cooking Oil can reduce 25% of infant and child mortality because of infection

• Vitamin A in Cooking Oil help children from Poor Family from risk of blindness.

#) Source: Basic Health Survey (Riskesdas), 2018

| 27

Involvement in Partnership for Poverty Reduction, Health, Education, and Basic Infrastructure

Palm Oil Companies in Indonesia have also actively involved in the Partnershipwith Government, Local Government, Civil Society Organizations (CSOs), and

Communities as mandated in SDGs Goals No.17.

Education• Rehabilitation of school• Teacher DevelopmentHealth• Health Promotive and

Prevention• Primary Healthcare SupportPoverty Reduction• Stunting PreventionBasic Infrastructure• Sanitation• Clean Water• Basic Electricity

Public Private Partnership For Stunting, coordinated

by Office the President and Vice President. Focusing in

100 Cities and Districts, with specific and sensitive

intervention

Partnership Causes:


Part 5Palm Oil and Other Vegetable Oils

Expansion of Palm Oil Plantation is Way Lower Than Expansion of Other Vegetable Oil Plantation

Comparing to Soybean, Rapeseed and Sun Flower, expansion of Palm Oil Plantation is way slower.Soybean still shares the biggest size of land for plantation and palm oil shares the smallest.

| 29

25.82

111.27 120.80

7.07

36.37 33.77

7.54

25.59 22.50

3.62

17.01 19.79

1965 2013 2015

Soybean

Rapeseed

Sun Flower

Palm Oil

Size of Vegetable Oil Plantation (Million Ha) 1965 - 2015

Source: Oil World, USDA

1965 2013 2015

Land Productivity of Vegetable Oil Commodities

Palm Oil productivity can reach approximately up to 4 ton/Ha.

This number is much higher thanrapeseed (approx. 0.7 tons/ha), sunflower

(approx. 0.6 tons/ha), and soybean (approx. 0.4 tons/ha).

From the productivity per Ha, it can be seen that palm oil commodity

needs the least of land use for producing vegetable oil

Replacing Palm Oil with other vegetable oil will

require massive landclearance

65mill ton

Land use for other vegetable oils77 million

Other productions46 million ton

25.8mill ton

15.9 mill ton

45,8mill ton

0.4Ton/Ha

0.6 Ton/Ha

0.7Ton/Ha

4Ton/Ha

=1 ton vegetable oil

Productivity of World Vegetable Oil (199

million ton)Productivity/Ha

Palm oil

Rapeseed

Sunflower

Soybean

Total land use for the world vegetable oils: 277 million Ha

16Million Ha

36Million Ha

25Million Ha

122Million Ha

Palm Oil is The Most Sustainable Vegetable Oil

| 30

It is projected that the need of the world edible oil will keep increasing in accordance with the increase of the human consumption and predicted to be 361 million ton in 2050

Additional production of commodities options to overcome the future need of vegetable oil is required,and palm oil is the most feasible commodity to meet this need as it requires the least additional land.

Palm Oil Requires The Least Additional Land For Future Vegetable Oil Demand

| 31

The Need of the World Vegetable Oil ProjectionPeriod of 2015-2050Million Ton

2%

3%

Strategy in Fulfilling the Need of Vegetable Oil

Commodities option for fulfilling vegetable oil need:

Palm oil

Soybean oil

Rapeseed oil

Sunflower oil

Additional Area to fulfill future demand

45 Million Ha

447 Million Ha

255 Million Ha

298 Million Ha

1

2

3

4

Palm Oil Save More Water

M3/Gj

| 32

Source: Gerbens-Leenes et al., 2009

2875

87100

105118

126184

0 20 40 60 80 100 120 140 160 180 200

Sugar CanePalm Oil

CanolaSoybean

CornCassavaCoconut

Rapeseed

Sugar Cane and Oil Palm use less water to produce bioenergy compare to other commodities

The use of water to produce 1 gigajoule bioenergy


Thank YouCoordinating Ministry for Economic AffairsThe Republic of IndonesiaJl. Lapangan Banteng Timur No. 2 – 4Jakarta PusatIndonesiaWebsite: www.ekon.go.id

Development of Palm Oil in Indonesia

Documents

Transcript of Development of Palm Oil in Indonesia