Oil Palm Plantations andDeforestation in Indonesia.What Role Do Europe andGermany Play?

An update of the 1998 “Lipsticks from the Rainforest” report

A Report by WWF Germany in collaboration with WWF Indonesia and WWF Switzerland, November 2002

Written byRob Glastra, Eric Wakker and Wolfgang RichertAIDEnvironment, Amsterdam, Netherlands

EditorsMarkus Radday and Damian Oettli

Produced byoctopus media, Dreieich, Germany

Designed bydülk.mediadesign, Neu-Isenburg, Germany

First edition December 2002

© 2002 WWF Schweiz

Titelbild: © WWF

Acknowledgements

The authors want to thank Angelika Kemmler, who conducted a rapid market sur-vey in Germany and Jan Willem van Gelder for his feedback and expert support.Finally, we thank Alois Vedder and Markus Radday from WWF Germany for com-missioning this paper and for their useful support and comments. The report hasbeen reviewed and enriched by the following persons from within the WWF net-work: Rod Taylor (WWF International, Asia Pacific Forests Coordinator), MarkAldrich (WWF International, Forest Officer), Damian Oettli (WWF Switzerland,Director Forest Programme), Peter Moore (PFFSEA director), Christine Wulandari(WWF Indonesia, Oil Palm Campaigner), Dewi Suralaga (WWF Indonesia, Direc-tor of National Programme).

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Table of contents

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91.1 Masks, deaths and smog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91.2 The return of El Niño . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91.3 What caused the 2002 forest fires? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91.4 WWF’s early warnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101.5 Time for an update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

2. Background on forest fires, reforms and the oil palm boom in Indonesia . . . . . . . . . . . . . . . . . .122.1 Looking back at the 1997-98 fires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122.2 Underlying causes of the fires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142.3 Reform and decentralisation: opportunities for future fire control? . . . . . . . . . . . . . . . . . . . . . .162.4 Pledges and promises for future fire control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .172.5 The oil palm boom continues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .182.6 Forest conversion and clearance for plantations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .202.7 Oil palm plantations and the forest fires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .222.8 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

3. Europe and Germany in the palm oil trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .243.1 The global picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .243.2 Germany’s share in the palm oil trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .273.3 Germany’s palm oil consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .283.4 Use of palm oil by German industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .283.5 German development projects in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .313.6 European finance and the Indonesian oil palm sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

4. International action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .344.1 Some initial success – but much more is needed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .344.2 WWF’s position and strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .354.3 The donor community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

5. WWF’s recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .375.1 Recommendations to governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .375.2 Recommendations to the private sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Appendix 1 Schematic representation of the forest conversion process . . . . . . . . . . . . . . . . . . . . .43

Appendix 2 Summary of company survey in Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Appendix 3 European financial institutions with links to Indonesian oil palm companies . . . . .48

Appendix 4 Assessment of influence of German financial institutions on the oil palm sector . . .50

Appendix 5 Recommendations to foreign financial institutions and banks . . . . . . . . . . . . . . . . . .51

Position papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

This report is an update of an earlierstudy made in 1998, “Lipsticks fromthe Rainforest”, which analysed, forthe first time, the role of the rapidlyexpanding oil palm sector in Indone-sia’s devastating forest fires of 1997-98. Because of the international di-mensions of this sector – its depend-ence on international capital flowsand the global market for palm oilproducts – trade and capital relationswith consumer countries were exam-ined, with particular emphasis onGermany. In the light of all thechanges in Indonesia’s political, eco-nomic and social situation in recentyears, it was decided that an updateon the issue would be timely.

Forest cover in Indonesia has fallenfrom 162 million hectares in 1950 toaround 98 million hectares today. Thecountry is experiencing one of the high-est rates of tropical forest loss in theworld and this rate is increasing as a re-sult of legal and illegal logging, clear-ance for plantations and agricultural es-tates, and fires. Official statistics showthat the forest destruction rate is nowbetween 2 million and 2.4 millionhectares a year. At this rate, lowlanddipterocarp forests are predicted to dis-appear from Sumatra by 2005 and Kali-mantan by 2010.

For the past 30 years, timber has pro-vided Indonesia with much of its non-oil export earnings. Now timber re-sources from its natural forests, rich inbiodiversity, are beginning to becomeexhausted. Nevertheless, the process ofoverlogging and clear-cutting the re-maining natural forests and convertingthem into estate crop plantations contin-ues.

The forest fires that have affected In-donesia since 1997 have been a trulyman-made environmental disaster. Theunderlying causes are found in Indone-sia but are also rooted in the develop-ment of global markets. Donor coun-tries did not react adequately when ear-lier fires occurred, limiting their officialefforts at assistance to fighting symp-toms and often following a purely tech-nical approach. Instead of fighting thefires, more emphasis should be put ontheir prevention, along the lines pro-

posed by the WWF/IUCN’s ProjectFireFight South East Asia (PFFSEA).Another form of assistance by donorcountries should address one of the rootcauses: there should be effective mech-anisms to regulate the activities of bigcorporations from those same donorcountries, where these corporations op-erate in international trade chains thatdepend on the unsustainable exploita-tion of natural resources in developingcountries. In the case of Indonesia, thisincludes the timber, paper and pulp, andpalm oil industries.

Of the estimated five millionhectares of former forest lands in In-donesia’s lowlands that have alreadybeen converted to estate crop planta-tions, three million hectares are coveredwith oil palms. Plantations are usuallyestablished after natural forests arelogged and then burned to clear the landfor planting. In some cases, fires run outof control, either “accidentally” or de-liberately, and destroy extensive areasbeyond the plantation concession area,as happened with most of forest fires inIndonesia in 1997-98.

A changing political andeconomic context

Since 1997, Indonesia has faced enor-mous economic and political chal-lenges: an unprecedented economic cri-sis, the building of democratic institu-tions after three decades of autocraticrule, and the implementation of a far-reaching decentralisation programme.When the financial crisis struck Asia inmid-1997, Indonesia was hardest hitand slowest to recover.

Under Suharto’s three successorssince 1998, many institutional, legaland policy reforms have been an-nounced and sometimes adopted. Thesereforms, with decentralisation of pow-ers to provinces and districts among themost prominent, provide a unique op-portunity for reversing the destructivetrends in Indonesian forests. However,after more than four years of reforms,the net results are mixed.

The breakdown of government con-trol gives actors in the international

trade chain – investors, traders and con-sumers – a greater responsibility andconsiderable leverage over what hap-pens to Indonesia’s forests because oftheir links with companies that dependon raw materials from those same forestlands.

Forest fires since the 1997-98 crisis

The total area in Indonesia damaged ordestroyed by the 1997-98 fires has beenestimated at nearly 10 million hectares,an area three times the size of theNetherlands. The Asian DevelopmentBank (ADB) estimated the overall eco-nomic cost of fire and haze in the regionat $9 billion. The massive fires have haddramatic impact on wildlife (includingorangutans and elephants) and severalprotected areas, among them Kutai andTanjung Puting National Parks.

Drought caused by the ‘El Niño’ cli-matic phenomenon was a major factorin creating the conditions for Indone-sia’s devastating forest fires in 1997-98.In the next few years, the annual roundof burning, smoke and haze has contin-ued, although at a smaller scale andwith less intensity than in the years be-fore. For 2002, climate experts see an-other ‘El Niño’ year, and in the past fewmonths fires and haze have indeed beenworse than average, although some re-ports say drought conditions will not beas severe as in 1997-98.

In September 2002, satellite infor-mation revealed that more than 75 per-cent of the hot spots recorded in Westand Central Kalimantan during Augustoccurred in oil palm plantations, timberplantations and forest concessions. Thisindicates that the pattern which becameevident in previous years is repeating it-self in 2002: logging and estate compa-nies clear land by setting fire to naturalforests on their concessions after re-moving valuable timber and leavingfire-prone debris. This would mean thatthe reforms in Indonesia’s political sys-tem and its forestry policy over the lastfive years have had little effect in halt-ing conversion and deforestation. Thiswas acknowledged in September by In-

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Summary

donesia’s Environment Minister whostated that the country’s weak judiciaryand law enforcement system were still amajor constraint in controlling the fires.

Sanctions against plantations thatinitiate forest fires have been rare. Onlyin a few isolated cases have NGOs andlocal communities successfully chal-lenged plantation companies in courtfor environmental damage caused bydeliberately starting fires that burnedout of control.

Underlying causes

Widespread unsustainable logging andlarge-scale land clearance by agro-in-dustrial companies with little regard forlocal communities’ land and rights tothe use of resources have been identi-fied as the more immediate causes offorest fires. The expansion of forest-based industries has resulted in socialconflicts over land ownership and natu-ral resource use, with arson being usedas a weapon by companies and localcommunities. An international fire pre-vention project (FFPCP) concluded thatthe main permanent solution to Indone-sia’s fire problem lies in improved locallevel landuse planning with the partici-pation of local communities. Such land-use planning should also focus on fireprevention. The breakdown of law en-forcement and widespread corruptionfurther compound any attempt to ad-dress the root causes of forest fires andto move towards more sustainableforest management in general.

Indonesia has come under mountinginternational criticism for not doingenough to control forest fires. Severalpledges and promises have been made,such as the adoption of a ‘zero-burningpolicy’, the establishment of a “HazePrevention Group” by the forestry andplantation industry, and a binding anti-haze treaty between Indonesia and fel-low ASEAN countries. Although mostof these commitments and initiativesseem well intended, their effectivenessso far has been doubtful and verificationin the field is poor.

Oil palm expansion in Indonesiacontinues

Predictions are that about 50 percent ofthe new plantation land – three out ofsix million hectares – that is neededworld-wide to supply the global palmoil market by 2020 will be establishedin Indonesia. It is expected that Sumatrawill absorb most of this expansion (1.6million hectares), Kalimantan wouldaccount for another one million andWest Papua for 0.4 million hectares.For economic reasons and due to thelack of government control, oil palm es-tates continue to be expanded by con-verting natural forests instead of usingdegraded lands which are now widelyavailable.

Between 1997 and 2001, Indonesianpalm oil and meal production increasedfrom 6.6 million to 9.5 million tonnesand the planted area reached over threemillion hectares in 2000, starting fromabout 600,000 hectares in 1985.

By law, plantations can be estab-lished only on forest land that has beendesignated as Conversion Forest, not onPermanent Forest land. Since there aremany more applications for the releaseof forest land to plantation crops thanthe available Conversion Forest landscan accommodate, so-called ‘Conver-sion Forest deficits’ are the result. Thegovernment responds by re-allocatingPermanent Forest land to ConversionForest, yielding to company pressure onnational, and increasingly, on provincialauthorities.

Indonesia’s oil palm industry is dom-inated by some of the same domesticconglomerates that control the logging,wood-processing and pulp and paper in-dustries. Examples are the SalimGroup, the Raja Garuda Mas Group andthe Sinar Mas Group. Other examplesare state-owned forestry companiessuch as Inhutani that have been al-lowed, since 1998, to convert up to 30percent of their concession to estatecrops.

Indonesia and Germany in the in-ternational palm oil trade

The world demand for palm oil is ex-pected to increase from its present 22.5million tonnes a year to 40 milliontonnes in 2020. Malaysia and Indonesiahave slightly increased their dominantposition on the global production andexport market for palm oils and mealsince the previous WWF report in 1998.In 2001, 90 percent of global exportswas accounted for by these two coun-tries.

Germany ranks seventh among theworld’s palm oil importing countries.The country even occupies the numberone global position for imports of palmkernel oil (PKO), used mainly for in-dustrial purposes.

The biggest importers of Indonesia’scrude palm oil (CPO) in 2001 were In-dia (29 percent), China (11 percent),Netherlands (eight percent) and Ger-many ( five percent). As regards PKO,Germany ranks number one, importing28 percent of Indonesia’s exports, andIndonesia supplies 85 percent of allGerman PKO imports. Germany’s im-ports of all three palm oil categoriesfrom Indonesia rose from 602,000tonnes in 1997 to 655,000 tonnes in2001 (for 2001: 268 kT crude palm oil,164 kT palm kernel oil, 223 kT palmkernel meal).

Germany’s crude palm oil importsdirectly from Indonesia doubled from1993 to 1997, dropped in 1998 and in1999, and have since then picked up toregain the lead. Germany is the onlycountry among the big importers whichimports more crude palm oil from In-donesia than from Malaysia.

Germany’s domestic market

Germany’s consumption of vegetableoils has been rising steadily over thepast five years, from 2.2 million tonnesin 1996 to 2.8 million tonnes in 2001.Almost one quarter refers to palm andpalm kernel oil, making palm oils by farthe most imported vegetable oil in Ger-many.

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Inquiries among processing compa-nies in Germany indicate that only inexceptional cases can palm oil be tracedback to its port of origin, and tracing itto the original plantation is consideredimpossible. However, similar interna-tional initiatives in other sectors showthat chain-of-custody mechanisms canbe developed provided there is the willamong all commercial actors. The Mi-gros retail chain in Switzerland repre-sents a pioneer case of a company thathas adopted sustainability criteria in itspalm oil business practices.

A survey was conducted among 32companies operating on the Germanconsumer market for palm oil products.The purposes of this survey were togather information on the volume andorigin of the companies’ raw materials,and to find out to what extent compa-nies had changed their palm oil pur-chasing policies since the 1997-98 firesin Indonesia.

The survey found large discrepanciesbetween imported and consumed vol-umes. Several companies (Nestlé, Cog-nis, Unilever) claim to apply environ-mental guidelines in their purchasingand production policies. However, mostguidelines and criteria have a generalcharacter, and usually refer to process-ing aspects at the end of the chain andnot so much to what happens in thecountry of origin.

Unilever is one of the biggest globalcompany players in the palm oil tradechain. , Unilever has worked withWWF for the past two years on eco-nomic, social and environmental crite-ria for sustainable oil palm agriculture.This case may serve as an example toother companies, but even for Unilever,there is still a long way to go before thepalm oil production and trade chain canreally be considered sustainable. Thesurvey also shows that no German com-pany has changed its supply policy as aresult of Indonesia’s forest fires in1997-98. It can be concluded that with-out public pressure, company policieswill not change. As far as mobilisingconsumers is concerned, palm oil hasthe disadvantage of becoming “invisi-ble” in the end product because it ismixed with other ingredients and a dec-

laration on the product’s composition isnot obligatory in Germany.

German developmentcooperation

Indonesia is a priority country in Ger-man development cooperation. In viewof the dramatic loss of Indonesia’sforests, the emphasis has in recent yearsbeen on support for sustainable forestry.Because of inadequate reforms by suc-cessive Indonesian governments andcontinuing corruption, the German min-istry (BMZ) now follows a restrictivepolicy in the Indonesian forest sector.New forest-related proposals are nolonger encouraged. On the other hand,the German Investment and Develop-ment Society (DEG) promotes the oilpalm sector in Southeast Asia and, inIndonesia, the DEG currently financesthree oil palm projects. Ecological sus-tainability is an important criterion forDEG financing, committing projectbeneficiaries to adhere to social andecological guidelines, including a ‘ze-ro-burning’ policy. Furthermore, sinceMay 2002 new German developmentcooperation guidelines for the forestsector prohibit conversion of any pri-mary forests or High Conservation Val-ue Forests (HCVF)1 by German devel-opment projects.

International finance

The fast expansion of the oil palm sec-tor has been financed to a large extentby foreign financial institutions fromEurope, North America and easternAsia. More recently, the oil palm sectorhas lost popularity among foreignbanks, as the loans extended in the mid-1990s have not generated the expectedreturns and many Indonesian oil palmcompanies ran into painful debt trouble.At the same time, foreign banks werefaced with criticism from NGOs ontheir role in converting Indonesianforests into oil palm plantations.

Yet financial links still exist. The in-fluence which foreign financial institu-tions could exert on oil palm companies

has increased because of the financialcrisis the companies are in. This situa-tion provides excellent opportunities forleverage in the social and environmen-tal practices of the banks’ clients. Acase in point is the successful campaignby NGOs which led four Dutch banksin 2001 to adopt a more responsiblepolicy in their financial services to theIndonesian oil palm sector. Throughtheir financial links to plantation com-panies, European institutions have con-siderable potential influence on Indone-sian oil palm plantations. Among themare several German financial institu-tions.

Apart from banks, a major role isplayed by Indonesia’s public creditors,led by the IMF. They have set a coursefor economic recovery which requiresIndonesia to sell off state assets andgenerate revenues by exploiting naturalresources.

International action

In February 2002, WWF adopted a po-sition paper with the key ingredients fora sustainable oil palm industry. A keyelement in WWF’s oil palm strategy isto target ‘levers of change’, i.e. mo-bilise those key actors that have influ-ence in international markets and in-vestment flows. These include majorEuropean banks, international financialinstitutions (IMF, World Bank), the Eu-ropean consumer market, Europeancompanies that process palm oil prod-ucts and produce consumer goods, andinstitutions (EU, national governments)that determine development, trade andaid policies.

The 1998 report by WWF Germanyand other publications fuelled cam-paigns by WWF, Greenpeace andFriends of the Earth directed at the gen-eral public, retailers and the financiersbehind plantation expansion. Apartfrom increased general awareness of theoil palm issue, these campaigns havegenerated ‘early adopters’ of more re-sponsible trade and investment prac-tices, both in the retail (Migros inSwitzerland) and the financial sectors(four banks in the Netherlands).

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The report concludes with a series ofrecommendations for action and policychange, directed at the Indonesian gov-ernment, financial institutions anddonor agencies, companies in the tradechain and consumers. NGOs have as-sumed an active role, catalysingprocesses to encourage the sustainablemanagement of oil palm plantationsand stop the conversion of any morehigh conservation value forests.

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Oil Palm Plantations andDeforestation in Indonesia.What Role Do Europe and

Germany Play?

An update of the 1998 “Lipsticks from the Rainforest” report

A Report by WWF Germany in collaboration with WWF Indonesia and WWF Switzerland, November 2002

1.1 Masks, deaths and smog

At least three people died and hundredshave been suffering from respiratoryproblems as thick haze from forest firesburning out of control since July 2002continued to engulf Palangkaraya, oneof the worst hit cities and the provincialcapital of Central Kalimantan. The hazehad also forced airport authorities toclose the airport over the past fewweeks and most schools remainedclosed. Deputy governor Nahson Tawayfrom Central Kalimantan said he waspowerless in facing the fires and couldonly hope for heavy rains to put out thepeat land fires across the province. Thecentral government in Jakarta sent30,000 masks and medical teams todeal with widely reported respiratoryproblems throughout the province.4

The choking smoke caused healthproblems and disrupted transport serv-ices in other parts of western Indonesiaand neighbouring Malaysia as well, justas in previous years. On August 18,satellite images showed around 4,000fire hot spots in West and Central Kali-mantan. A few days later, visibility wasas low as 10 to 20 meters in many partsof Sumatra and Kalimantan and con-centration of smoke and dust particlesin the air far exceeded safety limits.5

This situation persisted until late Oc-tober, with Central Kalimantan as oneof the worst hit provinces. In thisprovince alone, the number of hot spotseven increased to almost 1,000 aroundmid-October.6 Mainly due to changes inthe weather pattern, the number of firehot spots has declined considerablysince then.7

1.2 The return of El Niño

In 1997 and 1998 the globe was hit by asevere ‘El Niño’, a periodic climatephenomenon which is the result of achange in warm water currents acrossthe Pacific Ocean. This brings warmwater from the western Pacific (Indone-sia and Australia) to the east (westernpart of the Americas), reversing the nor-mal pattern. It sparks serious drought inIndonesia, such as in 1997-98, but caus-

es heavy rainfall in the western part ofSouth America.8 The drought in 1997-98 was a major factor in causing In-donesia’s devastating forest fires of thatperiod.

Climate experts agree that 2002 isanother ‘El Niño’ year, although the cli-matic phenomenon is not as strong thistime. The Meteorology and GeophysicsAgency (BMG) announced in earlySeptember that half of Indonesia wouldhave a prolonged dry season this year,meaning that crop failures and forestfires were likely to continue threateningthe country. The BMG’s statementcame less than a week after a disastermitigation team warned that the droughtwould prevail until the end of this year,urging the government to take steps toprevent and mitigate the effects offorest fires.9

Early in November, the SingaporeMeteorological Services confirmed thatinter-monsoon conditions had started,with the dry southwest monsoon leav-ing and the wetter northeast monsoonexpected to set in by December.10

1.3 What caused the 2002 forest fires?

In September 2002, CIFOR comparedsatellite information from the U.S. Na-tional Oceanographic and AtmosphericAgency with Indonesian land-use maps.CIFOR data clearly show that morethan 75 percent of the hot spots record-ed in West and Central Kalimantan dur-ing August occurred in oil palm planta-tions, timber plantations and forest con-cessions. Burning peat land contributed

1. Introduction

9WWF

Indonesia: Forest data and trends

Although Indonesia comprises only 1.3 percent of the earth’s land surface, itharbours a disproportionately high share of its biodiversity, including 11 percentof the world’s plant species, 10 percent of its mammal species, and 16 percent ofits bird species. The majority of these species are found in the country’s forests.Many millions of people dwelling in the forest or dependent on it also rely on In-donesia’s forests for their livelihoods.

Estimates of Indonesia’s current total forest area range from 105 million (1997FAO estimate) to 98 million hectares (Global Forest Watch estimate for 1997),while in 1950 this figure still stood at 162 million hectares. About 19 percent ofthe remaining forest area is officially protected. More than half the country’sforests, some 54 million hectares, are allocated for timber production (althoughnot all are being actively logged), and a further two million hectares of industrialwood plantations have been established, supplying mostly pulpwood.

The country is experiencing one of the highest rates of tropical forest loss inthe world and the rate keeps accelerating because of legal and illegal logging,clearance for plantations and agricultural estates, and fires. On average, aboutone million hectares per year were cleared in the 1980s, rising to about 1.7 mil-lion hectares per year in the first part of the 1990s. Since 1996, deforestation ap-pears to have increased to an average of two million hectares per year. StateMinistry of Environment statistics show the forest destruction rate is now be-tween 2.0 and 2.4 million hectares a year, with the rate having been at its highestin the past two years.2 In terms of percentage, estimates for the annual loss inforest cover in the country for the period 1990-2000 range from about 1.2 per-cent (FAO) to 1.7 percent (Global Forest Watch). This dramatic trend is reflectedin the state of Indonesia’s biodiversity: it now has the world’s longest list ofspecies threatened with extinction.

The most recent and authoritative survey of the country’s forest cover predictsthat lowland dipterocarp forests – the richest tropical habitat of all – will havevanished from Sumatra by 2005 and Kalimantan by 2010 if current trends contin-ue.3

up to 90 percent of the smoke haze ex-perienced during the catastrophic firesin 1997-98, and CIFOR staff stated theyare seeing the same thing happeningagain in 2002.11

This indicates that the pattern whichbecame evident in previous years maybe repeating itself in 2002: logging andestate companies clear land by settingfire to natural forests on their conces-sions after removing valuable timberand leaving fire-prone debris. Thiswould mean that the reforms in Indone-sia’s political system and in its forestrypolicy over the last five years have hadlittle effect in halting the conversionand deforestation process. Land clear-ance by fire is also an annual traditionamong small farmers around the tropicsand Indonesia is no exception, but suchfires are usually small-scale and haveless impact.

Indonesian environmentalists as wellas the Malaysian authorities have againcriticised the government of Indonesia,just as they have done over the past fiveyears, for doing too little to cope withforest and ground fires. Indonesia’s En-vironment Minister recently acknowl-edged that the country’s weak judiciaryand law-enforcement system still con-tributed to its inability to control thefires, which are basically man-made.Other Jakarta officials stated they wereunable to do much to stop the fires be-cause of a lack of funds and personnel.12

The Environment Minister recentlysaid that provincial and local authoritieshad the responsibility to take actionagainst offenders. He referred to bothforest concessionaires clearing areas toconvert the land into plantations, and toforest squatters and traditional farmers.The chain of causes and effects does in-volve both plantation companies andsmall farmers again this year, but thepicture is very complex and it is tooearly to draw definitive conclusions.

1.4 WWF’s early warnings

In October 1998, WWF Germany pub-lished Brandrodung fuer Margarine, ananalysis of the relations between In-donesia’s forest fire crisis in 1997, the

expansion of oil palm plantations andthe international palm oil trade, focus-ing on the German market. The reportwas targeted at consumers and industryin Germany, asking them to assumetheir indirect responsibility for the lossof Indonesia’s rainforests through con-version to plantations and to help influ-ence the process as actors in the palmoil trade chain.

The report has been widely dis-cussed within the WWF network, andWWF Germany has reiterated thestudy’s main conclusions in talks withthe private sector. But apart from occa-sional expressions of good intention,manufacturing companies and retailershave so far made no attempt to modifytheir purchasing policies.

Since 1999, forest fires have re-mained a recurrent phenomenon in In-donesia, although at varying intensity.Now, in the dry season of 2002, fireshave again run out of control and de-stroyed even more forests, peatlands,agricultural lands and people’s houseswhile creating a thick haze that affectshuman health throughout SoutheastAsia.

As part of the Project FireFightSouth East Asia (PFFSEA), WWF andIUCN have issued a range of reports onthe underlying causes of forest fires inthe region (see Chapter 2.2).

Clearly, Indonesia needs all the helpit can get to stop fires and forest de-struction, although the government this

year has not yet asked the internationalcommunity for fire fighting assistance.Sending masks, water bombers and oth-er costly fire fighting equipment willnot help since so many of Indonesia’sforest fires are set intentionally and oc-cur in great number and on a vast scale.

Since global and German demandfor palm oil steadily rises, large areas offorest land in Indonesia continue to becleared to expand the country’s oil palmestates. This process goes on with littleregard for the forest, the environment orindigenous communities’ interests.

1.5 Time for an update

This report is an update of WWF Ger-many’s 1998 report. It seeks to answerthe following questions:

What has happened in Indonesia inthe past few years? What changes havegone on within its political system,economy, forests and among the popu-lation?

How has Germany’s palm oil con-sumption changed? Have there beenany meaningful efforts to assist Indone-sia in stopping the fires or to influencethe rate of conversion of rainforests intoestate crop plantations, promoting themore responsible management of palmoil estates?

What has been done in other coun-tries? What can Germany learn fromthese efforts?

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Main conclusions from the 1998 WWF Germany report

> The booming oil palm plantation economy is one of the sectors, besides tim-ber and pulp, that controls forest land and plays a key role in forest destruc-tion.> Palm oil plantations also play a key role in rural social conflicts related to land

rights and access to forest resources.> A large part of the 1997-98 fires were started by estate concessionaires to ac-

celerate the conversion of tropical forests into oil palm and other industrialplantations.> Tropical forests make way for oil palm plantations because the demand for

palm oil on the international market steadily rises. In Germany, imports ofcrude palm oil (CPO) alone increased 37 percent between 1993 and 1997,with palm oil imports from Indonesia in particular increasing very rapidly.> The political, financial, social and environmental crisis in 1997-98 offered good

opportunities for re-thinking policies on plantation expansion and moving to-wards more sustainable forest management in Indonesia. in Indonesia.

How will Germany respond to thisnew fire crisis? Will the German gov-ernment simply release millions of eu-ros for fire monitoring programmes orfire fighting equipment, or will moresustainable answers be sought by theGerman government, and the privatesector and consumers in seeking to ad-dress root causes?

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This chapter provides some back-ground on the problem – the recur-rent fires – and examines to what ex-tent the political and institutional re-forms made since 1998 have beenused or missed as an opportunity forstarting to deal with the forest fire is-sue. The chapter proceeds with anupdate on the development of In-donesia’s oil palm sector since theprevious 1998 report, and then brieflydiscusses the role of this sector in thefires.

2.1 Looking back at the 1997-98fires

In the peak months of June to October1997, there were up to 300 times morefires, especially on Sumatra and Kali-mantan, than during the same months in1996, an average to wet year. In south-ern Sumatra, there was no effective rain-fall for six months13. Estimates put thetotal area in Indonesia damaged or de-stroyed by the 1997-98 fires at nearly 10million hectares, an area three times thesize of the Netherlands. This includes300,000 hectares of plantations, about3.3 million hectares of lowland rainfor-est and another 1.5 million hectares ofpeat and swamp forest.14 The firescaused a thick cloud of air pollutionover Southeast Asia that persisted forseveral months. WWF estimated that thehaze affected the health of 70 millionpeople in Southeast Asia15 while theAsian Development Bank (ADB) esti-mated the overall economic cost of fireand haze in the region at $9 billion.16

Burning by plantation companiesThe international donor community

committed substantial funds and equip-ment for fire fighting campaigns, butfire fighting efforts were ineffective be-cause most fires were lit deliberately.Many fires were set by large-scale plan-tation owners to clear land; among themwere commercial oil palm companieswhich saw the 1997-98 drought causedby the El Niño climatic phenomenon asa window of opportunity for imple-menting extensive expansion pro-grammes.

Until 1994, so-called ‘controlledburning’ was legal and was commonpractice. When a company applied tothe bank for credit, burning was evenincluded as a cost component at aboutone- tenth of land clearing costs17. Plan-tation companies have a preference forusing fire for land clearing because:

• burning is perceived by many ascheaper than other ways of clearingland (however, recent fire studies haveshown that, even from an economicpoint of view, burning is not the cheap-est land clearance option).18

• banks tend to promote burningpractices because this will open up con-cession areas faster and reduce the timeuntil the first harvest, allowing theirclients to pay back debts earlier.19

• plantation companies and landclearing contractors are simply not ac-customed to other means of land prepa-ration.20

Table 1 shows the percentages ofland within each land-use category thatwere burned in 1997-98, taking EastKalimantan as an example, where 5.2million of its almost 20 million hectaresburned. Forest plantations and crop es-tates were worst affected: of the totalforest plantation area, 64 percent wasburned, of the total estate crop area, 51percent.

Land Use Status Percent Burned

Natural ForestConcession area 24

Forest Plantation Area 64

Estate Crop Area 51

Total protected area 10

Undefined Land Use(e.g. farmland) 36

Table 1: Burned area of East Kalimantan 1997/98 inrelation to land use status

Source: http://www.iffm.org/ (GTZ/KfW supported Integrated Forest Fire Management Project)

Large-scale land clearance by estatecompanies, which followed the extrac-tion of timber, caused numerous, largeand persistent fires in the Sumatran

provinces of Riau and Jambi. Here, upto 80 percent of the bigger fires oc-curred in plantations. In southernSumatra, where conversion of primaryforest is almost completed, fires weresmaller and shorter-lived, being mainlyrelated to land preparation for the grow-ing season by small farmers.21

Many of the new estates in Sumatralie within its 11.5 million hectares ofwetlands, often on peat soils. Migrationprogrammes and estate crop companiesmoved into these swamps despite theirlow soil fertility, poor infrastructure andhistory of agricultural failure, but theywere driven by the shortage of drylandareas and by the opportunity for extract-ing valuable commercial swamp timberspecies. Peat forests and drained wet-lands, however, are particularly sensi-tive to dry-out and burn in El Niñoyears because the initial fire set to clearthe residual wood debris enters the peat,which continues to smoulder and emitdense smoke haze long after the surfacefire has died22 . An estimated 80 percentof the total smoke haze in 1997-98 orig-inated from the wetlands of easternSumatra and southern Kalimantan.23

The massive fires have had dramaticimpact on wildlife and protected areas.The boxes give examples of the effecton some well-known endangered mam-mals and on two of Kalimantan’s pro-tected areas. It is because of the devas-tation caused by the fires to Indonesia’sforests and its wildlife that WWF since1998 has sought to mobilise the publicand influence companies and financialinstitutions in industrialised countriesthat consume, trade and process prod-ucts coming from Indonesia’s planta-tions, and finance the plantations' oper-ations

The following yearsWhile the devastating fires of 1997-

98 did not return at the same scale inthe following years, the annual round ofburning, smoke and haze continued.The general consensus on 1999 and2000 was that, while serious, the fireswere not as extensive as in the years be-fore. This was due more to heavier rainsthan usual than it was to any govern-ment measures31. Nevertheless, nearly

2. Background on forest fires, reforms and the oil palmboom in Indonesia

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THREATENED MAMMALS AND THE FIRES

OrangutanOrangutans are found only on the islands of Borneo andSumatra. Their populations have declined more than 90 per-cent in the past century and they have now become an en-dangered species in Borneo and a critically endangeredspecies in Sumatra24. Total population estimates range fromaround 36,000 individuals as of 1996 to fewer than 25,000now.25 In the past 10 years alone, the orangutan populationhas declined by as much as 50 percent as a result of forestloss, poaching for bush meat and the pet trade. In Sumatra,an estimated 1,000 orangutans are lost each year, accord-ing to the UK-based Orangutan Foundation.

Illegal logging, illegal starting of fires and the conversion offorests to timber and oil palm plantations have resulted in aloss of over 80 percent of orangutan habitat over the past twodecades. Devastating forest fires have played a major role.

Approximately 40 percent of the total fire hot spots in Kali-mantan in 1997 and 1998 occurred in orangutan habitats(for Sumatra, the estimate is five percent). Up to one-third ofBorneo’s orangutans are estimated to have died during theforest fires of 1997-98. Others were taken into captivity forthe illegal pet trade, either directly or after they tried to es-cape the burning forests. Today, there may be less than15,000 orangutans left in the whole of Borneo.26

The total population of officially protected orangutans isprobably around 8,300 individuals, but this population ishighly fragmented and far from securely protected: approxi-mately 95 percent of lowland forest within Kutai NationalPark, which has an orangutan population now estimated atno more than 300 individuals, burned in 1998.

Without the possibility of migration through safe corridorsbetween fragments, there is a high probability of the localextinction of orangutan populations. Due to the particularpopulation biology of orangutans, a loss of only five adultsper year per 1,000 individuals will lead to extinction withinapproximately five decades. Orangutans prefer feeding infruit trees which have large food crops, such as wild durianand fig trees; this argues strongly for the protection of oldgrowth forest with an intact forest canopy for orangutans.

Sources: www.panda.org/species/orang; orangutan campaign page of www.eia-in-ternational.org; Yeager, C. [Ed], 1999.

Sumatran rhino Fewer than 2,900 rhinos survive in the wild in all of Asia.Themost critically endangered rhino, the Sumatran, has declinedfrom an estimated 600 animals in 1994 to around only 300 to-day.The species is now restricted to small populations scat-tered through its former range and persists in peninsularMalaysia, Sabah/Borneo and Sumatra. Its status in other partsof the region (Thailand, Myanmar, Laos, Kalimantan, Sarawak)is unknown. Expansion of oil palm, wood pulp and coffee plan-tations into rhino habitats must be sharply curtailed and naturalforest cover maintained if the species is to have a future.

The 1997 and 1998 fires spread to protected areas whereboth orangutans and Sumatran rhinos occur. Poaching pos-

es another immediate threat to this species. Reports indi-cate that poachers have attempted to take advantage of thetragic situation by hunting fleeing rhinos.

Source: www.panda.org/species/asian_rhino

Asian elephantAsian elephants, which also occur in Sumatra and Borneo,may face extinction on the islands if the mixture of grasslandand forest which is their preferred habitat continues to bedestroyed. The remaining population in Sumatra is estimat-ed at between 2,500 and 4,000. Conflicts between humanand elephant populations are most marked in Riau andLampung where habitats are rapidly being converted tofarmland, rice paddies, and oil palm plantations to earn ex-port income.

When locked up in isolated pockets of forest, elephantsare known to become aggressive and often end up runningamok in villages and oil palm estates. In the city of BandarLampung (Sumatra) the continuing destruction of resin treesfor oil palm plantation projects has even driven wild ele-phants to rampaging in residential areas. According to localfarmers, these elephants lost their habitat to an oil palmplantation, started to destroy crops and killed two people27.In Lampung, 40 wild elephants are captured each year28.Experts already consider such confrontations to be the lead-ing cause of elephant deaths in Asia.

The situation is particularly pressing in Riau, a provincethat has about 40 percent of Sumatra’s total elephant popu-lation (1,100 - 1,700 individuals), but also harbours the sec-ond largest oil palm area in Sumatra. As human populationsincrease, conflicts between elephants and humans rise.Damage caused by elephants (trampling down houses, in-juring and killing people and damaging small and large-scale plantations) in and around Tesso Nilo is estimated at$1.1 million annually. 29 There are also reports of poisoning,including one dramatic case in Riau in 1996 where an oilpalm company poisoned 12 elephants all at one time. Dur-ing the past four years, at least 10 people have been killedand 76 others wounded in attacks by wild elephants in areasadjoining the South Bukit Barisan National Park.30

A combination of conversion to oil palm and pulpwoodplantations, and of fires, seriously threatens the Tesso Niloforest, Riau’s last remaining natural forest that could sustaina sizeable elephant population. WWF Indonesia, supportedby various other national WWF offices, has been fightinghard to save Tesso Nilo. In 2002, there were finally signs thatefforts were beginning to produce results, with the possibleestablishment of Asia’s first Elephant Conservation Areaand commitments that should stop destructive practices.

Although no specific reports on elephant casualties dueto fires have been found, the role of fires in reducing their al-ready dwindling natural habitat is an obvious one.

Sources: www.panda.org/species/eleph_asian; Forests, People and Rights, Down toEarth Special Report: June 2002; Jakarta Post, 14 Feb.2002; Wakker, 2001.

23,000 fire hot spots were detected inSumatra in 1999. Of these, 95 percentwere small, controlled fires that causedlittle smoke haze. Of considerably moreimportance were the five percent offires set by estate crop companies toburn the remnants of clear-felled forestson peat soils.32

Even if prevention and control areorganised more seriously and havemore resources than until now, firesmay reach large dimensions more easilythan in the past, given the amount of de-graded land and the vast amount ofstanding deadwood from past fires.34

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2.2 Underlying causes of thefires

Successive forestry ministers have usedIndonesia’s critical economic conditionas an excuse for the lack of effective ac-tion over the past five years. Each year,Jakarta has called for more money andtechnology, such as planes capable ofwater bombing the fires.35 However, thegovernment has showed little recogni-tion of the need for fundamentalchanges in the logging and plantationsystem itself, or in the social and politi-cal framework for land use and tenure.

In the Forest Fire Prevention andControl Project (FFPCP), a bilateral ini-tiative between the EU and Indonesia, aseries of studies has been conducted onthe complex relations between actors,causes and effects in Indonesia’s forestfires. The project identified the moreimmediate causes as36:

• widespread logging using irrespon-sible techniques;

• large-scale land clearance by agro-industrial companies;

• land clearance for major migrationschemes;

• land acquisition by companies andgovernment with little consideration forthe rights of local communities.

Fundamental issues that all four fac-tors have in common are:

1) the legitimacy of land right claimsand access to natural forest resources;

2) the mixture of incentives and dis-incentives in government and legisla-tion that determine how sustainably orunsustainably the forest is exploited.

Oil palm company prosecuted

There has never been much legal ac-tion against the plantation compa-nies who use illegal burning methodsto clear land in their concessions.One of the few successful prosecu-tions was against PT Adei, an oilpalm plantation developer fromMalaysia in Riau. The owner wassentenced to eight months imprison-ment and fined 100 million rupiahs($10,000) in August 2002, for groundfires that occurred at his palm oilplantation in the province in 1999.The sentence was lighter than theverdict of the Pekanbaru DistrictCourt, which sentenced the defen-dant to two years imprisonment. Thedefendant was found guilty of settingfires in his plantation in contraventionof Law No. 23/1997 on the environ-ment. A total of 17 fires were foundwhen a team from the local environ-mental control office conducted aninvestigation at the plantation. Fourother companies are also close tobeing brought to court, according tothe government.33

PROTECTED AREAS AND FOREST FIRES

National Parks are important strongholds for endangered species.Yet forest firesare known to have spread to at least 19 of Indonesia’s protected areas, includinga World Heritage site (Ujung Kulon in Java), Ramsar wetland (Berbak in Suma-tra) and Biosphere Reserve (Tanjung Puting in Kalimantan). Although matureforest is known to be much more fire-resistant than degraded forests or planta-tions, these protected areas have been affected because considerable areas hadbeen cleared illegally.

TANJUNG PUTINGThe 400,000-hectare Tanjung Puting National Park is located in the south-west-ern part of Central Kalimantan Province and is Kalimantan’s most famous nation-al park. Tanjung Puting is listed as a Man and the Biosphere (MAB) Reserve.

Tanjung Puting National Park owes its fame to two primates: the orangutanand the proboscis monkey. Of this second species, which is endemic to Borneo,Tanjung Puting harbours the largest protected population. The species is esti-mated to number not more than about 5,000 individuals. Tanjung Puting has suf-fered increasingly from illegal logging and gold mining, and – on top of this – wasseverely damaged by fire in 1997-98.

Source: http://www.nature-conservation.or.id/kaliman.html

KUTAIThe Kutai National Park covers an area of almost 200,000 hectares and is locat-ed in East Kalimantan province. In 1936, 300,000 hectares were declared aGame Reserve to protect species such as the Sumatran rhino (now extinct in thearea), banteng (wild cattle relative) and orangutan. This protection did not pre-vent the forest being cut down in subsequent years and by 1980 large parts ofthe reserve had been heavily damaged by logging, developments in oil and agri-cultural clearance. It took until 1995 before the area was actually gazetted as anational park.

Great forest fires destroyed 60 percent of the forests during the 1982-83 and1997-98 El Niño years. In the first three months of 1998, around 50,000 hectareswere destroyed by fires and approximately 95 percent of lowland forest burneddown. The vegetation is now so badly damaged that it is almost a savannah.Anywhere from 50 to 95 percent of the trees have been lost. Direct and indirectlosses to orangutan populations and their habitat appear to be severe.

Sources:http://www.nature-conservation.or.id/kaliman.html; Down to Earth No. 37, May 1998;⁄Down to Earth No. 45, May 2000 ; Yeager, 1999.

The breakdown of law enforcementand widespread corruption further com-pound any attempt to move towardsmore sustainable forest management.

Arson is a weapon used by bothsides in the social conflict over landownership and use. There have beencases where plantation companies staketheir claims by burning communitylands and embittered local people taketheir revenge by destroying camps andplantations that have been establishedwithout their consent.37

The FFPCP concluded that the mainpermanent solution to Indonesia’s fireproblem lies in much improved locallevel land use planning and strength-

ened local management, the latter in-cluding fire prevention. The projectfound that village-level views on natu-ral resource management vary fromplace to place but are generally in linewith ‘wise use’. A continuation of thetop-down, bureaucratic approach to firemanagement that only focuses on firesuppression will fail during the next ElNiño drought as it did in 1997.38

In August 2002, Project FireFightSouth East Asia (PFFSEA; see box)launched four new reports39 on the legaland economic aspects of fires and com-munity-based fire management as acontribution to preventing the recurrentdisastrous forest fires in Indonesia and

choking haze in Southeast Asia. Verybriefly, the reports call for:

• legal and institutional reformsbased on clear responsibilities and ac-countability;

• the private-sector to assume its re-sponsibility in fire management, since itmanages large areas of land and has thenecessary resources and expertise;

• stronger incentives for rural com-munities to manage local fires, with anemphasis on clear, secure land rights

The current El Niño will showwhether any progress has been madewith respect to dealing with these un-derlying factors, or whether nationaland international fire-fighting efforts

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Project FireFight South East Asia

Project FireFight South East Asia (PFFSEA) is part of aglobal initiative by WWF and IUCN, funded by the EuropeanCommission. The project seeks to secure essential policyreform through a strategy of advocacy using syntheses andanalysis of existing information and new outputs. PFFSEAworks at national and regional levels across Southeast Asiato support and advocate the creation of legislative and eco-nomic bases for mitigating harmful man-lit forest fires. Themodel provided by PFFSEA will be extended to South andCentral America, Russia, the Mediterranean and sub-Saha-ran Africa as funds and capacity become available.

The project focuses on three areas:> community involvement > economics of fire use > legal aspects of forest fires

Findings and insights On community involvement:• Local people are often in the best position to manage or

prevent fires on a local scale and local communities canand do manage fires in many situations and for many dif-ferent reasons.

• Communities cannot provide the complete solution todealing with harmful forest fires, therefore other stake-holders, including the government and the private sector,must also play a substantial role, particularly in preparingfor and fighting extensive or threatening fires.

• It is important to differentiate between harmful and benefi-cial fires.

On the economics of fire and fire use• Fire use may be based more on habit and historical prac-

tice than business or ecological principles.• Data on the economics of fire use is not readily available

and there is little or no consideration of the entire suite ofcosts, benefits and externalities, even though in all casesthe use of fires has financial and economic consequences(for example the relatively low costs of zero-burning asagainst the high costs of fires).

• Alternative methods of fire use have been developed on acommercial scale in Southeast Asia but have been suitedmainly to clearing low volumes of biomass, where zero-burning methods are not more expensive – and may actu-ally be more cost effective – than burning. For the clearingof high-volume forest, burning remains cheaper. Small-holders are at present not able to make the investmentnecessary for zero-burning.

From a legal perspective• No country in Southeast Asia has complete and coherent

laws, but each country has some elements of legislationthat are positive and sound.

• In Indonesia, forest law enforcement is inadequate due toconfusion and conflict within and between laws and objec-tives for forest management, as well as to a lack of bu-reaucratic capacity and lack of support for the rule of law.

The way forward The project’s findings reinforce the importance of a holisticand balanced approach to fire management involving allstakeholders. Efforts to address fires must take into accountthe five components of fire management (analysis, preven-tion, preparedness, suppression and restoration) and em-bed fire management efforts in a comprehensive and bal-anced land-use strategy with adequate attention being paidto the underlying causes of forest fires.

See: www.pffsea.com

will be limited to throwing water at theflames again.

2.3 Reform and decentralisa-tion: opportunities for futurefire control?

Since 1997, Indonesia has faced enor-mous economic and political chal-lenges: an unprecedented economic cri-sis, building democratic institutions af-ter three decades of autocratic rule byGeneral Suharto, and implementing afar-reaching decentralisation pro-gramme. At the same time, decades ofnepotism, corruption, poor financialmanagement and unsustainable forestland use had resulted in the over-ex-ploitation of Indonesia’s forests. Whenthe financial crisis struck Asia in mid-1997, Indonesia was hardest hit andslowest to recover. In 1998, Indonesia’sstate banks suffered losses that wereequivalent to one-fifth of the country’sGDP. The crisis brought a four-fold in-crease in poverty, with half the popula-tion now below the poverty line40.

In May 1998, General Suharto wasforced to resign the presidency andhanded over to his vice-president. Polit-ical euphoria and much talk of reformsfollowed. Since Suharto’s fall therehave been greater political freedomsthat have helped civil society groupsgain greater access to decision-makersin the government and publicly raisepolitically sensitive issues. Hopes werehigh that this freedom would lead towidespread reforms, including reformin the forest sector.

Under Suharto’s three successorssince 1998, Mr Habibie, Mr Abdurrah-man Wahid and Mrs MegawatiSukarnoputri, many reforms were an-nounced, debated and sometimes adopt-ed. After more than four years, the over-all picture is rather mixed41 :

Positive and negative effectsReforms and signals from the gov-

ernment since 1998 that are potentiallyfavourable for Indonesia’s forests:

• Logging concessions due to expirein 1999-2000 would not be renewed orextended.

• Regional autonomy laws, passed in1999 and implemented as of 2001, havemade regional governments more re-sponsive to environmental and socialconcerns in areas where strong action inthe interests of civil society has beentaken.

• The government imposed a morato-rium on further natural forest conver-sion in May 2000.

• Megawati has appointed two re-spected forestry reformers in key posi-tions in the Ministry.

• A total ban on log exports was de-clared as from October 2001.I

• Logging operations would have toobtain a government-approved certifi-cate of sustainable forest managementby 2003.II

• The current Minister of Forestry,Mohammad Prakosa, stated that the fu-ture of Indonesian forestry must bebased on small-scale community-basedoperations, not on large-scale commer-cial logging.III

• In November 2001, Indonesia’shighest legislative body for the firsttime passed a comprehensive decreeproviding a legal framework for the re-form of laws relating to natural resourcemanagement. The decree’s principlesand directives recognise the need toprotect customary rights and cultural di-versity in natural resource use.

• In 1998, the Ministry of Forestrydecided to revoke conversion permits forestate crop companies that had failed todevelop their plantations and were onlyinterested in logging valuable timber.

• 1999 saw new regulations aimed atencouraging new plantation companiesto involve cooperatives of local farmers

in the ownership and operation of oilpalm plantations.

It should be borne in mind that manypromising reforms have often beenpoorly implemented or challenged byprovincial and district governments.

Reforms that have turned out disad-vantageous to natural forests, and con-straints on positive reforms:

• The logging concessions thatwould not be renewed or extended in1999-2000 were supposed to be auc-tioned, as part of the IMF’s 1997 ‘res-cue package’, instead of reverting toresident communities or being reallo-cated for protection or conservation.

• Late in 2000, the Forestry Ministerissued new logging concessions to pri-vate companies, just before the expirydeadline.

• Since 1998, state forestry compa-nies have been allowed to use 30 percentof their concession areas for estate cropssuch as oil palms (see section 2.5).

• In 1999, plantation companies weregiven the right to establish tree crops andtimber plantations in ‘non-productiveproduction forests’ formerly allocated tologging companies (see section 2.5).IV

• Regional autonomy laws are be-lieved to have accelerated deforestationin areas where civil society was weak,and where local politicians joinedforces with powerful local businesselites to extract as much short-termprofit from forests as possible.

• In November 2000, a decree per-mitted local governments to issue “100hectare” logging permits, resulting inhundreds of logging licences in someareas.V In 2001, the new ministerPrakosa cancelled the decree, banninggovernors and district heads from issu-ing any further licences, but this seconddecree is widely ignored.

• Lack of political will, administra-tive capacity and resources have led to ageneralised breakdown of law enforce-

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I The ban has led to a large decline in log exports but is far from effective, considering the ships with illegal Indonesian logs that still arrive in Malaysian harbours (confidential sources).Apart from illegal exports, ITTO even reports 300,000 m3 exported log volume in 2000 (FWI/GFW, 2002)).

II Certifiers have been designated, but NGOs have questioned several of them as being linked to former timber tycoons The Jakarta Post, Sep.12 and Sep.26, 2002).III Statement to UK NGOs during a ministerial visit to London in April 2002.IV This particularly threatens existing licences, since the 2000 moratorium on forest conversion (theoretically) applies to new concessions only.

ment which has in turn resulted in in-creased illegal logging (see box) andencroachment on protected areas. Sev-eral decrees – such as the 2000 ban onforest conversion – aimed at stoppingthe downward trend in the state of In-donesia’s forests have been widely dis-regarded in the provinces.

A number of positive developmentshave the potential to help slow downfurther forest loss and to establish morecontrol over forest exploitation. At thesame time, these reforms may help toaddress some underlying factors thatare driving large-scale forest burningeach year. Other reforms, however, aremeant as incentives to the plantationsector and are potentially dangerous fornatural forests.

As long as the capacity to put posi-tive reforms into practice, to find theright balance between central and de-centralised levels of government and toenforce laws in the field is lacking, theprospects remain alarming and, worse,the negative trend is likely to continue.

The reduced central governmentcontrol as a result of the decentralisa-tion process implies that actors in the

international trade chain – investors,traders and consumers – have greaterresponsibility and more leverage overwhat happens to Indonesia’s forests be-cause of their links with companies thatdepend on resources from those sameforest lands.

2.4 Pledges and promises forfuture fire control

Indonesia has come under mounting in-ternational criticism for not doingenough to control forest fires. Severalpledges and promises have been made:

• Efforts to address the issue madeby the Association of South East AsianNations (ASEAN), the region’s maindiplomatic grouping, have so far provedineffective. For Indonesia’s ASEANneighbours, the problem is the smokerather than the fires themselves. In1998, Indonesia pledged commitmentto the ASEAN to follow Malaysia43 inimplementing a ‘zero-burning policy’that would prevent forestry and planta-tion companies from using fire to clearland from mid-1999 onward. Experi-

ence to date shows little success with itsimplementation.

• Several individual plantation com-panies, such as PT SMART, have statedthat they would adhere to no-burningpolicies. WWF Indonesia is workingwith SMART towards an agreement onthe independent verification of such apolicy.

• In June 2002, Indonesia signed abinding anti-haze treaty with fellowASEAN countries. The treaty sets outthe obligations of member states anddetails the preventative measures andresponses expected of ASEAN’s 10member countries. However, the agree-ment does not specifically identify largecompanies as the main cause of thefires, referring only to the need for “leg-islative, administrative and/or other rel-evant measures to control open burningand to prevent land clearing using fire.”There is scepticism both within Indone-sia and among its neighbours thatJakarta has the required political will toclamp down on the annual burning. Theagreement has yet to be ratified.

• International and national environ-mental pressure groups are now exert-ing their demands on the companies bymaking use of fire location data andsatellite images to persuade banks andfinancial institutions to curb lending tocompanies.

• In 2001, companies from theforestry and plantation industry in In-donesia established the “Haze Preven-tion Group” (HPG).44 Working in closecooperation with the government of In-donesia and surrounding countries,WWF, the UN, EU, ADB and WorldBank, the HPG pretends to “strive to re-duce and, if and whenever possible,eliminate forest and plantation fires andburnings”. However, the HPG alsostates its long-term objective to “be ableto operate healthy plantation andforestry business”, raising questions asto what it understands by ‘healthy’.Furthermore, an effective mechanism toverify even legal compliance and a min-imum level of standards has not been

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The enforcement challenge: illegal logging42

An issue that is now high on national and international political forest agendas,after years of sometimes uneasy silence or denial, is illegal logging. Indonesia isa case in point, where an estimated 73 percent of wood and timber exports in the1990s were of illegal origin.

Despite legislation, reforms and improved planning the reality is often different.Control and enforcement are too weak to stop illegality, fraud and corruption. In1994, the Indonesian government admitted that 84 percent of concession hold-ers violated logging laws. Legal restrictions have been ignored to clear naturalforests and establish fast-growing plantations. Villagers have reported being sub-jected to violence by the army and by company guards when protesting againstforest clearance on their lands. Economic losses due to illegal logging were esti-mated to be $600 million a year.

Awareness is growing that all forestry reforms in Indonesia have to take thecrucial step from theory to practice although they face enforcement problems. Aninteresting initiative is the bilateral Memorandum of Understanding (MoU) whichwas signed between the Indonesian and the UK governments. The ambition ofthe UK, an important customer of Indonesian timber, is to buy only legally loggedtimber. In order to achieve this, the UK will help to build up enforcement capacityin Indonesia.

V However, evidence is mounting that the effects of large numbers of small-scale permits can be as damaging as the old-style large concessions, and that they are generating conflictsbetween villages and between logging companies and communities.

foreseen, not to mention the fact thatthe group does not address the rootcauses of the problem.

Although most of these commit-ments and initiatives have been well-in-tended, their effectiveness so far hasbeen doubtful. One of the bottlenecks isthe lack of co-ordination or an integrat-ed approach among Indonesian govern-ment departments.

2.5 The oil palm boomcontinues

Since the expansion of the oil palm sec-tor is one of the driving forces behindforest conversion and the big fires in In-donesia, this section will take a closerlook at how the oil palm boom has de-veloped since the previous WWF reportin 1998.

Growth trends in IndonesiaAccording to Oil World, the leading

market research institute for the palmoil sector based in Germany, the worlddemand for palm oil is forecast to in-crease from its present 22.5 milliontonnes a year to 40 million tonnes in2020.45 If this demand is to be met, pro-ducer countries will have to plant300,000 hectares of new estates annual-ly until 2020. In general, the economicreason for the expansion of oil palmplantations is that it is a lucrative cropfor investors. Labour and land costs areoften low, credit is easily available andthe market has shown steady growth.

The fact that it is a typical export cropmakes it an attractive commodity forcountries with a large external debt bur-den, pressured by international financialinstitutions to increase their exports.46

The FFPCP predicts that about 50percent of new plantation land willcome from within Indonesia wherelabour and land are considered to re-main plentiful. The project expects thatSumatra, with its relatively well-devel-oped infrastructure and skilled labourforce, will absorb most of this expan-sion (1.6 million hectares). It is in-evitable that most new oil palms will beplanted in the wetlands, as the more de-sirable ‘drylands’ of the island are nowoccupied. Kalimantan would accountfor another one million and West Papuafor 0.4 million hectares.47

The palm oil sector is a relativelylabour-intensive agro-industry, which in1998 employed over two million peo-ple.48 With downstream processing andservice industries added, the total num-ber of people that rely on oil palm es-tates in Indonesia is at least 4.5 million.Palm oil sales contributed $1.7 billionto the Indonesian economy in 2000,with $1.4 billion in the case of

Sumatra.49 These figures were expectedto rise sharply as prices recovered froma 15-year low. This is confirmed by theestimated $3 billion sales for 2002.50 Inconventional economics, these facts areoften put forward as the positive partplayed by the palm oil sector in Indone-sia’s development process, ignoringhowever all that the conversion offorests and wetlands to large-scale, sin-gle-crop agriculture implies in terms ofimpact on the environment and ruralpeople’s livelihoods.

Thirty-five years ago, the total areaplanted with oil palm in Indonesia wasonly 100,000 hectares. Figure 1 showsthe phenomenal growth in the total oilpalm area planted in the country in the1980s and 1990s. Starting from about600,000 hectares in 1985, the plantedarea reached over three million hectaresin 2000.51 This was not as over-ambi-tious as Suharto’s 5.5 million target for2000 which he had set in 1996, half ofwhich was to be allocated to foreign-owned private estate companies52.

Around 60 percent of those threemillion hectares are located in Sumatraand Kalimantan, but the islands of east-ern Indonesia (primarily Sulawesi and

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“As with any other crop, the problemis not the oil palm itself but the indus-trial model in which it is being imple-mented. There are numerous exam-ples --particularly in Africa-- to showthat this palm can be grown and har-vested in an environmentally-friendlymanner and that it can serve to fulfilthe needs of the local populations ina sustainable and equitable manner.However, it is usually the industrialand not the small-scale diversifiedmodel which is being promoted”.

From: WRM Bulletin # 47, June 2001 (World Rain-forest Movement)

Fig. 1: Total area of oil palm plantations established in Indonesia From Wakker, 2000.

West Papua) have been targeted by thegovernment as the new growth cen-tres.53 Nevertheless, companies have sofar been reluctant to establish planta-tions in the east since they prefer thebetter infrastructure, proximity to themarkets and more skilled labour forcein the western islands.54

Key factors which made Indonesianoil palm plantations an attractiveprospect for domestic and foreign in-vestors were55: • high temperature and rainfall ensure

high growth rates; • large tracts of land have suitable soils; • Indonesian laws and regulations relat-

ing to land and forests could be easilymanipulated, so land was cheap;

• Indonesian labour was cheap, particu-larly where plantations were coupledwith migration schemes;

• companies could benefit from sellingtimber from any remaining forest be-fore clearing the land for planting;

• there was relatively little room for fur-ther expansion of oil palm in peninsu-lar Malaysia;

• the Indonesian government was keento promote exports, particularly out-side the oil and gas sector.

In spite of these favourable factors,Casson (2000) found that oil palm com-panies had temporarily reduced theirplanting targets in 1997. The main rea-sons for this decline were:• low international palm oil prices;• massive debts owed by Indonesian

plantation companies;• the government’s export tax policy; • the above mentioned reform policies

targeted at the sector; • social conflicts;• great uncertainty and constant

changes in government plans regard-ing privatisation of state owned oilpalm plantations;

• drought and fires resulting from the1997-98 El Niño weather phenome-non;

• higher than expected production costs.As Figure 1 shows, the overall ex-

pansion of oil palm plantations haspicked up rapidly in the past few years.

The slowdown in planted area has al-so had little effect on productiongrowth, which has rocketed from 6.6million tonnes in 1997 to 9.5 milliontonnes in 2001.56 Factors that are stimu-lating renewed expansion are lower in-terest rates, incentives for foreign in-vestments and other regulatory changesthat facilitate oil palm development, theavailability of land cleared through theEl Niño drought and related forest fires,a growing global demand for palm oil,the government’s drastic reduction ofexport tax and cooperation between In-donesian and Malaysian producers topush up world market prices.

Who owns the plantationsThe palm oil industry in Indonesia

knows three forms of ownership:- state-owned- (large) private companies- smallholdersDuring the 1970s, most estates were

developed and owned by state compa-nies, whereas the 1980s saw an expan-sion of smallholder estates, in both cas-es as a result of government and WorldBank policies. Large-scale private plan-tations have grown since the late 1980s,stimulated by a range of government in-centives (see Table 2). Smallholders arefarmers who own a few hectares after acompany has planted them with oilpalm. The company supplies fertiliserand pesticides and buys the fruit bunch-es. This dependence makes the small-holders economically vulnerable. Theypay back their debts with the first har-

vests and have to accept the price dic-tated by the company. Although theyare able to make a basic living, the so-cial and economic costs and benefits ofthe smallholder model are complex andthe subject of heated debate.57

Behind these statistics lies the sensi-tive issue of land rights, since oil palmplantation development remains a majorcause of conflict over land and re-sources. One of the social impacts ofthe expansion is the appropriation oflarge areas of land used by indigenousand peasant communities who, in mosttropical countries, have not owned theland they traditionally occupy. In boomsectors where economic stakes are high,such as the oil palm sector, plantationcompanies may be awarded conces-sions or land titles to that land and re-ceive government support to repress theopposition they may face from localcommunities.

Indonesia’s oil palm industry is dom-inated by some of the same domesticconglomerates that control the logging,wood-processing and pulp and paper in-dustries. Examples are the SalimGroup, the Raja Garuda Mas Group(RGM timber companies,APRIL/RAPP pulp mill, Inti Indosawitoil palm company) and the Sinar MasGroup (logging companies, the APP pa-per and pulp company, Matrasawit oilpalm company). Among these are thestate-owned forestry companies such asthe Inhutani groups that are allowed –according to a decree from 1998 – toconvert up to 30 percent of their con-cession to estate crops to achieve quick-er returns on investments than is possi-ble in the timber industry. There is alsoconsiderable foreign investment, with50 foreign firms having been involvedin the sector by the end of 1998, repre-senting a total investment of $3 bil-lion.58

The government seems less willingto protect corporate interests than itonce did, but neither does it appear tohave any coordinated plan for dealingwith the problem. Reformist politicianshave called for local communities to beallowed to play a larger role in econom-ic development.

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Table 2: Palm oil production percentages by owner type Based on: Casson, 2000.

2.6 Forest conversion and clear-ance for plantations

The analysis of the role of oil palmplantations in forest conversion in In-donesia in this report follows the modelwhich is described and depicted in Ap-pendix 1. It shows the complexity ofland-use dynamics, where forest con-version is often the result of a chain ofdecisions. The model applies to what ishappening in Indonesia. Apart from be-ing driven by the forestry sector, theconversion process is driven by actorsfrom the national and internationalagro-industry. Many of them have closeties with politicians.

In Indonesia, nearly seven millionhectares of forest had been approved forconversion to estate crop plantations bythe end of 1997, and this land has al-most certainly been cleared. But thearea actually converted to oil palmplantations since 1985 is about 2.6 mil-lion hectares, while new plantations ofother estate crops probably account foranother one to 1.5 million hectares. Theimplication: three million hectares offormer forest land are lying idle.59

By law, plantations can only be es-tablished on forest land that has beendesignated as Conversion Forest, i.e.not on Permanent Forest land. However,it seems from the latest revisions of per-manent forest lands, not officially pub-lished, that conversion forest has in-creased from eight million hectares in2000 to 14 million hectares in 2002,mainly by the re-allocation of perma-

nent forest land in Maluku and WestPapua60.

Such re-allocations show how theauthorities may respond to the so-calledConversion Forest deficits. There aremany more applications for the releaseof forest land to plantation crops thanthere is land available classified as Con-version Forest. Table 3 presents figureson the deficits that will arise if the out-standing applications for conversionprojects are approved, per island andfor the whole of Indonesia.

Provincial governments largely de-termine the allocation of forest landthrough their five year provincial plansfor land use. The ministry has agreed totheir requests provided that evidencewas available that the forest was de-graded. After decades of heavy loggingand forest fires, degraded forests havebecome widely available in Indonesia.Government officials themselves ac-knowledge that timber companies leaveover 60 percent of logged forest in apoor and degraded shape. Where theforest is still in good shape, ways of de-grading it are to log and burn it beforeapplying for a plantation concession61.

As a result of conversion forestdeficits, many companies put pressureon the national and, increasingly,provincial governments to release per-manent forest land for conversion toplantation estates, because62:

1. there is not much conversionforest available any more in the betterdeveloped western islands, which arealso closer to the markets.

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“The 1990s were a boom period forthe Indonesian oil palm industry. This‘development’ promised land, em-ployment opportunities and greaterprosperity – for small-scale farmersand for the Indonesian economy. In-donesian environmentalists now seethe expansion of large-scale oil palmplantations as the third massive blun-der in Indonesian forestry policy, fol-lowing hard on the heels of the log-ging concession system and the es-tablishment of industrial tree planta-tions to feed the pulp and woodindustries.

The rapid spread of oil palm plan-tations became a major direct causeof deforestation and social conflict inIndonesia. Companies took adat landwithout consultation or adequatecompensation; local people whoselivelihoods once depended on theforests were tied into sharecroppingschemes (PIR) which led to indebt-edness, loss of independence andpoverty.

The palm oil industry was, until theeconomic crisis, increasingly domi-nated by giant conglomerates whichcontrolled an integrated processfrom plantation to palm oil process-ing and the manufacture of cookingoils.”

From: Forests, People and Rights, Down to EarthSpecial Report: June 2002.

Province / regionPermanent forest status (ha)

Actual forest cover (ha)

Conversion forest (ha)

Applications approved (ha)

Surplus/deficit of applications approved and conversion forest available (ha)

Sumatra 22,451,907 16,632,143 1,559,583 4,080,530 - 2,520,947

Kalimantan 35,342,638 31,512,208 847,958 2,056,300 - 1,208,342

Sulawesi 11,792,212 9,000,000 618,419 366,89 0 251,529

Java, Bali, Nusa Tenggara

6,691,298 2,406,675 352,667 --- 352,667

Maluku 4,959,775 5,543,506 2,034,932 --- 2,034,932

Irian Jaya 32,737,449 33,160,231 2,671,275 292,780 2,378,495

TOTAL INDONESIA

113,975,279 98,254,763 8,084,834 6,796,500 1,288,334

Source: FWI/GFW, 2002 Note: the abovementioned latest revisions of permanent forest land are not included in the table

Table 3:Conversion Forestdeficits resulting fromapplications vs. availabil-ity

2. converting permanent naturalforest allows them to harvest largeamounts of wood, either for timber pro-duction or to supply the pulp industry,thus gaining fresh capital for subse-quent investments.

Such pressures have often provedsuccessful. In the whole of Indonesia,over 750,000 hectares of forest landthat had not been classified as conver-sion forest had nevertheless been con-

verted to oil palm plantations by 1999,75 percent of this area on Sumatra and20 percent on Kalimantan63.

Pressure may also come from lead-ing authorities as a recent example inEast Kalimantan illustrates (see box).

Domestic concerns and the govern-ment’s response

Apart from export and foreign ex-change considerations, the oil palm ex-pansion is also driven by the fact thatpalm oil is considered a strategic com-modity as a raw material for the maincooking oil consumed by Indonesians.In 1997, after East Asia’s financial cri-sis had also hit Indonesia, the domesticsupply situation for palm oil becamecritical and prices soared as a result.The government reacted by banningpalm oil exports in early 1998. In amove that was criticised sharply by en-vironmental NGOs, the IMF then gaveIndonesian palm oil exports anotherboost, insisting on the removal of ‘ex-port quotas and punitive taxes’ as a con-dition of its economic ‘rescue package’.

The Indonesian government wasforced to lift the temporary ban on palmoil exports and dollar hungry producersexported as much of their output as pos-sible, triggering another domestic short-age. Raising export taxes of crude palmoil (CPO) from 40 to 60 percent did lit-tle to slow down exports. Illegal palmoil exporters also profited. At the time,hundreds of thousands of tonnes ofpalm oil are thought to have been smug-gled from Sumatra across the MalaccaStrait. However, conglomerates like theAstra and Salim groups lost some oftheir political clout after Suharto felland were soon struggling to pay theirbanking debts.

There have been several other reforminitiatives affecting the oil palmsector64:

• in 1998, the ministry decided to re-voke conversion permits of estate cropcompanies that were only interested incutting timber from their concessionsand that failed to develop their planta-tions. Later that year, the ministry tookanother step by deciding to stop issuingnew licenses to open up conversionforest for plantations.

• In 1999, maximum sizes of newconcessions for estate crops becamelimited per company, both per province(20,000 hectares) and for the wholecountry (100,000 hectares), in an at-tempt to prevent the expansion of mo-nopolies. Palm oil companies might re-spond by establishing numerous smallcompanies, but political uncertainty andthe introduction of yet another bureau-cratic process have discouraged them sofar.65

• Complicated regulations decreed in1999 are meant to encourage new plan-tation companies to involve coopera-tives of local farmers in the ownershipand operation of oil palm plantations.

Reality checks of the effectiveness ofthese reforms are not available. Casson(2000) concluded that these regulationshave kept investors away from the oilpalm sector and existing companieshave cancelled or frozen expansionplans until the overall land-use policyof the Indonesian government becomesclearer and more favourable to their in-terests.

One of the most alarming regulatorychanges was that since 1998 stateforestry companies have been allowedto use 30 percent of their concession ar-eas for estate crops such as oil palms.These companies usually have conces-sions in permanent production forestsand not in conversion forest lands. Pre-viously, establishing crop plantationswas only allowed in the latter category.In West and Central Kalimantan, one ofthe state companies quickly announcedits conversion of 60,000 hectares offorestry concessions into oil palm plan-tations.

Another quite worrying new regula-tion, issued in August 1999, gives plan-tation companies the right to establishtree crops and timber plantations in‘non-productive production forests’(containing less than 20 m_ of timberper hectare) formerly allocated to log-ging companies. Forty percent of theseareas can be allocated to estate cropsand the rest is to be planted with timberplantations (or even the entire 100 per-cent may be used for rubber planta-tions). Not only does this regulation im-ply a direct link between plantation ex-

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Oil palm threatens protectedforest in East Kalimantan

In response to Malaysia’s crackdownon illegal Indonesian workers, theEast Kalimantan administration isconsidering opening up one millionhectares of oil palm plantations toprovide employment for tens of thou-sands of returning workers.

East Kalimantan Governor Suwar-na Abdul Fatah said in Yogyakartaover the weekend his administrationwas looking into the possibility ofopening an oil palm plantation nearthe province’s border with Sabah,Malaysia, in a bid to create jobs forworkers currently stranded inNunukan. “If we are able to open,let’s say, 500,000 hectares of oilpalm plantations, we will be able tocreate jobs for all the returning work-ers. And that’s just for the plantation.By including all the downstream in-dustries, I’m sure we will be able tocreate jobs for a million workers,”Suwarna said. He said he had re-ported the plan to Vice PresidentHamzah Haz and a number of minis-ters, but was told the area where hisadministration wanted to open an oilpalm plantation was a protectedforest.

“The East Kalimantan governor’sidea of opening up one millionhectares of oil palm plantations is avery good idea. It could absorb ahuge number of workers. However,forestry regulations would seem tobe in the way,” said State Minister forEastern Indonesian Development,Manuel Kaiseipo.

Source: The Jakarta Post, 16 September 2002

ment ended up prosecuting only five66.In a few cases, NGOs and local com-munities have successfully challengedplantation companies in court for caus-ing environmental damage by burning.However, a handful of prosecutions isunlikely to put off the big companies,who are used to government protection.

Ironically, many oil palm companiesalso benefited from the fires because thehaze caused a hike in Crude Palm Oil(CPO) prices and because the Ministryof Forestry and Estate Crops indicatedit would release burned lands for furtherplantation development. This is whathappened in East Kalimantan, whereestates destined for planting with soft-woods for pulp and paper productionsuffered enormous losses, and manytimber companies left the province. Asis happening in other provinces in Kali-mantan, a new area of one millionhectares of burned and degraded landhas been released for planting with oilpalm.

2.8 Conclusions

The forest fires that have hit Indonesiasince 1997 have been and continue tobe a truly man-made environmental dis-aster. The underlying causes are foundin Indonesia but are also rooted in thedevelopment of global markets. Donorcountries did not react adequately whenearlier fires occurred, limiting their offi-cial assistance efforts to fighting symp-toms and following a purely technicalapproach. Instead of fighting the fires,more emphasis should be put on theirprevention.

Another form of assistance wouldmake an even greater difference: thereshould be effective mechanisms to reg-ulate the activities of big corporationsfrom those same donor countries thatoperate in a globalised market, and toregulate the trade chains that depend onthe unsustainable exploitation of naturalresources in developing countries. Inthe case of Indonesia, this means thetimber, paper and pulp, and palm oil in-dustries. Such mechanisms are notenough in themselves; more fundamen-tal changes are needed, including

land for plantations. This ban wasstrengthened under the 1999 ForestryAct. Law enforcement could thereforemake a much more significant contribu-tion to the prevention and control offorest fires. Company staff found guiltyof clearing land with fire can now besentenced to a maximum 15-year jailterm and a fine of up to five billion rupi-ahs (approx. $500,000). The courts,however, remain very reluctant to pros-ecute and convict companies that burn.

When the 1997 fires continued, theMinistry of Forestry and Estate Cropspublished a list of 176 plantation andforestry companies whose concessionswere affected by fire and who used ille-gal burning methods to clear land intheir concessions. These companieswere required to submit evidence thatthey had not started the fires in their ar-eas and possessed adequate fire-fightingequipment. In October that year, theMinistry of Forests and Estate Crops re-voked 151 permits. Of the 176 compa-nies accused, 133 of which were oilpalm plantation companies, the govern-

pansion and deforestation, it also repre-sents a disincentive for sustainableforest management since logged forestscan now easily be converted to planta-tion lands.

Regional autonomy, introduced in2001, provided a stimulus for further oilpalm expansion with local authoritiesdesperate to increase their revenuesfrom export revenues and taxes on plan-tation companies. Applications forplantation permits now cover a hugearea; an unconfirmed source quotes afigure as high as 32 million hectares in2000, but accurate figures are hard toobtain. Investors are now lobbying hardto cut down the bureaucracy faced bythe palm oil industry for obtaining plan-tation licenses, a measure which will al-so speed up deforestation.

2.7 Oil palm plantations and theforest fires

Since 1995, Indonesian law has ex-pressly forbidden the use of fire to clear

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The creation of Sawit Watch

Indonesian NGOs are very concerned about trends in the palm oil sector andhave conducted activities during the last six years to empower indigenous peopleand local communities to fight for their rights in their regions. Given the need towork and develop plans together, some Indonesian NGOs initiated Sawit Watchon July 25, 1998.

Sawit Watch, a network of NGOs throughout Indonesia, is concerned aboutthe expansion of oil palm plantations and forest conversion. Today around 40NGOs, including WALHI (Friends of the Earth Indonesia), INFID, Telapak, Biofo-rum, ELSAM, KpSHK, LATIN, Tanah Merdeka Foundation, IDRD, LBBT, CitraMandiri Foundation and Plasma Foundation, have joined the Sawit Watch net-work.

Sawit Watch is currently focusing its work on large-scale oil palm plantation re-gions including Aceh, North Sumatra, Riau, West Sumatra, Jambi, South Suma-tra, Bengkulu, Lampung, West Kalimantan, South Kalimantan, Central Kaliman-tan, East Kalimantan, South Sulawesi, Central Sulawesi, Southeast Sulawesiand Papua.

The Sawit Watch campaign is directed at halting the expansion of large-scaleoil palm plantations in Indonesia by undertaking the following activities:• monitoring the support international financial institutions give to the oil palm

sector;• policy research;• investigating environmental and social problems;• raising public awareness by disseminating information;• facilitating lobby activities by representatives of affected communities.

http://www.sawitwatch.or.id

changes in government policy frame-works. There is a need for active in-volvement by conscious consumers andpioneers among financiers, traders andretailers. Fortunately, we can now re-port on initial experience here.

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The global demand for palm oil keepsgrowing. Indonesia has some compar-ative advantages, in the form ofcheap land and labour and a numberof government incentives, over othercountries operating in the globalpalm oil market. The country badlyneeds hard currency to recover froma severe economic crisis. This chapterfocuses on palm oil production, tradeand consumption, taking a closerlook at Indonesia and Germany. Inthis update, more attention is given tothe role of the international financialsector, discussed only briefly in the1998 report.

Note: The 2002 Oil World Annual isthe source of most figures used in thischapter. It is the most reliable source,although some figures may seem incon-sistent, generally because Oil World us-es different methods and criteria for dif-ferent components of its annuals. How-ever, observable trends are more impor-tant than the strictly technical aspectsof statistical figures: different tableswith different figures show the same de-velopment. Consumption world wideand in Germany is growing.

3.1 The global picture

Planted areas and productionOver the past 30 years, the global

area planted with oil palm has tripled(see Fig. 2). The main reasons for thisexplosive growth are71:

• strong prices for crude palm oil andpalm kernel oil on the world market, es-pecially due to consumption increasesin Europe, India and China;

• absence of unmanageable pest anddisease problems, at least in SoutheastAsia;

• favourable physical characteristicsthat have enabled a diversification ofpalm oil-derived products in the foodand oleochemical sectors;

• very high oil yield per hectare incomparison with other vegetable oilcrops (e.g. six times larger than rapeseed yields), and very high resource useefficiency (in terms of inputs of solarenergy, water, nutrients, pesticides andfertilisers per unit of oil produced).

Due to these characteristics, oil palmnow produces 22 percent of the world’svegetable oil on only two percent of theland planted with vegetable oil crops72.Further plantations are either being im-plemented or promoted in almost every

southern country where soil, water andsolar energy meet the requirements forgrowing oil palm. In the long term, OilWorld forecasts a rise in world demandfor palm oil to 40.5 million tonnes by2020.73

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3. Europe and Germany in the palm oil trade

Introducing oil palm and palm oil

The oil palm (Elaeis guineensis) originally comes from West Africa, where it is atraditional source of food, medicines and woven material. Portuguese explorersfirst described the oil palm in 1435. Large-scale commercial growing in planta-tions did not start until early in the 20th century. In 1848, the Dutch introducedthe first four oil palms to Indonesia67. Within the last 50 years, no other oil crophas expanded throughout the tropics as much as the oil palm and today Elaeis isthe world’s most profitable palm in terms of its crop’s value.

The oil palm is particularly valued for the highly edible oil content of its redfruit. Both fruit pulp and seeds are used for production purposes:> Crude Palm Oil (CPO) is the primary product derived from fruit pulp. CPO is

used for a wide range of food and non-food products. Harvested fruits must beprocessed locally because they start to decompose quickly. The advantages ofCPO compared to other vegetable oils are its high melting point and the solidstate of its olein fraction (used for industrial purposes) at room temperature. Inthe main producing countries, one hectare of oil palms generally yields be-tween two and four tonnes (in Nigeria and Colombia, respectively68 ), but max-imum yields of up to 10.6 tonnes of CPO have been recorded69.> Palm Kernel Oil (PKO), obtained from the seeds, can be used for similar pur-

poses as CPO. Palm kernel oil contains about 80 percent fatty acids, against50 percent for CPO. The seeds can be stored for longer periods and thereforetransported over long distances and be processed elsewhere. One hectare ofoil palms may produce 0.9 tonnes of PKO.> Palm Kernel Meal (PKM) is made from ground and dried seeds. It is used pri-

marily for animal feed. Although PKM is considered a by-product of PKO pro-duction, its importance to the animal feed sector is considerable.70

Fig. 2: Growth in global oil palm plantations, 1961 – 2001 Source: FAOSTAT 2002

Consumption and tradeFrom 1997 to 2001, global palm oil

consumption grew by 34 percent, from17.6 million tonnes to 23.6 milliontonnes74 , which is considerably higherthan the 22 percent growth for the peri-od 1994-98 stated in the previous WWFreport. Global consumption of palm oiland palm kernel products combinedgrew by 32 percent from 1997 to 2001.

Booming consumption resulted inskyrocketing global imports from 12.2million tonnes in 1997 to 17.5 milliontonnes in 2001 (+43 percent), reflectedin rising global exports from 12.5 mil-lion tonnes to 17.6 million tonnes in thesame period. Since 1998/99, palm oilexports surpassed the combined exportsof its closest competitors – soy, sun-flower and rape oils – which remainedat around 13 million tonnes. In 2002,palm oil and palm kernel oil will ac-count for almost half of total oils andfats exports (soybean remains the num-ber one in production).75

India, China and Pakistan, the coun-tries where palm oil is the traditionalcooking oil, continue to be the world’slargest importers, with India havingovertaken China in a strong first posi-tion (Table 4). The Netherlands, theUnited Kingdom and Germany followthe three Asian countries and remain

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Europe’s main palm oil importers.One plantation hectare of oil palm

produces about 82 percent crude palmoil (CPO), 10 percent palm kernel meal(PKM) and eight percent palm kerneloil (PKO). PKO prices are considerablyhigher than CPO prices. Comparing theimport figures for palm kernel productswith palm oil reveals some interesting

differences. The EU has a much moredominant position in the global marketfor kernel products than in the palm oilmarket (65 percent vs. 17 percent) (seeTables 4 and 5). Especially striking isthe dominance of PKM (80 percent in2001), mainly used for animal feed.South Korea has a 10 percent share inglobal PKM imports, the remaining 10

Import per capita (in kg)

Countries 1997 1998 1999 2000 2001 2001

1. India 1,469 1,672 3,257 3,651 3,433 3.3

2. PR China 1,860 1,373 1,347 1,764 2,055 1.6

3. Pakistan 1,144 1,114 1,052 1,107 1,325 9.1

4. Netherlands 606 693 748 776 985 61.8

5. United Kingdom 456 474 542 572 612 10.2

6. Egypt 367 408 511 524 525 7.6

7. Germany 420 389 394 445 503 6.1

8. Japan 370 357 365 373 394 3.1

11. Singapore 427 328 400 367 333 81.0

24. USA 135 116 143 165 171 0.6

Others 4,996 4,594 5,185 5,490 7,187

Total 12,250 11,518 13,944 15,234 17,523 2.9

EU percent of total 17 17

Table 4:World palm oil imports,1997-2001 (in 1000tonnes).

(gross imports of crude andprocessed oil, excludingpalm kernel oil and palmkernel meal)

Source:2002 Oil World Annual

Fig. 3: Global CPO and PKO prices 1993 – 2002 Source: Van Gelder, 2002.

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percent is divided among the rest of theworld. Growth in global oil meal de-mand (especially soybean meal, but al-so PKM) has increased significantlysince 2001 due to relatively low pricesand the ban on meat and bonemeal re-sulting from the BSE epidemic.

Germany is the world’s leading im-porter of PKO, mainly used for indus-trial purposes. The USA is the secondlargest importer of PKO, with 149 kT in2001. Several palm oil importing giantsthat imported insignificant percentagesof PKO in 1997 have increased theirPKO import shares in the past fouryears by at least 1000 percent (Pakistan,China and India).

PricesAfter the Asian financial crisis broke

out late in 1997, CPO prices on theworld market plummeted, reachinglows in 1999 and 2000. As said before,palm oil supplies declined in recentyears. In the meantime, global demandfor palm oil kept rising. As a conse-quence, CPO and PKO prices havestarted to go up again since early 2001,with a 29 percent rise in CPO prices be-tween July 2001 and June 2002. Takingthe most influential price-making fac-tors into consideration, Oil World ex-pects sharp price rises for the secondhalf of 2002 and 2003 in the vegetableoil group, with palm oil as one of the

leaders with a 50 percent increase76.Higher prices will act as an incentive toinvest in new plantations.

Focus on Malaysia and IndonesiaFigures for 2001 show that Malaysia

and Indonesia have even slightly in-creased their dominant position on theglobal production and export marketsince WWF published its previous re-port in 1998. In 2001, 83 percent ofglobal palm oil production (19.5 mil-lion tonnes) and 89 percent of globalexports (15.7 million tonnes) were ac-counted for by these two countries77

(for 1997, these percentages were 81percent and 86 percent, respectively).

Table 6:Global production and

exports: Malaysian andIndonesian shares

in palm oil and palmkernel products

(1000 T)

Source:Oil World Annual 2002

Total PK PKO PKM

Countries 1997 2001 1997 2001 1997 2001

Netherlands 909 997 94 78 815 919

Germany 670 719 154 191 516 528

United Kingdom 443 379 40 46 403 333

EU total 2,475 2,693 416 443 2,059 2,250

World total 3,393 4,144 1,054 1,348 2,339 2,796

EU percent of world total 73 65 39 33 88 80

Production Exports

1997 2001 1997 2001

World 17,934 23,575 12,469 17,611

Malaysia 9,057(51%)

11,804 (50%)

7,747(62%)

10,733(61%)

Palm oil

Indonesia 5,380(30%)

7,700(33%)

2,982(24%)

4,940(28%)

World 4,975 6,364 3,354 4,155

Malaysia 2,602(52%)

3,314(52%)

1,833(55%)

2,461(59%)

Palm kernel oil and meal

Indonesia 1,235(25%)

1,750(27%)

1,171(35%)

1,392(34%)

World 22,909 29,939 15,823 21,766

Malaysia 11,659(51%)

15,118(50%)

9,580(61%)

13,194(61%)

TOTAL

Indonesia 6,615(29%)

9,450(32%)

4,153(26%)

6,332(29%)

Table 5: World palm kernel imports by country, 1997 and 2001 (in 1000 tonnes). Source: 2002 Oil World Annual

27WWF

The pattern for palm kernel products issimilar to palm oil. Indonesia managedto increase its market share for all prod-ucts, whereas Malaysia remained sta-ble.

Indonesia itself is one of the world’slargest markets for palm oil, with 12percent of total global consumption in2001, the equivalent of 35 percent of itsnational production. Domestic con-sumption of PKO and PKM representonly 10 percent and 0.8 percent of In-donesia’s production quantities78. De-mand for CPO within Indonesia wasabout 60 percent of total production in199779. This shows that the share of In-donesia’s palm oil production that is ex-ported has risen considerably as a resultof trade liberalisation, confirming theexpectation given in the 1998 WWF re-

port, although not as dramatically(84percent of production was the exportexpectation for 1998).

The biggest importers of Indonesia’sCPO in 2001, based on statistics fromthe importing countries80 , are India (29percent), China (11 percent), Nether-lands (eight percent) and Germany (fivepercent). For 1997, these percentageswere 16, 16, 13 and 10, respectively.This shows a relative reduction in im-portance of the two largest EU im-porters for Indonesia, although the ab-solute volumes have still increased; thisis more a reflection of the dramaticgrowth in demand in India and China.The EU in 2001 as a whole importedaround 22 percent of total Indonesianpalm oil exports. As regards PKO, Ger-many imported 28 percent of Indone-

sia’s exports, Netherlands eight percent,China 10 percent and India nine per-cent.81

3.2 Germany’s share in the palmoil trade

By far, the highest imports of vegetableoil to Germany are in palm oil. Ger-many remains the fourth largest im-porter of Indonesian crude palm oil andthe second largest inside the EU, afterthe Netherlands. Germany’s crude palmoil imports from Indonesia doubledfrom 144,000 tonnes in 1993 to288,000 tonnes in 1997, dropped dra-matically in 1998 and 1999 to 145,000tonnes (ceding the first rank toMalaysia again), and then picked up to

Crude palm oil Indonesia Malaysia OtherTotal Volume Share Volume Share Volume Share

1995 412.3 188.6 46% 107.2 26% 116.5 28%1996 445.7 218.2 49% 108.2 24% 119.3 27%1997 497,8 288.1 58% 114.4 23% 95.3 19%1998 475,8 183.1 38% 169.9 36% 122.8 26%1999 463.2 145.3 31% 215.0 46% 102.9 22%2000 504.7 236.3 47% 177.9 35% 90.5 18%2001 610.5 267.7 44% 194.7 32% 148.1 24%

Palm kernel oil Indonesia Malaysia OtherTotal Volume Share Volume Shar e Volume Share

1995 110.2 85.5 78% 14.6 13% 10.1 9%1996 136.4 101.0 74% 24.9 18% 10.5 8%1997 156.5 115.6 74% 21.5 14% 19.4 12%1998 121.5 93.1 77% 21.3 18% 7.1 5%1999 210.7 148.4 70% 47.9 23% 14.4 7%2000 180.0 151.9 84% 17.3 10% 10.8 6%2001 192.6 164.2 85% 20.7 11% 7.7 4%

Palm kernel meal Indonesia Malaysia OtherTotal Volume Share Volume Share Volume Share

1995 499.3 100.4 20% 381.9 76% 17.0 17%1996 472.0 110.6 23% 352.3 75% 9.1 8%1997 531.5 198.2 37% 309.4 58% 23.9 5%1998 538.1 125.0 23% 371.1 69% 42.0 8%1999 555.5 236.7 43% 251.0 45% 67.8 12%2000 573.3 199.0 35% 337.3 59% 37.0 6%2001 559.1 222.7 40% 304.6 55% 31.8 5%

All three product cat e gories

Indonesia Malaysia Other

Total Volume Share Volume Sh are Volume Share1995 1,021.8 374.5 37% 503.7 49% 143.6 14%1996 1,054.1 429.8 41% 485.4 46% 138.9 13%1997 1,185.8 601.9 51% 445.3 37% 138.6 12%1998 1,135.4 401.2 35% 562.3 49% 171.9 16%1999 1,229.4 530.4 43% 513.9 42% 185.1 15%2000 1,258.0 587.2 47% 532.5 42% 138.3 11%

2001 1,362.2 654.6 48% 520.0 38% 187.6 14%

Table 7:Germany’s main palm oilsuppliers from 1995-2001 (in 1000 tonnes)

Source: 1998 and 2002 OilWorld Annual

28 WWF

regain the lead (Table 7 and Fig 4). Ger-man imports from Indonesia now standat 268,000 tonnes. Germany is the onlycountry among the big importers whichimports more palm oil from Indonesiathan from Malaysia.

Comparing 2001 with 1997, Indone-sia increased its market share of CPOand PKO in Germany, in spite of havingtemporarily lost terrain in 1998-99. In-donesia dominates the German importmarket for PKO, having increased itsshare from 74 percent in 1997 to 85percent in 2001. Country shares in theimports of palm kernel meal (PKM) in-to Germany follow a similar pattern aswith CPO.

Note that not the entire oil palmproduct volume that is imported byGermany is actually consumed by theGerman market. Part of Germany’s im-ports are re-exported (see Table 8).

As shown in Table 4 (section 3.1),gross per capita imports are excessivelyhigh in Singapore and the Netherlands,countries which evidently re-exportmost of their imported palm oil. In2001, about 13 percent of CPO (77 kT),five percent of PKM (30 kT) and a neg-ligible quantity of PKO (0.4 kT) wasimported from the Netherlands to Ger-many. In fact, the Netherlands are themain source of imported palm oil prod-ucts in the “Other” column in Table 7,especially for CPO (for instance, of the24 percent from “other” countries in

2001, the Netherlands accounted for 13percent, Papua New Guinea for six per-cent, and other EU countries for the re-maining five percent).82

3.3 Germany’s palm oilconsumption

Germany’s consumption of vegetableoils has been rising steadily over thepast five years, from 2,158 milliontonnes in 1996 to 2,785 million tonnesin 200183. Almost one quarter refers topalm and palm kernel oil (Fig. 5).

Germany in 2001 consumed 503,000tonnes of palm oil and 191,000 tonnesof palm kernel oil. This makes palm oilthe second most highly used vegetableoil after rape oil (imports into Germanyminus re-exports).

Figure 6 shows the main types of useand users of vegetable oils in Germany.About two-thirds of all vegetable oilsand fats are processed in the food in-dustry, producing ingredients for mar-garine, bakery products, sweets, cook-ing oil, soups, sauces, coffee whitener,chocolate fillings, snacks and otherfood products. Whereas domestic mar-garine consumption decreased in recentyears (from 6.9 kg per person in 1998to 6.2 kg per person in 2001), the foodprocessing industry experienced agrowing demand for vegetable oils andfats.

Compared to most other vegetableoils, palm oil has the advantage of hav-ing a higher melting point and of beingsolid at room temperature. Therefore, itdoesn’t need a hardening process,which is not only technically elaboratebut also harmful to human health. Hard-ening produces so-called trans-fattyacids, which are suspected of playing arole in cardiovascular diseases. Themargarine industry also welcomes thefact that palm oil does not contain lino-lic acids, which oxidate easily and af-fect the flavour of the product.

Additionally, palm oil and palm ker-nel oil are used in the chemical indus-try, in the production of washing andcleaning liquids, cosmetics and bodylotions. All palm kernel and palm fruitresidues are used to produce animalfeed, especially for pigs.

3.4 Use of palm oil by Germanindustry

The production chain between an oilpalm plantation and the consumer in-cludes various branches of industry thatuse large quantities of palm oil. Onebusiness group can be active in morethan one of these branches; Unilever isin all three. These listings do not pre-tend to be complete, nor do they rankcompanies according to the palm oilvolumes they use:

Fig. 4 Trends in German palm oil imports, 1993-2001 (CPO, PKO and PKM) Source: 1998 and 2002 Oil World Annual

29WWF

Oelmühlen (VDOE), a German umbrel-la organisation, tracing a shipment ofpalm oil back to its original port of de-parture is possible only in exceptionalcases. Tracing it back to the plantationwhere the palm fruits were harvested iscompletely impossible.

However, this information is incom-plete. Big companies buy part of theirpalm oil directly in the country of ori-gin and often have joint ventures withMalaysian or Indonesian companies.Unilever, for example, has both planta-tions and processing facilities of itsown, though it does not use the oil fromits Malaysian operations itself but sellsit on the open market. Unilever has justdecided to sell its Malaysian plantationsand has already sold some of its pro-cessing operations. Unilever has noplantations in Indonesia. The share ofUnilever’s palm oil supplied by its ownplantations unknown.The same lack ofknowledge about the volume of own-sourcing holds true for other big com-panies.

The fact that smaller companiesclaim not to know the origin of thepalm oil they use does not necessarilymean that they could not know this. Thepalm oil sector lacks transparency. It isalso very difficult to determine whatshare is imported directly and whatcomes through the Netherlands. Yet,some companies claim to know thatthey import only small volumes or noneat all from Indonesia. This contradictsearlier VDOE statements.

Company surveyAs part of a company survey by

WWF Germany, questionnaires aboutthe use of palm oil were sent to theabove mentioned companies and sever-al others. The purpose was to obtain in-formation on palm oil volumes and ori-gin, and also to find out to what extentcompanies had changed their palm oilpurchasing policies since the 1997-98forest fires in Indonesia, or were willingto do so in the future.

The table in Appendix 2 summarisesthe responses. Of the 33 companies thatwere approached, 12 responded individ-ually and in detail. Three companies re-ferred to the VDOE umbrella organisa-

1. Processing industries, which buyand refine crude palm oil, include No-blee & Thörl GmbH, Walter RauNeusser Öl und Fett AG, DeutscheCargill GmbH Oel und Fettveredelung,Unilever;

2. Food industries, that use refinedpalm oil to produce food stuffs, includeNestlé Deutschland, Intersnack Ver-triebs GmbH, Agrarfrost GmbH & Co,Friba Pommes Frites GmbH, Lorenz-Bahlsen Snack World GmbH & Co KG,Unilever;

3. Chemical industries, that use re-fined or chemically modified palm oil(palm kernel fatty acids), include Cog-nis Deutschland GmbH & Co KG, Oleo

Chemicals GmbH, Procter & Gamble,L’Oréal, Beiersdorf, Henkel, Avon Cos-metics, Unilever.

Crude palm oil from Malaysia andfrom Indonesia is often mixed in bigtanks in Rotterdam’s transit harbour.This mixture of crude oil goes to pro-cessing industries where it is refinedand passed on to consumer product in-dustries. Mixing also occurs at severalother points in the supply chain as a re-sult of economies of scale in handlingpalm oil. Because of this mixing, manycompanies, especially those that uselimited quantities of palm oil, do notknow the origin of the crude oil. Ac-cording to the Verband Deutscher

Fig. 6: Use of refined vegetable oils in Germany (source: TransGen WebMaster, 1997)

Fig. 5: Main vegetable oils used in Germany (source: VDOE, 2001)

30 WWF

tion’s standard response, but this re-sponse did not really answer the sur-vey’s questions. Three other companiesreferred to the Verband der DeutschenMargarineindustrie, the margarine man-ufacturers’ umbrella organisation , butthis association did not respond. Fivepromised to respond but did not do so;10 companies did not respond at all. Ineffect, only 12 of the 33 companies didrespond to the survey, which hardlyprovides a picture of a transparent andopen sector.

In general, a large discrepancy wasdetected between the volume of palmoil that was imported and the volumeactually used. This is partly due to thefact that several companies did not wantto provide this information because ofcompetitive considerations. The dis-crepancy is presumably also caused bythe fact that palm oil is mixed with oth-er oils and fats in the processing ofmany products.84

The information provided in the fol-lowing section is based on company re-sponses that have not been verified byWWF.

1) The Nestlé companyNestlé annually processes around

6,000 tonnes of palm oil. About half ofthis quantity comes from Indonesia,probably as direct supplies. It is used inthe production of soups, instant sauces,ready-made meals, pastries and icecream. The importance of palm oil isvery limited for the company in termsof raw material volume, in contrast toits use of coffee and cocoa beans.

Nestlé referred to a set of very gener-al environmental guidelines when askedabout its ecological criteria for supplypolicies,. These guidelines do not takethe issue of rainforest deforestation forplantation development into considera-tion. This is a pity as Nestle has just de-clared that it has joined a SustainableAgriculture Initiative that would lead tothe adoption of the same standards asthose used by Unilever for palm oil.

2) The Cognis companyCognis is a global leader in special

chemical products for the washing andcleaning industry, cosmetics, food and

health items, as well as paints and var-nishes. The oleochemical divisionprocesses world wide about one milliontonnes of vegetable and animal oils ayear. Palm kernel oil is used in largerquantities than palm oil (Cognis de-clined to give data on volumes). In-donesia is one of the main suppliers,and Cognis buys palm oil on the worldmarket without investigating its origin.Purchase decisions are based on prices,seasonal influences and quality. Cognisalso emphasises that environmental andsocial aspects are taken into account inits supply policy. How this is done andwhat criteria are used is not clear. Theissue of rainforest conversion into plan-tations is not taken into account in thesecriteria. In light of the 1997-98 forestfires in Indonesia, the company decidedto join a government-supported re-search project (ECOPOP) on the sus-tainable management of oil palm plan-tations in Indonesia.85

3) The Unilever companyThe Unilever case shows that possi-

bilities do exist for companies to devel-op palm oil supply policies that takeecological criteria into consideration.The Anglo-Dutch Unilever corporationis one of the main global buyers ofpalm oil, buying more than one milliontonnes a year, equivalent to 4-5 percentof global production. The major share isfrom Malaysia. A share of this volumecomes from Indonesia, but Unilever al-so owns plantations in Malaysia andWest Africa. In Indonesia, Unileverowns one margarine plant that usespalm oil.

As part of a “Sustainable AgricultureProject”, Unilever has begun to addressthe issue of rainforest destruction to es-tablish oil palm plantations. Togetherwith WWF, the company has beenworking for the past two years on thedevelopment of ecological, economicand social criteria for sustainable prac-tices in oil palm agriculture. On therainforest conversion issue, Unileverdeclared that no primary rainforest willbe cleared any more to establish newplantations on forest land owned by thecompany (i.e. in Malaysia and Ghana),and this position will be incorporated in

its future sustainability criteria.Unilever has made a clear and unam-biguous commitment to WWF that itwill examine the High ConservationValue Forest principle as an improvedcriterion for protecting the rainforestfrom company plantation expansion. Ithas made a clear endeavour to workwith WWF on a case study to identifyHigh Conservation Value Forest area inSabah, Malaysia. Some doubts havebeen cast on this last undertaking byUnilever’s decision to dispose of itsMalaysian palm oil plantation sub-sidiary, but WWF and Unilever verymuch hope they will be able to continuethis joint effort.

The company policy aims at “sourc-ing all palm oil from sustainable suppli-ers in the long term”. Its concerns aboutthe social impact of its purchasing poli-cy on smallholder agriculture in In-donesia, the desire to carry the industrywith it, and the lack of an agreed defini-tion of High Conservation Value Forestare reported to WWF as preventingUnilever from moving to an environ-mentally sound purchasing policy in theshort term.

Unilever has pointed out to WWFthat throughout the development of itswork on sustainable palm oil it has con-sulted stakeholders, made its standardsavailable to all, and continues to makeclear its commitment to sustainablesourcing, particularly in the institution-ally challenging conditions of Indone-sia. It is not known what percentage ofthe total palm oil volume used byUnilever comes from the company’sown plantations, but the proportion ofUnilever’s own plantation palm oil usedin Europe is negligible. The origin ofthe remaining volume is also unknown,but it comes mainly from Malaysia andIndonesia. It is still too early to deter-mine the real effects of Unilever’s poli-cy on production and supply practicesin the field. The Unilever initiative,however, shows that there is a way inthe right direction, at least on its own,well-managed plantations. An essentialelement of such a policy concerns itstransparency: can the origin of the prod-uct be traced and verified? It would be astep forward if other companies would

follow Unilever’s example, even ifUnilever can still be criticised for thefact that the origin of probably thelargest share of its raw material is unde-clared.

ConclusionsSince the forest fires in 1997-98, no

company operating on the German mar-ket has changed its palm oil purchasingpolicy. The results of the survey lead tothe conclusion that without public pres-sure, there will be little interest in thefuture to change company policies.

Indonesian palm oil is more compet-itive in the global market thanMalaysian oil because land clearancepractices and cheaper labour allow forlower prices. If Indonesia would applymore sustainable techniques, then thiswould push up the costs which wouldbe reflected in higher consumer prices.The fact that palm oil does not reach themarket as an end product, but as an “in-visible” component of numerous foodand chemical products, puts palm oil ina different position as compared withother tropical products such as timber,coffee and tea. With these latter com-modities, it is much easier to make con-sumers aware of ecological and socialproduction aspects. A considerablenumber of consumers are prepared topay a higher price for products thathave been produced in a sustainablemanner. It is considered questionable,however, whether a market can be cre-ated for “ecological” palm oil products.Therefore, the Migros supermarket inSwitzerland is an interesting test case.

3.5 German developmentprojects in Indonesia

Indonesia is a priority country in Ger-man development cooperation. In viewof the dramatic loss of Indonesia’sforests, the emphasis in recent years hasbeen on supporting sustainable forestry.As a response to the fires in 1997, theKfW, Germany’s development bank,and the GTZ, the technical assistanceagency, initiated a community projectfor integrated forest fire management inEast Kalimantan. Prospects for the suc-

cess of these projects are poor becauseof inadequate legal and policy reformsby successive Indonesian governmentsand a lack of effective action againstcorruption. The German Ministry forScientific Cooperation and Develop-ment (BMZ) has drawn its conclusionsand now follows a restrained policy inthe Indonesian forest sector. Newforest-related proposals are no longerinitiated by the German government.Among all current bilateral forest proj-ects, only the advisory work to the In-donesian Ministry of Forestry will becontinued until the overall policyframework significantly improves.

BMZ’s new concept “Forests andSustainable Development” considers“forest conversion by the intensive plan-tation economy”, often stimulated byEuropean subsidies, to be an essentialproblem in the richly forested countriesof Southeast Asia. The BMZ’s concept

does not, however, address this problemby means of relevant interventions.

The German Investment and Devel-opment Society (DEG) promotes oilpalm plantations in various SoutheastAsian countries. In Indonesia, the DEGcurrently finances three oil palm proj-ects. Muko, a project association inWestern Sumatra, an Indonesian-Euro-pean joint venture, is a combined oilpalm and rubber plantation with pro-cessing facilities. In Kalimantan, theDEG financed the construction of apalm oil mill for the Taipan companywhich runs an oil palm plantation withsimilar facilities. The crude palm oilfrom this plantation is processed intocooking oil in this same mill and thensold under its own brand name. TheKSP project, also in Kalimantan, con-sists of an oil palm plantation with anextensive associated programme forsmall farmers.

31WWF

The Ophir Project

From 1981 to 1996, the German government supported the NESP-Ophir oil palmproject in western Sumatra, in the framework of a joint KfW/GTZ cooperation ini-tiative. The project was supposed to contribute to increased income generationfor small farmers and to the larger production of palm oil products. In the targetgroup were 2,400 small farmers who had come from Java and parts of Sumatraas migrants. The basic idea of the NESP model (Nucleus Estate with Smallhold-er Participation) was to involve the P.T. Perkebunan VI plantation company as adevelopment agent for the smallholder plantation sector.

The plantation company served as a “nucleus”, with an oil mill for its own plan-tations and the smallholders. The company was also in charge of marketing forboth types of producers. In the context of the project, 6,000 hectares were plant-ed with oil palms, 1,200 for the plantation and 4,800 for the smallholders (2hectares per family). Furthermore, KfW financed a processing facility, a networkof all-weather roads for the transport of palm fruits to the mill, the construction ofhouses for the farmers and an infrastructure for the settlements. Technical sup-port by GTZ focused on the development of a community organisation.

An evaluation carried out in 2000 confirmed that the income of small farmershad experienced a steep increase.86 Also, after the price of palm oil went down in1998, the average income of small farmers in the project in July 1999 was stillthree times higher than the Indonesian average.

However, the project also had negative social impact on the population withinthe project area. Apart from the well-paid settlers, there is now a category ofpoorly paid wage labourers, whose income equals only one-tenth to one-fifth ofthe income of the smallholders. This has led to envy among the labourers. Twovillage communities living near the Ophir project consider themselves the losersof the project. After they declined plots that were offered on the Ophir plantation,a considerable number of villagers were pushed back into marginal lands whenOphir did its new plantings. They now cultivate plots with an average of 0.5hectares.

In selecting suitable projects, DEGconcentrates on strengthening existingoil palm projects and using abandonedor idle agricultural land. Ecological sus-tainability is an important criterion forDEG financing, and its financing agree-ments include clauses that explicitlycommit the project participants to a ‘ze-ro-burning’ policy and to respectingother social and ecological guidelines.Before deciding whether to finance aproject or not, the DEG carries out en-vironmental assessments.

3.6 European finance and the In-donesian oil palm sector

Recent trendsThe expansion of the Indonesian oil

palm sector requires huge investments.Developing a new plantation often in-volves building a processing mill forcrude palm oil as well, and it takes anumber of years before the plantationstarts producing. On average, develop-ing a new plantation costs between$2,500 - 3,500 per hectare.87 Many bil-lions of dollars were invested in thissub-sector in Indonesia.

The fast expansion of the oil palmsector has been financed to a large ex-tent by foreign financial institutionsfrom Europe, North America and east-ern Asia. Since 1998, expansion of theIndonesian oil palm sector has sloweddown. As many oil palm groups haverun into financial trouble, funds arescarce for investing in the expansion ofexisting plantations and opening upnew ones. The slowdown in oil palmexpansion has hardly been visible inCPO production figures, as it takesthree years after planting before an oilpalm starts producing and another fiveyears before it reaches its full produc-tion capacity. The large number of oilpalms planted before 1998 can there-fore still result in strongly growing pro-duction figures in the coming fewyears.88

The oil palm sector is not very popu-lar at this moment with foreign banks,as the loans extended in the mid-1990shave not generated the expected returns.Many Indonesian oil palm companies

were not able to pay interest and repaytheir debts on time, and have entered in-to a painful debt restructuring process,which often forced foreign banks to ac-cept write-offs on their outstandingloans. At the same time, foreign bankswere faced with criticism by NGOs ontheir role in converting Indonesianforests into oil palm plantations. Allthese factors have greatly reduced theappetite of foreign banks to lend to In-donesian oil palm companies.

As a result, the amount of fresh for-eign financing has gone down. However,existing financing relationships havebeen extended by foreign financial insti-tutions (voluntarily or involuntarily),and in fact the influence which foreignfinancial institutions could exert on oilpalm companies has increased as a re-sult of the weak financial situation of theoil palm sector. This situation providesforeign financial institutions with excel-lent leverage opportunities to influencetheir clients’ social and environmentalpolicies and performance. Chapter 4presents an interesting case of success-ful campaigning by NGOs which set aunique precedent; several Dutch banksin 2001 decided to adopt a more respon-sible policy in their financial services tothe Indonesian oil palm sector.

Who is whoThe study by Van Gelder (2001)

identifies and analyses which financialinstitutions in the United Kingdom,Denmark, the Netherlands, Germany,Switzerland and Sweden are financingthe Indonesian oil palm and pulp andpaper sectors, and what level of influ-ence they have on specific companies inthese sectors.

Seventeen Indonesian oil palmgroups were identified which had ob-tained financial services from Europeanfinancial institutions in the past 10years. These groups include all majorprivate groups in this sector in Indone-sia. This proves that European banksdid not differentiate between privategroups as far as their records on forestfires and social or environmental con-flicts were concerned.

The study also identified a total of 61financial institutions in six countriesthat provided financial services to busi-ness groups in the Indonesian oil palmand pulp and paper sectors. These in-clude 24 British, four Danish and 13Dutch financial institutions, and 19 fi-nancial institutions in Germany, four inSweden and seven in Switzerland.

The following table shows that insti-tutions in the UK, Germany and theNetherlands occupy the most prominentpositions.

The first table in Appendix 3 pro-vides the names of the 17 businessgroups that have been identified, andthe total concession area each group hasaccess to. The table also lists the Euro-pean financial institutions which, ac-cording to Van Gelder’s assessment, atthis moment have a strong influence onone or more of the oil palm companiesin each business group.VI The secondtable in the Appendix gives more detailson the companies, their concession ar-eas and production, as far as known. Puttogether, European institutions havestrong influence on a total of aroundthree million hectares of oil palm plan-tations (and lesser, but still existing de-grees of influence on a much largerarea).

32 WWF

Country Number ofinstitutions

Number of Indonesian business groups to which financial

services are provided

United Kingdom 24 12

Denmark 4 1

Netherlands 13 12

Germany 19 13

Sweden 4 1

Switzerland 7 9

Total 61 17

Table 9: European financial institutions and Indonesian oil palm business groups

33WWF

Table 10 ranks ten financial institu-tions in four European countries whichcould be seen as most influential re-garding the Indonesian oil palm planta-tion sector. The key criterion for thisranking is the number of Indonesian oilpalm groups over which the financialinstitution can exert strong influence.

No correction is made for the relativesize of each of these business groups.Also, some other foreign financial insti-tutions in countries not covered in thisreport (notably France, the UnitedStates and Japan) as well as some In-donesian financial institutions could beequally or even more important.

Focus on German institutionsAppendix 4 lists the German finan-

cial institutions identified in VanGelder’s study that had stakes in oilpalm companies. Table 11 indicates thelevel of influence that banks have overtheir clients. The following four banksare seen as having strong influence:

Level of influence over Indonesian oil palm plantation groups

Financial institution Country

Strong Moderate Minimal

Rabobank Netherlands 5 2 3

Crédit Suisse Switzerland 3 2 0

DEG Germany 3 1 0

UBS Switzerland 3 0 1

HSBC United Kingdom 2 3 4

Deutsche Bank Germany 2 0 2

CDC United Kingdom 2 0 0

Bayerische Hypo -undVereinsbank

Germany 1 3 1

Commerzbank Germany 1 0 1

Aberdeen Asset Management United Kingdom 1 0 0

Table 10: Most important European financial institutions with regard to the Indonesian oil palm plantation sector

VI The following levels of a financial institution’s influence on an oil palm company have been distinguished, using three criteria (directness, currency and importance) (see Van Gelder, 2001):

Strong influenceThe financial institution has such a stro-ng financial relationship with the company that it can influence the company’s policies on its own.

Moderate influenceThe nature and extent of the financial relationship between the financial institution and the company is such that the financial institution can assert a certain influence on the company’spolicies, especially when the institution joins forces with other banks or stakeholders.

Minimal influenceThe financial relationship between the bank and the company theoretically gives the financial institution some influence on the company’s policies, but this influence is not of practical usebecause of the extent and nature of the financial relationship.

Finished influenceThe ability of the financial institution to influence the company’s policies no longer exists.

German financial institution Indonesian oil palm Company Relationship

Bayerische Hypo- und Vereinsbank SMART Trade financing

Commerzbank LonSum Loan 1996

Bakrie Sumatera Loan and shareholdingDeutsche Bank

LonSum Notes

Kalimantan Sanggar LoanDeutsche Investition- und Entwicklungs-Gesellschaft (DEG)

Tapian Nadenggan Loan

Table 11: German FI’s whose influence in the Indonesian Oil Palm Sector is assessed as strong (see Annex 4 for complete table)

34 WWF

4.1 Some initial success _ butmuch more is needed

Since 1998, when WWF Germany pub-lished its previous report on oil palm inIndonesia, little has changed in Ger-many itself but there have been someinteresting developments in other con-sumer countries.

The 1998 report and other publica-tions fuelled campaigns by WWF,Greenpeace and Friends of the Earth di-rected at the general public, retailersand the financiers behind plantation ex-pansion. Apart from increased generalawareness of the oil palm issue, thesecampaigns have generated ‘earlyadopters’ of more responsible trade andinvestment practices, both in the retail(Migros in Switzerland) and the finan-cial sector (ABN AMRO and Rabobankin the Netherlands) (see boxes).

Appendix 5 presents a series of rec-ommendations directed at financial in-stitutions and donor agencies, takenfrom Wakker (2001), that providesvaluable guidelines to these actors forbecoming serious about sustainable de-velopment.

At the government level, much workremains to be done. The Indonesiangovernment has done little but is com-ing under increasing pressure fromASEAN countries to stop forest fires. Inthe Netherlands, members of parlia-ment submitted questions to the govern-ment on the role of Dutch financiers inIndonesia’s oil palm expansion, butapart from a token reply this was notfollowed by any definite action. In Ger-many and elsewhere in the EU, govern-ments and politicians have not doneanything.

4. International action

A responsible supermarket: MIGROS

MIGROS, Switzerland’s largest supermarket chain, has become the first Euro-pean retailer to commit itself to buying palm oil exclusively from ecologicallysound sources. The company, which has annual sales of around $12 billion ayear, announced last January that it had set itself the goal of modifying the pro-duction of palm oil in such a way that it will no longer pose a threat to tropicalforests. The company, which uses 3,000 tonnes of palm oil a year, wants to en-sure its supplies do not come from plantations created from recently convertednatural forest. It has also set down criteria to ensure cultivation follows ecologi-cally sound principles, conserves resources, and supports social working condi-tions.

MIGROS will retain independent auditors to assess annually whether its sup-pliers are meeting the criteria and its products will carry a sticker confirming thatthey “protect tropical forests”. As a first step, MIGROS has begun to develop abrand of margarine with palm oil from a sustainable source in Ghana.

In conjunction with WWF Switzerland, MIGROS has drawn up a set of mini-mum environmental and social criteria for its palm oil products that can be sum-marised under four headings:1. Transparency and independent verification: identified suppliers (company

group) and identified plantations (estate level) and a secured chain of custody.Plantations agree on independent verification of compliance with the criteria.

2. Legal compliance: producer companies whose plantation management ad-heres to national and regional laws.

3. Environmental standards: plantation and processing plants minimise environ-mental impacts on soil, water, wildlife and natural forests.

4. Social standards: producer companies actively address social impacts andhave a policy that ensures that working and safety conditions are in line withnational laws and international agreements. The companies communicate andconsult with social stakeholders.The pioneer role of MIGROS received international recognition at the recent

World Summit on Sustainable Development in Johannesburg, when MIGROSwas honoured with the World Business Award.

Awakening banks

Three of the biggest banks in theNetherlands – ABN AMRO,Rabobank and Fortis – agreed inFebruary 2002 to stop or substantial-ly restrict financing for oil palm devel-opment in Indonesia on environmen-tal and social grounds. A fourth bank,ING, joined them later in the year.This is the result of a joint campaignby Sawit Watch, the Indonesian oilpalm advocacy network, Milieudefen-sie (Friends of the Earth NL) andGreenpeace Netherlands. Oil palmand pulp plant feeder companies areseen as among those responsible fordevastating forest fires and for defor-estation in general. Dutch bankshave financial ties to several majorplantation groups in Indonesia.

NGOs confronted the banks withthese issues and pressed them tolimit their investment in the oil palmsector to plantation companies whichadhered to the following basic re-quirements:• No destruction of tropical rainforest• No forest burning • Acting within the legal framework • Respecting the rights and wishes

of the local communities.

The NGOs campaigned and nego-tiated; in the end, four leading banksagreed to adopt sustainability criteriafor investments in the oil palm sector.In the case of ABN AMRO, thebank’s new policy goes even further;it will apply to all investments thatmight affect forests, including log-ging, pulp and paper, mining and oiland gas development. Additionally,ABN will not invest in plantation proj-ects where forests were cleared few-er than five years ago. Sawit Watch,campaigning against the large-scaleexpansion of oil palm plantations, iscalling for financing agencies all overthe world, including Indonesianbanks, to follow the steps taken bythe Dutch banks.

Source: Down to Earth 52, February 2002

4.2 WWF’s position and strategy

WWF in 2002 developed a series ofposition papers91 on key forest issues,including one on oil palm. It focuses onwhat WWF sees as the key elements ofsustainability within the oil palm indus-try.

WWF recognises that palm oil is abasic foodstuff with high consumer de-mand, and that the industry generatesforeign exchange earnings and employ-ment in tropical producer countries. Atthe same time, WWF is concernedabout the high environmental and socialcosts that oil palm plantations have im-posed in the form of indiscriminateforest clearing, uncontrolled burningwith related haze, and a disregard forthe rights and interests of local commu-nities. WWF therefore calls upon theindustry, regulators, financiers, buyersand other stakeholders to work collec-tively to make the oil palm industryecologically, socially and economicallysustainable.

WWF believes that key elements ofsustainability within this industry arethat:

• plantations do not replace foreststhat have high conservation value;

• any incentives that promote conver-sion of such forests should be eliminat-ed;

• sound environmental managementpractices are adopted (such as minimis-ing forest fires and human/wildlife con-flicts);

• customary rights of local communi-ties and indigenous peoples to own, useand manage their lands and natural re-sources are respected;

• the long-term social and economicwell-being of plantation workers andlocal communities is ensured;

• regulatory frameworks are respect-ed at a minimum, but higher standardsof performance which exceed local/na-tional laws should be sought;

• industry participants should maketheir policies and practices related toenvironmental and social performancepublicly transparent, and should involvelocal stakeholders in the developmentof standards and performance monitor-ing.

In addition, a key element in WWF’soil palm strategy is to target the ‘leversof change’, i.e. mobilise those key ac-tors that have influence on internationalmarkets and investment flows. These in-clude major European banks, interna-tional financial institutions (IMF, WorldBank), the European consumer market,European companies that process palmoil products and produce consumergoods, and institutions (EU, nationalgovernments) that determine develop-ment, trade and aid policies.

WWF’s Forest Conversion Initiative(currently focusing on palm oil andsoy), together with relevant WWF of-fices in producer and consumer coun-tries, is implementing a coordinated setof activities to achieve the commongoal: to secure that High ConservationValue Forests are no longer threatenedby the expansion of oil palm and soyplantations.

4.3 The donor community

The CGI and forests Indonesia’s multilateral and bilateral

creditor group, the Consultative Groupon Indonesia (CGI), meets annually toset levels of financial assistance. It ischaired by the World Bank and includesthe IMF, the Asian Development Bank,the European Commission and UNagencies as well as bilateral lenders likethe USA, Britain and Japan.

During the Suharto era, this grouplargely ignored human rights and theenvironment in its discussions but, post-Suharto it has started to broaden its de-mands to include progress on ‘gover-nance’ and forest management. Where-as before it was seen as political med-dling, ‘good governance’ is now at thetop of the donor agenda. This change ofperspective has had a knock-on effecton the forest policy debate. The newemphasis on law enforcement, anti-cor-ruption measures and stakeholder par-ticipation reflects this change.

The CGI in 2000 held its first meet-ing specifically on forestry issues andcame up with eight action points for theIndonesian government to implement.Illegal logging has been the main focusof concern within the internationallending community since then.

NGOs in Indonesia and overseashave been highly critical of the CGIagencies for failing to take a share ofthe responsibility for Indonesia’s eco-nomic crisis. They have consistentlycalled for debt reduction and cancella-tion of corrupt debt amassed during theSuharto era. In November 2001, at ameeting in Jakarta, Indonesian NGOs inthe Coalition for Forests and Debtcalled on the CGI to stop financing de-forestation in Indonesia. The NGOs’ de-mands presented to the CGI includedcalling for a moratorium on large-scalecommercial logging in natural forestsand for a stop to the involvement of In-donesian security forces in forest ex-ploitation92.

35WWF

WWF’s approach to forest conser-vation

WWF is working to provide solu-tions to the threats facing theworld’s forests which could poten-tially undermine forest conservation.

WWF acts through a combinationof field and policy work involvingmore than 300 projects in almost 70countries. WWF projects integrateconservation with social and eco-nomic elements; these projects alsoexamine national or internationalpolicies that affect life on the ground.

In order to halt, and eventually re-verse, the loss of forest landscapesworld-wide, WWF is promoting theprotection, management and res-toration of forests as the means toachieve a lasting and sustainable di-versity of forest types on all of theworld’s continents.

Of particular concern to WWF areillegal logging and forest crime, con-version of forests to plantation cropsof palm oil and soy, forest fires andclimate change.

IMFDuring the East Asian financial cri-

sis, the IMF stepped in with a bail-outpackage of $43 billion dollars in Octo-ber 1997, followed by a ‘rescue pack-age for the rescue’ in February 1998. Astructural adjustment programme andits conditionalities also had importanteffects on natural resource use. Indone-sia’s creditors, led by the IMF, have seta course for economic recovery whichrequires Indonesia to sell off state assetsand generate revenues by exploitingnatural resources. The costs in terms oflost forests and biodiversity, and de-graded environmental functions, havenot been taken into account. Forestrypolicy reform was included in the con-ditionalities of the IMF and World Bankloans. In 1998, the IMF insisted on theremoval of “export quotas and punitivetaxes” on Indonesian palm oil exportsas a condition of its economic ‘rescuepackage’. This measure furtherstrengthened the economic incentive toexpand the production of palm oil andthe area of plantations.

36 WWF

5.1 Recommendations togovernments

General recommendation to govern-ments of consumer and producercountries

All concerned governments shouldactively facilitate the process to makethe oil palm industry sustainable, andcreate the necessary incentives and reg-ulatory framework to influence the pri-vate sector. They should support NGOsas key watchdogs to monitor what hap-pens on the ground, and also helpNGOs assist companies that are readyto work towards true sustainability.Governments should also promote min-imum standards for transparency in theproduction and trade chain.

Specific recommendations to the In-donesian government

This update to the 1998 report doesnot provide much reason for optimismabout the state of Indonesia’s forestsand the role of oil palm plantations.Discrepancies remain large betweenforest land-use planning and policies,and the actual situation on the ground.

The Indonesian government is in theunique position to change things for thebetter and take specific action to pre-serve and develop one of the country’smost important natural resources for fu-ture generations. Therefore the follow-ing examples of measures and reformsneeded in Indonesia to place the coun-try’s oil palm sector on a more sustain-able footing are recommended to theIndonesian government for considera-tion. They include:

• socially and environmentally soundland-use planning, involving the localpopulation, local governments and civilsociety groups. The aim should be to re-store a sound balance between allocat-ing forest land to forest, small-scaleagriculture and agroforestry, plantationsand settlements. This process also re-quires capacity-building among localcommunity organisations and authori-ties.

• a moratorium on new concessionsfor oil palm on forest lands until a na-tional inventory of the permanent forestestate is completed. Exceptions to this

moratorium could be areas that havebeen severely degraded in the past, byfires or otherwise, that do not show anypotential of high conservation value, beit social, ecological or otherwise.

• elimination of perverse incentivesthat promote the expansion of oil palmplantations at the cost of natural forest(see section 2.6 for examples).

• legal protection as permanent forestestate to all remaining forested areas inIndonesia.

• strengthened rules and penaltiesagainst clearing plantations with fire aswell as the institutional capacity to en-force them.

• legal protection of forest ownershipand use by local communities depend-ent on the forest ecosystem, implemen-tation of land reforms and assistance tolocal communities in sustainable forestmanagement.

• effective mechanisms for the inde-pendent monitoring and early warningof trends and threats to forest lands re-lated to the oil palm industry. This in-cludes early warning systems in thefield and greater transparency through-out the trade chain.

• standards of best practice (bench-marking) for oil palm plantation estab-lishment and management, as well aspalm oil production.

At the level of individual plantations,the recommendations made to planta-tion owners in the previous WWF re-port are still valid:

- within plantations, conserve forestareas that have a particular value forwatershed protection, biodiversity, fau-nal migration, and erosion protection;keep NTFP reserves for local use.

- restore forest that has an environ-mental function back to certain parts ofexploited plantations (see previouspoint).

- enforce zero-burning land clearingand waste removal methods.

- develop and introduce integratedpest management techniques in oilpalm plantations.

- introduce nutrient recycling tech-niques (mulching).

5.2 Recommendations to theprivate sector

Plantation companies in the oil palmsector should adhere to the followingbasic guidelines:

• do not convert High ConservationValue Forests.

• do not initiate uncontrolled forestburning.

• act in accordance with internationalbest practices in countries with poorgovernance or ambiguous regulatorysystems.

• respect the land and resource userights of local communities.

Financial institutions and privatebanks should:

• screen investments in the oil palmsector and other forest-related activitiesagainst measures of social and environ-mental responsibility.

• adopt these same basic guidelinesin financial service policies.

• transparently and openly cooperatewith an independent verificationprocess that measures how well theseguidelines have been applied.

If companies from consumer coun-tries want to have a share of the benefitsin the oil palm trade (or any other sec-tor), they should develop clear and veri-fiable investment and purchasing poli-cies based on sustainable criteria. Theyshould discuss these with local stake-holders and rigorously implement thepolicies. They could also fund activitiesrelated to forest conservation.

Companies operating in the producercountries should also develop and im-plement sustainability policies and en-gage local stakeholders in the process.

Furthermore, all companies in thetrade chain should be fully transparentregarding the origin of their raw palmoil materials. Transparency is a keycondition for gaining credibility on sus-tainability claims made by commercialcompanies and their financial serviceproviders. Transparency is thus a pre-condition for any ‘license to operate’.

37WWF

5. WWF’s recommendations

NGOsThrough research, advocacy, cam-

paigning and creative support work,NGOs play a key role in catalysing ac-tion taken by the private sector, govern-ments and consumers. But their roleneeds to move beyond simply callingfor boycotts, to working with the pri-vate sector and governments to come upwith workable solutions. This impliesdeveloping specific recommendationsfor relevant industries which set higherstandards of environmental perform-ance, and which are adapted to local as-pirations for development.

ConsumersConsumers should be informed

about the story behind the product theyare consuming. It should be made clearthat they can make a real difference bypressuring others into action, by re-questing proof of transparency from re-tailers and processing companies intheir sourcing and purchasing policies.They can help to build on positive ex-amples such as the Swiss Migros andthe Dutch banks to set benchmarks andpersuade mainstream industry to raiseits standards.

38 WWF

39WWF

Anderson et al. 1999. Vegetation fires in Indonesia: the firehistory of the Sumatra provinces 1996-1998 as a predictorof future areas at risk. From: Summary of Report 1998 –2001. Forest Fire Prevention and Control Project (FF-PCP). EU / Government of Indonesia.

Anderson et al. 2000. Vegetation fires in Sumatra, Indonesia:Reflections on the 1999 fires. From: Summary of Report1998 – 2001. Forest Fire Prevention and Control Project(FFPCP). EU / Government of Indonesia.

Anderson & Bowen 2000. Fire zones and the threat to thewetlands of Sumatra, Indonesia. From: Summary of Re-port 1998 – 2001. Forest Fire Prevention and Control Pro-ject (FFPCP). EU / Government of Indonesia.

Barber & Schweithelm 2000. Trial by fire. Forest fires andforestry policy in Indonesia’s era of crisis and reform.From Word Resources Institute, forest frontiers initiativein collaboration with WWF Indonesia & Telapak Indone-sia Foundation.

Bompard & Guizol 1999. Land management in SouthSumatra province Indonesia. Fanning the Flames: The in-stitu-tional causes of vegetation fires. From: Summary ofReport 1998 – 2001. Forest Fire Prevention and ControlProject (FFPCP). EU / Government of Indonesia.

Bowen et al. 1999. Anthropogenic fires in Indonesia: a viewfrom Sumatra. From: Summary of Report 1998 – 2001.Forest Fire Prevention and Control Project (FFPCP). EU /Government of Indonesia.

Casson, A. 2000. The Hesitant Boom: Indonesia’s oil palmsub-sector in an era of economic crisis and politicalchange, CIFOR Occasional Paper No. 29, Centre for In-ternational Forestry Research, Jakarta.

Down to Earth 2002. Forests, People and Rights, Down toEarth Special Report.

Fairhurst & Mutert 1999. Introduction to Oil Palm Produc-tion. From Better Crops International, Vol.13, issue 1.

FWI / GFW 2002. The State of the Forest: Indonesia. Bogor,Indonesia: Forest Watch Indonesia, and Washington DC:Global Forest Watch.

Glover, D. and T. Jessup 1999. Indonesia’s Fires and Haze.The Cost of Catastrophe. ISEAS./IDRC

Gouyon, A. 1999. The sustainable development of tree cropsand the prevention of vegetation fires in South Sumatraprovince, Indonesia. Jungle Rubber. From: Summary ofReport 1998 – 2001. Forest Fire Prevention and ControlProject (FFPCP). EU / Government of Indonesia.

Lair, R. 1997. Gone Astray. The Care and Management of theAsian Elephant in Domesticity. FAO Regional Office ofAsia and the Pacific. Bangkok.

Mielke S. 1998. The Outstanding Role of Indonesia in thePhenomenal Development of the World Oil Palm Industryin the Past and the Future. International Oil Palm Confer-ence. Commodity of the Past, Today, and the Future. Bali,September 23-25, 1998.

Oil World Annual 1998. ISTA Mielke GmbH. Hamburg.

Oil World Annual 2001. ISTA Mielke GmbH. Hamburg.

Oil World Annual 2002. ISTA Mielke GmbH. Hamburg.

Pamin, K. 1998. A Hundred and Fifty Years of Oil Palm De-velopment in Indonesia: From the Bogor Botanical Gar-den to the Industry. International Oil Palm Conference.Commodity of the Past, Today and the Future. September23-25, 1998. IOPRI/GAPKI.

Potter L.M. and Lee J.L. 1998. Oil Palm in Indonesia: ItsRole in Forest Conversion and the Fires of 1997/98, un-published consultancy report prepared for WWF Indone-sia, Jakarta.

Rijksen H.D. & Meijaard E. 1999. Our vanishing relative.The status of orang-utans at the close of the twentieth cen-tury. Tropenbos publication. Kluwer Ac. Publ.

Sargeant, H.J. 2001. Vegetation fires in Sumatra, Indonesia.Oil Palm agriculture in the wetlands of Sumatra: De-struc-tion or development? From: Summary of Report 1998 –2001. Forest Fire Prevention and Control Project (FF-PCP). EU / Government of Indonesia.

Toyne, P. O’Brien, C. & Nelson, L. 2002. The timber foot-print of the G8 and China. Making the case for green pro-curement by government. WWF International.

Van Gelder, J.W. 2001. European banks and palm oil andpulp and paper in Indonesia. A research paper by Profun-do for WWF International.

Van Gelder, J.W. 2002. Draft report on Australian economiclinks with the oil palm sector of Papua New Guinea.

Wakker, E. 1998. Introducing Zero-burning Techniques inIndonesia’s Oil Palm Plantations. Report Prepared forWWF Indonesia. AIDEnvironment. Amsterdam.

Wakker, E. 2000. Funding Forest Destruction. The Involve-ment of Dutch Banks in the Financing of Oil Palm Planta-tions in Indonesia. Report by AIDEnvironment – Telepak– Contrast Advies, for Greenpeace Netherlands.

Literature

40 WWF

Wakker, E. 2001. PT Matrasawit. Relations betweenRabobank, ING and ABN-AMRO, and forest destructionand poverty in East Kalimantan, Indonesia. Report byAIDEnvironment – LBB Puti Jaji, for Friends of the EarthNetherlands.

WWF, 2002a. Position Paper on Forest Conversion.

WWF, 2002b. Position Paper on Forest Fires.

WWF, 2002c. Position Paper on High Conservation ValueForests.

WWF, 2002d. Position Paper on Oil Palm.

WWF, 2002e. WWF’s Approach to Forest Conservation.

WWF Germany, 1998. Brandrodung für Margarine. Wald-brände in Indonesien und Palmölprodukte in Deutschland:Zusammenhänge, Ursachen und Konsequenzen. WWFDeutschland und WWF Indonesien.

Yeager, C. [ed.] 1999. Orangutan Action Plan. WWF, PHPA,CERC.

41WWF

1 High Conservation Value Forests (HCVF) are defined bythe Forest Stewardship Council (FSC) as “forests of out-standing and critical importance due to their high environ-mental, socio-economic, biodiversity or landscape val-ues”. WWF is extending the HCVF concept to comprisethe crucial forest areas and values that need to be main-tained or enhanced in a landscape, using it as a tool inmore general conservation planning including the designof representative networks of protected areas and bufferzones.

2 see Down to Earth’s Update on forestry onhttp://dte.gn.apc.org/cfprs.htm.

3 FWI/GFW, 2002.4 Three die as haze cloaks Kalimantan, The Star, 5 Septem-

ber 2002.5 Various Jakarta Post reports. Also: WWF-Indonesia,

pers.comm.6 see Fire Bulletin no.8, via WWF Indonesia’s web site

(www.wwf.or.id)7 See e.g. Straits Times of 8 Nov. 2002 (referring to data

from the Singapore Center for Remote Imaging, Sensingand Processing, CRISP)

8 BMG predicts prolonged dry season, Jakarta Post, 6 Sep-tember 2002.

9 BMG predicts prolonged dry season, Jakarta Post, 6 Sep-tember 2002.

10 Straits Times of 8 Nov. 200211 CIFOR press statement by Luca Tacconi on Sep.1312 The Jakarta Post, 24 August 2002.13 Anderson et al., (FFPCP), 199914 FWI/GFW, 2002.15 Glover, D. and T. Jessup, 1999.16 ADB in: Dennis, R. 1999. A Review of Fire Projects in In-

donesia (1982-1998). CIFOR.17 Waluko, J. Smoking Gun. Inside Indonesia. No. 53 Janu-

ary-March 1998. Note: investments per hectare tend tovary significantly and may be as high as Rp 8 million perhectare.

18 Representatives from the Agro Indomas company claimthat mechanical clearing of forests is 2.3 times more ex-pen-sive than non-mechanical clearing with burning.However, according to the Fire Prevention Control Project(FFPCP), there is no compelling reason to use fire to clearland for new plantations. The cost of establishing an estatefrom the first step of government approval through to fullproduction is identical whether the land is cleared bypurely mechani-cal means with no burning, or is firstcleared mechanically, and the debris then burned. Severalleading companies al-ready recognise this and favour a ze-ro-burn land clearance policy, although such a policy doesnot always translate into a ‘no-burn’ practice (Sargeant,FFPCP, 2001).

19 Wakker, 200020 Simorangkir and Gouyon (www.pffsea.com)21 Anderson et al., (FFPCP), 1999

22 Bompard & Guizol (FFPCP), 1999; Sargeant, (FFPCP),2001

23 Anderson et al., (FFPCP), 199924 IUCN Red List of Threatened Species at www.redlist.org,

viewed 23rd October 200225 36,000 is an authoritative estimate by Rijksen & Mei-

jaard (1999). WWF’s species web site now estimates thetotal at less than 25,000(http://www.panda.org/species/orang/population.cfm).

26 Orangutan Numbers Plummeting World-wide: Speciesmay Vanish in the Next Ten Years, Study Says. WildlifeConservation Society. February 26, 2001; Our VanishingRelative. The Status of Wild Orang-Utans at the Close ofthe Twentieth Century. Rijksen, H.D. and E. Meijaard1999.

27 Tree Cutting Angers Elephants. Jakarta Post 5 April 199728 Wild Elephants Caught and Tamed. Jakarta Post, 29 July

1998.29 WWF Riau, 2001.30 Source: Antara, September 16, 2002. The survey on en-

counters between human beings and wild elephants insideand around the national park was conducted by a local en-vironmental agency (Watala) and the Wildlife Conserva-tion Soci-ety-Indonesia.

31 The worst affected areas were central and southern Suma-tra and Kalimantan; there were few reports from otherparts of Indonesia.

32 Anderson et al., (FFPCP), 200033 Jakarta Post, 31 August 2002; Down to Earth 553-54, Au-

gust 2002. This case and another are the subject of casestudies being prepared by PFFSEA to determine the ele-ments and aspects that were critical in a successful and anun-successful prosecution.

34 Potter & Lee, 1999.35 A review of the effectiveness of aircraft in fire suppression

is being conducted by PFFSEA – preliminary analysis in-dicates this approach is ineffective and inappropriate (Pe-ter Moore, PFFSEA, pers.comm.).

36 Gouyon, (FFPCP), 199937 Special Report from Down to Earth on “Forests, People

and Rights”, from June 2002.38 Bowen et al., (FFPCP), 199939 See www.pffsea.com. The four new reports are:

“Review of Legal, Regulatory and Institutional Aspectsof Forest and Land Fires in Indonesia”“Review and Analysis of Legal and Regulatory Aspectsof Forest Fires in South East Asia”“The Economics of Fire Use in Agriculture andForestry – A Preliminary Review for Indonesia”.This isa compre-hensive economic analysis of the fire problem.In a first part this report examines the state of knowledgeabout fires and their associated costs and benefits. Thesecond part analyses the costs of being a responsible fireuser; if and under what circumstances zero burning is anoption for large-scale commercial plantations and small-scale farmers. The last part analyses the costs of being ir-

42 WWF

responsible: Who pays the bill? The economic impact offires.”Community Involvement in and Management ofForest Fires in South East Asia”

40 Special Report from Down to Earth , from June 2002.41 Most of this section is based on a Special Report from

Down to Earth , from June 2002, on forest reforms in thepost-Suharto era, and on Casson’s report published byCIFOR in 2000.

42 Toyne c.s., 2002.43 SeeWWF Germany, 1998.44 See www.hazeprevention.com45 Oil World 2020, 1999. ISTA Mielke GmbH.46 Carrere, 2001.47 Sargeant, (FFPCP), 200148 Casson, 2000.49 Sargeant, (FFPCP), 200150 WWF Indonesia, pers.comm.51 FWI/GFW, 2002 (p.43), based on Ministry of Forestry

statistics.52 Casson, 2000.53 Wakker, 2000.54 FWI/GFW, 2002.55 Forests, People and Rights, Down to Earth Special Report:

June 200256 Oil World Annual 2002.57 Wakker, 2000 and Wakker, pers.comm.58 Barber & Schweithelm, 2000.59 FWI/GFW, 2002.60 down from 33 million in 1981, the decrease mostly as a

result of actually concluded conversion. The recent in-crease is based on unpublished Ministry of Forestry data.Source for this section: FWI/GFW, 2002.

61 WWF Germany report, 1998.62 FWI/GFW, 2002.63 Casson, 2000.64 Most of this section is based on Casson (2000) and the

Down to Earth Special Report from June 2002.65 Casson, 2000.66 See Wakker, E. 1998.67 Pamin, K. A Hundred and Fifty Years of Oil Palm Devel-

opment in Indonesia: From the Bogor Botanical Garden tothe Industry. IOPRI. 1998 International Oil Palm Confer-ence. September 23-25, 1998.

68 Oil World Annual 2002 (p.15)69 Oil Palm – Fact File in Better Crops International, 1999.70 See for details on oil palm uses e.g.: Pocketbook of Palm

Oil Uses. Palm Oil Research Institute of Malaysia. Minis-try of Primary Industries. March 1997.

71 Fairhurst & Mutert, 199972 Fairhurst & Mutert, 1999.73 Oil World Annual 200174 Oil World Annual 200275 Oil World Annual 200276 Oil World Annual 200277 Oil World Annual 200278 Oil World Annual 2002

79 Mielke 1998.80 This is because export statistics from Indonesia include re-

exports to third countries; we therefore believe that importstatistics are more realistic.

81 however, PKO export statistics for Indonesia and the im-port statistics of the importing countries show enormousdifferences.

82 Compare Oil World Annual 2002. Butter fat does not ex-clusively contain palm oil.

83 Verband Deutscher Oelmühlen, 200284 VDOE, pers.comm.85 The ECOPOP research project comprised a number of

German universities, private companies and WWF Ger-many as partners. After two years of intensive (and costly)preparations the whole project was rejected by the Ger-man Federal Ministry for Research and Education(BMBF) as the main donor, allegedly because “the differ-ent research sub-projects were not enough harmonized”.

86 GTZ und KfW, 200087 Potter and Lee, 1998.88 Casson, 2000.89 PT SMART Annual Report 1998; Sinar Mas Libatkan

75,000 KK Penduduk Kaltim Untuk Kembangan Sawit.Suara Pembaruan. February 12, 1999.

90 PT SMART Annual Report 1999.

91 WWF, 2002a; WWF 2002b; WWF, 2002c; WWF, 2002d;WWF, 2002e. See http://www.panda.org/news_facts/factsheets/forests

92 Forests, People and Rights, Down to Earth Special Report:June 2002.

43WWF

Source: Kessler, Wakker, Richert and Dros (november 2001).RETRAC – Resource Trade Cycle analysis. Application toTropical Forest Conversion. AIDEnvironment Amsterdam.

Defining forest conversionForests are defined by FAO as “ecosystems with a mini-

mum of 10% crown cover and not subject to agriculturalpractices”. Deforestation according to FAO involves “thecomplete clearance of tree formations (closed or open) andtheir replacement by non-forest land uses”. ‘Forest conver-sion’ is defined as the transition from closed forest to agro-in-dustrial plantations (tree plantations, also including oil palm,rubber, coconut etc.).

This definition does not capture the intermediate phases ofthe forest conversion process, from logging, clearing, plant-ing to early establishment and maturation of a non-forestplantation.

Yet, a definition of deforestation needs to reflect the morecomplex and dynamic reality. In most available literature ondeforestation the term forest conversion generally refers tothe gradual transition from forest to man-made forest (planta-tions) or non-forest land-use. The final stage is generallycharacterised by:

AIDEnvironment defines forest conversion as a continuousprocess of declining forest functions, with intermediate

stages of forest degradation, forest fragmentation and defor-estation. The forest conversion process thus captures therange of extractive and forest clearing activities that ultimate-ly leads to a landscape dominated by man-made monocul-tures, and is characterised by the loss of key forest functionsand socio-economic benefits for local people.

Critical aspects of the process of forest conversion are: thetransition of natural forests to man-made monoculturesthrough progressive frontiers, the scale involved and the rapidspeed, the connections with global commodity markets andthe loss of forest functions (often of an irreversible charac-ter). In line with this definition, plantations of perennial cropssuch as oil palm and agricultural monocultures, e.g. of soy-beans, meet these criteria of forest conversion.

Forest conversion as a continuous process of forestdegradation

Forest conversion can be considered as a continuousprocess of forest degradation characterised by four differentstages. The four figures below show these stages and the dy-namics.

The four stages of the forest conversion process leading todeforestation

Appendix 1 – The forest conversion process

44 WWF

45WWF

Primary (natural) forest. This stage is characterised byclosed canopy cover, little human influence, possibly low in-tensity / extensive use by indigenous communities, e.g. ex-ploitation of non-timber forest products. There are no signifi-cant changes in forest functions and forest regeneration ca-pacity is optimal. Concessions for selective logging may beallocated but are not yet operational.

Logged (natural) forest. Road construction is often the firstindustrial activity in the primary forest, followed by selectivelogging with variable intensity, depending upon the presenceof commercial tree species and accessibility of the terrain.This stage provides the bulk of timber production in the trop-ics, much of which is export oriented. Net capital flows areoutward oriented. After logging, a partially degraded loggedover or residual forest remains. Natural restoration processesare still largely intact, although the regenerating capacity ofvaluable timber species might be endangered. Secondaryforests provide little commercial timber, but still providemany forest products, have a high biodiversity and sequesterlarge amounts of carbon. Hunter-gatherer communities tendto move deeper into the primary forest while some communi-ty members may be hired by logging companies. Commercialhunting pressure tends to increase significantly. Along log-ging roads total forest clearance, soil erosion and the firstsigns of shifting cultivation may be observed.

Degraded forest. This stage is a second wave of forestdegradation as a result of (unsustainable) logging. A rapid in-flux of migrant settlers (e.g. unemployed logging crews) may

occur, using the infrastructure left behind. The logging com-panies move deeper into the primary forest but sawmills oftenalso obtain logs produced in the conversion area, often for lo-cal markets. Investments in sustaining the forest resource areminimal. Governmental interference is absent. Conversionforests have been cleared and burned for small-scale subsis-tence agriculture. Commercial agriculture is increasingly in-troduced, possibly after legal reclassification of logging con-cession areas to other land use categories. In this stage, log-ging is highly unsustainable and often considered illegal.Wildfires are more widespread and contribute to further forestdegradation. In this stage, relatively stable semi-traditionalsubsistence agricultural and mixed agropastoral systems withvarious degrees of integration of trees and forest functionsmay consolidate for a longer period of time. Natural restora-tion processes are still intact to some extent. In this stage thearea does not generate substantial export revenue.

Converted forest or non-forest stage. In the final stage, thelast remaining forests are completely cleared/deforested. Sig-nificant loss of biodiversity occurs and most natural forestfunctions are affected temporarily (during conversion) or per-manently (e.g. biodiversity). The landscape transforms frompatchy 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 con-verted to soybean). Landless workers are thus pushed into theconversion forest or to urban areas. Like in stage 2, the area

generates substantial export revenue. Major capital and man-agement inputs are required to develop and maintain the pro-ductivity of the large-scale monocultures, though land use islabour extensive compared to the former stage. Naturalrestoration processes have been largely destroyed; shiftingback to (natural) forests requires major investments.

Frequent travellers in the tropics may recognise the geo-graphic pattern of these four stages from the air while flyingfrom an urban centre to a forest rich region. There are severalfrontiers characterising the transitions from one stage to an-other: the logging frontier (from stage 1 to 2), a colonisingfrontier with mixed activities (stage 2 to 3) and an industrialagricultural frontier (from stage 3 to 4).

Of course the forest conversion process does not alwaysfollow this pattern of all four stages. For example the agro-in-dustry drives the forest conversion process in at least threepossible ways:

- By clearing natural primary forests (stage 1) directly,thereby possibly also benefiting from the valuable timber, andthereby skipping the intermediate stages;

- By occupying logged land and land previously allocatedto permanent forestry (stage 2), thus forcing timber exploita-tion to penetrate deeper into the primary forest. This is themost common form of expansion for the oil palm sub-sectorin Southeast Asia.

- By occupying land used for small-scale agriculture andranching (stage 3), thus forcing farmers and ranchers to clearsecondary or primary forest. This is probably the most com-mon form of expansion for the soybean expansion in Brazil.

No matter which of these transitions is most important,due to the interrelations between the different stages and thecumulative effect of various pressures on scarce (forest) land,land occupied for agro-industrial purposes directly or indi-rectly pushes the forest frontier zones further into the primaryforest.

It is important to recognise the profitability of agro-indus-trial monocultures as a key driving force behind the forestconversion process. The role of international industry is oftenunderestimated, while the logging and colonisation frontiersand their interaction are generally recognised.

ConclusionsThe AIDEnvironment model of the forest conversion

process leads to three main insights:(1) The land-use dynamics including forests are complex.

Thus, the ‘success’ of one policy measure depends upon arange of other contextual and policy factors.

(2) Forest conversion is often the result of a chain of deci-sions made at different spatial levels. Solution strategiesshould therefore engage actors at multiple-levels (from localto international).

(3) Apart from the forestry sector, actors and factors out-side the forestry sector are very important players in the dy-namics of forest conversion. A multi-sectoral approach is anindispensable condition for success.

46 WWF

47WWF

Appendix 2 – Summary of the company survey in Germany

Company name Observation

Oleo Chemicals (formerly AKZO Nobel)Imports finished palm kernel fatty acids from Malaysia; joint venture with a Malaysian company

Walter Rau Neusser Öl und Fett AGUses palm oil, does not want to inform on volumes; claims that no Indonesian palm oil is used

Nestlé Deutschland See Text

Unilever GmbH see Text, wants to respond in more detail later

Lever Faberge GmbH Owned by Unilever, for response referred to Unilever

Vand e Moortele (formerly Meylip) in Germany only sells products, not involved in production

Cognis See Text

Colgate Palmolive GmbH in Germany only sells products, not involved in production

Henkel KG a.A. Only uses processed product

Johnson & Johnson No significant production in Germany

Beiersdorf GmbH Does not buy palm oil, only processed product

Vortella Lebensmittelwerke Refers to German Margarine association for response

Münsterländische Margarinewerke Refers to German Margarine association for respo nse

Westfälisches Margarinewerk Refers to German Margarine association for response

Homann Feinkost GmbH & Co KG Does not use palm oil

Noblee & Thörl Has promised to respond

Meistermarken-WerkeRefers to common response by VDOE association; promised additional individual response

Deutsche Cargill GmbHRefers to common response by VDOE association; promised additional individual response

C. Thywissen GmbH Ölfabrik Refers to common response by VDOE

Procter & Gamble GmbH Will provide general response from USA head office

Agrarfrost GmbH & Co Has promised response

Intersnack Vertriebs GmbH Has promised response

L’Oréal French head office said to respond

Avon Cosmetics No response

Dresdener Margarinewerke No response

Fauser VITAQUELLWERK KG No response

Heinrich Hamker Lebensmittelwerke GmbH No response

Pflanzenfett Velten GmbH No response

Dommitzscher Pflanzenfett GmbH No response

Otto Aldag GmbH & Co No response

Jb. Schmidt Söhne GmbH & Co KG No response

Gebr. Smilde GmbH Im- und Export No response

48 WWF

Notes:1) The total figure for the concession areas includes a considerable amount of double counting, as many plantations are owned

by more than one plantation group.2) In some company cases no FI has been mentioned. They do have European financial stakeholders, but their influence in the

company has not been assessed as ‘strong’, but as ‘moderate’ or ‘minimal’.

Appendix 3 – European financial institutions with links toIndonesian oil palm companies

Group Concession area (ha)

Financial institution Country

Anglo-Eastern United Kingdom

Astra

Netherlands

Germany

Bakrie

Switzerland

Barito Pacific

United KingdomCarson Cumberbatch

Netherlands

CDC United Kingdom

Incasi Raya & Metro

Johor

Kumpulan Guthrie

United Kingdom

Netherlands

Germany

Germany

Switzerland

LonSum, Napan & Risjadson

Switzerland

Lyman Germany

Oriental Netherlands

Germany

Netherlands

Raja Garuda Mas

Switzerland

Rowe Evans United Kingdom

SwitzerlandSalim

Switzerland

Netherlands

- und Vereinsbank Germany

Sinar Mas

HSBC

Rabobank

Deutsche Bank

Crédit Suisse

CDC

Rabobank

CDC

HSBC

Rabobank

Commerzbank

Deutsche Bank

UBS

Crédit Suisse

DEG

Rabobank

DEG

Rabobank

UBS

Aberdeen Asset Management

Crédit Suisse

UBS

FMO

Bayerische Hypo

DEG Germany

Sipef

Total

35,087

298,621

100,000

29,000

17,500

69,900

134,304

18,563

325,000

355,424

193,750

22,000

453,000

33,491

227,207

591,000

53,000

2,956,847

European financial institutions with strong influence on Indonesian palm oil business groups(Source: Van Gelder, 2001)

49WWF

Note: Total figures include a considerable amount of double counting, as many plantations are owned by more than one plantation group.

Group Concession area (ha)

Planted area (ha) Annual CPO production (tons)

Anglo -Eastern 17,754

Astra 185,608

Bakrie 19,425

Barito Pacific ?

Carson Cumberbatch 13,800

CDC ?

Incasi Raya & Metro ?

Johor ?

Kumpulan Guthrie ?

LonSum, Napan & Risjadson 85,506

Lyman ?

Oriental ?

Raja Garuda Mas 130,000

Rowe Evans 23,583

Salim ?

Sinar Mas 272,800

Sipef 29,241

Total

35,087

298,621

100,000

29,000

17,500

69,900

134,304

18,563

325,000

355,424

193,750

22,000

453,000

33,491

227,207

591,000

53,000

2,956,847 777,717

52,300

435,189

55,401

?

?

?

?

0

400,000

?

?

?

600,000

?

800,000

850,000

122,764

3,315,654

Indonesian Palm Oil Groups with European financial links (Source: Van Gelder, 2001)

50 WWF

German FI Indonesian Oil Palm Co. Relationship Influence Assessment

Bakrie & Brothers Shareholding Minimal

Bakrie Sumatera Shareholding Moderate

LonSum Loan 1996 Moderate

PLSP Loans 1996 Finished

SMART Trade financing Strong

Bayerische Hypo - und Vereinsbank

Golden Agri -Resources Principal banker Moderate

Bakrie Sumatera Loan Moderate

Kulim (Malaysia) Loan Finished

Bayerische Landes bank Girozentrale

Gunung Maras Loan Moderate

Sumalindo Lestari Loan Minimal

Kulim (Malaysia) Loan Finished

LonSum & PLSP Loans 1994 Finished

LonSum Loan 1996 Strong

PLSP Loans 1996 Finished

LonSum Shareholding Moderate

Commerzbank

SMART Loan Finished

Anglo-Eastern Banking Minimal

Bakrie & Brothers Loans Finished

Bakrie & Brothers Shareholding Minimal

Bakrie Sumatera Loan Finished

Bakrie Sumatera Loan & shareholding Strong

Deutsche Bank

LonSum Notes Strong

Kalimantan Sanggar Loan Strong

Agro Muko Loan Moderate

Deutsche Investition - und Entwicklungs Gesellschaft (DEG)

Tapian Nadenggan Loan Strong

Sumalindo Lestari Loan Minimal

Bakrie & Brothers Shareholding Minimal

Bakrie Sumatera Shareholding Moderate

Incasi Raya Loan Finished

Kulim (Malyasia) Loan Finished

Dresdner Bank

Nawa Panduta Loan Finished

Sumalindo Lestari Loan Moderate

Bakrie & Brothers Shareholding Minimal

Westdeutsche Landesbank Girozentrale (WestLB)

Bakrie Sumatera Shareholding Moderate

Appendix 4

Influence assessment of German FIs in the Indonesian Oil Palm Sector (Source: Van Gelder, 2001)

FOREST FIRES

Financiers may insist that their clients:> Adhere to strict implementation of well-planned and eco-

logically appropriate land clearing techniques.> Develop programmes for the conservation and restoration

of ecologically valuable forests (these can also includeburned forest!) and forests that are important to local peo-ple inside and near plantation areas.

DEFORESTATION

Plantation companies and their financiers can at least partial-ly make up for deforestation in the past and, especially, avoiddeforestation in the future considering that a substantial areaof land not under forest cover is available in Indonesia. Fi-nanciers can insist that their clients:> Provide independently verified evidence that no natural

forests are converted for plantation development by any ofthe subsidiaries within a company group.

> Develop forest retention and forest restoration pro-grammes in their concession areas. Financial incentivescan help to compensate for the opportunity cost of forestretention, crop damage by wildlife and the cost of integrat-ed pest control.

> Avoid hasty (mechanical) land clearing to minimise soilerosion.

ILLEGAL LAND CLEARING

Banks are keen to assure that their clients are not involved inillegal practises since because prosecution can seriously im-pede the company’s ability to pay back debt. Financiers caninsist that their clients:> Provide evidence that all required permits are secured be-

fore land clearing operations commence(d). > Restore or mitigate damage caused to forests and other

vegetation along riversides and lakeshores.

POLLUTION

In order to minimise the environmental impact of investmentsin the oil palm industry, financiers can insist that their clients:> Adopt and install appropriate wastewater processing tech-

nologies.> Avoid heavy application of agro-chemicals in plantation

areas and adopt integrated pest management approaches.> Do not develop plantations in areas that require heavy

agro-chemical inputs (e.g. peat).

SOCIAL CONFLICTS

Social conflicts often come at great cost to the plantationcompany and may thereby impede the company’s ability topay back debt. Financiers can insist that their clients:> Provide independently verified evidence that local com-

munities are fully informed about the project before proj-ect proposals are submitted. Consultations should includenon-governmental organisations with expertise on the lo-cal situation and the needs of local communities.

> Assure no estates are developed in areas where communi-ties resist this kind of development.

> Settle existing conflicts. > Contribute to improved smallholder schemes and promote

better labour conditions in private estates.

ECONOMIC EXPOSURE

The disappointing benefits of oil palm schemes on the liveli-hoods of local people and estate workers are a source ofsocial unrest and reduce the productivity of smallholderschemes. Rather than to force an alien model of economicdevelopment upon local communities, financiers can:

> Assist in the development of production and markets ofnon-timber forest products such as illipe oil, rattan, rubberand other products based on indigenous forest and land usestrategies.

> Assist oil palm producers to improve existing smallholderschemes, allowing farmers to opt for diversification of thecropping system.

CORRUPTION, COLLUSION AND NEPOTISM (KKN)

Considering that it is generally felt that the new governmentunder president Wahid is serious in its efforts to fight KKN-practises, financiers to the plantation sector can assist theGovernment of Indonesia in its efforts by:> Being reluctant to write off further bad debts that will al-

low a debtor to continue unsustainable practices.> Taking into full account the KKN-record of the managers

and owners of joint-venture companies and debtors in in-vestment decisions and avoiding financial transactionswith companies whose KKN-record has not been cleared.

source: Wakker, 2001

51WWF

Appendix 5 – Recommendations for foreign financing institutions and banks

Forest Fires Fire, depending on where, when and why it occurs, can be either an essential factor in the ecological cycle of the forested landscape and the survival of associated plants and animals, or a destructive unnatural threat. Fire is a natural disturbance factor in boreal and temperate forest regions, but all too frequently has been introduced or encouraged in other forest types. Suppressing or encouraging fire must start with an understanding, at the landscape or regional level, of how it can maintain, restore or undermine the ecological integrity of forest ecosystems, as well as its impacts on human activities. Today we are causing major disturbances to natural fire regimes around the world: sometimes by increasing rate of fires and by setting fires in forests that would seldom burn under natural conditions; sometimes by suppressing natural fires, causing ecological damage and leading to infrequent, catastrophic fires due to a build-up of inflammable material. Some analysts think that destructive fires cause as much forest loss and degradation as poor logging practices and agricultural conversion. In many areas people now deliberately or accidentally cause most of the fires. Harmful forest fires are a symptom of the underlying causes that drive other forms of forest loss, such as: misuse of economic incentives; inequitable land tenure; failure to recognise or respect customary law; and weak government institutions. Forest removal, by cutting or burning, frequently simplifies forest landscapes, by e.g. truncating age distributions and reducing diversity. A fire strategy should be consistent with goals to maintain or restore forests’ ecological integrity, by understanding how management creates conditions that deviate from natural benchmarks and developing responses that help to maintain or restore ecological processes. WWF believes that, where fires are a problem, inadequate attention is paid to their underlying causes and to preventing a downward spiral of recurrent catastrophic fires and consequent degradation. Effective and efficient fire strategies are needed on a case-by-case basis, addressing three elements: prevention, response and restoration. Prevention includes social and physical strategies for minimising the risks of destructive fire through education, management and by addressing underlying causes. Responses range from rapid fire-fighting tactics to longer-term management changes in forested landscapes. Restoration is required when repeated mismanagement of the fire regime causes serious ecological damage. Effective management also needs the participation of stakeholders (governmental, NGO, community and private sectors) in planning and implementation. WWF will work with governments, international organisations and communities to address underlying causes of forest fires and reduce impacts of harmful forest fires, by: • Working on forest fire policy as an ecological integrity issue, and crafting policy

responses that return fire regimes to their historic frequency and intensity levels so as to restore natural forest types and conditions

• Supporting research to improve the understanding of forest fires and their associated costs and benefits, causes and management options

• Building awareness amongst policy-makers, the public and the media as to the underlying causes of catastrophic forest fires, their associated societal and economic costs and the importance of addressing these in a systematic fashion

• Mandating and equipping managers to implement integrated fire management plans • Involving key stakeholders (especially local communities and land managers) in

management planning and, where appropriate, implementation, assisting them to obtain the knowledge, skills and resources needed to participate effectively

• Developing and enforcing compatible and mutually reinforcing land-use laws that provide a legal basis for the ecologically-appropriate use of fire but discourage misuse, and that take account of social equity, welfare and human rights issues

• Discouraging land management practices that predispose forests to harmful fires • Promoting management strategies to mimic natural fire regimes, where their ecology

is known, including techniques such as prescribed burns and wildfire management • Avoiding manipulating natural or well-established fire regimes as a means of meeting

international climate change obligations • Establishing reliable fire monitoring systems that provide early warning of high fire risk

and fire occurrence, and include evaluation of ecological and human impacts of fire. • Preventing further forest loss and degradation from recurrent catastrophic fires, and

reduce fire risk in forested landscapes, through ecologically appropriate restoration • Incorporating considerations of fire management when planning to maximise forest

resilience and land use adaptability to climate change

Position Paper

January 2002One of a series of

position papersproduced as WWF’s

response to theWWF/IUCN Forests for

Life strategy andWWF’s current five-year

target-drivenprogramme on forests

For further detailscontact

Peter Moorep.moore@cgiar.org

Forest Conversion During the last twenty years of the twentieth century, 300 million hectares of tropical forests were converted to non-forest land-uses worldwide. The conversion of forests to other land uses imposes severe environmental and social costs due to the ecological impacts of clearance, uncontrolled burning, and disregard for the rights and interests of local or indigenous communities. Without significant changes in policy and practice, the process of forest conversion is likely to continue at a rapid rate and pose a major threat to High Conservation Value Forests (HCVF – see separate position paper), freshwater ecosystems, livelihoods of forest dependant peoples and habitats of endangered species such as elephants, rhinos, tigers and great apes. Reduction of wildlife habitat leads to increased human-wildlife interaction and conflict. WWF defines forest conversion as a continuous process of forest degradation, leading from natural forests over one or several steps to the replacement of forests by other forms of land use, such as plantations, agriculture, pasture, mining and urbanization. The driving forces behind forest conversion vary and are often interrelated. Among the most important are: the fact that forests are not valued for the long-term benefits that they provide, and that conversion often costs very little money. This creates incentives to log and sell the valuable timber out of forests and then convert the degraded forest land to more profitable land uses rather than to undertake sustainable forest management. Non-existent or insufficient landscape planning procedures and lack of guarantee of land ownerships and tenure rights often set the ground for uncontrolled and unwanted forest conversion processes. WWF believes that forests are amongst the most diverse and valuable ecosystems around the globe. They provide a wide range of products and benefits for humans and nature that can rarely be substituted through other means. Therefore in general every effort should be made to prevent any forest, but especially HCV Forests from, being converted. WWF recognizes that under certain conditions planned and targeted conversion can be beneficial or necessary to reach specific goals of public interest without endangering the overall functionality of forests. Where conversion is planned the following conditions shall be fulfilled: • Identified High Conservation Value Forests should not be affected by any forest

conversion • At a minimum, conversion must not contribute in any way to the extinction of species,

or to the loss of significant subpopulations of an endangered species • The total forest cover within a country or region should not be below an agreed long-

term goal described in a National Forest Programme or planning documents developed through a multi-stakeholder process

• There should be proven and agreed public interest and benefits from the new land-use, that surpasses public interest in forest conservation

• There should be a transparent planning process on a landscape level, involving all relevant stakeholders

• Independent environmental and social impact assessments should be conducted and the necessary measures to prevent negative impacts of the conversion implemented

WWF will work together with governments, public and private institutions and other partners towards the elimination of unplanned and damaging forms of conversion to safeguard biodiversity and social values by: • Calling for transparent planning processes to achieve an optimal distribution of

natural forests, plantations, agricultural areas, urban areas and other land-uses in a given landscape. This includes well-informed negotiations among a wide range of stakeholders to balance ecological, social and economic dimensions of natural resource use across the landscape

• Enforcing adequate safeguards that recognize and guarantee the legal and

customary rights of indigenous peoples and rural population to own, use and manage their lands, territories, and resources

• Engaging with financial institutions and market actors in forest conservation and

lobbying for the elimination of policy incentives that contribute to forest conversion and forest destruction

Position Paper

February 2002One of a series of position

papers produced as WWF’s response to the WWF/IUCN Forests for

Life strategy and WWF’s current five-year target-

driven programme on forests

For further details contactDamian Oettli

WWF Switzerland Tel: +41-1-297-2121

Damian.Oettli@wwf.ch

Oil palm According to the WWF Living Planet Index, the tropical forest species index declined by 25% in the last thirty years. Worldwide, 300 million hectares of tropical forest were converted to non-forest land-uses during the last two decades of the twentieth century. Most of the world’s oil palm plantations are within these converted hectares. Oil palm plantations have often imposed environmental and social costs due to indiscriminate forest clearing, uncontrolled burning with related haze, and disregard for the rights and interests of local communities. Without significant changes in policy and practice, the expansion of oil palm plantations poses a major threat to high conservation value forests, freshwater ecosystems, livelihoods of forest dependant peoples and habitats of endangered species such as elephants, rhinos, tigers and orang-utans. WWF recognizes that palm oil is a basic foodstuff with high consumer demand. The industry generates valuable foreign exchange earnings and employment opportunities for tropical producer countries. WWF is, however, deeply concerned at the prospect of the industry continuing to expand and operate in an unsustainable manner. WWF calls upon the industry, regulators, financiers, buyers and other stakeholders to work collectively to develop and promote adoption of environmentally appropriate, socially beneficial and economically viable practices in the oil palm industry. WWF believes that key elements of sustainability within the oil palm industry are: • Maintenance of high conservation value forests: Oil palm plantations should not

replace high conservation value forests (see separate position paper). This will normally require well-informed negotiations among a wide range of stakeholders to achieve optimal integration of oil palm plantations with the mosaic of other land-uses in a given landscape or ecoregion.

• Sound environmental management practices: Industry participants should adopt management practices to minimize environmental impacts such as air and water pollution, forest fires, soil erosion, pest invasion, human/wildlife conflict and biodiversity loss.

• Respect for rights of local communities and indigenous peoples: Industry participants should recognise the legal and customary rights of local communities and indigenous peoples to own, use and manage their lands, territories, and resources. Plantation development should not proceed in areas over which there are unresolved tenure disputes.

• Positive social impacts: The industry should maintain or enhance the long-term social and economic well being of plantation workers and local communities. In many cases this will include the strengthening and diversification of the local economy to avoid dependence on a single plantation product.

• Proficient regulatory frameworks: Regulatory frameworks should encourage practices that will achieve the desired environmental, social and economic outcomes described above. At a minimum, industry participants shall respect all applicable laws of the country in which their plantations and mills are sited. However, responsible behaviour will often require standards of performance that exceed the requirements of local and national laws, especially where regulatory frameworks are underdeveloped or governance is weak.

• Transparency: Industry participants should adopt and make public their policies, practices and implementation plans pertaining to their social and environmental performance. They should encourage independent monitoring of their performance and make public their findings. They should involve local stakeholders both in the development of standards and performance monitoring.

WWF will work with governments, private companies, financial institutions and civil society organizations to: • Develop and promote adoption of policies and practices consistent with this position • Eliminate incentives for oil palm plantations to replace high conservation value forests

Position Paper

February 2002One of a series explaining

the WWF/IUCN Forests for Life strategy and WWF’s

current five-year target-driven programme on

forests. For further details contact

Rodney TaylorWWF Forest Futures Tel: +62-361-247-125

rodtaylor@walacea.wwf.id

High Conservation Value Forests High Conservation Value Forests (HCVFs) are defined by the Forest Stewardship Council as forests of outstanding and critical importance due to their high environmental, socio-economic, biodiversity or landscape values. WWF is developing and extending the HCVF concept in its wider protect-manage-restore programme. HCVFs comprise the crucial forest areas and values that need to be maintained or enhanced in a landscape. HCVFs are found across broad forest biomes (tropical to boreal), within a wide range of forest conditions (largely intact to largely fragmented), and in ecoregions with complete or under-represented protected area networks. HCVFs could be old-growth forests in Siberia, habitats of threatened orang utans in Southeast Asia or the sacred burial grounds of a North American first nations people. Although originally designed as a tool to help certification, the HCVF concept is being extended to more general conservation planning including the design of representative networks of protected areas and buffer zones. The identification of HCVFs requires a multi-scale approach. First a rapid assessment and mapping of potential HCVF areas is made at a global or continental scale, based on indicators of biologically or environmentally important forest values that can be mapped at this broad scale. Next, these areas are further refined within ecoregions and a more detailed investigation within a given landscape delineates actual HCVFs, including local stakeholder consultation to identify forests that meet community needs and maintain cultural identity, and scientific research to identify biologically important forest stands and those critical for maintaining ecosystem functions and populations of endangered species. WWF believes the first priority is to ensure that HCVFs are adequately represented in protected area systems. In practice, many HCVFs will continue to be managed outside protected areas and here approaches will vary – e.g. enhanced management or long-term "no-cut" reserves – but should always aim to maintain HCVF values. In regions where the forest is largely degraded, HCVF management should be consistent with a forest landscape restoration strategy (see separate position paper) that addresses ecological, social and economic objectives. Two principles are paramount: (1) HCVFs are managed to maintain the attributes that are of high conservation value, and (2) management employs the precautionary principle, which requires that where the effects of extraction and other management are unknown, values are insured through a cautious approach. WWF calls on producers, retailers and investors in the forestry, agricultural, mining and petroleum sectors and governments to ensure that their business activities do not promote the clearing or degradation of HCVFs. WWF will work with partners to identify and protect HCVFs by:

• Developing tools for identification of HCVFs that are applicable around the world, particularly through pilot projects and dissemination of the lessons learned

• Developing tools and activities for the adequate protection of HCVFs that are applicable around the world

• Working with the Forest Stewardship Council in developing detailed guidance on the application of FSC's Principle 9 that covers HCVF

• Co-ordinating with other organisations, so that a HCVF approach can integrate conservation agendas

• Working to ensure, where appropriate, that development of the HCVF concept is coordinated between interested organisations

• Further developing the concept of HCVFs as a useful guide for fulfilling ecologically friendly procurement policies for forest products

• Promoting and helping to apply the HCVF concept with forest managers and forest management certifiers in selected ecoregions

Position Paper

March 2002One of a series

explaining the WWF/IUCN Forests for

Life strategy and WWF’s current five-year

target-driven programme on forests.

For further details contact

Steven PriceWWF Canada

Tel: + 1 416 489 4567 extension 256

sprice@wwfcanada.org

WWF is the world’s largest and most experienced independent conservationorganization. It has 4.7 million regular supporters and global network active in 96 countries.

WWF’s mission is to stop the degradation of the planet’s natural environmentand to build a future in which humans live in harmony with nature, by:• conserving the world’s biological diversity• ensuring that the use of renewable natural resources is sustainable• promoting the reduction of pollution and wasteful consumption. ©

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