Forest Conversion Forest Conversion and the Edible Oils Sector and the Edible Oils Sector

Forest ConversionForest Conversionand the Edible Oils Sectorand the Edible Oils Sector

A research paper prepared for WWF-Switzerland

November 2000

Jan Joost Kessler and Eric Wakker

AIDEnvironmentDonker Curtiusstraat 7-5231051 JL AmsterdamThe NetherlandsTel: +31-20-6868111Fax: +31-20-6866251E-mail: [email protected], [email protected]

ContentsContents

Executive Summary.................................................................................................3

Chapter 1 Introduction............................................................................................................5

Chapter 2 Defining the forest conversion process ....................................................................72.1 Defining forest conversion ......................................................................................72.2 Forest conversion as a continuous process of forest degradation..............................82.3 Forest restoration processes ...................................................................................112.4 Conclusions...........................................................................................................12

Chapter 3 Facts and predictions on forest conversion and the edible oils sector ....................133.1 FAO forest statistics ..............................................................................................133.2 Statistics and predictions on primary oil crops ......................................................143.3 Global predictions on agricultural land-use...........................................................163.4 Trends in the forestry sector..................................................................................163.5 The economic and policy rationale behind forest conversion ................................173.6 Conclusions...........................................................................................................18

Chapter 4 Case study Indonesia .............................................................................................194.1 Oil palm expansion in Indonesia ..........................................................................194.2 Determining factors ..............................................................................................214.3 Impacts of forest conversion for oil palm plantations.............................................224.4 Key actors .............................................................................................................234.5 Conclusions...........................................................................................................23

Chapter 5 Analysis .................................................................................................................255.1 Identifying root causes and key actors ...................................................................255.2 Multilevel and multi-sector analysis......................................................................255.3 Conclusions...........................................................................................................28

Chapter 6 Strategic options for WWF to combat forest conversion ........................................296.1 Conclusions from previous sections .......................................................................296.2 Outline of a WWF strategy....................................................................................296.3 Contribution of strategy to forest conservation objectives......................................34

Consulted literature....................................................................................................................35

Forest conversion and the edible oils sector – November 2000

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Executive SummaryExecutive Summary

This paper aims to:

1. Determine the extent of the forest conversion problem, with emphasis on the contribution ofthe edible oils sector to this problem, especially in Indonesia and Brazil;

2. Analyse the problem in the context of spatial and temporal patterns and processes atlandscape level, and the underlying root causes and key actors;

3. Explore how WWF could address the conversion problem in the context of its recentlydefined five objectives to achieve forest conservation;

4. Explore how the edible oils sector and other key actors involved can contribute to the WWFconservation objectives, and how a WWF strategy can address these key actors.

Forest conversion can be defined as a continuous process of declining forest functions, withintermediate stages of forest degradation and forest fragmentation. It ultimately leads to man-made monocultures characterised by the almost complete loss of forest ecological functions andsocio-economic benefits for local people. Despite the spatial and temporal variations in the forestconversion process, there appears to be a common pattern, involving various intermediate stagesand various forest frontiers. The agro-industrial frontier contributes to forest conversion both indirect and indirect ways. An autonomous ‘turnaround’ of these processes cannot be expected inmost tropical developing countries.

FAO data show that in the 1980s approximately 5 to 6 Mha of natural forests were logged in thetropics annually, most of which is primary forest. About 70% of all forest plantations areestablished by clearing natural forests. Averages for forest areas burned are not available thoughthe affected area is probably considerable. Forest fires are generally linked to deforestation. Theannual area deforested (15.4 Mha) is believed to have fallen by 10% in the early 1990s.

In the next 25 years, another 250-300 million hectares of land is likely to be opened up foragriculture in the tropics. It is probable that large scale commercial agriculture will gain inrelative importance in terms of causing deforestation. At least partly as a result of this, logging,small scale agriculture, fires etc. will penetrate deeper into the forest and further degrade forests.The growth of markets for oil-crops will continue to expand above average compared to otheragricultural products. The edible oils sector will therefore create greater pressure on forests thanother agricultural commodities, especially if increased production is generated by expanding theplantation area rather than optimising productivity. Forest conversion for edible oils is likely tooccur mostly in remaining lowland areas. This is particularly worrisome, as lowland tropicalrainforests represent the world’s biologically most diverse terrestrial ecosystems.

Oil palm expansion in Indonesia provides a case that illustrates how the edible oils sectorcontributes to the forest conversion process. The rapid growth of the sector in the 1990stemporarily stagnated as a result of the economic crisis but is set to regain momentum in theyears to come. A range of negative environmental and socio-economic impacts of expansion areapparent. Several key actors are involved in the forest conversion process (oil palm investors,edible oils traders, financial institutions and government bodies). Forest loss is expected toincrease as land scarcity and government incentives drive the industry to Indonesia’s forest richregions. The expansion of Indonesia’s oil palm sub-sector is primarily the result of a deliberatepolicy. It is not caused by uncontrollable socio-economic and demographic factors.

The forest conversion problem owes its complexity to the wide range of actors in the privateand/or public sectors that are involved at various spatial levels. Many actors exert influence fromoutside the forest and forestry sector. Ultimately, within the regulatory frameworks establishedby governments (and to lesser degree, by NGOs), forest conversion is linked to the investment


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and purchasing decisions made by identifiable key actors. The challenge is to engage these actorsin pursuing forest conservation objectives, based on mutual interests.

If more tropical forest is to be protected, managed or restored, pressures that drive forestconversion need to be addressed through a multi-sectoral and multilevel approach. To halt andreverse the forest conversion process, WWF would need to engage the agro-industry inconservation objectives to complement its efforts to expand the protected forest area and topromote sustainable forest use in the wider landscape. Special attention would be given to theedible oils sector because it is expected to expand faster than other crops and because there arestrong linkages to European and American actors and their ecological footprint. Engaging theedible oils sector in conservation objectives can be achieved through partnership approaches thatare already well tested within the WWF family.


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1.1. IntroductionIntroduction

Tropical forests represent the world’s most important terrestrial ecosystems. While housing andcreating between half to three quarters of the world’s species, tropical forests also fulfil importanteconomic, social and spiritual functions to mankind, functions that can be sustained whenforests are carefully managed.

Approximately half the area that was once covered by tropical forests remains today and the rateof loss has been particularly high in the last 25 – 50 years. Between 1975 and 2000, approximately370 million hectares of natural forests were deforested in the tropics, mostly for commercial andsmall scale agricultural expansion. According to the preliminary Forest Resource Inventory byFAO, the rate of deforestation slowed down by some 10% in the first half of the 1990s.Deforestation is expected to remain a major threat to forests, whether these are managed or not,primary (natural) or logged (e.g. Reid and Rice, 1997; WWF/MPO, 2000).

Deforestation figures alone do not adequately reflect the extent to which the world’s tropicalforests are affected by human activity. Each year, substantial and increasingly large tracts oftropical forests are degraded and fragmented by selective logging, forest fires, poaching andinfrastructure development. Natural forests are furthermore cleared and converted straight intoforest plantations (which is not considered as “deforestation” according to FAO).

In this paper, we group the various forms of forest degradation under the term ‘forestconversion’. It results from a range of activities that are often interrelated in complex ways withinter-sectoral (between forestry and non-forestry sectors) and multi-level linkages (between local,national and international levels). In this paper, we will attempt to analyse forest conversion byzooming in on the role of the edible oils sector in this process. We focus specifically on the oilpalm sub-sector in Indonesia and, to lesser extent, on the soybean sub-sector in Brazil.

Conservation organisations like WWF and IUCN are faced with the challenge to halt and reversethe loss and degradation of forests and woodlands world-wide. The complexity of the problemrequires that the issues are addressed in an integrated approach. Within the framework of theForests for Life campaign, five objectives have now been identified, of which the last three wereidentified most recently:

1. Establish a network of ecologically representative, socially beneficial and effectively managedprotected forests (covering more than 10% of each of the world’s forest types).

2. Achieve environmentally appropriate, socially beneficial and economically viablemanagement of forest outside protected areas (sustainable forest management with forestcertification and trade and community involvement).

3. Develop and implement environmentally appropriate and socially beneficial programmes torestore deforested and degraded forest landscapes.

4. Protect forests from pollution and global warming by reducing polluting emissions andmanaging forests for resilience to climate change.

5. Ensure that political and commercial decisions taken in other sectors safeguard forestresources and result in a fair distribution of associated costs and benefits.

The first three objectives provide for protected, managed and restored forests, possibly withdifferent management categories including for example buffer zones around the network of coreprotected forest areas. The fourth and fifth objective both address external (non-forestry) threatsto forests.


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This paper aims to:

1. Determine the extent of the forest conversion problem, with emphasis on the contribution ofthe edible oils sector to this problem, especially in Indonesia and Brazil;

2. Analyse the problem in the context of spatial and temporal patterns and processes atlandscape level, and the underlying root causes and key actors;

3. Explore how WWF could address the conversion problem in the context of its recentlydefined five objectives to achieve forest conservation;

4. Explore how the edible oils sector and other key actors involved can contribute to the WWFconservation objectives, and how a WWF strategy can address these key actors.

Thus, this paper addresses in particular the fifth objective of forest conservation, by looking atways to address the root causes and key actors involved in forest conversion processes. It will beargued that engaging the edible oils sector in forest conservation could help reduce the risk thatresults achieved in terms of protection, sustainable forest management and forest restoration areovershadowed by expansion of agricultural plantations.

This paper is structured as follows:

• Chapter 2 describes forest conversion processes in a landscape perspective;• Chapter 3 provides available statistics on forest conversion and the edible oils sector, and

elaborates on predictions related to agricultural expansion and forest conversion;• Chapter 4 elaborates the case of forest conversion by the oil palm sector in Indonesia;• Chapter 5 provides an analysis of driving forces and actors involved in forest conversion

dynamics, aimed to identify root causes and key actors to be strategically addressed;• Chapter 6 provides the building blocks for a concrete action plan, including a landscape

vision and strategy for WWF to adopt and strategic partnerships to build, based on commoninterests by the actors involved.


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2.2. Defining the forest conversion processDefining the forest conversion process

2.12.1 Defining forest conversionDefining forest conversion

Forests are defined by FAO as “ecosystems with a minimum of 10% crown cover and not subjectto agricultural practices”. The FAO defines deforestation as “the complete clearance of treeformations (closed or open) and their replacement by non-forest land uses”. ‘Forest conversion’is defined as the transition from closed forest to agro-industrial plantations (tree plantations, alsoincluding oil palm, rubber, coconut etc.) (FAO 1996).1 This definition does not capture theintermediate phases, from logging, clearing, planting to early establishment and maturation of anon-forest plantation, which are all part of the forest conversion process.

In most available literature on deforestation the term forest conversion generally refers to thegradual transition from forest to man-made forest (plantations) or non-forest land-use. Forestconversion is in that case the final stage of a process that includes various forms of forestdegradation and forest fragmentation. The final stage is generally characterised by:

• Large scale man-made monocultures with forest or non-forest land-use,• Land-use for commercial production purposes, and generally associated with (in)formal

privatisation of land ownership, and• The loss of biodiversity and forest functions (goods and public services), with an irreversible

character.

In this paper, we define the term ‘forest conversion’ as a continuous process of declining forestfunctions, with intermediate stages of forest degradation, forest fragmentation and deforestation.The forest conversion process thus captures the range of extractive and forest clearing activitiesthat ultimately leads to a landscape dominated by man-made monocultures, and is characterisedby the loss of key forest functions and socio-economic benefits for local people. Thisinterpretation is in line with the definition of deforestation by Van der Top (1998) to adequatelydescribe the range of activities leading to degradation of tropical forests2.

Critical aspects of the process of forest conversion are: the transition of natural forests to man-made monocultures through progressive frontiers, the scale involved and the rapid speed, theconnections with global commodity markets and the loss of forest functions (often of anirreversible character). In line with this definition, plantations of perennial crops such as oilpalm and agricultural monocultures, e.g. of soy beans, meet these criteria of forest conversion.

Deforestation by small farmers should not be underestimated in terms of its impact upon theforests but there is a significant difference between relatively stable communities that practisetraditional shifting cultivation and migrant settlers or ‘shifted cultivators’. While shiftingcultivators are affected by forest conversion, they are not intrinsic part of it. Shifted cultivators,a term introduced by Myers (1980), are either pushed or pulled into forest areas, often by makinguse of logging roads or stimulated by government backed settlement schemes, as a result of theconcentration of land in hands of a few, relatively extensive large-scale farms in the moreaccessible areas.

1 Forest classes and plantations categories are defined according to their canopy cover and biomass density. While theaverage indicative biomass value for closed forest is 225 T/ha for all zones, for plantations this is 110 T/ha, which ishigher than any of the other forest cover categories (e.g. open forest has an average biomass value of 90 T/ha). Thus,according to FAO forest conversion implies a decline of forest biomass and canopy cover, but the final stage(agricultural or forest plantation) has a higher biomass value and canopy cover than many other forest categories.2 Deforestation is defined by Van Der Top (1998) as: “A human-induced or natural reduction in – or even the completeremoval of – tree crown cover in a given natural forest area over a given period of time”.


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2.22.2 Forest conversion as a continuous process of forest degradationForest conversion as a continuous process of forest degradation

Forest conversion can be considered as a continuous process of forest degradationcharacterised by four different stages (see Figure 1).

Figure 1: The four stages of the forest conversion process leading to deforestation

1. Primary or mature (natural) forest. This stage is characterised by closed canopy cover, littlehuman influence, possibly low intensity / extensive use by indigenous communities, e.g.exploitation of non-timber forest products. There are no significant changes in forestfunctions and forest regeneration capacity is optimal. Concessions for selective logging maybe allocated but are not yet operational.

2. Logged or residual or secondary forest. Road construction is often the first industrial activity inthe primary forest, followed by selective logging with variable intensity, depending upon thepresence of commercial tree species and accessibility of the terrain. This stage provides thebulk of timber production in the tropics, much of which is export oriented. Net capital flowsare outward oriented. After logging, a partially degraded logged over or residual forestremains. Natural restoration processes are still largely intact, although the regeneratingcapacity of valuable timber species might be endangered. Secondary forests provide littlecommercial timber, but still provide many forest products, have a high biodiversity andsequester large amounts of carbon. Hunter-gatherer communities tend to move deeper intothe primary forest while some community members may be hired by logging companies.Commercial hunting pressure tends to increase significantly. Along logging roads total forestclearance, soil erosion and the first signs of shifting cultivation may be observed.


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3. Conversion forest. Following forest degradation as a result of (unsustainable) logging, a rapidinflux of migrant settlers (e.g. unemployed logging crews) may occur. In this stage, logging ishighly unsustainable and often considered illegal. The logging companies move deeper intothe primary forest but sawmills often also obtain logs produced in the conversion area, oftenfor local markets. Investments in sustaining the forest resource are minimal. Conversionforests have been cleared and burned for small scale subsistence agriculture. Commercialagriculture is increasingly introduced, possibly after legal reclassification of loggingconcession areas to other land use categories. Wildfires are more widespread and contributeto further forest degradation. In this stage, relatively stable semi-traditional subsistenceagricultural and mixed agropastoral systems with various degrees of integration of trees andforest functions may consolidate for a longer period of time. Natural restoration processes arestill intact to some extent.

4. Converted forest or non-forest stage. In the final stage, the last remaining forests are completelycleared/deforested. Significant loss of biodiversity occurs and most natural forest functionsare affected temporarily (during conversion) or permanently (e.g. biodiversity). Thelandscape transforms from patchy small scale agriculture to large scale agro-industrialmonocultures. This might include land-use for ranching, tree-crop plantations, annual crops,pulp wood plantations, etc. which may be introduced within a certain sequence as well (e.g.rubber being converted into oil palm, ranches being converted to soybean). Landless workersare thus pushed into the conversion forest or to urban areas. Like in stage 2, the areagenerates substantial export revenue. Major capital and management inputs are required todevelop and maintain the productivity of the large-scale monocultures, though land use islabour extensive compared to the former stage. Natural restoration processes have beenlargely destroyed, shifting back to (natural) forests requires major investments.

Frequent travellers in the tropics may recognise the geographic pattern of these four stages fromthe air while flying from an urban centre to a forest rich region. There are several frontierscharacterising the transitions from one stage to another: the logging frontier (from stage 1 to 2),a colonising frontier with mixed activities (stage 2 to 3) and an industrial agricultural frontier(from stage 3 to 4).

The dynamics between the different stages of the forest conversion process in the tropics areillustrated in Figure 2. The bold arrows represent the currently dominant processes, the dottedlines represent desired processes if forests are to be protected, well managed and restored. Thecurrent direction of change is towards systems that are ‘less natural’ and more ‘man-made’. Themodel starts with the existing primary forest (left top) which regenerates itself (represented bythe curved arrow). The first bold arrow (1) represents selective logging of the primary forest,resulting in a logged over or residual forest. This forest in part regenerates into primary (mature)forest (7) and could become available for re-logging in the future. Today most logging still takesplace in primary forest, while the forest resource declines as the logging industry tends to notcontinue managing the same forest area it exploited previously. Due to non-forestry factors, bothprimary forests and residual forests are deforested (2 and 3). By area, agriculture is the mostimportant cause of deforestation in the tropics (therefore other causes are left out in the model).About 45% of the deforested area is incorporated in shifting cultivation and agroforestry systemswithin the conversion forest stage (4). Traditional systems are relatively stable (represented bythe curved arrow), but the agro-industrial and plantations business requires substantial land areathat is derived both from natural forests (through 2/5 and 3/5) as well as from extensivelycultivated areas (6). Within the agro-industrial and plantations business, land use changes aswell, depending on global market demand, e.g. from rubber to oil palm or from ranching tosoybean (represented by the curved arrow). However, restoration back into natural forests isunlikely. The sectors involved may in turn lose land due to irreversible land degradation (e.g.through soil erosion) or by urban development.


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Figure 2. Schematic overview of the forest conversion process and mitigating measures

Conserving and restoring natural forest functions requires investments that are able to countercurrently dominant processes. First, investments are required to restore and manage residualforests for restoration back into mature forests, either for conservation or production functions(7). Without such investments, these forests may be further degraded due to their low marketvalue. Second, to reduce the pressure from the agro-industrial and plantations sectors, landreforms would help to significantly increase employment in small-scale agriculture, therebyreducing pressure on forests by 'shifted' cultivators (8). Land reform is a potentially powerfultool to reduce pressure on natural forests and might lead to regeneration of fallow into secondaryor natural forest at the forest fringe (9). Similarly, land occupied by agribusiness and plantationsmay be transformed into more natural and diverse ecosystems through forest restoration andretention (agribusiness) and diversification of tree plantations (10).

In most literature, the logging and colonisation frontiers and their interaction are generallyrecognised, but the profitability of agro-industrial monocultures constitutes a key driving forcebehind the forest conversion process that does not seem to be fully recognised. The agro-industry drives the forest conversion process in at least three possible ways:

1. By clearing natural primary forests (stage 1) directly, thereby possibly also benefiting fromthe valuable timber, and thereby skipping the intermediate stages;

2. By occupying logged land and land previously allocated to permanent forestry (stage 2), thusforcing timber exploitation to penetrate deeper into the primary forest. This is the mostcommon form of expansion for the oil palm sub-sector in Southeast Asia.

3. By occupying land used for small scale agriculture and ranching (stage 3), thus forcingfarmers and ranchers to clear secondary or primary forest. This is probably the mostcommon form of expansion for the soybean expansion in Brazil.

No matter which of these transitions is most important, due to the interrelations between thedifferent stages and the cumulative effect of various pressures on scarce (forest) land, landoccupied for agro-industrial purposes directly or indirectly pushes the forest frontier zonesfurther into the primary forest.

Conversion forest /shifting cultivation /

agroforestryPrimary / natural

forest

Logged / residual /secondary forest

Converted forest /agribusiness/plantations

1

2

3

5

67 8

9

10

Deforestation

4


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2.32.3 Forest restoration processesForest restoration processes

We believe that the patterns described above occur in many tropical regions and will continue toaffect many natural forests unless the underlying causes are addressed. This is not to say that theprocess will ultimately lead to the loss of all tropical forests. Natural barriers such as climaticconditions, mountains and soil conditions create economic barriers that slow down or haltconversion sooner or later. Often, however, before conversion comes to a halt, a lot of forest isalready opened up in sites that are largely unsuitable for non-forest uses. In Southeast Asia, forexample, there are several examples of wasteful conversion in flood prone areas, peat land orother sites that were recognised as unsuitable for development only after the forest was cleared.

There are also legal barriers though these tend to be weak. Indigenous peoples’ land rights areincreasingly recognised and the protected forest area increases. Increased (inter)national interestin multifunctional forest use raises concerns among agribusiness representatives with regard toopportunities to expand operations. Furthermore in Asia, logging concessions are located in theso-called ‘permanent forest estate’ and, at least in theory, these forests could not be released forconversion.

From developed countries mainly, there is evidence to assume that restoration of natural orsecondary forests may occur, as a ‘turnaround’ process of increasing forest area, when economicgrowth continues and cities grow larger (Rudel, 1998). It is associated with a slow rate ofpopulation increase and a highly urbanised population. However, depending upon its extent andtiming:

• The gains in reforestation (by area) are usually much smaller in magnitude than the area lostby deforestation;

• Biodiversity can only partially be restored, particularly in primary tropical forests with itsmany endemic species and unique habitats;

• Restoration in developed countries occurs while these countries have access to land and otherresources abroad, notably in the developing world (ecological footprint). Some developingcountries have begun to invest in restoration, e.g. China and Malaysia, but similar todeveloped countries, they do so while increasing their ecological footprint in other countries.

Overall, there are reasons to believe that an autonomous restoration of deforested land into semi-natural ecosystems will not (yet) occur in most tropical countries within the next 25-50 years orso:

• Population increase remains high in most tropical countries and increasing wealth can beexpected, so demand for productive land will continue to rise;

• Through their ‘ecological footprint’, developed countries will continue to strain possibletrends in developing countries to restore nature;

• In some developed countries the restoration process has recently shown a standstill or evenreversed back, possibly due to the new stimulus of economic growth;

• In developing countries, the current level of technology, organisation and managementmight be insufficient to expect intensification processes (e.g. of agriculture) to be successfulsoon, so that expansive land-use and forest conversion will prevail.

Statistically speaking, there is at present no evidence to assume that tropical deforestation willstop when a country reaches a certain level of affluence (Barraclough and Ghimire, 2000). At thesame time, still much may be expected from efforts to protect, restore and manage existingnatural forests, provided that pressures driving forest conversion are effectively addressed.


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2.32.3 ConclusionsConclusions

Forest conversion can be defined as a continuous process of declining forest functions, withintermediate stages of forest degradation and forest fragmentation. It ultimately leads to man-made monocultures characterised by the almost complete loss of forest ecological functions andsocio-economic benefits for local people. Despite the spatial and temporal variations in the forestconversion process, there appears to be a common pattern, involving various intermediate stagesand various frontiers. The agro-industrial frontier contributes to forest conversion both in directand indirect ways. Its profitability constitutes a key driving force behind the forest conversionprocess that does not seem to be fully recognised. Due to the interrelations between the differentstages and the cumulative effect of various pressures on scarce (forest) land, land occupied foragro-industrial purposes directly or indirectly pushes the forest frontier zones further into theprimary forest. An autonomous ‘turnaround’ of these processes cannot be expected in mosttropical developing countries. If more tropical forest is to be protected, managed or restored,pressures that drive forest conversion need to be effectively addressed.


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3.3. Facts and predictions on forest conversion and the edible oilsFacts and predictions on forest conversion and the edible oilssectorsector

3.13.1 FAO forest statisticsFAO forest statistics

Table 1 gives available facts and figures from the FAO Phase I forest resources assessment of1980-1990 (FAO, 1993), based on FAO definitions (see section 2.1). More recent statistics will bereleased by FAO later this year.

Table 1: Tropical forest conversion: logging, deforestation and plantation development (FAO, 1993)

Total forest area(M ha)

Total logged area1981-1990

Deforestation1981-90

Total plantationarea

(Mha)1980 1990 Mha % logged

previousMha % / yr 1990 Change

80-90Africa 569 528 9 26% - 41 - 0.7 3.0 + 0.1Asia- Indonesia- Malaysia

350 31111018

2112 5

18%14%15%

- 39- 12- 04

- 1.1- 1.0- 2.0

32.18.80.1

+ 2.1+ 0.5+ 0.0

Latin America- Brazil

992 918561

2620

11%7%

- 74- 37

- 0.7- 0.6

8.67.0

+ 0.4+ 0.3

Total tropicalcountries

1,910 1,756 56 17% - 154 - 0.8 43.8 + 2.6

The data for the 1981-1990 period show that in just a decade 56 million hectares (Mha) wereselectively logged, 154 Mha of tropical forest was completely lost (deforested) and that a totalplantation area of 2.6 Mha had been established.

Of the area logged in the 1980s, only 17% took place in previously logged forests, thus 83% of thearea logged was closed primary forest. The statistics are not clear on what share of the areadeforested was previously logged. Older studies suggest that approximately 45% of the totalclosed tropical forest deforested was previously logged. These studies further showed that 55% ofthe area deforested were permanently cleared, while 45% of the area deforested became subject toshifting cultivation (Mather 1990).

It is estimated that of the total plantation area in 1990 about 14 Mha were non-forest plantations,of which 7.2 Mha are occupied by rubber, 4.2 Mha by coconut and 2.7 Mha by oil palm. Using amore elaborate statistical / remote sensing basis Phase II of the FAO forest assessment study(FAO, 1996) concludes that the total increase of plantations in tropical countries between 1980and 1990 was 5.35 Mha3. An estimated 70% of the increased area of plantations (2.6 Mha in the1980-1990 period) took place directly from natural forest. This transition occurred almostexclusively in Asia, and includes both forest and non-forest plantations. The conversion fromprimary forest to plantations thus constitutes only a fraction of total deforestation in the sameperiod. In all three continents, the major component of deforestation is that from closed forest to‘other land cover’. Following our proposed definition of forest conversion as the process ofdeforestation towards the loss of forest functions, these changes would also be part of the forestconversion process.

3 FAO forest assessment study phase II does not give specifications per country.


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More recent FAO forest assessment data are currently not yet available. Early estimates are thatdeforestation declined by about 10% in the first half of the 1990s. It must be noted that FAOstatistics may sometimes be considered to be on the conservative side. While FAO assessed thedeforestation rate in Indonesia at 1.2 million hectares per year in the 1981 – 1990 period and at1.0 Mha in 1990-1995, recent detailed research by the Indonesian government suggestedIndonesia lost on average 1.6 Mha per year in the 1985-1997 period.

In Brazil, deforestation has come down from a very high 3.7 Mha in the 1980s to 1.6 - 1.7 Mha inthe late 1990s, while the Woods Hole Research Centre found that another 1.0 – 1.5 Mha washeavily logged but not included in the national deforestation statistics. An area of 2.7 millionhectares of forest became vulnerable to fires in 1998 (Luciezi, 2000).

The extent of tropical forest lost globally due to forest fires is not known for the 1981 – 2000period as there will also be substantial overlap with deforestation. Forest fires occur irregularlyand tend to peak during the dry conditions caused by El Niño climatic event, like during thegreat forest fires of Borneo in 1982-83. During the last El Niño, in 1997/98 at least 8 millionhectares of tropical forest burned in Indonesia and Brazil alone. The next El Niño is expected in2001/02.

The ecological and social impacts of forest conversion are briefly discussed in Box 1. Specificimpacts of expanding and established oil palm plantations are summarised in chapter 4.

Box 1: General ecological and social impacts of the forest conversion process

During the forest conversion process, a range of impacts on the environment and local communitiesemerge. Our definition of forest conversion includes the range of activities (logging, burning, hunting,small scale agriculture, plantation development) that contribute to extraction and clearing activities. Theimpacts of these activities are cumulative and tend to aggravate through time, until the forest is completelycleared and replaced with another form of land use. At the end of the conversion process, virtually allnatural habitat and its original biodiversity is lost , soils are degraded to variable extent, while the localand regional hydrology and weather conditions (temperatures, precipitation) may have altered. Thedestruction of biomass results in carbon emissions, thereby contributing to global warming. Indigenouscommunities tend to be dispossessed and integrated in mainstream society or become marginalised.

The final form of land use may, of course, be more or less sustainable depending upon environmentalproblems such as soil erosion, soil and water pollution from fertilisers, pesticides or processing industriesetc. From the conservationists’ perspective, the impacts of clearing are most significant. Within othersections of civil society, however, there is great concern over the socio-economic impacts of plantationdevelopment after clearing, most notably the dispossession of customary lands by plantation companies.

3.23.2 Statistics and predictions on primary oil cropsStatistics and predictions on primary oil crops

Table 2 gives some facts and figures from the FAO agricultural statistics on primary oil crops,from the period of 1980-2000. It indicates the relative value of vegetable oils and fats representedby palm oil and soy oil, and the relative importance of Indonesia for the oil palm crop and Brasilfor the soy beans crop.


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Table 2: FAO Statistics on oil crops, palm oil and soy bean

YearArea Parameter and unit‘89 ‘93 ‘97 2000

World Primary oil crops area harvested (Mha)Oil palm fruit area harvested (Mha)Soybean area harvested (Mha)

Production vegetable oils and fats (Mt x 106 )Production palm oil (Mt x 106 )Production soy oil (Mt x 106 )Production soybean (Mt x 106 )

Yield oil palm fruit (Hg/Ha x 103)Yield soy bean (Hg/Ha x 103)

1845.859

591115108

10118

1917.160

681417

115

11019

2088.567

831820144

11522

2249.774

892123

154

10122

Indo-nesia

Oil palm fruit area harvested (Mha)Production palm oil (Mt x 106 )Yield oil palm fruit (Hg/Ha x 103)

0.62.0173

0.93.4189

1.65.4166

1.86.7115

Brazil Soybean area harvested (Mha)Production soy oil (Mt x 106 )Production soybean (Mt x 106 )Yield soy bean (Hg/Ha x 103)

12.22.924.019.7

10.63.122.621.2

11.53.626.423.0

13.63.831.823.8

Using data from Table 2, the following observations for period 1989-1999 can be made.

1. There is a world-wide increase in area harvested with primary oil crops (22%); the increasein area harvested with oil palm fruit is highest (58%), the increase in Indonesia is very high(200%); Indonesia now produces about 30% of the world production of palm oil.

2. The area harvested with soy bean has increased less (20%). In Brazil the annual increasebetween 1998 and 2000 has been 2.6% (0.3 Mha/yr) but expansion is concentrated in tworegions mainly, the North and Centre West. Although soybean production as such does notoccupy large land areas (e.g. 3.25% in the Centre West), its expansion is strongly linked tothe expansion of logging and ranching (Luchiezi, 2000). Brazil produces more than 20% ofthe world production of soy beans and soy oil derived from that.

3. World-wide yields of pal oil fruits have hardly increased and even declined recently. Yieldsin Indonesia have been high but strongly declined during recent years. Yields in soy beanshave increased little, and somewhat higher in Brazil. This means that for both oil cropsgrowth in production is primarily achieved through expanding the area planted. This isparticularly so in the case of palm oil in Indonesia, where the decline in yields seemsalarming.

The world supply of edible oils and fats is growing rapidly (3.6% per year), with palm oil risingfastest (8.3%).The total global palm oil consumption grew by 22% between 1994 and 1998, and isexpected by the principle authority in edible oil consumption to increase by 50% the comingyears. While the rate of increase of bulk food intakes might decline, edible oil intakes areexpected to strongly increase due to the combination of a strong population growth indeveloping countries and an increase in wealth (e.g. WWF / MPO, 2000). Small increases inwealth, in nations like China, will have enormous impacts on agricultural land requirements.Demand for edible oils is therefore expected to remain highly elastic (demand could becomeeven more elastic in the long term if palm biofuel becomes economically viable). As a result,demand growth will drive production and trade in the next ten years to about 150% of 1999levels (Stringfield, 2000). Palm oil is set to become the most produced, consumed andinternationally traded edible oil in the world by 2012 (Oil World, 1999).


16

Palm oil has by far the highest productivity of major vegetable oils in terms of the yields of oilper hectare, obtaining 5-10 times as much as soy oil. Soy makes most of its incomes from theprotein rich meal. There are potentials for both palm oil and soy bean crops to improveproduction systems, to increase yields, reduce costs of inputs and reduce environmental impacts.

On the other hand, recent price falls seem to dampen the high expectations for palm oil on theshort term. Apart from that, palm oil is difficult to mechanise, and will continue to depend onhigh labour inputs. If labour wages increase and prices will fall, the cost advantages of palm oilwill decline (Stringfield, 2000).. It is still too soon to revise the forecasts in view of persistentgovernment policies to facilitate the sector, both In Indonesia and in Brasil.

3.33.3 Global predictions on agricultural land-useGlobal predictions on agricultural land-use

Several studies provide global predictions of forest conversion for agricultural land-use. Theresults vary greatly. The study by Waggoner and Ausubel (1999) predicts a decline of agriculturalland of 117 Mha by 2050. This forecast is largely based on an expected per area unit increase ofagricultural yield. A CIDA study on the other hand, predicts an increase of 250-300 Mha ofcropland between 1999 and 2024, i.e. at a annual deforestation rate of 10-12 Mha/yr (Roper andRoberts, 1999). Recent WRI reports (Worldwatch, 1999) support the latter forecast, emphasisingthe increasing land degradation, the loss of productive land and the stagnation or even decline ofyields for certain crops, partly due to the fact that more marginal lands are taken in production.Similarly, WWF/MPO (2000) expect that increased demand for agricultural land and humansettlement will claim about 40% of the still unused land with agricultural potential in SouthAsia.

The predictions might not compete if a short- and medium term increase in cropland isassumed, followed by a decline after 2-3 decades. However, a long-term decline would come atthe irreversible loss of extensive areas of natural forests. Because lowland areas are generallymore accessible and better suited for large scale agriculture, particularly strong pressures willemerge on the remaining lowland tropical forests. Since these are among the biologically richestecosystems in the world, conservationists would need to engage the agricultural sector inconservation if these forests are to be spared.

It is expected that the expansion of the edible oils sector will be particularly strong in the tropics.FAO predicts that the production growth of the oil-crops sector will continue to be aboveaverage compared to the rest of agricultural production, increasing its share of total agriculturalproduction from 16% in 1990 to about 38% in 2010 (FAO, 1995). Palm oil in general, and soybeans in Brasil, are both being produced predominantly on large farms or estates.

However, at the same time export earnings will remain unstable and small due to volatile andlow prices (WWF/MPO, 2000). As long as relatively cheap labour is available and governmentscontinue to release forestland for permanent conversion, these factors will hinder investments in(much needed) increases in productivity per area unit (mechanisation) and instead tend topromote further expansion of edible oil crops in forest areas.

3.43.4 Trends in the forestry sectorTrends in the forestry sector

In the coming decades, the tropical forestry sector is expected to transform into an industry thatshares many similarities with the agribusiness sector. The tropical forestry sector will not muchlonger be able to rely on logging primary forests. According to FAO (1999), only 665 Mha ofundisturbed forest remains available for wood supply, almost 500 Mha of which is located in the


17

Russian Federation leaving approximately 100 Mha of primary forest in the tropics.4 As primaryforests are depleted, the forest products industry will become increasingly dependent on secondgrowth yields in natural forests, logs released during conversion of natural forests and plantationlogs. Ultimately, it will rely on large scale plantation monocultures, most of which areestablished on (former) forestland. Plantation-grown wood is already gaining in importance andis now estimated to account for 17% of total industrial roundwood supply. This is increasinglyproduced in tropical countries (Bazett, 2000). For instance, while Indonesia’s plywoodproduction stagnates due to log shortages, Indonesia has already become the world’s 12-largestpulp producer with average annual growth of 31.4% from 1992-1996. It is feared that many of thetimber concessions in Indonesia will be converted to pulp operations since the demand for pulpis increasing (Clay, 1998; Potter & Lee, 1998).

Large scale tree plantations are currently mainly planted for pulp and paper but they willincreasingly be used for the manufacturing of wood products that use tree fibres, rather thanwhole logs. These ‘Engineered Wood Products’ such as Medium Density Fibre board (MDF)and Oriented Strand Board (OSB) will increasingly replace natural forest wood products.Processing industries will even become dependent on agricultural tree crop fibres, such as oilpalm trunks. Plantation rubber wood is already the main timber used in Malaysia’s furnituresector.

These trends, which most clearly emerge in Southeast Asia, have an ambiguous impact onnatural forest management. Although tree plantations are established at the expense of naturalforests and lands with small scale agriculture, thereby creating pressures similar to those of theagricultural sector (see chapter 2.2), the area required to produce a certain volume of woodproducts is much smaller for plantation based industries than the area required by industriesthat rely on natural forests. Thus, the natural forests could be protected or managed for highvalue speciality timbers. This remains a theoretical option up to date.

3.53.5 The economic and policy rationale behind forest conversionThe economic and policy rationale behind forest conversion

A complex set of economic and policy factors appear to promote the forest conversion processand hinder the development of sustainable forest management in tropical natural forests:

Ø It is generally more attractive for logging companies to abandon previously logged forestsand gain access to new concessions in primary forests than to engage in sustainablemanagement of logged forests which requires long term, high risk investments. While accessto primary forest is usually undervalued (low stumpage fees), investments in natural forestmanagement are financially unattractive because natural regeneration in tropical forests isslow while (inflation corrected) tropical timber prices are likely to remain stable at best.High discount rates and interest rates furthermore hinder long term investments in forestmanagement;

Ø Heavily degraded forests and high demand for land tempt government agencies responsiblefor land use planning to release logged forests for complete conversion after expiry ofconcession terms, even when the legal status of this land would not permit such conversion.Thus the forest area available for sustainable natural forest management decreases;

Ø Timber industries have been built up with processing capacities that (far) exceed sustainableyields, thus promoting excessive unsustainable and illegal logging, as well as log imports,causing further forest degradation;

Ø At the same time, commercial credits are relatively easily available for the development ofagricultural and tree fibre plantations, which bring forth products which can compete with

4 Assuming that the remaining 66 Mha is located in North America.


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timber products from natural forests on the market place, thus reducing the reliance onnatural forest.

This brings us to the economic rationale of forest conversion. Previously logged natural forestsshould be left to regenerate until they can sustain a second timber yield, 25 to 50 years after thefirst cut in the primary forest, depending on the intensity of the first yield. During this timesubstantial long-term investments in forest regeneration, protection against encroachment,forest fire, illegal logging, possibly FSC-certification et cetera are required. Since there is noguarantee that after such time a second timber yield will generate enough profit to pay off costs,a logging company will find it nearly impossible to identify financial institutions that are willingto finance such long-term forestry projects. If, on the other hand, the logged natural forest isconverted into palm oil plantations positive cash flows can be achieved 3 years after planting andprofits may be expected after 7 years. Similarly, conversion of natural forest into rapidly growingsoftwood plantations can generate positive cash flow within a decade. Annual crops, such assoybean, could provide even quicker incomes.

In a general sense, sustainable forest management in tropical countries remains less attractivethan alternative forest uses such as conversion for agricultural and tree fibre plantations (Reidand Rice, 1997; Amsberg, 1998; Southgate, 1998; Pearce et al., 1999; Gullison et al., 1998). TheIndonesia case (Chapter 4) clearly shows how significant pressures are on government decisionmakers to release land for conversion. Public concern over the loss of natural tropical forestsfunctions to some extent as a safety valve against uninhibited deforestation.5


FAO data show that in the 1980s approximately 5 to 6 Mha of natural forests were logged in thetropics annually, most of which is primary forest. About 70% of all forest plantations areestablished by clearing natural forests. Averages for forest areas burned are not available thoughthe affected area is probably considerable. Forest fires are generally linked to deforestation. Theannual area deforested (15.4 Mha) is believed to have fallen by 10% in the early 1990s.

In the next 25 years, another 250-300 million hectares of land is likely to be opened up foragriculture in the tropics. It is probable that large scale commercial agriculture will gain inrelative importance in terms of causing deforestation. As a result, logging, small scaleagriculture, fires etc. will continue to degrade forests as well. The growth of markets for edibleoils will continue to be above average compared to other agricultural products. The edible oilssector will therefore create greater pressure on forests than other agricultural commodities,especially if increased production is generated by expanding the plantation area rather thanoptimising productivity. Forest conversion is likely to occur mostly in remaining lowland areas.This is particularly worrisome, as lowland tropical rainforests represent the world’s biologicallymost diverse terrestrial ecosystems.

5 It appears this was a consideration for Malaysia’s government to lobby the FAO in 1999 to define rubber and oilpalm plantations as forests. If this were accepted, the Malaysian Timber Bulletin reported “Malaysia’s forest coverwould immediately increase from 50% to 75% of the land area”. At the same time further expansion of plantations innatural forest areas would not any longer be recorded as deforestation.


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4.4. Case study IndonesiaCase study Indonesia

4.14.1 Oil palm expansion in IndonesiaOil palm expansion in Indonesia

The following case study is largely based on information from Potter and Lee (1999), Barr(2000), Casson (2000), and Wakker, Van Gelder and Telapak (2000).

Oil palm is a tree crop that is highly suitable to Indonesia’s moist tropical conditions, and alsohas the potential to generate rapid export earnings while making use of relatively cheap labour(see Box 2).

Box 2: Some basic information on oil palmBox 2: Some basic information on oil palm

Oil palm requires a humid climate and good soils, not susceptible to flooding. Most suitable are non-swampy lowland tropical forest soils. To establish an oil palm plantation, the company will start byconstructing roads, setting up a nursery and clearing the land by removing any vegetation, includingtropical rainforest. If the timber is not sufficiently valuable, e.g. where a first round of logging has takenplace, burning is a cheap method of land clearing. In Indonesia mechanical clearing is at average 2.3 timemore expensive. Labour is brought in from other regions. The palms are already productive 3 years afterplanting. The costs of establishing an oil palm plantation varies between US$ 2,500 – 3,500 per ha, most ofwhich the company would normally need to raise externally. When established in primary forest areas, thesold timber might generate required revenues.

The oil palm fruits must be processed 24 hours after harvesting, which requires a processing mill that isnormally built in the plantation area. Therefore, oil palm plantations must be large scale in order to beprofitable, and the areas must be made well accessible. No other plant produces a higher yield of edibleoils than the oil palm: per ha yields can be 10 times higher than those of soybean. However, the yields inplantations are commonly far below optimal levels, particularly in developing countries like Indonesia.

In Indonesia, the rapid expansion of oil palm plantations took off from the mid-1980s onward.Starting from 0.6 Mha in 1985, the planted area reached about 1.0 Mha in 1990 and almost 3.0Mha in 1999 (Figure 3). The export of palm oil from Indonesia increased three fold (Table 2).On average, 200,000 hectares of oil palm plantations were established in the 1990s. The bulk ofIndonesia’s oil palm plantations are located in Sumatra and Kalimantan.


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Figure 3: Expansion of the area of oil palm planted in Indonesia (1967-2000)

According to a recent forest assessment, annual deforestation in Indonesia amounts to 1.6 Mhaper year (period 1983-1995), therefore clearing for palm oil would account for only 13% of theforest area lost. It is not fully understood why this share appears to be so low. It is probable thatoil palm expansion plays a more significant role in the conversion process:

• The 1997/98 forest fires were not included in the forest assessment. An estimated 46-80% ofIndonesia’s fires were started by oil palm plantation owners, covering almost 10 Mha, ofwhich 3.3 Mha were forests. Officials stated that forests burned by wildfires would bereleased for oil palm development;

• The 13% figure is based on the actual area planted with oil palm. Not all oil palm investorsare believed to be seriously interested in developing oil palm estates. Rather, they wouldapply for conversion permits because it would allow access to the standing timber. Forestclearing is tied to less stringent regulations than permits for selective logging. There is a riseof logs generated from large-scale forest conversion, and not from selective logging, so thatby now forest conversion accounts for roughly 40% of the nation’s legal timber and pulpwoodsupply (Barr, 2000);

• Not all oil palm plantations are established in forest areas. Indirectly, this could stillcontribute to forest loss if local communities are pushed into forest areas outside theconcessions. Indeed, many plantations are established in community forests with mixedforest, rubber gardens and ladang.

Due to increasing land scarcity and in order to meet land applications given for oil palm, forestconversion increasingly occurs:

0

1.000.000

2.000.000

3.000.000

4.000.000

5.000.000

6.000.000

7.000.000

8.000.000

9.000.000

10.000.000

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

hec

tare

s

Area established Future area


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• In fragile areas with unsuitable site conditions for oil palm (peat swamps, steep slopes, floodprone areas and water catchments), thus causing land degradation and low yields;

• Within the timber production forest (permanent forest estate), on the best soils (previouslowland forest) leading to fragmentation of forests and disruption of important wildlifecorridors;

• In areas designated as conservation areas;• In areas where local communities resist such development, leading to social conflict;• In forest rich regions of Eastern Indonesia.

Apart from the long-term market prospects for the sector (Section 3.2), there are indications thatin Indonesia the annual rate of conversion will increase sharply.

1. By 1995, an aggregate area of 20 Mha was applied for release of forest land to be converted, afigure which is said to continue to rise under the post Soeharto Government to 40 Mha, ofwhich about 9 Mha has by now been released (Potter and Lee, 1999; Junaid, pers comm.). Ifall applications were granted, this would exceed the area of forest formally available asconversion forest (total 30 Mha), of which now only about 19 Mha was still available. Oilpalm estates in Indonesia are concentrated in Sumatra and Kalimantan, where already in1995 applications exceeded land available for forest conversion by 200-300% (Potter and Lee1999; Casson 2000). The industry is now provided incentives to invest in the forest richregions of Eastern Indonesia, notably Papua.

2. Several policy changes have occurred to support the nation’s pulp and oil palm industries, inorder to generate foreign revenues. This can be considered as a response to the highprofitability of oil palm plantations and pulp plantations, and the increasing land pressure. Anew legislation to favour the development of plantations allows ‘non productive productionforests’ to be transformed to agro-industrial plantations when containing less than 20 M3 oftimber per ha, and it allows plantation development on 30% of production forest estates. Thiswould imply a transition from permanent forest estates towards agro-industrial plantations(Casson 2000).

These trends put the low share of the oil palm sector as a cause of direct deforestation in anotherperspective. It underlines the importance of the oil palm plantation sector in terms of a drivingforce towards forest conversion and large-scale forest landscape dynamics in Indonesia.

4.24.2 Determining factorsDetermining factors

The following factors favour large-scale forest conversion for palm oil plantations in Indonesia.These factors are of institutional-political and socio-economic nature mainly:

• Low levels of income and cheap labour availability (making Indonesia the cheapest producerof palm oil);

• Easily acquired rights to use forest and land resources, through (local) authorities;• Flexible and easily adjusted legal systems and formal regulations;• Weak enforcement of (forest and land use) legislation by (local) public institutions;• Low levels of organised opposition by local communities, and non respect of their rights;• Non adherence to principles of good governance, allowing benefits through corruption and

suppression of local opposition.


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4.34.3 Impacts of forest conversion for oil palm plantationsImpacts of forest conversion for oil palm plantations

The specific environmental and socio-economic impacts of forest conversion into oil palm inIndonesia can be summarised as follows.

Environmental impacts

• Deforestation: primary, secondary forests and semi-natural agroforests, especially in lowlandareas, are converted, contributing to loss of forest habitat, and thereby to loss of biodiversity.Between 80-100% of mammals, reptiles and birds do not survive in oil palm plantations.Plantation development often occurs in prime habitat for orang-utans, proboscis monkey andother key stone species;

• Fragmentation: Plantations developed in large areas, at best isolated pockets of forests areleft. Because plantations are fenced or otherwise protected, animals that are migratory or thatneed large areas to roam around (tigers, elephants) are affected especially when forestcorridors along rivers, lakes and streams are cleared as well;

• Forest fires: burning used to be a common land clearing practise and, although it is nowillegal in Indonesia, it appears to be practised up to date. Burning in plantation areas maycontribute to wildfires in surrounding forest and peat areas, especially secondary forestswhich are more prone to fires; forest and peat fires cause smog, chemical and physical soildegradation;

• Hunting pressure / pest control: hunting down of undesirable animals that are regarded aspests for agriculture (elephants, porcupine, …). Animals are either poisoned, killed orrelocated;

• Agro-chemical pollution: excess fertiliser and pesticide is transported by ground and surfacewater, posing health threat to local people with no access to tap water;

• Global warming: as the result of burning or organic decomposition, the biomass of thenatural forest is released as greenhouse gasses. Plantations absorb only part of the carbonreleased;

• Soil erosion: particularly during and directly after forest clearing, soil erosion results insignificantly disturbed stream flow and sediment loads in rivers and stream;

• Industrial pollution: chemical pollution of emissions to water and air by CPO plants andrefineries.

Socio-economic impacts

• Loss of (the variety) of income opportunities: the loss of productivity and security of forestgoods and services that play an important role in livelihoods of local peoples, such as incomeopportunities from NTFPs, eco-tourism, (potential) medicinal products;

• Dispossession of customary land rights by local communities, and of benefits derived fromtheir use;

• Limited labour opportunities are provided mostly to migrants; local communities benefitless (low wages, poor services, import of migrant labour);

• Vulnerable local economies: as whole regions become dependent on a single crop whichsupply unpredictable global markets, local economies become vulnerable;

• Health impacts by smog from fires, pollution, floods, change in micro-climate (drought), lossof diversity of forest products;

• Inequity: Many of the company groups that expanded in recent years are led by industryleaders who are associated with corruption, cronyism and nepotism. The political clout ofthese companies contributes to inequitable negotiations between communities, thegovernment and the companies.


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4.44.4 Key actorsKey actors

The following are key actors (decision makers) in determining how and where oil palmdevelopment occurs in Indonesia:

1. Oil palm investorsThese are the plantation companies and their CEOs in the business groups. The dominant groupof investors are Indonesian private company groups, many of which diversified from forestryinto plantation business. A considerable part of smallholder schemes depend on thesecompanies. A second major group are Malaysian plantation companies, who jointly gained accessto 2-3 million hectares of Indonesian forestland. Much smaller are direct interests of Europeanand North American plantation companies. Decisions by investors are driven by opportunitiesand limitations set by market developments, financial obligations and government regulations.No company is known to apply policies that help to avoid forest loss in Indonesia.

2. Edible oils tradersThese are the companies involved in trade, processing and retail of palm oil products. Keyplayers on the international market include Unilever and Cargill. Their influence on productionis considerable as these companies can ‘make and break’ the producers in Indonesia. Decisionsby edible oils traders are primarily determined by international commodity prices and consumerdemand. Depending on their size, the clients of edible oils traders such as supermarkets mayhave considerable influence on the traders. Few, if any, players in the edible oils trade exerteffective policies that help to avoid forest loss.

3. Financial institutionsThe expansion of oil palm estates in Indonesia is in large part financed through commercialloans provided by financial institutions from Asia, Europe and the United States. According to arough estimate, the Indonesian palm oil sub-sector may have absorbed some US$ 25 billion incommercial credits. Depending on the type of credit provided, financial institutions can be in asolid position to influence their clients’ policies. Few financial institutions involved in the oilpalm sub-sector exert their influence to avoid forest loss.

4. Government bodiesThe government of Indonesia plays an important role in land use decisions. Up to date, thegovernment deliberately facilitates the expansion of the oil palm sub-sector through a range ofpolicy incentives. Forest loss has not been a significant consideration. Formerly, key decisionswere made by the Ministries of Forestry and Estate Crops and the Ministry of Agriculture.Recent decentralisation policies will transfer greater powers to district governments, while theNational Investment Co-ordination Board is likely to continue to exert great power by(dis)approving investments. During the period of economic reform in Indonesia, the BankRestructuring Agency (IBRA) and International Monetary Fund (IMF)/World Bank areimportant decision makers. In the years to come, many key decisions on land use will be madeby District governments following decentralisation. The decisions made by government bodiesare in large part determined by the interests of the private sector, laws and regulations and thepublic opinion.


Oil palm expansion in Indonesia provides a case that illustrates how the edible oils sectorcontributes to the forest conversion process. The rapid growth of the sector that took off in the1990s temporarily stagnated as a result of the economic crisis but is set to regain momentum inthe years to come. A range of negative environmental and socio-economic impacts of expansionhave already begun to emerge, but little is done to stop forest loss by key actors (oil palm


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investors, edible oils traders, financial institutions and government bodies). On the contrary,forest loss is expected to increase as land scarcity and government incentives drive the industryto Indonesia’s forest rich regions. The expansion of Indonesia’s oil palm sub-sector is primarilythe result of a deliberate political choice. It is not caused by uncontrollable socio-economic anddemographic factors. These conclusions are in line with those from the study by Barracloughand Ghimire (2000) on agricultural expansion and tropical deforestation.


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5.5. AnalysisAnalysis

5.15.1 Identifying root causes and key actorsIdentifying root causes and key actors

Root causes of deforestation have been described in several studies, e.g. for biodiversity loss(Wood et al., 2000), for deforestation (Contreras-Hermosilla, 2000), and for agriculturalexpansion and tropical deforestation (Barraclough and Ghimire, 2000). The aim of identifyingroot causes is to find fundamental issues and associated key actors which can be leverage pointsto develop effective solution strategies. These studies lead to the following insights that must beconsidered when developing solution strategies for the complex problem of forest conversion:

• The land-use dynamics including forests are complex, there are rarely 1:1 relations, e.g.between prices and management; the ‘success’ of one policy measure depends upon a range ofother contextual and policy factors;

• Generalisations are not helpful in understanding the complex underlying dynamics, there isneed to be specific for each situation, to identify specific causes and identify specific actors;

• Forest conversion is often the result of a chain of decisions made at different spatial levels.Solution strategies should therefore engage actors at multiple-levels (from local tointernational).

• Apart from the forestry sector, actors and factors outside the forestry sector are veryimportant players in the dynamics of forest conversion. A multi-sectoral approach is anindispensable condition for success.

5.25.2 Multi-level and Multi-level and multi-sector analysismulti-sector analysis

Four groups of associated key actors can be identified as players in the forest conversion process(Figure 4). These actors can be found within interacting social systems at local, regional,national and international levels and their interests in forest conversion may be positive, neutralor negative.


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Figure 4: Key actors at multiple levels involved in forest conversion.

For key political decision makers and landowners in the producer countries, there are strongmotivations to support and facilitate forest conversion (Table 5). Their legal and economicpolicies aimed to support forest conversion are triggered by both economic rationales (profitableand growing markets) and non-economic rationales (e.g. opening up forests, dispossessing localcommunities, favouring private investments). Even if the financial profitability would decline(as has occurred recently for soy beans in Brasil), policies stimulating forest conversion cantherefore be expected to persist. The interaction between landowners and decision makerssuggests that forest conversion is primarily the result of a deliberate policy to stimulate theedible oils sector.

The interest of financial institutions is generally neutral. Civil society, however, representsopposite interests and attempts to promote forest conservation rather than conversion. Because

Forestconversion

Locallevel

National level

Internationallevel

Private sector:financial services

Private sector:commodities

Civil society:conservation and

socio-culturalissues

Public sector:political issues

Public opinion

Districts /municipalities

NationalGovernmentInternational

networks andagreements

Concessionowners

Exporters /traders

Manufacturers/ retailers

Multi-nationalcompanies

Local /regional banks

National banks

Banksyndicates

International /western banks

Shareholders /clients

Local /indigenous

communities

Local /regional NGOs

National NGOs –environmental /

human rights

International NGOs –environmental / human

rights

Internationalconsumers

Regional level

Nationalconsumers

Internationalagencies:

Worldbank, IMF


27

the interests of government and business actors at the lower levels favour conversion, civilsociety groups often find that their concerns are not addressed. They can make use of thepositive or neutral position towards conservation amongst actors at the higher spatial level. Thisis the basic approach taken by WWF in promoting forest certification (through unitingprogressive retailers and importers of wood products into Buyers Groups). Similar approachescould be employed to counter forest conversion for edible oils crops.

To identify key actors in the trade network, a basic model may be applied (Figure 5). This modelallows to determine how consumer markets are related to resource management / forestconversion (but also other natural resources e.g. fish stocks, minerals etc.). There are two basicflows that connect consumer markets with the resource: capital flows and product flows. Capitalis channelled to the producer through financial institutions. The producer’s products, in turn,are channelled back to the consumer market by a range of actors in the chain-of-custody. So far,the model represents a basic free trade mechanism. There are, however, external parties thatinfluence the actors in the trade network most notably governments and, to lesser extent, civilsociety or NGOs.

Figure 5: General model of capital and product flows in the trade cycle

Figure 6 shows how the model can be applied to the Indonesia case. It shows how consumers’savings are invested by a range of commercial banks in a Malaysian owned plantation company(Kulim Bnd.) in the form of a long term syndicated loan. The plantation company used thecapital raised to expand its operations in Indonesia (PT PAA and PT PAS) and to purchaseassets in New Britain Palm Oil (NBPO) in Papua New Guinea. The Crude Palm Oil (CPO)produced by NBPO was found to be purchased by Unilever and Cargill, in turn suppliers of arange of supermarkets such as Sainsbury’s and Tesco’s (UK), Albert Heijn (Netherlands) and


28

other retailers. One of the products sold by the supermarkets in the UK are Walkers PotatoCrisps, which are fried in palm oil produced by NBPO.

Figure 6: Example of a capital and product cycle for oil palm in Indonesia


The forest conversion problem owes its complexity to the wide range of actors in the privateand/or public sectors that are involved at various spatial levels. Due to the poor transparencybetween different levels, actors often do not know what are underlying causes or consequences oftheir actions. Many actors exert influence from outside the forest and forestry sector. Ultimately,within the regulatory frameworks established by governments (and to lesser degree, by NGOs),forest conversion is linked to the investment and purchasing decisions made by identifiableactors. The challenge is to engage these actors in pursuing forest conservation objectives.


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6. 6. Strategic options for WWF to combat forest conversionStrategic options for WWF to combat forest conversion

6.16.1 Conclusions from previous sectionsConclusions from previous sections

The previous chapters aimed to demonstrate that:

1. Forest conversion in the tropics involves a process of forest degradation and fragmentationand ultimately leads to loss of forest functions. There are reasons to assume that forestconversion will continue to occur;

2. The edible oils sector, especially producers of palm oil and soybean, will put greater pressureon forests than any other agricultural crop. Rapidly growing demand for edible oils andaccessible credits enable the edible oils sector to expand. Contrary to the forestry sector, theedible oils trade network is not provided with incentives to avoid forest conversion.

3. When forest conversion is not addressed in an inter-sectoral manner, efforts to protect,manage or restore forests may be overshadowed by the expanding agribusiness frontier.

4. Although the factors determining forest conversion processes are complex, key actors canoften be identified. They are primarily plantation companies, their investors and buyers andgovernment bodies that release forestland for conversion.

The analysis of root causes and key actors shows that forest conservation and restoration requiresa strategy that addresses both forestry and non-forestry sectors and actors, by promotingenvironmentally responsible investments and enhancing social equity. International marketaction and government lobby (at several levels) are key to achieving this. Box 3 summarisesrelevant institutional-political and socio-economic factors that were found to influence the forestconversion process, and that could be used as mechanisms to support forest conservation.

Box 3: Factors that influence the forest conversion process

The following factors would disfavour forest conversion and stimulate more conservation orientedapproaches:

Ø Existence of well managed forest and well protected forestsØ High quality of the (remaining) forest timber resourcesØ Currency revaluation and high labour costsØ Inelastic demand for the agricultural productØ Increased productivity of agricultural land-use for crops with inelastic demandØ Absence of export subsidies and creditsØ Limitations to uncontrolled agricultural land-useØ Land reforms that guarantee long term land security for local communitiesØ Legal status of forest land categories and enforcement of regulationsØ High valuation of a wide range of timber (and non-timber) products

6.26.2 Outline of a possible WWF strategyOutline of a possible WWF strategy

The following could be elements of a strategy for WWF to counter pressures by the edible oilssector for forest conversion.

1. Develop a vision and strategy that describes the spatial and temporal dynamics of how to protect forestsin tropical countries against the threats of forest conversion.

Figure 7 shows a landscape in which the conversion process is stabilised. There are four mainstages. They include:


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1. A remaining area of primary forest, possibly with a number of indigenous communities.Achieving the protected status of this area would require strong political commitmentsand/or financial compensation schemes.

2. Selectively logged forests that are allowed to regenerate or possibly taken out of activeproduction. This would require investments in restoration, which may in part be generatedby sustainable extraction of non-timber forest products, ecotourism or other small scaleeconomic activities. Carbon sequestration could generate additional incomes. Additionalexternal funding would probably still be required.

3. A buffer zone which could involve sustainable agricultural land-use (e.g. agroforestrysystems) and large-scale or community based forestry under FSC-certification. Whileestablishing such management systems would in most cases require initial investments inforest restoration, employment programmes etc. this area could become financially self-sufficient on the medium term.

4. The large scale agriculture/plantation zone transformed into a landscape with diversifiedagriculture, mixed plantations and some restored forests. This transition will requiresubstantial investments but would eventually prove more sustainable.

Figure 7: The four stages of a stabilised forest conversion process

The key mechanism of the proposed strategy would be to divert the current financial inputs tounsustainable forest conversion processes, towards more sustainable forest management andagricultural development options. This change would be based on both non-economic(emotional) and economic rationale, i.e. the growing motivation of financial institutions andtheir clients in western countries to develop a ‘green profile’, as well as the better long-termeconomic prospects of more sustainable land-use, in view of the perceived environmental andsocial consequences of unsustainable practices.


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2. Build up a core strategic partnership with financial institutions, and involve other primary andsecondary actors where possible, on the basis of common interests and opportunities for change in line withforest conservation objectives.

Figure 8 shows how the trade network model can be applied to design a multi-sectoral andmulti-level approach to engaging market actors in conservation and sustainable forestmanagement. In this particular example, consumers provide donations to WWF and savings tocommercial banks. Similar to the Buyers Groups’ model, WWF could consider helping to creategroups of financiers committed to stop forest conversion, e.g. a ‘Green Syndicate’. These bankswould still provide loans and equity to plantation companies but these services would be subjectto compliance to, yet to be determined, environmental and social principles and criteria. Ideally,financial institutions would increase their investment activities in sustainable forestry, whileWWF focuses on its core business, conservation. Forestry and plantation companies could seetheir operations certified under FSC or EKO (organic agriculture), thus producing certifiedproducts for buyers organised in Buyers Groups by WWF. These groups would in turn sellcertified food and non-food products to the consumer, while WWF’s main ‘product’ would beconservation success. As more actors in the higher echelons of the trade network are activatedand mobilised, there would be an increasing support basis among local actors who may beassisted in developing best practises (Producers Groups).


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Figure 8: Example of engaging strategic market actors in stabilising forest conversion

While such an approach could form the basis of efforts to address the conversion issue, therewould still be other actors that would need to be involved on the basis of common interests andthe opportunities for change in line with forest conservation objectives (Table 5). Mostimportantly, government bodies need to be convinced to establish policy frameworks thatfacilitate the stabilisation of the conversion process.


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Table 5: Key primary and secondary actors associated with forest conversion by the oilpalm sector, with present motivation and opportunities for positive change (based onIndonesia case)

Key actors Present motivation Opportunities for positive change

Primary actorsPlantation and landowners andcompanies andcorporate groups

Making investment plans andmanaging natural resourcesfor quick profits throughmonocultures

• Reduce risks of monocultures and marginallands (flooding, pests, price fluctuations),through diversification of land-use and usingnew opportunities (e.g. tourism, FSC timber,pulp, NTFPs, …);

• Intensify oil palm productivity through ‘besttechnical means’

Local and regionalgovernments

Making local policies aimedat enabling short-termeconomic benefits

• Avoid social unrest, help protection of forests,to acquire assistance from donors and otherforeign investors for sustainable developmentactivities;

• Support decentralisation by generating incomesthrough a diversity of economic activities,creating employment for local communities, ona sustainable basis

Nationalgovernments

Setting national standardsand making national policiesthat stimulate export earnings

• Maintain credibility among donor / globalcommunity

• Attract responsible investments• Maintain multifunctional forest resources

Edible oils retailers Influencing demand andsupply of edible oils, goingfor the cheapest supplies

• Maintain credibility among consumers, e.g.through certified palm oil products based onecological and social criteria (EKO products)

Financialinstitutions

Providing financial resourcesthat allow investments to bemade for apparently highlyprofitable investmentopportunities

• Reduce current risks of investments due tosocial unrest, poor company management,environmental degradation and legal cases;

• Maintain credibility among consumers andclients through increased investments e.g. insustainable forest management and wellmanaged plantations;

• Improved due diligence through social andenvironmental criteria.

Secondary actorsLocal communitiesand NGOs

Now causing social unrest,appealing to localgovernment and theinternational community

• Acquire international support and informationsources;

• Get involved in international networks;• Assist primary actors in developing

environmental and social criteria.Households /consumers

Now consuming edible oilswithout insight inenvironmental and socialeffects of its production

• Awareness in the role of banks and edible oilssector in forest degradation;

• Adjust consumption patterns to contribute tosustainable forest management;

• Reduce ‘ecological footprint’.Universities /agriculturalextension services

Now promote irresponsibleand extensive oil palmproduction practices

• Gain international support to promote moresustainable and efficient oil palm productiontechniques


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6.36.3 ContributContribut ion of strategy to forest conservation objectivesion of strategy to forest conservation objectives

The proposed strategy attempts to contribute to its multi-sectoral landscape vision, and toprovide linkages between the different components of forest conservation: forest protection,sustainable management and restoration. Table 6 shows how the proposed strategy cancontribute to and strengthen at least four IUCN/WWF objectives of forest conservation.

Table 6: Contribution of proposed strategy to WWF / IUCN forest conservation objectives.Table 6: Contribution of proposed strategy to WWF / IUCN forest conservation objectives.

IUCN/WWF forestconservation objectives

Potential contribution by proposed strategy

1. Forest conservation ecologicalnetwork

Reduce pressures and thereby improve potentials for forestconservation, stimulate and support land-owners to set asideportions of their land for conservation

2. Sustainable forest management Stimulate and provide financial incentives for land-owners toproduce FSC timber and non-forest products based on sustainableforest management principles

3. Forest restoration Stimulate and provide financial incentives for land-owners to restoreland to develop intensive forest plantations for timber and pulpproduction, as well as agro-industrial products

4. Pollution and global warming Not yet clear

5. Reduce threats from othersectors

Support and provide market incentives to intensify and diversifyagricultural land-use, reduce risks and create sustainable incomealternatives (e.g. eco-tourism)

The proposed strategy also constitutes a good opportunity for WWF to:

• Further develop networks and experiences beyond ‘traditional’ boundaries of forestmanagement-oriented approaches;

• Develop linkages between its different sections, e.g. between Trade and Forests for Life,between a European ‘ecological footprint’ campaign and concrete field activities to conservetropical forests;

• Develop partnerships with financial institutions based on a practical problems andopportunities. Engaging financial institutions in a model similar to FSC-Buyers Groupswould be new and provide an opportunity to further ‘close the loop’ of actors within the tradenetwork;

• Develop a strategy that is multi-level, involving activities and actors at different levels, fromlocal level to international policy and trade work;

• Look in detail at potentials to develop integration and intensification models of agricultureand forestry in tropical and developing country conditions, based on concrete case studies.


If the forest conversion process is to be halted and reversed, WWF would need to engage thefinancial sector and agro-industry in conservation objectives to complement its efforts to expandthe protected forest area and to promote sustainable forest use in the wider landscape. Specialattention would be given to the edible oils sector because it is expected to expand faster thanother crops and because there are strong linkages to European and American actors and theirecological footprint. Engaging the edible oils sector in conservation objectives can be achievedthrough partnership approaches that are already well tested within the WWF family.


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