Public policy and private-driven standards and commitments: synergies and antagonisms from

formulation to implementation

Pablo PachecoPalo Alto, CAApril, 2016

HIGHLIGHTS

Broader sustainability goals are increasingly shared among stakeholders

BUT, different understandings of what sustainable supply means in practice

There are still some tensions about what (public/private) rules to follow

Sustainability processes increasingly circumscribed to stopping deforestation

YET, solutions to halt deforestation are not enough to support sustainability

For zero deforestation to work, there is need of sustainable intensification

This may only be possible under more complex public-private arrangements

AND, by linking supply chain governance to territorial-based approaches

BASIC OBSERVATIONS

Different ‘policy mixes’ [carrots and sticks] lead to different outcomes

The effectiveness of market-driven mechanism is still under question

Commitments from end-buyers to specific targets have proven crucial

Commitments can be based on certification [palm oil] but not always [beef]

In some cases [Brazil], they are complemented or driven by public policy

In others [Indonesia], they are conflicting with existing policy frameworks

Much depends on what is catalyzing public and private convergence

The resultant socio-environmental trade-offs are not always clear …

nor who are the actors reaping the benefits along the value chain

PUBLIC AND PRIVATE INTERACTIONS

GLOBAL

SUB-NATIONAL

Incentives

Regulations

Policies

POLICY REGIMES

Upstream

Downstream

Investment strategies Procurement policies Supply chain management Business operations

Tenure Land use Zoning Industrial Infrastructure

Fiscal Commercial Financial

Macro

Sectoral

LANDSCAPES

SUPPLY CHAINS

Technologies

Markets

Institutions

MEDIATING FACTORS

“Sticks, carrots and sermons”

Finance andinvestments

Global and regional trade

Policies [ESG integration]

Finance sector initiatives

Codes of conduct

Import regulations

Voluntary standard systems

Mandatory sustainability

standards

EP SCC PRI

Transnational processes

CFS-RAI, VGGT

Self-regulatory commitments

HOW TO UNDERSTAND AND TRIGGER CHANGE? Polycentric systems (decision-making is distributed)

Non-linear causality (associated to complex systems)

Incremental change (at different places and levels)

Multiple feedback loops (positive and negative)

For sustainability, needed to closing performance gaps

Management, investment, benefits, environmental.

AND, required to address critical structural factors

Policy and implementation failures

Market asymmetries and distortions

Unequal power relationships

BEEF CATTLE IN THE BRAZILIAN AMAZON

Total cattle population

81Million heads

Slaughterhouses

95In the Brazilian Legal

Amazon

Cattle population in smallholdings

20%out of total BLA

Pasture lands

60%out of total

deforested lands

Cattle population

38%out of total in the

country

Stocking ratio

1.0Head/ha

3corporate groups

control most of the supply

BRAZILIAN SUCCESS … STILL SOME WAY TO GO

Public sector taking the lead – yet commitment from industry was key

BUT also local territorial agreements at municipal level [green municipalities]

Public and private actions effective for reducing deforestation at large-scale

Beef industry cut out suppliers that were considered risky suppliers

BUT, unable to control leakage and laundry [as it could be expected]

AND, smallholders increased their relative participation in deforestation

Few incentives to support an agrarian transition to more intensive land uses

AND, solutions do not work in favor of medium- and small-scale suppliers

Often good practices work only for the most large-scale and capitalized ranchers

AND, solutions to intensification tend to rely too much on chemical inputs

A FEW CONSTRAINTS TO INTENSIFICATION

Legal and institutional obstacles to intensification:

• Land tenure, a long awaited but still little realistic goal

• Credit is available but conditions do not make it accessible

• Technological options are based on chemical inputs

Interesting land-use dynamics emerging:• Deforestation mainly occurred in areas

close to rivers for cattle raising• New deforestation tends to expand in

clayey soils (preferred to soy production)• Soy production tends to take over the best

pasture lands [not the more degraded]

Deforestation accordant to solil type in Paragominas Piketty et al. 2015 Forests

LESSONS FROM PUBLIC – PRIVATE ARRANGEMENTS

Clear legal frameworks and distribution of responsibilities among different levels of government

Enforce regulations consistently based on transparent monitoring open to the wider society

Governments at intermediate levels play a key role in land registration, planning and enforcement

Institutional mechanisms to make individual producers and company buyers accountable

Economic policy instruments (public credit, fiscal transfers) to support environmental regulations

Agreements among key actors (e.g. retailers, industry and state) and compliance monitoring

CONTRASTING DYNAMICS: BRAZIL AND INDONESIA

Brazil and Indonesia are two quite contrasting cases

Much land available in Brazil when compared to Indonesia

AND, palm oil and beef sector respond to different market dynamics

BUT, at the same time there are several commonalities

• Traceability a major issue under complex supply chain networks

• Smallholders left behind due to company commitments

• Industry captures the benefits vis-à-vis upstream suppliers

• Leakage effects expected, and indirect social outcomes

Indonesia is also a more complex case of public-private interactions

AND, disparate sustainability standards not clearly harmonized

10.5Million hectares

cultivated

Labor

3.0Million people

27.8Million tons CPO

Smallholders

42%of total cultivated

area

~600Palm oil mills

25corporate groups control most of

the supply

Indonesia

3.5Tons CPO/ha/yr

53%global CPO supply

PALM OIL IN INDONESIA

Farmers

2.1Million households

INDONESIA, PERSISTENCE AMIDST CHANGE

Palm oil production contributes to national earnings but negative environmental effects

Ambiguous sectoral policies for palm oil expansion, economic growth and poverty alleviation

Major corporate groups have been making bold commitments towards sustainability

Strong open opposition from Indonesian government to ‘zero deforestation’ movement

Some governments at the sub national level are embracing some policy innovations

Expansion of medium-scale investments and multiplication of independent mills

Smallholders filling out the spaces that were not occupied by oil palm plantations

MANY STANDARDS FOR THE SAME DROP OF PALM OIL

Between voluntary and mandatory sustainability standards

Many standards are adopted for the same drop of palm oil

• RSPO, ISPO, ISCC

Contrasting views on definitions of sustainability [under refinement]

RSPO [slow adoption but grows over time], RSPO Next [its uptake is little realistic], ISPO [implementation is also behind schedule] / RSPO and ISPO converge on several issues, but diverge in key ones

AND, also no common definitions of [high-carbon] forests

• HCV under RSPO, HCS and HCS+ [being harmonized]

Harmonization is still a long way to go [but is it desirable?]

Much of the development driven by end-buyers

THE POLITICS OF ZERO DEFORESTATION

Bold commitments of five major palm oil conglomerates to zero deforestation:

• Putting in place traceability systems [from refineries to mills]

• Significant difficulties to trace third-party and independent suppliers

• Important pressure from Greenpeace to make and disclose progress

Strong opposition from the government under a dual rationale:

• Commitments risks excluding smallholders from markets

• Foreign corporate-driven rules clash with national regulations

IPOP companies accused of collusion and anti-competitive behaviors

• Alleged of using environmental standards as pretext

• Violation of Law No. 5/1999 [monopoly and business competition]

ATTEMPTS FROM GOVERNMENT TO REFORM POLICIES

Moratoria to conversion of primary forests and peatlands [since 2011]

Measures to stop oil palm development in peatlands [Oct 2015]

Measures for peatland restoration in areas affected by fires [Oct 2015]

New measures to stop granting of oil palm concessions [Abril 2016]

BUT, at the same time:

• Expand domestic market for biodiesel through subsidies

• Attempts to incentivize development of downstream industry

• Efforts to diversify markets [beyond China and India]

• Support recognition of tenure rights for smallholders

Policy ambiguities, and tensions among levels of government

PUBLIC – PRIVATE INSTITUTIONAL ARRANGEMENTS

RSPO certification only comprises a few major corporate groups

Adoption of ISPO mandatory sustainability standards is still low

Not clear mechanisms for control of independent mills

No definition on tenure rights between customary and statutory

Many (illegal) smallholders not entitled to receive state support

Difficulties for monitoring given constraints to disclosure of permits

Incentives for downstream investments and expansion of

biodiesel domestic markets still triggers expansion of plantations

Enough sources of finance for plantations development, much of

those through national banks and informal lending systems

LINKING TENURE, SUPPLY AND BUSINESS MODELS

Assessing patterns of supply chains and networksacross different regions and groups (based on secondary data) [3 groups, 44 refineries, ~900 mills, 2500 estates]

Mapping smallholder lands, identification of smallholder types, and analysis of business models with options for upgrading the production systems of smallholders (Riau, Central and West Kalimantan)

Assessing de facto land uses versus legal allocations to determine (e.g. smallholders within concessions, and industrial palm oil plantations outside concession lands)

Monitoring the direct (e.g. land use, GHG, employment), and indirect impacts of commitments (e.g. land use pressures, smallholder inclusion, livelihoods displacement)

EMERGING PERSPECTIVES

Increasing control and incentives in the supply chains- Extend the traceability from direct to indirect suppliers- Monitor and rewards for improvements in performance- Technical assistance with flexible technological packages

Lowering risk and increasing investment attractiveness- Land regularization and clarification of tenure rights- Land taxation with differentiated rates depending on use- Integrating environmental criteria in commercial lending

Jurisdictional and/or territorial arrangements- Systems to monitor social and environmental performance- Fiscal incentives to support good environmental performance- Policies of preferential sourcing by processors/industry- Assessment (and certification?) of territorial performance

Presenter

Presentation Notes

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