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Vegetable Oil Industrial Competition Globally

Foto by Aceng Sofian/sawitfest 2021/Ilustration of palm oil plantation
Vegetable Oil Industrial Competition Globally

InfoSAWIT, JAKARTA – The economy of Indonesia has been helped by industries in natural resource – basis, including wood, mining, gas, fishery, and plantation. In plantation sectors, there has been shift of commodities from rubber, clove, cocoa, coconut, and coffee to be palm oil. Palm oil plantations significantly got expansion for many years. It started only about 294,5 thousand hectares in 1980 to be 15,1 million hectares in 2021. The vast plantation development was the same with crude palm oil (CPO) production that reached 49,7 million tons.

In 1980 palm oil plantations were dominated by government that reached 68 percent but as time went by, the mastery got shift by the private sectors and the smallholders that reached 56 percent and 40 percent for each. The government’s plantation just reached 4 percent in 2021.

Data from United States Department of Agriculture that Palm Oil Agribusiness Strategic Policy Institute (PASPI) published in 2023, in the global level, palm oil plantations were lower than three kinds of vegetable oils in the world. Palm oil plantations laid about 25,06 million hectares while soyoil, rapeseed, and sunflower plantations laid about 129,9 million hectares, 37,8 million hectares, and 28,4 million hectares for each.

From the width, the last three commodities are contra with their productivity. Palm oil could produce 3,36 tons per hectare per year; sunflower oil could produce 0,78 - 3,36 tons per hectare per year; rapeseed could produce 0,74 - 3,36 tons per hectare per year; and soyoil could only produce 0,47 - 3,36 tons per hectare per year. It means, palm oil is the most efficient in area planting of all vegetable oils. (IUCN, 2018).

Palm oil industrial development which is fast put Indonesia to master 59 percent of vegetable oil production in the world while Malaysia just masters 25 percent. It is no doubt that Indonesia is the main competitor for other countries that produce vegetable oils (soybean oil), rapeseed (canola), and sunflower oil).

Indonesia and Malaysia lift up vegetable oil competition in the globe and get more dynamic, not only about price competition but also the shift in non-price competition. If it is carefully observed, non – price competition is about dominant issues the most. It is assumed that the issues (non-price competition) have been spoken out loud to the public, which are, the environment, deforestation, economy, and health.


Commitment and Competition

Many commitments in the global level in sustainable development that United Nations mobilized, such as, Kyoto Protocol (Kyoto Protocol to the United Nations Framework Convention on Climate Change/UNFCCC) in 1997 in Japan became the starting point of issue development in the globe that has something to do with climate change and other derivative problems, including the connection among environment, deforestation, social, economy, health issues which are brought out in vegetable oil trade globally.

The Government of Indonesia ratified Kyoto Protocol through the Laws Number 17 / 2004 about Ratification of Kyoto Protocol. In its journey Kyoto Protocol showed its weakness because put developing countries where they are still about to develop heading to industrialization, should mitigate green-house gas (GHG) in land use area by preventing deforestation; and energy sector in applying sustainable energy use. While the developed countries that passed industrialization, were not obeying Kyoto Protocol and they signed out in 2001. In this year, the countries renewed their commitment to reduce GHG emission.

In the global scale, the commitment develops into social and human rights sectors by the inaugurating United Nations Guiding Principles on Business and Human Rights (UNGPs) in 2011. Though Indonesia does not ratify UNGPs yet, but in many chances, the government claimed its commitment to reinforce UNGPs implementation.

It is undeniable that Indonesia does its best to be the golden one in climate change – conferences globally. The peak was when Indonesia was the host of Conference of the Parties 13th (COP13) UNFCCC in 2007 in Bali. The commitment of Indonesia got stronger until COP28 in Dubai in June 2023. In the release of Ministry of Environment and Forestry in COP28, the target to reduce GHG emission would be from 29 percent to be 31,89 percent with the power from this nation; and escalating from 41 percent to be 43,20 percent with other countries’ helps in 2030.

These undeniable commitments seriously delivered implication to get new governance in palm oil plantation industries in Indonesia, namely in environmental and social sectors. The government also delivered answer by publishing Indonesian Sustainable Palm Oil (ISPO) certification/standard.

The corporates also responded the development adaptation in the globe by reinforcing their environment, social, and governance (ESG) commitment. In specific in internal palm oil plantation companies, they published no deforestation, no peat, and no exploitation (NDPE) policy, and some companies are voluntarily committed to get Roundtable on Sustainable Palm Oil (RSPO) standard.

The commitments that the government and corporates adopted in Indonesia were shocked by the publication of European Union Deforestation Regulation (EUDR) that has been running per 16 May 2023. It is the follow up from European Parliament resolution in 2017 about palm oil and rain forest – deforestation.

The government and palm oil industries thought EUDR is discriminative policy to palm oil because by EUDR, the continent bans every company that is registered in European countries to get product imports from the areas where deforestation happened after 31 December 2020.

Meanwhile for the developing countries, such as Indonesia, still delivers chances to expand palm oil plantations that derived from forest and land-use change. That is why Indonesia and other producing countries are trying to get this case to World Trade Organization (WTO).

On the other hand, the commitments in the global level, including EUDR and how moderate to improve palm oil governance in Indonesia, cannot be hidden as the focus to civil organizations in many countries including in Indonesia itself. The goal is about to test the implementation of the corporate and government’s commitments where their initiative operational got support from many countries in the world, including, Europe and America.

In the practices, it is not naïve that many people thought of palm oil industries negatively. This would be delivering the profits for soyoil, rapeseed, and sunflower oil producers because it implicates to the weak competition of palm oil from Indonesia in vegetable oil markets globally. (*)

By: Ahmad Zazali, SH., MH. /Chairman of Pusat Hukum dan Resolusi Konflik (PURAKA)/Managing Partner AZ Law Office & Conflict Resolution Center