ASSESSING!THE!RESILIENCE!OF!THE! PALM!OIL!VALUE!CHAIN!TOWARDS! DROUGHT!AND!FLOODING!IN!SABAH,! MALAYSIA!!

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1 SustainableAgroecosystems InstituteofAgriculturalSciences DepartmentofEnvironmentalSystemsScience ASSESSINGTHERESILIENCEOFTHE PALMOILVALUECHAINTOWARDS DROUGHTANDFLOODINGINSABAH, MALAYSIA MASTERTHESIS AUTHOR:OLIVIAPFISTER REFEREE:PROF.DR.JOHANSIX SUSTAINABLEAGROECOSYSTEMSGROUP,ETHZURICH COOREFEREE:DR.JONASJÖRIN SUSTAINABLEAGROECOSYSTEMSGROUP&CLIMATEPOLICYGROUP,ETHZURICH ZURICH,MARCH2017

2 Swiss%Federal%Institute%of%Technology%Zurich,%ETH% DepartmentofEnvironmentalSystemsScience ChairofSustainableAgroecosystems TANF4 Tannenstrasse1 8092Zürich II

3 Executive)Summary) Palm oil is a globally traded cash crop. Its demand is increasing because of its flexible processingcharacteristicsforfoodandnonofooditems.ninepercentoftheglobalsupplyof palmoilisproducedinsabah,oneofthethirteenstatesofmalaysia.thepalmoilindustryis thethirdbiggestcontributortotheeconomyofsabah,and87%ofsabah sagriculturallandis cultivatedwithoilpalm.thepalmoilindustryinsabahisfrequentlyexposedtoshocksand disturbances, for example, flooding events are common and may hinder the harvesting of fresh fruit bunches and transportation of palm oil products. In 2015/2016, the industry experiencedaseveredrought,whichcausedthepalmoilproductiontodropby14%in2016 comparedtotheaverageoftheprevioustenyears.thus,thequestionarisestowhatextent thestakeholdersintheindustryareabletodealwiththeseshocks. ThisstudyassessedtheresilienceofthepalmoilvaluechaininSabahwithregardstodrought andflooding.themethodologicalapproachofthisstudyisbasedontheresilienceguidelines, whichhavebeendevelopedbythesaegroupatethzurich.thismethodtakesaqualitative andholisticapproachandsetsastrongfocustoincludestakeholdersthroughouttheresearch process. Thus, data was collected through literature research, stakeholder interviews and interactiveworkshops. Overall, the resilience of the palm oil industry in Sabah is relatively high, whereby the resiliencetowardsfloodeventsishighercomparedtodroughtevents.companiesengagedin planting,millingandrefiningshowthehighestresilienceinthepalmoilvaluechain.oneof themainreasonsfortheirhighresiliencescoreisthatpalmoilhasbeenhighlyprofitable; therefore, these actors could invest into management structures, financial capacity and education. Transport companies and input trading companies displayed a lower resilience thanplantationandprocessingcompanies.forexample,theystruggledfromadeclineofsales andordersduringtherecentdrought.thiscausedlowerprofits.smallholderfarmershavethe lowestresiliencebecausetheirabilitytoreactandrecoverfromshocksislow.thereasonis inadequatemanagementpractices,lowknowledgelevels,insufficientaccesstoinformation andlowfinancialcapital. TobuildresilienceinthepalmoilvaluechaininSabahtowardsdrought,industrystakeholders proposed higher investments into soil conservation practices and improved water management practices. Furthermore, industry players, especially smallholder farmers and mediumosizedplantations,considerthediversificationoftheirincomesourcestoreducetheir dependencyonoilpalms. III

4 Acknowledgement) Iwishtothank,firstandforemost,mysupervisorDrJonasJörin,postdoctoralresearchinthe Sustainable Agroecosystem group at ETH Zurich. This thesis would not have been possible without your professional supervision and guidance throughout the whole project. I appreciatedlearningfromyourknowledgeandexperience.icouldalwayscountonyourrapid assistanceandconstructiveadvice.iamverythankfulforyoureffortsinmakingthemostout of this project by accompanying me to Sabah, and having numerous meetings and always givingmeyourusefulfeedback.iwouldalsoliketothankyouforgivingmefullresponsibility incertainmatters,whichchallengedmetodevelopmyskillsandtogrowinmypersonality. Furthermore,IwouldliketoexpressmygratitudetoProfDrJohanSix,headoftheSustainable AgroecosystemGroupatETHZurich,forleadingthisprojectandsupervisingmythesis.Your feedbacksencouragedmetofinishthisthesiswell. IwouldalsoliketothankTFTfortheircollaborationinthisresearchproject.Thisfieldtrip would not have been possible without your logistical and organisational support. Special thanks to Lisa Yamau, Lakarim Mostyn, Prasad Vasudevon, Jeremiah Adair Kual, Dehya Mahadinforyourgoodcollaborationandfaithfulsupportinorganisingalltheinterviewsand the workshop. Thank you for sharing your accommodations and showing me around your beautifulcountry. Further,IwouldliketothankUnivsersityMalaysiaSabahinSandakanforlettingmestayon their university campus. I would particularly like to thank Dr James for this spontaneous welcomeandgivensupportinthisresearch. I am indebted to many other people in Sabah who supported me in this research and welcomedmewarmlyinyourcountry.iespeciallywouldliketothankalltheinterviewees and workshop participants. Without your information, given time and support this thesis wouldnothavebeenpossible.ienjoyedlearningfromyourexperience,andiamgratefulfor sharingyourinsightsandperspectivesaboutthepalmoilindustryinmalaysia. IalsowouldliketothankthestudentsatFacultyofSustainableAgricultureandthechurch memberinsandakanigottoknowduringmyfieldtrip.yoursupportandhospitabilitymade mefeelathome;iwillalwaysrememberyoursharedmoments. Finally,Iowemydeepestgratitudetomyfamilyandfriends,whocontinuouslyencouraged me and believed that I could complete this thesis. I am so thankful for being on the same journeywithyou. IV

5 Initial)Proposal) Assessing%the%resilience%of%the%palm%oil%value%chain%in%Sabah,%Malaysia%% Background Palmoilisoneofthemostimportantvegetableoilsgloballysinceitbearsrelativelyhighyields perhectare(3.7t/hacomparedto0.47t/haforexamplesoybeanoil)withlowinputcosts (Oosterveer,2015).Duetoitsflexibleprocessingcharacteristics,palmoilisusedforseveral purposes such as food, cosmetic items and biodiesel (Oosterveer, 2015). Because of its popularity,thepalmoilsectorhasexperiencedrapidexpansionglobally,wherebyover85% oftheglobalproductionislocatedinmalaysiaandindonesia(mpob,2011;sabahforestry Department,2015).InMalaysia,palmoilhasbeensignificantlysupportedbytheMalaysian governmentandcountsasthe4thlargestcontributortothenationaleconomy(ludinetal., 2014; Teoh, 2010). One of the prominent palm oil regions is Sabah, a Malaysian state on Borneo island, where around 30% of Malaysian palm oil is produced (Sabah Forestry Department, 2015). Sabah is a partly autonomous state of Malaysia, whereby it is own parliamentaryassemblyandheadofstates,henceitcanbeconsideredasanownentityin regardtothelocalpalmoilvaluechain.palmoilproductioninsabahhasresultedinhigher incomes and secure employment, nonetheless issues about land rights of indigenous communitieshavebeenraised(dayangnorwanaetal.,2011).inaddition,recurringelniño eventshaveseverelyaffectedthepalmoilyieldsinmalaysiainthepastyears(ngleefang, 2015).Furthermore,palmoilhasbeenacontroversiallydiscussedtopicduetoanumberof ecologicalorelatedissuessuchassoilerosion(oosterveer,2015).suchchallengesandtrends arelikelytodisrupttheproperfunctioningofthepalmoilvaluechaininsabahandmaylead toadverseoutcomes.thisleadstotheultimatequestion:"howresilientisthepalmoilvalue chaininsabah,malaysiaandhowcanresiliencebebuiltupinthisvaluechain"? Byadoptingtheconceptofresilience,andinparticulartheSAE(SustainableAgroecosystems GroupatETHZurich)resilienceguidelines,thestrengthandweaknessesofeachvaluechain processtodealwithsuddendisruptions(shocks)canbeassessed,apartfromprovidingan assessment tool for measuring resilience for each process level within a value chain, the guidelines also offer a structured approach from problem identification, system definition, assessmentandbuildingofresilience.throughtheactiveinvolvementofrepresentativesfrom allpartsofthevaluechainaswellaslocalexpertsandgovernmentalstakeholders,thesae resilienceapproachisparticipatoryobasedandallowsforaholisticunderstandingofhowa system,suchastheoilpalmvaluechaininsabah,functions.thestrengthfromeachvalue chain actor is sought to be supportive of developing innovative interventions for building resilience. V

6 Objectives ; ToassesstheresilienceoftheoilpalmvaluechaininSabah,Malaysia o ApplicationoftheSAEresilienceguidelines(problemidentification,system definition,resilienceassessment,resiliencebuilding) ResearchQuestions ; WhatistheresiliencedegreeofthepalmoilvaluechaininSabah,Malaysia? ; WhichinterventionscanincreasetheresilienceofthepalmoilvaluechaininSabah, Malaysia? Methodology ; TheresearchwillbeconductedbasedontheSAEguidelinestoassessanddesign interventionsforfoodsystemresilience: o Identificationandframingofproblem o Stakeholderanalysis o Mappingthesystem(materialflow,financialflow,informationflows,spatial distributionofvaluechain) o Identificationofmaindrivers o Resilienceassessment o Identificationofinterventionstobuildresilience Expectedresults ; AfundamentalunderstandingoftheresilienceofthepalmoilvaluechaininSabah, Malaysia ; Identificationofinterventionsforresiliencebuilding ; Buildingofresilienceofthepalmoilvaluechainthroughstakeholderinteraction ; StrengthenedpartnershipbetweenSAEGroupatETHZurichandTFT Workplan Date%% Place% Activity% Guideline% Step% 01.August 10.October2016 Zurich Literatureresearch,elaborate researchproposal,study methodology,planningoffieldtrip 10.October Beginningof December2016 Malaysia Fieldtrip:Stakeholderinterviews, resilienceassessment BeginningofDecember2016 Malaysia Stakeholderworkshop 4 1,2 2,3 MidofDecember Endof February2016 Zurich Dataanalysis,thesiswriting 3,4 28.February2016 Zurich Submissionofthesis VI

7 Declaration)of)Originality)) VII

8 TableofContents Executive%Summary% %III Acknowledgement% %IV Initial%Proposal% %V Declaration%of%Originality% %VII 1 Introduction% % Background% %1 1.2 Problem%statement% %2 1.3 Objectives% %2 1.4 Research%questions% %2 1.5 Methodology% %2 1.6 Expected%results% %3 1.7 Structure%of%thesis% %3 2 Literature%Review% % Concept%of%resilience% % Specificandgeneralresilience Persistence,adaptabilityandtransformation Resilienceandsustainability Resilience%in%food%systems% % Foodsystems Conceptofresilienceinfoodsystems Resilienceattributes Buildingresilienceinfoodsystems Transdisciplinary%research% %11 3 Methodology% % Stage%1:%Problem%identification% % Stage%2:%Definition%of%the%system% % Stage%3:%Resilience%assessment% % Resilienceindicatorsanddevelopedquestionnaires Dataanalysis Stage%4:%Interventions%for%building%resilience% %15 4 Results% % Profile%of%Sabah% % Palm%oil%industry%in%Sabah% % Stakeholderinthepalmoilvaluechain Spatialdistribution Driversofchange Resilience%assessment% % Wholevaluechain Inputsupply Smallholders Plantation Mills Refineries Transportation Comparisonofresiliencetowardsdroughtandflooding Building%resilience%in%the%palm%oil%value%chain%in%Sabah% %54 VIII

9 4.4.1 Stakeholderworkshop Summaryofinterventions 57 % 58 5 Discussion% % Resilience%of%the%cash%crop%value%chain% % Resilience%towards%drought%and%flooding% % Building%resilience%towards%drought% % Way%forward% %61 6 References% % 62 7 Appendix% % 68 ListofFigures Figure1:Resilienceandsustainabilityascomplementaryconcepts(Tendalletal.,2015) 6 Figure2:Foodsystems,theirdriversandfeedback(Ericksenetal.,2012) 7 Figure3:Conceptofresilienceinfoodsystems(Tendalletal.,2015) 8 Figure4:Ratingscalefortheresilienceattributes 15 Figure5:TFTexpertdiscussionduringthefirstworkshop 16 Figure6:TFTexpertsmapinteractionsofthevaluechainduringthefirstworkshop 16 Figure7:Groupdiscussionduringthefirstworkshop 17 Figure8:Posterdiscussionduringfirstworkshop 17 Figure9:MapofpalmoilvaluechaininSabah 20 Figure10:Distributionofoilpalmareabycategory(MPOB,2016) 21 Figure11:Fruitdevelopmentcycleofoilpalm(Oberthüretal.2012) 22 Figure12:Power/Interestcategorisationofstakeholderelaboratedatthefirstexpertworkshop 25 Figure13:SpatialdistributionofplantationareainSabah(Bryanetal.,2013) 26 Figure14:IndustryrelevantinfrastructureinSabah(Google2017) 26 Figure15:DecreaseinannualCPOproductionin2016(MPOB,2016) 27 Figure16:MajorfloodalongKinabatanganriverin2000(Teohetal.,2001) 28 Figure17:DevelopmentofCPOprices(MPOB,2016) 29 Figure18:ResiliencescaleforTable4to10 32 Figure19:Participantsofsecondworkshop 56 Figure21:Discussionsduringthestakeholderworkshop 58 Figure20:Presentationofpostersduringthesecondworkshop% 58 % ListofTables Table1:Descriptionofresilienceattributesandindicators(adaptedfromSAEguidelines) 13 Table2:OverviewofpalmoilindustryinSabah Table3:Relevantindustryorganisations 24 Table4:Resiliencescoreforwholevaluechain 32 Table5:Resiliencescorefortheinputsupplysector 36 Table6:Resiliencescoreforsmallholderfarmers 38 Table7:Resiliencescoreforplantations 41 Table8:Resiliencescoreformills 44 Table9:Resiliencescoreforrefineries 47 Table10:Resiliencescorefortransportcompanies 49 Table11:Summaryofresiliencescoretowardsdroughtofthewholevaluechain 52 Table12:Summaryofresiliencescoretowardsfloodingofthewholevaluechain 52 Table13:Summaryofproposedinterventionsagainstdroughtofworkshopparticipants 54 Table14:Summaryofweaknessinresilienceandpotentialinterventions 57 X

10 Abbreviation CPKO Crudepalmkerneloil CPO DOBI DOSH EFB EPD EMPA FFA FFB GST ISCC NGO MPOA MPOB POME RM RSPO SAE SES TFT Crudepalmoil DeteriorationOfBleachabilityIndex DepartmentofOccupationSafetyandHealth EmptyFruitBunches EnvironmentalProtectionDepartment EastMalaysianPlantersAssociation Freefattyacid Freshfruitbunches GoodsandServicesTax InternationalSustainabilityandCarbonCertification NonOgovernmentalorganisation MalaysianPalmOilAssociation MalaysianPalmOilBoard Palmoilmilleffluent MalaysianRinggit RoundtableonSustainablePalmOil SustainableAgroecosystem SocioOecologicalsystem(s) TheForestTrust X

11 1 Introduction) 1.1 Background) Theglobalpopulationhasexperiencedarapidincreaseinthepastyears,anditispredictedto reacharound9billionpeopleuntil2050.inaddition,thepercapitaconsumptionoffoodis risingduetohigherincomelevelsofconsumers(godfrayetal.,2010;mckenzie&williams, 2015). Consequently, global food production is required to double to meet the increasing demanduntil2050(tilmanetal.,2002).despitethechallengethattheincreaseinproduction poses on food systems, they are increasingly threatened by shocks and disturbances. Pest outbreaks,politicalcrisisaswellasclimatechangearedisturbancesthatputpressureonfood systems(ericksen,2008;godfrayetal.,2010;liverman&kapadia,2012;tendalletal.,2015). Hence,humanwellObeingandecosystemservicesareadverselyaffectedbytheseshocks. The concept of resilience has been seen as an approach to face the emerging risks and uncertaintiesoffoodsystems(tendalletal.,2015).accordingtofolkeetal.(2010)resilience istheabilityto copewithuncertaintyinallways.thustheconceptofresilienceaimsto ensure wellofunctioning food systems to provide food security and other relevant function suchassocialwelfaredespitethedisturbingevents(tendalletal.,2015). Oneofthemostimportantvegetableoilsispalmoil,whichaccountsfor39%oftheglobal vegetableoilproduction(mpob,2016).inthepast25years,theconsumptionofoilpalmhas quadrupled,causedbytheriseintheworldpopulationandtheirglobalwealthstatus(laiet al.,2015).thereasonforitssuccessfulexpansionisfoundinitsgenerallowproductioncost comparedtoothervegetableoilsandthehighyieldsperhectare.accordingtowahidetal. (2005)palmoilyieldsthreetoeighttimesmoreoilperhectareandyearcomparedtoother common tropical oils. The high favourability is also because of its flexible processing characteristics, which provides a broad range of applications from food items to nonofood items like detergents and cosmetics as well as biodiesel (Corley, 2009; Lai et al., 2015; Oosterveer,2015). Hence,palmoilcanbeseenasatypicalagroOfoodcommodityandprofitablecashcropthatis beingtradedallovertheworld(martinetal.,2015;oosterveer,2015).thelargestimporters ofpalmoilareeurope,chinaandindia(mpob,2016),whereby85%oftheglobalpalmoil production is located in two countries, namely Malaysia and Indonesia. Indonesia is the numberoneproducerofpalmoilwith33.6milliontonnes,followedbymalaysiawithayearly productionof19.96milliontonnesin2015(mpob,2016).althoughindonesiahasthehighest production,malaysiahastheleadinrefiningpalmoil(laietal.,2015).inmalaysia,palmoil has been significantly supported by the Malaysian government and counts as the fourth largestcontributortothenationaleconomy(ludinetal.,2014;oosterveer,2015;teoh,2010). OneoftheprominentpalmoilregionsisSabah,aMalaysianstateintheNorthofBorneo island, where 29% of Malaysian palm oil is produced (MPOB, 2016). Sabah is a partly autonomousstateofmalaysia.ithasitsownparliamentaryassemblyandministersandhas certaindiscretiontodecideonpoliticalissues,includingthepalmoilindustry.over1.5million ha of palm oil plantation cover around 21% of the total land in Sabah and hence has a significant impact on the landscape, ecosystems and local communities (Department of Statistics, Malaysia, 2016). 78% of the palm oil production area is occupied by largeoscale estates owned by private or governmental linked companies. The remaining 22% are 1

12 cultivatedbyindependentandorganisedsmallholderfarmers(mpob,2016).furthermore, thepalmoilvaluechaininsabahhasanestablishedprocessingandinputsupplysector. However,thepalmoilindustryhasbeenacontroversiallydiscussedtopicinthepastyears, becauseofvarioussocialandenvironmentalissuessuchasrainforestdeforestation(cramb& Curry,2012;Oosterveer,2015).Theindustryhasalsobeenfacinganumberofchallengesand disturbances, from labour shortages to extreme climatic variability. The most recent event was the El Niño phenomenon in 2015/2016 that caused a severe drought over Sabah. Consequently, the total palm oil production decreased 14% compared to the previous ten years (MPOB, 2017). The counterpart of El Niño, the soocalled La Niña phenomenon, has repeatedlycausedexcessiverainfallandfloodinginvariousareasofsabah.forexample,a flood event in the year 2000 inundated around 10,000 ha of plantations along one of the largestriversinsabahover20days(teohetal.,2001). Evidently, the production step of the palm oil value chain in Sabah has been affected by droughtandflooding.however,itremainsunclearhowthesedisturbancesinfluencetheother stakeholders of the palm oil value chain and whether stakeholders have the capacity to overcomedroughtandfloodevents.thisleadtotheultimatequestionon"howresilientis thepalmoilvaluechaintowardsdroughtandfloodinginsabah,malaysia?" 1.2 Problem)statement) The palm oil industry in Sabah has experienced a severe drought in 2015/2016 and was exposed to several flood events in the past years. Such shocks have affected the different actorsofthepalmoilvaluechaininsabahandleadtoadverseeconomic,socialandecological outcomes. 1.3 Objectives) Theobjectiveofthismasterthesisistoassesstheresilienceofthepalmoilvaluechainin Sabah,Malaysia,throughapplyingtheSustainableAgroecosystemsResilience(SAE)resilience guidelines.thefocusoftheresilienceassessmentisontheresiliencetowardsdroughtand excessiverainfallandfloodevents.thestudyalsoaimstobuildresilienceactivelythrough involvingstakeholdersintheresearchprocess. 1.4 Research)questions) What is the resilience of the palm oil value chain in Sabah towards drought and flooding? WhichinterventionscanincreasetheresilienceofthepalmoilvaluechaininSabah towardsdrought? 1.5 Methodology)) TheresearchwasbasedontheSAEassessmentguidelinestostudytheresilienceofthepalm oilvaluechaininsabahandtodesigninterventionstobuildresilienceinthisindustry.the appliedguidelinesaimtoassesstheresilienceoffoodsystemsthroughastakeholderobased approach and in consideration of social, economic and environmental aspects. The used methodologyistriangular,whichcombinessecondarydatafromcurrentresearchliterature aswellasprimarydata.theprimarydatawascollectedthroughsemioquantitativeinterviews withvaluechainactorsandexpertsfromindustryassociations,governmentrepresentatives 2

13 aswellasscientists.additionally,twoworkshopswereconductedtogatherprimarydata.the first workshop was carried out with experts from The Forest Trust (TFT), a nonoprofit organisation,atthebeginningofthedatacollectionperiod.thesecondworkshopwasatthe end of the data collection period and discussed potential interventions with industry stakeholderstobuildresiliencetowardsdrought. 1.6 Expected)results)) AfundamentalunderstandingoftheresilienceofthepalmoilvaluechaininSabah, Malaysia Identificationofinterventionsforresiliencebuildingtowarddrought Buildingofresilienceofthepalmoilvaluechainthroughstakeholderinteraction 1.7 Structure)of)thesis) Thethesisisstructuredin6chapters,asoutlinedbelow: Chapter%1%\%%Introduction% % Chapter%2%\%Literature%Review% % Chapter%3%\%Methodology% Chapter%4%\%Results% % Section%4.1% Chapter 2 elaborates the scientific foundation of resilienceinfoodsystems Chapter 3 explains the applied methodology of this masterthesis Chapter4statestheanalysedresultsoftheprimaryand secondarydata. Section4.1givesabriefoverviewofthestudysite. Section%4.2%\%4.3% Section%4.4% Section%4.5% Chapter%5%\%Discussion% Sections 4.2 O 4.3 describe the palm oil value chain in Sabahandthedriversthatinfluencetheindustry. Theresultsoftheresilienceassessmentarepresentedin section4.4% Section4.5presentsfindingsoftheworkshop% In Chapter 5 the key findings of this research are discussed. 3

14 2 Literature)Review) 2.1 Concept)of)resilience)) TheoriginofresilienceisintheLatinwordresilire,whichstandsforreboundingorrecoiling (Hoddinott,2014).Initially,theconceptofresiliencewasdevelopedinthefieldofecologyin regardtothestabilityofecosystemsinthe1960sandearly1970s(folke,2006).becauseof the broad definition of resilience, the concept gained popularity across various disciplines (Brand&Jax,2007;Folke,2006;Hoddinott,2014).Withinecology,theconceptofresilience was extended to the active management of ecosystems (Folke,2006). The influence of humansontheecosystemhasincreasinglybeenrecognisedasakeydriverintheresilienceof ecosystems so that today the concept of resilience has a strong conceptual basis in the resilienceofsociooecologicalsystems(ses)(folke,2006). Gallopín (1991) and Steffen et al. (2007) simply describe SES as the interaction between humansandnature.humansocietiesandeconomiesheavilydependonecosystemservices, sothattheycanmaintaintheirfunctionandfostergrowth(millenniumecosystemassessment (MA), 2005). However, the growth of human population and their activities have an increasinglynegativeimpactonecosystems(folkeetal.,2010;steffenetal.,2007).togaina profoundunderstandingofses,therecognitionandstudyofthecloseinteractionbetween ecosystems and social systems are essential (Folke et al., 2010). Berkes et al. (2003) and Maleksaeidi&Karami(2013)statethatSESareverycomplexandunbalancedsystemsthat experience periods of sudden and gradual change. A number of shocks and unexpected disturbancesmayaffectthefunctionofsesandconsequentlyitismorecomplicatedtomake predictionsaboutthefuturepathwaysandoccurrencesofses(o Neill,1998). The concept of resilience addresses the complexity of thesystem and views unpredictable occurrencesasaninherentcomponentofses.resiliencepointsoutthatsystemsarerequired to develop capacities to handle these disturbances to maintain the function of the system (Berkesetal.,2003;Milleretal.,2010).Itisrelevanttohighlightthatresilienceisaconcept thatentailsanumberofthoughtpatterns,theoriesandmethodsratherthanasingletheory (Brand & Jax, 2007). Hence, Maleksaeidi & Karami (2013) summarise resilience as a multidimensionalandcomplexconcept.consequently,thereareanumberofdefinitionsof resilienceaswellaslevelsofmeaningsonhowtodescriberesiliencethinking(carpenteret al.,2001).accordingtotheresiliencealliance,aresearchnetwork,resilienceisthe capacity of a system to experience shocks while retaining essentially the same function, structure, feedbacks,andthereforeidentity (Walkeretal.,2006).Thisdefinitionimpliesthatdespitea shock,thesystemscanmaintainitsfunctionandidentity(maleksaeidi&karami,2013).by comparison,tendalletal.(2015)summariseresilienceonthebasisoftheworkofhoddinott (2014)as thecapacityofthesystemtowithstandand/oradapttodisturbancesovertime Specificandgeneralresilience Folke(2006)emphasisesthattheconceptofresilienceincludesmultiplespatialandtemporal levels;fromlocaltoglobalscalesandshorttolongotermtimeperiods.inordertoaddressthis challengeofanalysingandmanagingthiscomplexity,somescientistshaveclassifiedresilience into specific and general resilience (Carpenter et al., 2001; Miller et al., 2010). General resilience implies the resilience of every aspect of SES and takes into consideration that unexpectedandnoveloccurencesmaydisturbses.hence,sesarerequiredtodealwithall kindsofdisturbances(folkeetal.,2010;resiliencealliance,2009). 4

15 Specificresilience, in contrast to general resilience, is stated as the resilience of what to what bycarpenteretal.(2001).thefocusliesonacertainshockordisturbancethataffects acertainaspectofthesystem.forexample,awoodlandexperiencesaspecificshocksuchas afire,whichhasanadverseimpactonthefoodprovisionofthesurroundingcommunities.it isrelevanttomakesuchspecificationssincetheresiliencecanbehighlycontextodependent; itvariesaccordingtothetimeperiodandthespatialscale(carpenteretal.,2001).cabell& Oelofse(2012)notethataSESmightbeconsideredasresilientinthepresent;howeverin50 yearsitmaynotberesilientanymoresincethesystemcontinuouslyexperienceschange.in conclusion,itcanbesaid,thathigherresilienceofacertainperiodparadoxicallycompromised theresilienceofthefollowingtimeperiod(carpenteretal.2001). The same principle applies to the spatial scale. A particular region of a country might be affected by a natural disaster such as a pest outbreak affecting agricultural production. Presumably,thiseventdecreasestheresilienceoftheaffectedregion.However,bylookingat thewholecountry,thepestoutbreakmaynotaffectitsresiliencesignificantly.thisleadsto theconclusionthatthespatialscaleisrelevanttodefinewhenlookingattheresilienceof whattowhat. Nonetheless,ahighresilienceofalowerscaleofthesystemmaycompromisetheresilience atabiggerscale.consequently,bothgeneralandspecific,resilienceareessentialtogaina profound understanding of the studied system. Therefore, it is vital to take the general resilienceofasesintoregard,whenanalysingormanagingaspecificaspectofthesystem,in ordertoincreasetheresilienceoftheoverallsystem(folkeetal.,2010). ) Persistence,adaptabilityandtransformation Furthermore,resiliencecanbedescribedbythreemajorcharacteristics;namelypersistence, adaptability and transformation(folke et al., 2010). Particularly in the pioneering work on resilience, a great emphasis was put on persistence, since it is the ability of the system to withstanddisturbances(folke,2006).ifasesexhibitsarobustcharacter,itwillbeableto endureacertainturbulenceandstillmaintainitsfunction(folke2006). Adaptability characterizes resilience as the "capacity of actors in a system to influence resilience"asclaimedbywalkeretal.(2004).thisstatementrevealsthatresilienceisnota preoexistingcharacteristicofasystemtoenduredisturbance,butanabilityofthesystemto changeitselftobecomemoreresilient(folkeetal.,2010).anadaptivesystemhasthecapacity tobeequippedfordisturbancesinadvanceandtoreacttowardsupcomingchanges(engle, 2011).Peoplearethemainadaptiveforceofasystem,whohaveanactiveinfluenceonthe resilienceofthesystem.theiradaptivecapacityincludeslearningfrompastoccurrencesand accordinglyreorganizingthesystemtorespondbettertofuturechanges(berkesetal.,2003; Maleksaeidi & Karami, 2013).Therefore, persistence and adaptability go hand in hand to maintainthecurrentsystemandtodevelopittowardsahigherresiliencelevel(folke,2006). Transformability,onthecontrary,impliesaprofoundtransformationofthesystemintoanew state.atransformedsystemisfundamentallychangedinecological,political,economicand socialkeyareas(walkeretal.,2004;folke,2006).intheviewoftransformability,shocksand disturbances are seen as an opportunity for redirecting the present pathway of the SES. Walker et al.(2004) describe transformability as the movement from an"undesirable to a 5

16 desirablestate".forthispurpose,arenewalofperceptionsandvaluesofthemainactorsina system,aswellasatransitionofgovernanceandnetworkconfigurationsareessential Resilienceandsustainability When talking about the concept of resilience, the question arises how resilience and sustainability are related to each other. In principle the different scientific views can be dividedintotwobroadcategories.eitherresilienceisseenastheequivalentofsustainability orresilienceandsustainabilityaretwocomplementaryconceptsthatareconnectedtoeach other(maleksaeidi&karami,2013).accordingtomaleksaeidi&karami(2013),authorsthat viewresilienceandsustainabilityasequal,arguethatsustainablesystemneedstoberesilient. However,Carpenteretal.(2001)pointoutthatresiliencecanbeundesirableinspecificcases. Hegivestheexampleofadictatorshipinacountrythatcanshowhighresilienceinthepoint ofviewofitspersistence.onthecontrary,themostprominentgoalofsustainabilityistohave a system that is desirable, hence equating resilience and sustainability triggers certain conflictsofinterest(carpenteretal.2001). Figure)1:)Resilience)and)sustainability)as)complementary)concepts)(Tendall)et)al.,)2015) AsDerissenetal.(2011)describeresilienceandsustainabilityastwocomplexconceptswith variousdefinitionsandfacets.un(1987)definessustainabilityasaddressingtheneedsofthe currentgenerationwithoutcompromisingthecapacityoffuturegenerationstomeettheir needs.resilience,onthecontrary,canbroadlybesummarisedasthecapacityofthesystem tofunctiondespiteofdisturbancesandshocks(tendalletal.,2015). Maleksaeidi&Karami(2013)concludethatresilienceisapreconditionofsustainabilitysince asystemcanonlycontinuetofunctioninthefuture,ifitcanrecoverfromthedisturbances andshocks(figure1).therefore,resiliencecanensuresustainabilityinthefutureandisthus an important criterion to achieve sustainability(maleksaeidi& Karami, 2013). However, in specificcircumstances,resiliencerequireslettinggoofsustainabilitystandardstopreserve thefunctionofthesystem.folke(2006)concludesthatoneofthegreatestchallengesthat humanity is facing is to withstand current disturbances, but also to transform our path towardsasustainablefuture. ) 6

17 2.2 Resilience)in)food)systems)) Duetoincreasingshocksanddisturbancesaffectingfoodsystems,theconceptofresilience hasbeenappliedtofoodsystems,whichcanbeseenastheses(tendalletal.,2015) Foodsystems Ericksenetal.(2012)describefoodsystemsaccordingtoFigure2.Foodsystemactivitiesare thecoreofthefoodsystem.ericksen(2008)arguesthatitmakesthemostsensetoseefood systemactivitiesasachainofactivities,fromtheproductiontotheconsumptionoffood.the keyactorswithinvaluechainsareproducers,processors,packagers,distributors,retailersand consumers;wherebytherecanbefurtheractorsdependingonthecomplexityofthesystem (Ericksen, 2008). In former times, agricultural production was the core activity of a food system, but there has been a continuous shift of the main economic activities towards processing,packingandretailing(ericksenetal.,2012;ericksen,2008).furthermore,itshould be noted that globalisation has also influenced food systems, whereas value chains have expanded over the whole globe and long transport routes of foods have become more common(ericksenetal.,2012). Figure)2:)Food)systems,)their)drivers)and)feedback)(Ericksen)et)al.,)2012)) Besidesthevaluechainactors,foodsystemsareinfluencedandgovernedbycivilandstate actors(newtonetal.,2013).stateactorsarepositionedatdifferentlevels,fromthelocalto national level. The civil society involves nonogovernmental organisations (NGO) as well as commodity roundtables. A further category of actors are research bodies, which are often fundedbythestate,butthatremainrelativelyautonomous(newtonetal.,2013). Themainoutcomeofafoodsystemisfoodsecurity,wherebysocialandecologicalwelfare arefurtherfoodsystemoutcomes.theactivitiesofafoodsystemhaveclearandoftenmajor impactontheecosystemservicesaswellasonthenaturalcapitalofthesystem(ericksenet 7

18 al., 2012). Social welfare outcomes include economic and social elements such as income generationandhealthstatus(ericksenetal.,2012).ericksen(2008)claimsthatintheshorto termthereisatradeooffbetweentheaboveomentionedoutcomes,howeverinthelongoterm outcomesshouldbebalanced. Food systems are increasingly under pressure by major sociooeconomic or environmental drivers. SocioOeconomic changes include political crisis, market failure and urbanisation as well as population growth. Environmental changes involve among others, climate change, landchanges,decreasingwaterqualityandavailabilityandbiodiversityloss(ericksen,2008; Liverman&Kapadia,2012;Tendalletal.,2015).Allthedrivers,activitiesandoutcomesare closelylinkedtogetherandareconnectedthroughfeedbackloops(ericksenetal.,2012) Concept)of)resilience)in)food)systems)) Tendall et al. (2015) discuss the concept of resilience in food systems and defines it as: capacity over time of a food system and its units at multiple levels, to provide sufficient, appropriate and accessible food to all, in the face of various and even unforeseen disturbances. In Figure 3, the fundamental principles of resilience in food systems are displayed.asdiscussedpreviously,afoodsystemprovidesacertainoutcomesuchasfood securityorincome,whichisbeinganalysedasafunctionoftime(xoaxis)(tendalletal.,2015). Atacertainpointintimeadisturbanceorshockdisruptsthesystem.Theseshockscanbeof an internal,external,cyclic,structural,sudden,gradual,natural,political,social,economic nature(tendalletal.,2015).thedevelopmentofthefunctionovertimeisbeingdescribedby four components; namely robustness, redundancy, flexibility and rapidity (Tendall et al., 2015). Figure)3:)Concept)of)resilience)in)food)systems(Tendall)et)al.,)2015) Resilienceattributes Tendalletal.(2015)pointouttheneedforaframeworktoanalysetheresilienceofafood system.variousauthorshavedevelopedattributestoassesstheresilienceofsesfurther.the followingattributesthatweredevelopedbythesaegroupandimplementedinthisresearch, arebrieflydescribed. 8

19 Exposuretopressure Exposuretopressuredescribeshowafoodsystemwasaffectedbyashockanditalsoentails thetimeofrecoveryafterashockeventhashappened(iisd,2013).cabell&oelofse(2012) arguethatsmalldisruptionscanincreasetheresilienceofasystemsinceitisanopportunity toreorganiseandtogetpreparedforbiggerdisturbances. Modularity Thetermmodularitycanbedescribedashighdiversitywithinthesystem.Itaddressesthe needforagreatvarietyofelementssuchasspecies,landscapesoractors(biggsetal.,2012; Cabell&Oelofse,2012).Inthecaseoffailureofaparticularelement,anotherelementcould providethesamefunctionandmaintaintheoverallsystemfunction(biggsetal.,2012).italso involvesthespatialdistributionofservicesandresources,incaseaspecificregionisaffected byashock(iisd,2013).furthermore,modularityrequeststhatstakeholdersinthesystemare abletodisplaydiverseopinionsandperspectives(biggsetal.,2012;guptaetal.,2010). Bufferingcapacity Bufferingcapacitycanbeexpressedasthesparecapacityofresourcesandservicesaswellas storage capacities. Cabell & Oelofse (2012) describe spare capacities as the duplication of crucialcomponents.itincludesfinancial,technical,socialorinfrastructuralcapacities,which allow stakeholders to overcome disruptions and fluctuations better (IISD, 2013). Spare capacity,ontheotherhand,indicatesthestorageofresources.forexample,storageofwater willsupportanactortoovercomeatimeofdrought(iisd,2013). ) Environmentalcapital Natural capital and ecosystem services are essential for the functioning of food system resilience(cabell&oelofse,2012;iisd,2013).therefore,environmentalcapitalincludesthe condition of hydrological cycles, soil condition, biodiversity and other environmental resources. Furthermore, it also considers the condition of built resources as transport infrastructureorenergysupplies(iisd,2013). Governancecapacity Governancecapacityassessesthegovernanceofthesystem,eitherfromagovernmentalor entrepreneurialpointofview(guptaetal.,2010).forthisattribute,theleadershipofthe systemisessential,aswellasdecisionomakingprocessesbeingfairandtransparent(guptaet al.,2010;iisd,2013).italsoincludestheidentificationandanticipationofproblems,sothat measures can be taken against them (IISD, 2013). Thequestion is how governing actors respond during times of shock and if they have sufficient resources to maintain and reo establishthefunctionofthesystem(guptaetal.,2010;iisd,2013). Profitabilityandfinancialcapital Cabell&Oelofse(2012)indicatethatprofitabilityisthegenerationofwealthinthesystem.It createstheopportunityforinvestment,thatcanincreasethecapacitytoreacttowardsshocks (Cabell & Oelofse, 2012). Actors should be able to maintain their livelihood, without dependingonexternalsupportsuchassubsidies(cabell&oelofse,2012;choptianyetal., 2014). % % 9

20 Informationandlearning Thisattributedescribesthelearningcapacityofasystem.Biggsetal.(2012)definelearning as theprocessofmodifyingexistingoracquiringnewknowledge,behaviours,skills,valuesor preferences.furthermore,informationandlearningincludeextensionandadvisoryservices, research and development and collaboration between universities and other actors, as importantindicatorstoenhancetheresilienceofthesystem(cabell&oelofse,2012).biggset al.(2012)alsomentionthemonitoringofnaturalresourcesandsystemprocessesasrelevant forbasicinformationonthesystem.afurthercriterionofinformationandlearningisthetrust amongactors(guptaetal.,2010). Transformability) Transformabilitycanbedescribedtheprocessoflearningfrompastexperiencesandfailures, andtofosterchangeinthedesireddirection(cabell&oelofse,2012).forthisreason,the opennessofstakeholdersandtheirvaluesarecrucialinmakingchanges(iisd,2013;milman & Short, 2008). Furthermore, experimentation and innovation are essential to modify the currentsystem(iisd,2013) Buildingresilienceinfoodsystems The resilience of a food system needs to be actively managed to sustain humanity and to obtaindesirableoutcomes.asdiscussedabove,thegovernanceofthesystemisessentialand hasthepowertoinfluencetheresilienceofthesystem(folke,2006;maleksaeidi&karami, 2013; Miller et al., 2010). Biermann et al.(2009) state that governance is the institutions, organisationsandauthoritiesthattaketheleadershipinregulatingthesystem.governance notonlyincludestheofficialgovernmentalbodies,butnonogovernmentalstakeholderssuch as the private sector and civil society. Governance plays a critical role in regulating the relationshipofhumanitywiththeirsurroundingnatureaswellaspreparingfordisturbances (Kopainskyetal.,2013;Maleksaeidi&Karami,2013).Folke(2006)arguesthatgovernance playsanessentialroleininnovation,generationofknowledge,selfoorganisation,shapingof valuesandmindosets,sothatthesescanleadintothedesireddirection. Thepropermanagementoffoodsystemsposesanenormouschallenge,sincefoodsystems assesdynamicsencompasssocial,economic,environmentalaswellaspoliticalprocessesand feedbackloopsondifferentscales(temporal,spatial,...)andvariousinteractions(ericksenet al., 2012; Kopainsky et al., 2013). Hence, Folke (2006) proposes that the first vital step in responsiblymanagingsesisbygainingaprofoundunderstandingofthesesdynamics.the awarenessofgainingabetterunderstandingoffoodsystemshasbecomemoreprominent withintheresearchaswellaspolicyomakercommunities.however,studiesonfoodsystems have often focused only on one factor or value chain step, such as agricultural production insteadofprovidingaholisticviewofthefoodsystemanditschallenges(ingrametal.2012). Inaddition,Ericksen&Liverman(2012)notethatthereisalackofempiricalworkonfood systems.thus,theresearchcommunityhastheresponsibilitytodeveloparesearchapproach thatanalysesresilienceinfoodsystemsinaholisticmanner. Differentauthorshavepointedoutseveralcriteriathatresearchapproachesshouldmeetto buildresilienceinfoodsystems(ingrametal.,2012;kopainskyetal.,2013;milleretal.,2010; Tendall et al., 2015). One aspect is that the research approach should have a systemic approachthattakesintoconsiderationthecomplexityofafoodsystem(ingrametal.,2012; 10

21 Kopainsky et al., 2013; Miller et al., 2010). Hence, a holistic approach is required which incorporatesnumeroussystemcomponentsandtheirinteractions. Furthermore, Tendall et al. (2015) raise the issue of including stakeholders within the research,sincetheirknowledgeisofgreatvalue,inparticularwhenthereisalackofdatafor theanalysis.sincetheactorsofthefoodsystemaregoverningthesystem,theirinclusionin the research project is relevant, so that they can implement the gained understanding. In addition,milleretal.(2010)andkopainskyetal.(2013)arguethatresilienceresearchwould bemuchmoreefficientandimprovethefoodsystemoutcomes,ifspecificinterventionsare anoutputoftheconductedresearch. 2.3 Transdisciplinary)research)) Oneresearchapproachthatsuitsthementionedcriteriaforsuccessfulstudiesonfoodsystem resilienceistransdisciplinaryresearch.transdisciplinaryisaresearchapproachthatonthe onehandincludesmultipledisciplinesandonetheotherhandinvolvesnonoscientificactors intheresearchprocess.theinclusionofinterdisciplinaryaswellasthecooperationofscience andsocietyaimstoaddresscomplexquestionsthatarisewhenanalysingasystem.onegoal of transdisciplinary research is to address soocalled realoworld problems and to provide solutions for these challenges. It can also be explained as demandodriven research, that analysesprominentissuesthatoursocietyisfacing(jahnetal.,2012).jahnetal.(2012)also explain that transdisciplinary research is at the interface of solving these sociooecological problemsandofansweringscientificquestions.inotherwords,thisapproachsearchesfor practical solutions and at the same time meets the scientific goals of generating novel knowledge,methodsandtheories(jahnetal.,2012). ThestrongemphasisontheinclusionofnonOscientificstakeholdersisessentialforthescience community to understand what the realoworld problems are. Furthermore, since empirical work on certain systems, such as food systems, is missing, nonoscientific stakeholders are essential in providing knowledge on their challenges and experience, so that the science community can benefit from their knowledge. Jahn et al.(2012) speak of mutual learning betweenscientistsandstakeholdersfromsocietyandpointsoutthattheknowledgeofboth isequallyimportantanduseful. Furthermore, it is essential to include stakeholders, since they have the responsibility to implementthegainedknowledge.incooperatingwithstakeholdersthroughouttheresearch process,anopportunityisprovidedforthestakeholderstoreflectandlearnmore(milleret al.,2010).asaresult,adaptivecapacityofstakeholdersisbuiltwithintheresearchprocess itself.however,learningaboutsystemdynamicsandimplementingnewinterventionsisan iterativeprocess.thereforemilleretal.(2010)stateintheirworkthatresearchonresilience ofsystemsissupposedtobeprocessoorientedinsteadoffocusingonlyontheoutput. Insummary,transdisciplinaryresearchcanbedescribedas"areflexiveresearchapproachthat addresses societal problems by means of interdisciplinary collaboration as well as the collaboration between researchers and extraoscientific actors; its aim is to enable mutual learningprocessesbetweenscienceandsociety;integrationisthemaincognitivechallenge of the research process (Jahn et al., 2012). Hence, transdisciplinary approach meets the proposedrequirementforanalysingandbuildingresilienceinfoodsystems. 11

22 3 Methodology)) The SAE Resilience assessment guidelines developed by the SAE Group of Swiss Federal Institute of Technology ETH Zurich served as the basic methodological approach. It is a transdisciplinary approach that aims to assess the resilience of food systems in a holistic mannerandbuildresiliencethroughouttheprocess.secondarydatawasobtainedthrough literatureresearch.interviewsandworkshopswereconductedtocollectprimarydata.this triangularapproachisusedtocapturedifferentdimensionsandaspectsofthesystemunder observation. The guidelines have been structured into four main stages, which will be explainedinthefollowing. 3.1 Stage)1:)Problem)identification) At the beginning of the research, the system under observation was defined and clear research goals were set. This stage also included planning the research process. These activitiesweredoneinclosecollaborationwiththemainprojectpartner,tft.theplanningof theresearchwasdividedintotwomonthsofpreparationbyreadingliteratureanddefining thesystem,followedbyatenoweekfieldworkinsabahandanothertwomonthsofsecondary data collection, analysis and thesis writing. Due to time limitation of the study, the SAE guidelineswerereducedtothemostrelevantsteps.furthermore,thelevelofanalysisofthe system was determined; hence the focus was set on the palm oil industry in one state of Malaysia. Because of organisational reasons, most of the interviews were conducted with stakeholdersinbeluran,sandakan,kinabatanganandlahaddatudistrict. 3.2 Stage)2:)Definition)of)the)system) Inthesecondstage,theaimwastodefinethesystembyanalysingthemajorstakeholderand bymappingthesystem.besidesliteratureresearch,aworkshopwithexpertsfromtftwas conductedtogainabetterunderstandingofthesysteminthebeginningofthefieldwork.the participantswereaskedtoidentifythemajorstakeholdersinthesystemandcategorisethem accordingtotheirperceivedpowerandinterestdynamicsintheindustry.furthermore,the participantsmappedthechallengesofdroughtandfloodingforthemainvaluechainsteps. Hence,thedatafromtheworkshopalsoprovideinformationfortheresilienceassessment. Besidesthat,thesecondstagecontainedthemappingofthestudiedsystem.Thebasicsystem mapwiththedifferentvaluechainstepswasdesignedandthenevaluatedbytheexperts.due toinaccessibilityofquantitativedataonthepalmoilvaluechaininsabah,thesystemwas onlypicturedinaqualitativemannerandnomaterialflowanalysiswasdone. 3.3 Stage)3:)Resilience)assessment) Resilience)indicators)and)developed)questionnaires) Inthethirdstage,theresilienceassessmentofthepalmoilvaluechainwasconducted.The assessmentisguidedbyeightresilienceattributes.eachattributehasasetofindicators,which describe them more clearly (Table 1). For each indicator, there is one or more guiding questionsthatweredevelopedbythesaeguidelinestoassessthesystem.bytheseguiding questions, adapted semioquantitative questionnaires were elaborated for the six major stakeholdergroupswithinthepalmoilvaluechaininsabah.thestakeholdergroupswere divided into input suppliers (mainly input trading companies and nurseries), independent smallholder farmers, estates, mills, refineries and transportation companies. The questionnaires were adjusted to the activity and situation of each group. The value chain 12

23 steps,retailingandconsumption,weredeliberatelynotassessed,sincelocalsellingofedible palmoilhadbeenhighlygovernmentcontrolleduntilnovember2016.henceretailersand consumerswerenotsignificantlyaffectedbyfloodinganddroughtevents. Interviewpartnersweremainlyidentifiedthroughasnowballsamplingapproach(cf.[(Reed etal.,2009)]).forcompanies,managersorownersofcompanies,andinsomecasescompany appointedstaffwereinterviewed.intotal,50semioquantitativeinterviewswereconducted andsevenqualitativeexpertinterviewswereheld.theexpertsincludedagovernmentofficer from Malaysian Palm Oil Board (MPOB), academics from University Malaysia Sabah and association representatives from East Malaysian Planters Association (EMPA) as well as MalaysianPalmOilAssociation(MPOA). Table)1:)Description)of)resilience)attributes)and)indicators)(adapted)from)SAE)guidelines)) ATTRIBUTES Exposure%to%pressure Modularity Buffering%capacity Environmental%capital Governance%capacity INDICATORS Pastexperienceofshocks Recoveryfromshocks Diversityofinputs Dependencyonotherstakeholders(numberofsuppliers, ) Diversityoffarms,landscapes,cropsandvarieties Diverseactivitiesforincomegeneration Spatialdistributionofthevaluechainstepsandcompetition Expressionofdiverseopinion Sparefinancialcapacity Sparcapacityofnaturalandbuiltresources Storagecapacitiesandstockswithinthesystem Accesstodisasterriskmanagement Conditionandprotectionofnaturalresources Condition of built resources (transport, energy and communicationinfrastructure,buildingsandmachinery) Accessibility,affordabilityandavailabilityofnaturalinputs Internalnutrientsources Nutrientdepletion Emissionsandwastecycles Effectsofmanagementpracticesontheenvironment AdaptationofcropvarietytothesocioOecologicalsystem CostOeffectivevsenvironmentalthinking Healthstatusofactorsandaccesstohealthcare Livingstandardofactors Transparency,legitimacy,accountabilityandacceptanceof governance Stabilityofthegovernment Collaborationbetweengovernmentunits LongOtermplanning(policies,strategies, ) Capabilitytomanagecrisis(leadership,settingofpriorities, anticipationofproblems, ) Equalityofstakeholders 13

24 Profitability%and% financial%capital Information%and% learning Transformability Fairrights,lawsandpolicies Autonomyandmanagementskillsofactors Investmentinruralinfrastructure Landaccessandtenure SelfOorganisationandnetworkingofactorsenabled Governmentalsupportintimesofshock Insurancecoverage Permanentfinancialflows Fundsforinvestment,maintenanceandexpansion Exposuretofinancialrisk Viabilityoftheprocess(subsidies, ) Profitability(businessasusual) Profitability(timesofshock) Currentlabourmarketanditsadaptationtofluctuation Reliability of communication channels (market prices, weatherinformation, ) Accesstoearlywarningsystems Knowledgebase Educationlevel Levelofexperience Accessadvisoryandextensionservices Accessandinvestmentintoknowledgeandeducation Collaboration with universities, private sector and governmentaldepartments Monitoring and record keeping of quality and environmentalfactors Trustandrespectbetweenactors Opennesstochange(valuesandbehavioursofactors) Learntlessonsfrompreviousshocks Opportunityforexperimentationandinnovation Data)analysis) Thecollectedprimaryandsecondarydatawasanalysedforeachvaluechaingroup.Sincethe majority of data is qualitative, the analysis followed a qualitative measurement. All the collecteddatawasassignedtotherelatingindicatorsoftheattributesforeachanalysedvalue chainstep(seeappendixi).itshouldbenotedthattheamountofdatavariesforthedifferent attributes,dependingontheinterviewanswersandwhetherliteraturecouldbefoundonthe topic.eachindicatorwasratedwithafiveotierscaleresiliencescore(figure4),whichgavethe generalresiliencescoreofthegiveninformation.thescoringofindicatorswasthenweighted regardingitsimportanceforthespecificshock.azeromeantthatthisindicatorisirrelevant toovercometheshock;ascoreofoneindicatedalowimportance;ascoreoftwoamedium importanceandascoreofthreeahighimportance.bymultiplyingtheimportancewiththe generalscorenumber,theshockrelatedresiliencescorewasobtained.thesumoftheshock relatedscorewasdividedbythesumoftheimportancescore,whichgavethefinalresilience scoreoftheattributes. 14

25 Resilience Verylow resilience Low resilience Medium resilience High resilience Veryhigh resilience Score OO O / + ++ Generalresilience score Importanceof question (specificshock) Shockrelated resiliencescore O2to+2 0to3 O6to6 Figure)4:)Rating)scale)for)the)resilience)attributes) 3.4 Stage)4:)Interventions)for)building)resilience) Thefourthstepoftheresilienceassessmentfocusedonidentifyinginterventionstoenhance theresilienceofthestudiedsystem.thisstepwasimplementedbyaoneodayworkshopwith variousstakeholdersofthepalmoilvaluechain.theobjectiveoftheworkshopwastodiscuss the resilience of the palm oil value chain towards drought. In total twentyoone people participatedintheworkshop.theparticipatinggroupconsistedoffifteenparticipantsfrom theprivatesector,oneparticipantfromanassociation,threegovernmentrepresentativesand two staff from TFT. The participants were formed into four groups, namely: smallholders, plantation and input supply, milling and a group that represented the government. The participants representing the input supply and plantation actors were put together in one group due to organisational reasons. In the first session, each group discussed and demonstratedthemajorchallengesandeffectsofdroughtontheiractivities.afterthat,they discussedandratedpotentialinterventionstobebetterpreparedforaprospectivedrought. Attheendoftheworkshop,eachgrouppresentedtheirdiscussionpointsandtheirproposed interventions. 15

26 Figure)6:)TFT)expert)discussion)during)the)first)workshop) Figure)5:)TFT)experts)map)interactions)of)the)value)chain)during)the)first)workshop) 16

27 Figure)8:)Group)discussion)during)the)first)workshop) ) Figure)7:)Poster)discussion)during)first)workshop) 17

28 4 Results)) 4.1 Profile)of)Sabah) SabahisoneofthethirteenstateofMalaysiaandislocatedintheNorthofBorneo.Hillsand mountainscharacteriseitslandscape.theclimateconditionismainlyshapedbythenortho EastMonsoonfromNovembertoFebruaryandtheSouthOWestMonsoonfromMaytoAugust (Osmanetal.,2012).Theannualrainfallvariabilityrangesfrom1700to5100mm. ThepopulationofSabahcountsover3.2millionpeople,whereby61%belongtoindigenous ethnicgroupssuchasbajauorduzun;thebiggestindigenousgroupsinsabah.another9%of the population are Chinese citizens and 6% Malays, which are the biggest ethnic group in Malaysia. 27% of the population are foreigners, which mainly come from Indonesia and Philippines(DepartmentofStatistics,Malaysia2016;Martinetal.,2015). From1888on,SabahwasaBritishprotectorate.DuringtheSecondWorldWar,Sabahwas invaded by the Japanese, but after their liberation from the Japanese occupation, Sabah entered a period of transition as British crown colony and finally joined the Federation of Malaysiain1963(OxfordBusinessGroup,2011).DuetothesoOcalled20Opointagreementthat was elaborated as a condition of unifying Sabah with Federal Malaysia, Sabah maintained partial autonomy in its governance. On account of this agreement, Sabah has an own parliamentaryassembly,anownheadofstateandownconstitution.therefore,sabahhas different laws on the regulation of immigration and land tenure than Peninsular Malaysia (OxfordBusinessGroup,2011). ThemaincontributortotheeconomyofSabahistheservicesector(wholesales,retailtrade, communicationandinformation),whichcontributes40.5%tothegpdofsabah.miningand quarryingsectoristhesecondbiggestcontributorwith25.7%,followedbytheagricultural sectorof22.5%(departmentofstatistics,malaysia,2016).however,35.3%oftotalworkforce in Sabah is employed in the agricultural sector. The main crops are dry and wet paddy, coconut,cocoa,rubberandoilpalm.themostimportantcropinsabahisoilpalmsince87% ofagriculturallandiscultivatedwithit(departmentofstatistics,malaysia,2016). 18

29 4.2 Palm)oil)industry)in)Sabah) Stakeholder)in)the)palm)oil)value)chain)) InTable2,generalinformationonthetotalcapacityofthepalmoilindustryisgiven.Thepalm oil value chain can be divided into four main steps, namely: input supply, production, processinganddistribution(figure9).inthefollowingsection,eachvaluechainstepandthe necessarybackgroundinformationaregiven. Table)2:)Overview)of)palm)oil)industry)in)Sabah)2015) TYPE NUMBER Plantation(ha) 1,544,223 Mills 129 Kernelcrushingplants 12 Refineries 13 AnnualCPO a production(tonnes) 5,722,967 AnnualCPKO b production(tonnes) 1,274,029 a CrudePalmOil b CrudePalmKernelOil% Input*supply* ThemaininputsupplyactivitiesinSabaharefertilisermanufacturers,inputtradingcompanies andnurseries.fertilisermanufacturersimportminerals,blend,mixandstorethemlocally. They either sell their fertilisers directly to plantation companies or via input trading companies.besideslocallyproducedfertiliser,inputtradingcompaniesreceivetheirproducts (fertilisers,pesticides, )frommalaysianandinternationalsuppliers.theyownshopsincities suchassandakanorlahaddatufordirectsalesandtheyalsododeliveriesforbiggerorders. Oilpalmseedlingsareraisedbycompanyownorexternalnurseries.Theinterviewednurseries have around 50,000 up to 300,000 seedlings. They mainly obtain seeds from private or governmentolinkedcompaniesthathavetheirownbreedingprogramandseedsproduction, suchassimedarbyorfelda.oilpalmseedlingsarecultivatedinpolybagsforapproximately ninetotwelvemonthsbeforebeingreplantedintotheplantationfields Production* TheplantationsinSabahcanbedividedintofourcategories(Figure10).Smallholderfarmers are either independent or bound to a governmentointroduced scheme, such as FELDA and FELCRA(MajidCooke,2012).IndependentsmallholdersareautonomousfarmersthatareselfO organizedintheirfinancesandtheirfarmmanagement.incontrast,smallholderfarmers,who areboundtoascheme,haveacontractwiththegivenorganisationandarestrictlysupervised by them. Due to organisational reasons, only independent smallholder farmers were interviewed in this study. The majority of big estates, which range from 100s to 1000 s of hectares,areownedbyprivatecompanies.manycompaniesfocusonoilpalmastheircore business, but especially bigger companies have also diversified their business into other sectors such as property development (Teoh et al., 2001). GovernmentOlinked companies cultivate6%oftheoilpalmplantedarea.usually,thegovernmentisthemajorshareholderof thesecompanies;theyappointtheseniormanagementandareabletomakemajordecisions forthecompanies. 19

30 Figure'9:'Map'of'palm'oil'value'chain'in'Sabah'

31 Independant smallholders 14% Resettlement schemes 8% Privateestates 72% StateSchemes 6% Figure'10:'Distribution'of'oil'palm'area'by'category'(MPOB,'2016)' Oil(palm(( Inthissection,palmoilanditscultivationarebrieflydescribedasabasistounderstandthe resilienceassessmentresultsofthisvaluechainstep. The commercial variety' Elaeis'guineensis grows best in tropical rainforest conditions with annualprecipitationofaround1750to3000mm(sutartaetal.,2016).ingeneral,oilpalms arecultivatedinmonoculturefor20to30years.thefirstffbcanbeharvestedaftertwoto threeyears,whereasthemostproductiveyearsarebetweenninetofifteenyears(basiron, 2007; Woittiez et al., 2017). The global average palm oil yield is 3 t/ha/year, whereas the highestyieldachievementsare12t/ha/year(woittiezetal.,2017).insabah,theaverageoil yields are 4.3 t/ha/year (MPOB, 2016). Harvesting is heavily labourpintense and requires approximatelyoneworkerper15hectares(governmentofmalaysia,2010).plantersstated thatoilpalmisarelativelyrobustplanttowardsclimaticvariabilityanddiseasecomparedto othercrops.oilpalmdependsmainlyonasinglespeciesofweevilforitspollination,namely Elaeidobius'kamerunicus(Fosteretal.,2011).However,thepollinationbytheweevilbecomes lessefficientindryweatherconditionsaswellasexcessiverainfall(sutartaetal.,2016). Furthermore, it should be noted that current environmental conditions and management practiceshaveshortp,midpandlongptermeffectsonthefruitdevelopmentofoilpalmsand hence on the FFB yields (Figure 11). In the shortpterm, effects inducedby environmental conditions and management practices influence the number of flowers and bunch weight, whereas midpterm effects (13 P 25 months) alter the ratio of female and male flowers. In unfavourableconditionssuchasinsufficientrainfall,theratioofmaleflowersishigherand consequentlylessffbaredeveloped.undesirableenvironmentalconditionswillcausefloral abortionorevenbunchfailureinthelongpterm(25p40months).inconclusion,inadequate managementpractices(insufficientnutrientsupply,diseaseattacks, )andadverseclimate conditions,haveaneffectontheffbproductionontheprospectivethreeyears(sutartaet al.,2016). 21

32 Figure'11:'Fruit'development'cycle'of'oil'palm'(Oberthür'et'al.'2012)' Processing// Crude palm oil (CPO) is processed from the outer mesocarp of the fruitlets and their endospermisprocessedintocrudepalmkerneloil(cpko).cpoismainlyusedforfoodpitems, whereas CPKO is processed into nonpfood items such as cosmetics or plastics. In order to achievehighpqualityoil,itisessentialtoharvestthefbbattherightmaturityandtoprocesses them within 48 hours after harvesting. Therefore, mills, which process FFB into CPO, are locatedclosetotheplantationsites.thisprocessobtainsfollowingbypproducts;fibreandshell thatismainlyusedasfuelfortheboiler,emptyfruitbunches(efb)thatcanbeusedasmulch ontheplantationfieldsandpalmoilmilleffluent(pome),whichmayleadtoenvironmental problems if being discharged into the river. However, POME can be used as an electricity sourcefromitsbiogasemissionoritcanbeusedasliquidfertiliser(abdullahetal.,2015). CPKOisprocessedin12kernelcrushingplantsinSabah,whichareeithercombinedwithamill orlocatedclosebyabulkingstation(mpob,2016). ThesecondprocessingstepisimplementedbyrefineriesthatprocessedCPOandCPKOintoa widerangeofproductsfrombiodiesel,oleochemicalsanddetergents(corley,2009).insabah CPO and CPKO is exported to Malaysia or international markets. The remaining CPO is processed in the 13 refineries that are located close to the sea and often have their own bulking station. The largest proportion of CPO is processed to refined, bleached and deodorisedpalmoil,palmoilolein,palmoilstearinaswellaspalmfattyaciddistillate(mpob, 2016).ThegovernmentofMalaysiaintroducedamandatorybiodieselblendof10%palmoil intopetroleum(chow,2016;potter,2015).threerefineriesinsabahalsohaveabiodiesel 22

33 plantthatproducesbiodiesel,whichisthensoldtopetrolcompaniesthatblendtheoil.the governmentregulatesthepalmoilpricesforbiodiesel Distribution/ FFB are either transported directly to the mill by the companypown transportation or by external transport companies. Especially smallholder farmers depend on transportation businesses. In cases, where the mills are located further away, FFB are sold to collection centresthatareownedbythemillsorthirdparties.cpoismainlytransportedbyexternal companies,eitherbyboatsontheriverorviatankertrucks.millsusuallyhaveonetothree yearscontractwithatransportationcompany Governmental/agencies/ Severalgovernmentalagencieshaveaninfluenceonpalmoilindustry.Inthefollowing,the mostrelevantonesaredescribed. MPOB MPOBisthepremierregulatoryagencyofthepalmoilindustryinMalaysia.Thisagencyhas theresponsibilitytoprovidelicensesforthewholepalmoilvaluechain,todoresearchand developmentaswellastoprovidetrainingandtechnicalservicesfortheindustry.mpobis governedbythefederalgovernmentandhasbranchofficesineverydistrictinsabah.their board consists of representatives from the federal government, industry associations and SarawakandSabahstategovernmentofficials(MPOB2016;Wahidetal.,2005). DOSH DepartmentofOccupationSafetyandHealth(DOSH)aimstopreventindustrialaccidentsand diseases.millsandrefineriesmentionedthattheyarerequiredtocomplywiththeregulations ofdoshandthatthisagencyismonitoringthem. EPD TheEnvironmentalProtectionDepartment(EPD)inSabahisresponsibleforenvironmental planning,assessmentandenforcement.hence,theirfunctionistocontrolif,plantations,mills andrefineriesarefollowingtheenvironmentalregulations. DisasterRiskManagementOrganisation TheNationalSecurityCouncilhastheresponsibilityfortherequireddisasterriskmanagement policies.thenationaldisastermanagementandreliefcommitteeistheappointedbodyfor thecoordinationofdisasterrelief,whichincludesseveralgovernmentalagenciesandsocial organisationstoprovideshelter,foodaidandrescueduringdisasters(cfepdm,2016;chan, 2015).Furthermore,disasterriskmanagementisstructuredinthreelevels;national,state anddistrictlevel,whereaseachlevelhasitsownresponsibilities(cfepdm,2016;chan,2015). However,Malaysiaiscurrentlyofchangingitscurrentdisastermanagementsystemandwill setupanewnationaldisastermanagementagency(cf.[cfepdm,2016]). 23

34 Associations' Theinterestoftheprivatesectorisrepresentedbyvariousassociations(Table3). Table'3:'Relevant'industry'organisations' FOCUSOFASSOCIATION NAMEOFASSOCIATION Plantation MalaysianPalmOilAssociation(MPOA) Plantation EastMalaysianPlanterAssociation(EMPA) Palmoilrefiners PalmOilRefinersAssociationofMalaysia(PORAM) Planters TheIncorporatedSocietyofPlanter(ISP) Smallholders NationalAssociationofSmallholders(NASH) Independentpalmoilmillers PalmOilMillers'AssociationofMalaysia(POMA) Stakeholder/categorisation/ InFigure12,thepalmoilindustryactorsinSabaharecategorisedaccordingtotheirpower andinterestlevels.thepoweraxischaracteriseswhichplayershavethepowertocontrolthe system,tomakedecisionsandtofacilitatetheimplementationofnewinterventions.their powermaybedirect(e.g.budget)orindirect(e.g.abilitytocoerceorpersuadeothers).the interestaxisrevealsahighdependencyoftheactorsonthepalmoilindustryandtheirbenefits fromtheindustry.itshouldbenotedthatthediagramisasummaryofthefirstworkshop. Therefore,itindicatesunderstandingandinterpretation,whichtheTFTexpertshadofthe industrydynamics. Theinterestandpowerdistributioninthepalmoilvaluechainrevealsthattheinterestforall theplayersishighsincetheindustryistheirprimarysourceofincomegeneration.thepower distribution, on the other hand, displays vast differences within the industry. Smallholder farmersandindustrylabourersappeartobetheweakestplayersregardingtheirpowerto change the system. All the experts agreed that the bigger the company, the higher their influence on the industry. Large cooperations, as IOI or Wilmar, have the highest power. Internationalpalmoilbuyers,forexampleNéstle,alsohaveacrucialinfluenceonthelocal palmoilindustryinmalaysia. Several governmental agencies are involved in the industry and vary in their interest and powerlevels.mpobisclearlythemostimportantgovernmentalagency.otherdepartments as the Department of Agriculture and Labour Department have a high influence on the industry,butalmostnointerest. Several nonpgovernmental players are indirectly connected with the industry. Academic research,forinstancetheuniversitymalaysiasabahasamajorplayer,isratedwithalow interestintheindustryandlowpowertofosterchange.roundtableonsustainablepalmoil (RSPO), on the other hand, indicates a higher level of influence and dependency on the industry(seesection forfurtherinformationonrspo).therearealsoseveralngos thatdealwithpalmoilindustryinsabah.theyareveryinterestedinmovingtheindustryinto theirdesireddirection,buttheyoftenlackthepowertodoso.thelowestinterestandpower scoreweregiventolocalconsumersaswellaslocalcommunitiesthatareinfluencedbythe palmoilindustry. 24

35 Figure'12:'Power/Interest'categorisation'of'stakeholder'elaborated'at'the'first'expert'workshop' 25

36 4.2.2 Spatial(distribution(( Figure'13:'Spatial'distribution'of'plantation'area'in'Sabah'(adapted'from'[Bryan'et'al.,'2013])' TheentirepalmoilindustryinSabahismainlylocatedintheeasternpartofSabah(Figure13). AccordingtoDepartmentofStatistics,Malaysia(2016),52.6%ofplantationsarelocatedin thesandakandivision,andanother39.9%areinthetawaudivision.asmallproportionof plantations is in the interior and western coast of Sabah. The distribution of the mills is approximatelycongruentwiththedistributionofplantations(interviews).ingeneral,thereis onlyonemainroadthatconnectsmillswiththemajorcities,wheretherefineriesandports arelocated.therefore,mostofthetransportspassthroughthesameroad(figure14).the refineriesarelocatedintheindustrialclusterofsandakan,lahaddatuandkunak,whereitis furtherprocessedorshippeddirectly.afurtherportthatdealswiththeshipmentofoilpalm productsislocatedintawau. Figure'14:'Industry'relevant'infrastructure'in'Sabah'(adapted'from'[Google'2017])' 26

37 4.2.3 Drivers(of(change( Climate/variability/ TheusualweatherpatternsinSoutheastAsiaareoccasionallydisturbedbythesoPcalledEl NiñoSouthernOscillation,whichisaphenomenonthatappearseverytwotosevenyears. During El Niño years, the sea surface temperature in the central and eastern Pacific raises aboveaverage.thisleadstoachangeofthetradewindsandthesealevelpressureoverthe Pacific.Asaresult,thereisadecreaseinprecipitationandthetemperaturesriseinSouthEast Asia. El Niño years are often followed by the reversed cycle called La Niña. La Niña phenomenonappearsduringacoolingoftheseasurfacetemperatureandthereforerainfall increasesandinsomeregions,itcausesfloods.usuallyelniñoandlaniñadevelopovera periodof9to12monthsandexperiencetheirpeakbetweendecembertoapril.theseverity ofelniñoandlaniñadependonthemeasureofchangeinseasurfacetemperatureandits duration.accordingtoclimatepredictioncenter(2016),thelastthreeseverestelniñoevents appeared in 1982/83, 1997/98 and 2015/16 and the severest La Niña years in 1973/74, 1975/76 and 1988/89. Moderate El Niño years occurred in 2002/03 and 2009/10 and moderatelaniñayearsin07/08and10/11and98/99.malaysianmeteorologicaldepartment (2009) confirms that the driest years in Malaysia appeared during El Niño years and the wettestyearscorrelatedwithlaniñayears. ElNiñoyearsnotablyaffecttheFFBproductioninSabah.TheElNiñoeventin2015lastedfor 19monthsandledtoreducedrainfall,lessrainydaysandhighertemperature.Hence,the palm oil industry was significantly affected by this shock. TheCPO production in Sabah decreasedby30%infebruaryand14%overthewholeyearcomparedtotheaverageof2007 until2015(figure15). CPO('000TONNES) CPOProductioninSabah2007P2015/ Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec MEAN2007P Figure'15:'Decrease'in'annual'CPO'production'in'2016'(MPOB,'2016)' LaNiñayearshaveoftenledtofloodeventsalloverMalaysia.Floodingisthedisasterwiththe highestfrequencyinmalaysia(cfepdm,2016;chan,2015).thereareannualfloodsduetothe seasonalmonsoonfromnovemberuntilmarch,towhichthepopulationhasadaptedwell,for examplebythetraditionalhousesonstilts.however,therearealsomajorfloodevents,which causehighlossesinlifeanddamagetoinfrastructure,propertiesandcrops.governmental supportisessentialinsucheventsbecausepeopleareoftenrequiredtobeevacuated(chan, 2015).Smallerannualandunexpectedmajorfloodeventshaveaninfluenceonthepalmoil 27

38 industry.forexample,harvestingactivitiesarehinderedandroadsbecomeimpassablefor thetransportationofffborcpo.insabah,ahighlyfloodpproneareaisthekinabatanganriver, whichissurroundedbyhundredsofhectaresofpalmoilplantations.teohetal.(2001)explain thatin2000,amajorfloodeventcoveredover10 000haofpalmoilplantations(Figure16) andcausedlossesofapproximatelyrm10million(2.25millionusd),duetothedestruction ofimmatureoilpalmseedlings. Figure'16:'Major'flood'along'Kinabatangan'river'in'2000'(Teoh'et'al.,'2001)' The/economy/of/palm/oil/in/Sabah// TheMalaysiangovernmentviewsthepalmoilindustryasakeysectorfortheeconomyin Malaysia.In1960,thegovernmentrecognisedthepotentialofoilpalmandbegantoinvestin thisindustry;asaresult,oilpalmbecametheirleadingagriculturalcommodityinthe1980s (Rasiah&Shahrin,2005).Furtherpoliciessuchasthefiscalmeasuresintheformofexport dutiesandincentives,boostedtheprocessingsectorinmalaysia(laietal.,2015;rasiah& Shahrin,2005).Thegovernmentfurtherinvestedininfrastructureaswellasinresearchand development and committed to promoting the industry in the global oil and fats market (Cramb & Curry, 2012; Lai et al., 2015; Rasiah & Shahrin, 2005). The current Economic TransformationPlanstatesthestillpresentobjectivesoftheMalaysiangovernmenttoboost thepalmoilindustryasameasureofeconomicdevelopmentinordertobecomeadeveloped countryin2020(governmentofmalaysia,2010;potter,2015). InSabah,theeconomyishighlydependingonoilpalm.Palmoilproductsaccountfor36.7% oftheexportvalue,besidespetroleumthataccountsfor40.2%.hanim(2016)statesthatthe currentproductioncostpertonneofcpoisonaveragearoundrm1800(405usd).unlike othercommodities,cpopriceshavesteadilybeenrisingoverthepastdecades.thepricehas more than doubled between 1980 and 2015 (Figure 17) (MPOB, 2016). Many of the interviewedplantationownershavepointedoutthattheindustryhasbeenhighlyprofitable inthepastyears. Sinceoilpalmproductsaremainlytradedontheglobalmarket,variousfactorsinfluencethe pricedevelopment.onetheonehand,thepricesarecloselyrelatedtotheglobalvegetable prices,sincedifferentoilscanbeusedassubstitutes.ontheotherhand,sincemorethan85% ofoilpalmisproducedinsoutheastasia,theelniñophenomenonaffectsupplysignificantly, andconsequentlythedemandandpricesincreasedduringandaftertheelniñoevent.since themalaysiangovernmenthasinitiatedaminimumblendofpalmoilasbiodiesel,theprices 28

39 havealsobeenlinkedtotheglobalpetroleumprices(interviews).thetradingcurrencyofcpo isusd;consequently,thecurrencyexchangerateofrmandusdisanimportantfactorfor theprofitabilityofthepalmoilindustry. AverageannualCPOpricesinRM CPOprices1980P2015 Figure'17:'Development'of'CPO'prices'(MPOB,'2016)' Labour/shortage/ Thepalmoilindustry,especiallytheplantationactivitiesareheavilylabourPintense.Activities suchasharvestingofffb,thecollectionoffruitsorrecyclingofcropresidueshasbeendifficult tomechanise;thereforethedemandforworkershasbeenveryhigh.sinceplantationworkis physically exhausting and the wage rates are relatively low compared to other jobs, Malaysiansdonotdesiretoworkonaplantation.Consequently,thepalmoilindustryinSabah depends on foreign labour, which is mainly from Indonesia and the Philippines (Corley & Tinker,2015;SayedMahadi,2014). However,theindustryhasexperiencedashortageoflabourintherecentyears.Apparently, plantations in Sabah lack over 35'000 workers (Azman, 2012). The consequence of the insufficientlabourforceisthattheproductivityofplantationsdecreasesnotably.ffbrotand arenotdeliveredtothemillswithintherequiredtimespanof48hours.someinterviewees alsoacknowledgedthatcertainmanagementpractices,suchasapplyingefbonthefieldsas naturalfertiliserandmulch,arenotdone,duetotheinsufficientlabourforce. Oneofthemainreasonfortherecentshortageistheexpansionofthepalmoilindustryin Indonesia and the increase of Indonesian salaries in their oil palm plantations. Indonesian workersarepreferredbythemalaysiancompaniessincetheyareconsideredtohaveabetter workingmentality,andtheyareabletocommunicateinthelocallanguage(alametal.,2015). Nonetheless,duetotheclosinggapbetweensalaryoffersinthetwocountries,Indonesian workersareencouragedtoreturntotheirhomecountry. Besides the economic dimension, the labour issue is related to social and legal matters. Foreignworkersareoftenbeingdiscriminatedbythelocalauthoritiesaswellasbythemedia andthelocalpopulation(majid,2009).inaddition,itisrelevanttonote,thatahighnumber oftheworkersareillegallyinsabah(accordingto[sayedmahadi,2014]actualnumbersare difficulttoestimate)andlegalisationofworkersarecomplicatedandcostly.althoughthese 29

40 issuescouldbeelaboratedfurther,itwouldbeoutofthescopeofthisstudy.however,the issueoflabourshortageisrelevanttobearinmind,sinceithasaninfluenceontheresilience ofthewholepalmoilvaluechaininparticularmatters Land/titles/ In Sabah, agricultural development counted as one of the major drivers of deforestation (Osmanetal.,2012).Between1990and2008,Sabahlostmorethanhalfoftheirintactforests, which is around 1.85 million ha (Osman et al., 2012). The government of Sabah has acknowledgedthisissueandhasdesignatedspecificareasinsabahasprotectedarea(bryan et al., 2013). Because of these forest conservation policies, opportunities for extensive plantationsisbecominglimitedinsabah(governmentofmalaysia,2010).thereforemany plantation companies seek to expand their palm oil business in Indonesia (Interviews; GovernmentofMalaysia2010). Afurtherissueinthepalmoilindustryisthelandtenuresysteminparticularforsmallholder farmers(martin et al., 2015). The majority of the interviewed smallholder farmers did not haveownershipoftheirland(majidcooke,2012).accordingtothesabahlandordinance 1930,nativepeoplehavetherighttoapplyforanativetitlefor8ha.Ifnoapplicationofland ismade,thelandbelongstothestateofsabah(lunkapis,2013;majidcooke,2012).however, obtaining a land title as a smallholder is very challenging and often requires several years (Interviews,MajidCooke2012).Thereasonforthisisthattheprocessishinderedbyhigh bureaucracy and inefficient processes (Interviews). Apparently, several departments are requiredtogivetheirapprovalforthelandtitle,buttheircollaborationhasbeenstatedas marginal(interviews).furthermore,someintervieweesraisedtheconcernofcorruptionthat prolongsandbiasestheprocess. Consequently,untitledland,eventhoughitmaybecustomarylandandsmallholderscultivate it,thelandbelongstothestateofsabahandisvulnerabletothediscretionofthestateand landusechange(cooke,2013).inthestudyofmartinetal.(2015),severalfarmerswereaware of cases of land grabbing, since smallholder farmers did not have any acknowledged legal claim on their land. The uneven power distribution between native communities and the government,makesmallholdershighlyinsecureabouttheirlandrightsandsubmitvastareas oflandundergovernmentalcontrol(majidcooke,2012).thecurrentregulationshaveledto the promotion of large scale estates instead of protecting customary land (Cooke, 2013; Nesadurai,2013;Interviews).Consequently,opportunistsmaytakeadvantageofunresolved land titles situations (Lunkapis, 2013). However, native communities are fairly limited in raisingtheirconcernsbeforethegovernment(lunkapis,2013) Demand/for/sustainable/palm/oil// Intherecentyears,thepalmoilindustryhasbeenhighlycriticisedaboutthedeforestationof rainforest and further environmental and social issues on the ground. Hence, western consumersandngoshaveincreasinglydemandedsustainablyproducedpalmoil(martinet al.,2015;oosterveer,2015).privatecompaniesandgovernmentalstakeholdershavestarted toacknowledgetheseissuesandhavetakentheinitiativetoaddressthem(choong&mckay, 2014;Oosterveer,2015).Themostknownandinfluentialsustainabilityinitiativeintheglobal palmoilindustry,aswellasinsabah,isrspo(oosterveer,2015).rspowasfoundedin2004 by different global stakeholders such as planters, processors, retailers and NGOs and is a voluntarymembershipassociationwithover3000members(oosterveer,2015;rspo,2017). 30

41 Severalcriteriaandprinciplesweredevelopedinordertoaddressthekeysustainabilityissues intheglobalpalmoilindustry.certifiedcompaniesarerequiredtofulfilthegivencriteria. TodaywesternmarketsincreasinglydemandpalmoilthatiscertifiedbyRSPO(Oosterveer, 2015). The issue of sustainability, as well as RSPO certification, is a wellpknown and commonly discussed topic by industry stakeholders in Sabah. Several interviewees pointed out the benefits of complying with RSPO standards and the positive impact it is having on the companies operationsandtheenvironment.onemillmanager,forexample,pointedoutthe positiveimprovementsintheiroperationsregardingsafetyandhealthissues.nonetheless, RSPOinitiativehasincreasinglybeencriticisedtobeineffectiveinachievingsustainabilityon thegroundandthatitimposeswesternstandardsonlocalproducers(oosterveer,2015;sheil etal.,2009;teoh,2010).furthermore,severalcompaniesimplythatthecertificationprocess istoocostlyandtoocomplicatedtocomplywith(basiron&yew,2016;interviews).whether certifiedornot,stakeholdersinthepalmoilindustryareincreasinglyawareofthetopicof sustainabilityandcumulativelyimprovetheiroperationoftheircompanies. 31

42 4.3 Resilience(assessment( Resilience Score Verylow resilience Low resilience Medium resilience High resilience Figure'18:'Resilience'scale'for'Table'4'to'10' Veryhigh resilience Wholevaluechain ThissectionassessesdataandchallengesthataddressthewholepalmoilvaluechaininSabah. Thepresentedfactorspointoutthegeneralresilienceofthepalmoilindustrythatinfluences theresilienceofthesystemtowardsdroughtandfloodingdirectlyorindirectly. ' Table'4:'Resilience'score'for'whole'value'chain' Attribute Drought Flooding Exposuretopressure Modularity Bufferingcapacity Environmentalcapital Governancecapacity Profitability&fin.cap. Information&learning Transformability ' ' Exposuretopressure' The drought in 2015/16 affected all stakeholders in operational or financial aspects. The recoverywilltakeatleastthreeyears,becauseofeffectsofinsufficientrainfallonoilpalm yields(seesection ).ingeneral,thevariousactorswereabletoenduretheshockand havebeenonthetrajectoryofrecovery.sincefloodingisanissuethatoccursmorefrequently inthepalmoilindustryandonlyinspecificareas,thepalmoilindustryhasadaptedbetterto thisshockandthereforerecoversfaster. Modularity Ineveryvaluechainstep,therearesufficientsuppliersandbuyersavailablewithoutevident monopolies.acriticalissueregardingthewholepalmoilvaluechainistheuniformityofthe landscapesincevastareasarecoveredwithoilpalmmonopcropping.thegeneticvariabilityis further reduced, as most of the plantations cultivate the same variety, namely Tenera.' Furthermore,sinceoilpalmisoneofthemajorcontributorstotheeconomy,adepressionof theoilpalmindustrywillaffectthewholeeconomyinsabah.forinstance,palmoilcompanies implementcostpcuttingmeasuresduringtimesofdrought,suchasreducingtheirordersfor sparepartsornotinvestinginnewmachinery.asaresult,companieslikehardwarestores andmechanicstoresexperienceahighdecreaseintheirprofits.therefore,itcanbestated thatadisturbanceinthepalmoilindustryaffectstheeconomyinsabahtoalargedegree. Bufferingcapacity Duetothedecreaseinrainfallin2015/16,waterscarcitywasanissueforthepalmoilindustry and the local communities. No interviewee received support from the government to overcomethisissue.oneoftherefinerymanagersalsomentionedthatespeciallyinlahad 32

43 Datusufficientwatersupplyfromthepipelineisnotalwaysguaranteed.Therefore,theywere requiredtobuywaterfromotherlocalsources,whichincreasedtheirproductioncost. Regardingflooding,thedisastermanagementorganisationsareessentialtoovercomemajor floodevents.thereactiontowardsfloodingbythegovernmenthasimprovedoverthepast years, and evacuation and relief aid appear to function considerably well. Chan (2015) acknowledges the Malaysian flood mitigation policy as commendable when he takes into consideration that Malaysia is still a developing country. Today the budget allocates 1.17 billionusdforfloodmitigationmeasures,whichisa256pfoldincreaseinbudgetsincethefirst Malaysianplanin1971(Chan,2015).Interviewedsmallholderssaidthattheircommunities received adequate support when floods hit them. They were evacuated, if needed, and providedwithshelterandfoodaid.however,themainfocusofthedisasterriskmanagement organisation is on flooding, and none of the interviewees received any support during the recentdrought. Environmentalcapital AsexplainedinSection ,vastareasofforesthavebeenloggedinthepreviousdecades. However,thegovernmentofSabahhasrecognisedtheimportanceofconservingforestarea forbiodiversityandwildlifeconservation.hence10,415km 2 (14%)oftheareaofSabahhas beendeclaredasprotectedarea(bryanetal.,2013). Nonetheless, it is criticised that for instance the Kinabatangan area should have been protected under forest reserve and not been released for private companies to establish plantations(interviews).itisdebatedthattheplantationsalongthekinabatanganriverare severely flooded in certain years, because of logging and clearance of land for plantations (Teohetal.,2001).Hence,thedestructionofthenaturalecosystemandplantinginafloodP proneareahascausednegativeimpactsontheplantationsthemselves. The previous logging of forests and planting oil palms has also had an adverse impact on biodiversity(fitzherbert et al., 2008). However, the advantage of oil palms is that its long lifespanenablesthedevelopmentofastableecosystemcomparedtootherannualoilcrops (Alametal.,2015). Although profitability has the highest priority in the industry, the thinking of the industry aboutenvironmentalprotectionhasgraduallybeenchanginginthepastyears.asaresult, management practices in plantations and processing companies have become more environmentalpfriendly.severalintervieweesalsostatedthattheepdhasbecomestricterin itsenforcementinrecentmonths.hence,theenvironmentalcapitalanditsimportancehave becomemoreimportantinsabah. Governancecapacity Malaysiaisseenasapoliticallyandeconomicallystablecountrywithreliablepolicies.Asa result,malaysiahasexperiencedeconomicdevelopment,whichisreflectedinasteadyannual GDPgrowthof6.5%between1957and2005(Amran&Devi,2008;Hagenmeier,2015).The GDPofthecountryispredictedtogrowfurtherbetween5to6%peryear,andMalaysiaaims tobecomeadevelopedcountryin2020(mutalib,2017).however,thedevelopmentofthe 33

44 country is questioned, due to its ethnical division and corruption in the political system (Haque,2003;Mutalib,2017). ThepopulationinMalaysiahasacomplexethnicalstructurethatisdividedintoseveralgroups withtheirownreligions,languagesandcultures.duetohistoricalreasons,theethnicmajority, sopcalledbumiputrasormalayshavereceivedspecialprivilegesandrightsthatinfluencemost domains of society including politics, business and education (Haque, 2003). For instance, Malays may receive business incentives, and a certain proportion of study places at universitiesarereservedforbumiputras.thepreferenceofthebumiputrasaffectsthesociety as a whole, whereas NonPBumiputras feel neglected and often leave the country(haque, 2003).AfewoftheChineseintervieweesconfirmedthattheyaredisaffectedwiththecurrent politicalsituation.nonetheless,itwasdifficulttoassesstowhatextenttheethnicaldivision affectsthepalmoilindustry.exceptthatmanywellpeducatedpeopleleavethecountry,which reduces the pool of human resources in the industry and that neglected ethnicities dislike makingfurtherinvestmentsintothepalmoilindustry. Thetransparencyofthepoliticalsystemisalsoquestioned,duetocronyismandcorruption issues(hagenmeier,2015;mutalib,2017).accordingtothecorruptionperceptionindexin 2016,Malaysiascores49outof100points,whichclearlyindicatesthatcorruptionoccurs.In Sabah, a major corruption scandal has been revealed by the Malaysian AntiPCorruption Commission.GovernmentalofficialsoftheirrigationanddrainagedepartmentinSabahare accusedofhavingevadedrm3.3billion(470millionusd)fromstateaccounts;moneythat was allocated to water projects in Sabah (Berita Daily, 2016; Borneo Today, 2016). This corruption case directly influences the resilience of the palm oil industry by reducing the constructionofwaterharvestingandwaterprotectionschemesinruralareas(borneotoday, 2016).Furthermore,insidenotes,intervieweesoftentouchedonthetopicofcorruptioncases betweenthegovernmentandpalmoilindustry. RegardingMPOB,theprivatesectoracknowledgesitastheleadinggovernmentalagencyin the industry, but most of the interviewees held back their opinion about the credibility of MPOB.PrivatesectorstakeholdersoftenmentionedthatMPOBisstrongincertainareassuch as licencing, research and advisory. However, in certain subliminal remarks, they criticised certainoutputsofthisagency.accordingtothem,theresearchdonebympobisnotaligned with the needs on the ground. Furthermore, there is no longpterm vision in governing the industry.itwasalsosaidthatempa,forexample,isanassociationthatisabletocoordinate wellwithmpobandcanraiserelevantissuestothem.ampobofficeralsoclaimedthatmpob doesnotcoordinatewellwithothergovernmentaldepartments.thiscollaborationwouldbe relevanttorespondtocertainissuessuchasrapidprocessingoflandtitleapplications. Furthermore, the Malaysian healthcare system is regarded as relatively strong and well accessible for the whole society (CFEPDM, 2016). In principle, health care is affordable, accessibleandseenassupportiveintimesofshock.forexample,somesmallholderfarmers explained that they were informed about certain disease problems that appear during droughtperiodsandtheyweregivenadviceonhowtopreventthem. Financialcapitalandprofitability In Malaysia, all employers are obliged to contribute to SOCSO, the Social Security Organisation, which provides social security protection for all workers. Employees are 34

45 provided with free medical care and financial assistance in case of accidents or disease. According to Chan (2015), other insurance such as flood insurances are insufficiently elaboratedtosupportfloodvictims. The palm oil industry does not receive any subsidies, except for replanting plantations. Becauseofthehighprofitability,theoilpalmindustryactorsareimposedwithhightaxations. Thetaxescompromiseofacorporatetaxof25%,arecentlyintroducedGoodsandServices Tax(GST)of6%andasalestaxof7.5%.Iftheoilpalmpricesincrease,thereisasoPcalled windfallprofitlevyof7.5%oreven15%dependingontheoilpalmprice.inaddition,afeeof RM 13 (2.9USD) per tonne of CPO is ascribed to MPOB. Other payments towards the government include CPO export duty, licencing and inspections fees and import duties on agriculturalmachinery(hanim,2016).inthearticleofhanim(2016),itisestimatedthatthe totaltaxesandfeesofthepalmoilindustrycontributeapproximatelyrm5.46billion(1.23 billionusd)tothestatecoffers. Informationandlearning Several interventions increase the knowledge development in the industry. Most of the company managers have studied at a university in Malaysia or abroad. Palm oil specific knowledgeisdistributedthroughseveralindustryjournals,conferenceandeventsorganised bytheprivatesectororgovernmentalagencies.biggercompaniesinvestmoneyintheirown researchanddevelopment.thegovernmentpsupportedresearchismonopolisedbympob, whereasthefacultyofsustainableagricultureattheuniversitymalaysiasabahhaveasmall stakeinresearchonoilpalm. Regardingrecords,MPOBkeepsdataonyields,stocks,pricesandexports.However,further statisticsisoftennotavailable,forinstance,theappliedmanagementpracticesintheindustry. MPOBalsosetscertainstandardsintheFFBandCPOqualitythattheindustryneedstocomply with. Furthermore,accesstoinformationhasimprovedinrecentyearsthroughinternetaccess.The quality,pricingandaccesstointernetinmalaysiaareratedasverygood(freedomhouse, 2015).Eventheinterviewedsmallholderfarmershadcellphoneswithinternetaccess.Early warningsystemsandfloodforecastshavebeenputintoplaceallovermalaysia.thereare217 flood sirens, 84 flood warning boards, various systems on the dissemination of warnings throughmassmediabroadcastingssystems,publicannouncementsaswellasahotlinefor disasterreporting(cfepdm,2016;chan,2015).themeteorologicaldepartmentrecordsthe weather changes all over Malaysia and informs about upcoming El Niño and La Niña appearances. Transformability Itisdifficulttoassesstheentirepalmoilindustryandtheinstitutionalandsocietalframework itisembeddedinregardtoitstransformability.therefore,onlyfollowingindicationscanbe noted. The government has adapted to flood events by investing more funding in disaster risk management.chan(2015)arguesthatthedisasterriskmanagementisontherightpath,but therearestillvariousimprovementsrequired.forexample,thepresentapproachshouldbe 35

46 changedfromatoppdowntoaratherhorizontalapproachthatcanincreasinglyempowerthe localcommunities. Currently, the government has not given significant support to the victims of the recent drought by El Niño. Hence, the transformability score is lower for drought than for flood events Inputsupply ' Table'5:'Resilience'score'for'the'input'supply'sector' Stakeholder Inputtradingcompanies Nurseries Attribute Drought Flooding Drought Flooding Exposuretopressure Modularity Bufferingcapacity Environmentalcapital Governancecapacity Profitability&fin.cap. Information&learning Transformability Exposuretopressure The main consequences of El Niño phenomenon on the input suppliers was a decrease in productsales.weedsaregrowingslowerwithlessrainfall;therefore,companiesapplyless herbicide.dependingontheplantingcompany'spolicyorthefarmer'sopinion,lessfertilisers areappliedandbought.furthermore,plantationsdonottransplantseedlingsduringthedry season, so that sales of seedlings decrease during the drought event. However, all the interviewedbusinesseswereabletoendurethistimeofdrought. IncontrasttoElNiño,alltheinputsuppliersmentionedthatfloodinghadnotbeenarelevant shock for them since their nursery or shops are in floodpproof areas. Flooding sometimes hindersthedeliveryofproductsforafewdays;however,theirsalesareusuallynotaffected. Modularity The interviewed inputs suppliers mentioned that especially in Sandakan, there is a high competitionbetweentradingcompanies.nurseries,incontrast,areratherscarceinsabah. Alltheinputsuppliersmentionedthattheyhaveseveralbuyersforinputs;fromsmallholders uptobigpscaleplantations.inaddition,tradingcompaniesalsohaveahighvarietyofproducts, which they buy from many different national and international suppliers. Nurseries by contrastonlyselloilpalmseedlingsasaproduct.thisisagreaterriskfortheirbusinessincase theirseedlingproductionfails.however,nurseryownersoftenhaveanotherincomeapart fromtheirseedlingsellingbusiness,suchastheirownplantation. 36

47 Bufferingcapacity Sparefinancialcapitalisthemostimportantbufferingcapacityforinputsuppliers.Mostof the companies have own savings to overcome uncertain times. However, input suppliers mentionedthatbankloanswouldbeaccessible,buttheinterestrateissohighcomparedto theirmarginsthatitisnotworthwhilehavingabankloan.inthecaseofnurseries,despite financial capacity, the most important spare capacity is water. Therefore, most of the nurserieshavebuiltpondstostorewater,andmostofthemhaveinstalledirrigationschemes. Suchinfrastructureisacrucialassetintimesofdrought.Inputtradersalsomentionedthat they have sufficient storage capacity. However, none of the interviewees stated it as an exceedinglyimportantassettoovercomeadroughtorfloodevent. Fornurseries,alimitingfactor,especiallyduringtimesofdrought,istheavailabilityofland, sothatallthegrowingseedlingscanbestorediftheyarenotsold.oneofthenurseryowners stated to have made a significant financial loss since they needed to throw away a large numberofseedlingsduetoinsufficientspace.however,mostofthenurserieshavesufficient landfortheirproduction. Environmentalcapital Asmentionedabove,waterisoneofthemostimportantfactorsofrunninganurseryduring timesofdrought.alltheinterviewednurserieshadanirrigationscheme.however,onlyhalf of the interviewed nurseries applied mulching on the polybags to preserve water and minimiseweedgrowth.nurseriesapplyvarioussyntheticfertilisersandherbicidestoincrease theirproduction.theymentionedthatorganicfertiliserisrelativelyexpensivecomparedto synthetic fertiliser. Input trading companies mostly sell nonporganic products, since the demand for organic products has been low. Nonetheless, there are some pioneers that promoteorganicinputs. Governancecapacity Input suppliers are selfpreliant businesses that are able to make a fair living out of their activities.allinterviewedinputcompaniescouldendureandrecoverfromdroughtandflood events. However, most of the interviewees expressed underlying criticism against the governmentsincethegovernmentisnotinvestingsufficientlyinthepalmoilindustryanddid notofferanysupportduringtheirchallengingtime. Financialcapitalandprofitability Input trading companies explained that in general, they had been able to make a profit. However,thepastfewmonthshavebeenverychallengingfinancially,duetotheintroduction of GST, the raise of the minimum wage and the recent El Niño event. They said that GST reduced the purchasing power of customers; therefore, they had fewer sales.theriseof salariesincreasedtheirmanagementcosts.someoftheinputsuppliersindicatedthattheir sales decreased by 20% to 60% during 2016, because of the abovepmentioned reasons. However,mostofthemacknowledgedElNiñoasasignificantcontributortothehighdecrease insales. Oneofthemainissuesintheinputbusinessarelowmargins;especiallyforfertilisers,which arearound3to5%,sometimesupto10%dependingontheproduct.themarginscanfurther bepressuredbythehighvariabilityintheproductpricesonthemarket.someinputsuppliers mention that they buy "fastpmoving" products that sell quickly, to reduce their risk. In 37

48 addition,mostoftheintervieweessaidthatbankloansareaccessible,buttheinterestrates are compared to their margins so high, that it is not profitable to have a loan. Hence, companiesonlydependontheirownsavingsduringtimesofshock. Inprinciple,tradingcompanieshaveinsurancesthatcoverbuildingsandstocksagainstfire andtheft;theycontributetothegovernmentalsocsofundfortheiremployees,andthey haveinsurancefortheirtransportvehicles.nurseriesonlyhavesocsofortheiremployees. Informationandlearning Inprinciple,inputsuppliersstatedthattheirrelationshipwiththeircustomersissatisfying. They give free advice to their clients on how to use their products properly or how to do transplantseedlings.theyalsomentionedthatthecommunicationbetweenthemworksvery wellandthattheinputdeliverycanbepostponedwithoutanycomplicationsinthecaseof flooding.furthermore,itcanbesaidthatmanagersofinputcompanieshavearelativelyhigh educationstandard. Fornurseries,thequalityofseedlingsisessentialsinceitaffectstheircustomersforthenext 20 years. Hence, nurseries actively monitor the quality of their seedlings and cull them frequently.however,itwasnoticedthatnurseryownerswerenotverywellinformedabout thedifferenthybridsonthemarket. Transformability Itwasobservedthatwithintheindustrythefocusisstronglyoncommonproductsinsteadof experimenting with new products. Nonetheless, some pioneers evaluated and tested new products,forexample,theinoculationofsoilwithmycorrhiza.therefore,itcanbestatedthat thereisroomforexperimentationandinnovation.however,itisstilldifficulttoconvincethe majorityofinputsupplierstoinvestinnewproducts. Furthermore,itcouldbeobservedthattradingcompaniesoftendidnotmodifytheircompany management,althoughdroughthadasignificantinfluenceontheirsales.themanagersof tradingcompaniesoftenrepliedthattheydonotknowwhattoimprovetobebetterprepared for a next drought or flood event. Nursery owners, on the contrary, think about how to prepareforanextdrought.forexample,theyaimtosellmoreseedlingsbypreporders,so thattheycanplantheirseedlingproductionbetterandreducetheirriskofnothavingany buyersduringdroughtperiods Smallholders Table'6:'Resilience'score'for'smallholder'farmers' Attribute Drought Flooding Exposuretopressure Modularity Bufferingcapacity Environmentalcapital Governancecapacity Profitability&fin.cap. Information&learning Transformability 38

49 Exposuretopressure Thedroughtin2015/2016severelyaffectedtheinterviewedsmallholderfarmers.Theystated thattheiryieldsdroppedimmensely;dependingonthesmallholders,from3to1tffb/month, 3to2tFFB/monthoreven12to2tFFB/month.However,sincemostofthefarmersdonot keeprecords,itisdifficulttostateanaccuratenumberofyieldreduction.forsmallholder farmersthatwereinthereplantingstage,beetleattacksweretheseverestissue.besidesthe high yield reduction, some of the farmers faced water shortage for their household consumption. Some even mentioned a case of cholera in their community, due to contaminateddrinkingwater. Dependingonthearea,someofthesmallholderfarmershavebeenexposedtoflooding.Some mentionedfloodsthatonlylastforoneday,howeverinsomeareasfloodinglastedfortwoto threeweeks.mostofthefarmhousesarebuiltonpoststoinhibitfloodingoftheirhouses. Duringaflood,FFBcannotbeharvested;therefore,theyloseoneortwocroppingcyclesof the24cyclesinayear.besidesflooding,excessiverainfallmakesharvestingmoredifficult, androadsaremuddysothattheyoftencouldnotpassthroughwiththeirtrucks. Modularity Smallholderfarmershaveahighmodularityregardingtheirnumberofsuppliersandbuyers. Dependingonthelocationoftheirfarm,theyareabletodelivertomorethanonemill,which benefits them in case mills closes temporarily. However, mill managers also mentioned farmersthathaveamorethan50kmtotheclosestmill. Smallholderfarmersprimarilydependonoilpalmfortheirfarmincomeandhavesomefruits and chickens for home consumption. Some farmers sell their fruits and vegetables on the market.othersmallholderfarmershaveanadditionalincomesourcesuchasagovernmental pension.themostrelevantsourceofmoneyisthesupportofchildrenthathaveajoboutside ofthefarmandthatstillsupporttheirparents. Bufferingcapacity As stated above, water access was a major problem for farmers during times of drought. Althoughsomeofthemhavewatertanksandpondsforwaterharvesting,theirwatersupply was often not sufficient to meet the household needs. One of the reasons is that the governmenthasnotbuiltwaterpipelinesincertainareastoprovidefreshdrinkingwaterto thelocalcommunities. Most interviewed smallholder farmers could sustain their basic living needs in times of droughtorflooding,becauseofadditionalincomeorsupportfromafamilymember.iftheir housingareawasflooded,thegovernmentsupportedthemwithboats,shelterandfoodaid. Mostofthefarmerswerecontentwiththegivenrescuesupportfromthegovernment. Environmentalcapital Palm oil as explained in Section , is compared to other crops very resilient towards drought and flooding. However, there is a big difference between the proposed best management practices by big industry players and the management practices that smallholderfarmersimplement.hence,theaverageyieldsofsmallholderfarmersinmalaysia are around 17 t FFB/ha/year compared to the national average of 21 t FFB /ha/year (Government of Malaysia 2010). The reason, therefore, is that most of the smallholder 39

50 farmersdonothaveascheduledfertilisationplan,pruningisoftennotdoneasrequired,no covercropsaresown,andmostofthemdonotapplyefb.consequently,yieldsarelower, erosion increases during higher rainfall and the moisture retention in the soil is lower comparedtobiggerestates. Governancecapacity Smallholderfarmershaveadecentlivingstandard,whichmeansthattheyareabletoprovide sufficientfoodfortheirfamilies,theyhaveanacceptablehousingstandard,andtheirchildren cangotoschool.somesmallholdersevenearnenoughmoneytoleaseafourpwheelcar,so thattheycantransportffbtothemillsthemselves.however,thecommunitiespointedout thelackingsupportofthegovernmentconcerningroadsystemorthewatersupplyfortheir households.asdiscussedinsection ,oneofthebiggestissuesforsmallholdersistheir accesstolandtitles.manyfarmersstatedthatthegovernmentsupportinprocessingtheir land titles is minimal and that it costs them lots of money to go through the application process.furthermore,intervieweesrevealedthatsmallholderfarmersoftendonotplantheir next business step or prepare for an anticipated shock, since they often lack the financial capacityortheknowledgetoimprovetheirfarmingsystem. Financialcapitalandprofitability Smallholdersareusuallynotinsured,exceptfortheleasedcars,whicharerequiredtohave insurance.palmoilproductionhasincreasedinpopularityoverthepastyearssinceitisavery profitablecrop.manyfarmershavestatedthattheyusedtocultivaterubberorpaddy,but sinceoilpalmgivesahigherrevenue,theychangedtheirfarmingsystem.smallholdersreceive amonthlypaymentfromthemills.sincethedroughteventlastedforseveralmonths,the incomeofthesmallholderswashighlydecreased,althoughthehighermarketpricesinthis periodabsorbedashareoftheirloss.nonetheless,mostoftheinterviewedfarmerscould maintain their basic living needs during the drought period. The smallholder farmers also statedthatitischallengingtofindsufficientfarmworkers(seesection ).however,they haveaclearadvantageintermsoftheirflexibilityinhiringanddismissingworkerscompared tobigplantations;thustheyoftendonothireanyworkersintimesofshock. InformationandLearning Avisibledifferenceintheknowledgeofpalmoilproductionandthemanagementskillscould beobservedbetweensmallholderfarmersandplantations.smallholderfarmersoftenlearned aboutoilpalmgrowingfromtheirneighboursorbyhavingworkedinplantationthemselves. Only a few have received training from the government when venturing into palm oil cultivation.furthermore,mostsmallholdershavementionedthattheydonotreceiveanyor very little support from extension officers. Consequently, access to knowledge on better management practices is low. Nonetheless, smallholder farmers have gained much experienceingrowingoilpalm,sincetheyhavebeeninpalmoilproductionforseveralyears. Smallholderfarmersstatedtohaveaccesstoweatherinformationthroughtheirtelevision; however,theweatherbroadcastsonlyinformontheregionalandnotthelocalweather.most of the smallholder farmers also do not keep records of their yields, their fertiliser and herbicide application. The majority of the interviewed smallholder stated to have a good relationship with the mill and once a year they receive training on fertiliser application or gradingoftheffbquality. 40

51 Transformability Most of the interviewed smallholder farmers did not change anything about their farming system after the drought or flooding period. Their ability to improve their system is constrainedbytheirlackofknowledgeandtheirlackoffinancialcapitaltoadaptthesystem towards shocks. However, the farmers at the workshop were keen to listen to other stakeholdersandhowtheyadaptedtheirplantationtoweatherprelatedshocks Plantation Table'7:'Resilience'score'for'plantations' Attribute Drought Flooding Exposuretopressure Modularity Bufferingcapacity Environmentalcapital Governancecapacity Profitability&fin.cap. Information&learning Transformability Exposuretopressure All the plantation companies stated clearly that El Niño phenomenon event 2015/2016 affectedtheiryieldsseverelyintheshortpterm.somespecifiedthattheiryieldlosswasaround 15%to30%andsomestatedalossof50%insomemonthatthebeginningof2016.Someof the wellpinformed interviewees referred to the midp and longpterm effects of lower precipitationonyieldsasdescribedinsection forthisreason,therecoveryfromthe experienceddroughtwillrequirearoundthreeyears. Theactorsthatexperiencedfloodingseveraltimessaidthatfloodingmostlylastsbetween onedayuptooneweek,whereassomemajorfloodeventslastedfortwotothreeweeks.the inaccessibilityofroadsandplantedareasisoneofthemajorissuesofflooding.consequently, harvestingofffbishinderedandyieldsdecrease.additionally,ffbqualityisusuallylower, because of the higher water content of fruitlets and their contamination with dirt. The transportation of FFB is also more difficult for plantations. However, plantations are wellp preparedforfloodeventsandareusuallyabletorecoverwithinafewdays. Modularity Plantationshavetheoptiontoselltheirproducetoseveralmills.However,theymostlysellto thenearestmill,sothattheycansavetransportationcosts.inthenorthpeastofsabah,there areonlyafewmills;thereforeplantationownersinthisareaareconstrainedintheirchoice. Apositivefactorinregardtomodularityisthatplantationownerscanbuyinputsfromvarious inputsuppliers.naturalinputssuchasmulchingarefrominternalsources,whereassynthetic fertilisersarepurchasedfromdifferentcompanies.themostcriticalissueisthatplantation companiesheavilydependonoilpalmcultivationasasourceofincome.nonetheless,some companieshavediversifiedintootherbusinesssectorsaswell. 41

52 Bufferingcapacity Mostoftheinterviewedplantationmanagersreportedthattherecentdroughtaffectedtheir business, but they were able to overcome this time since they have sufficient savings as a financialbuffer.anotherrelevantbufferingcapacityiswater.alltheplantationsmentioned thattheycouldprovidesufficientdrinkingwaterfortheirworkers.however,thehighwater requirement of oil palms could not be met during drought. Plantations do not have any irrigationschemesinstalledsincetheinvestmentistoohigh. Concerningfloodevents,plantationsthatareinafloodPproneareahaveboatstoharvestor rescue people. Some of the bigger companies also mentioned that they support the surroundingcommunitiesintimesoffloodingwithrescueboats,shelterandfoodprovision. Environmentalcapital Thereisatangibledifferenceinthemanagementpracticesofplantations.Nonetheless,inthe recentyearsthroughthedemandforsustainablepalmoil,plantationshavestartedtoimprove theirmanagementpracticesinbeingmoreenvironmentalpfriendly. Mulchingwithprunedpalmfrondsisacommonpracticethatenhancessoilstructureandthe waterretentioninthesoil.furthermore,itiscommonforplantationstoplantleguminous covercropsduringthereplantingstagetoreducesoilerosion,tofixadditionalnitrogenand to contain more moisture in the soil. Some companies add EFB, whereas other companies statedthattheydonothavesufficientworkerstorecycleefb.plantationsheavilydependon externalnutrientinputstoachievehigheryields.fertiliserapplicationsareappliedfourtimes ayearaccordingtotherequirementsinthegivenseason. Moreover,theenvironmentalstandardsforplantationshavedevelopedinthepastyears.For example, plantations are required to leave a certain distance between the river and the plantation to inhibit fertiliserrunpoff into the river. Another example is that no palm oil cultivationisallowedinsteepslopestopreventsoilerosion. Governancecapacity Alltheplantationcompaniesarefacingtheissueoflabourshortage.Ontheonehand,this negativelyaffectstheffbyield,sincetherearenotenoughworkerstoharvestortomanage plotsproperly.ontheotherhand,ithasapositiveeffectfortheworkers,sincecompaniesare committed to improve their living conditions and working environment. The interviewed plantation managers mentioned that they provide housing, electricity as well as water for theirworkers.inbiggercompanies,theyalsoprovideasmallclinicforbasichealthneedsand schoolsforthechildrenoftheirworkers. DuringElNiñoperiod,workerswerestillgivenwork,butsincealotofworkispayedpieceP ratedbases;theincomeofworkersdecreased.however,companiescompensatethisincome loss by paying at least the minimum wage of RM 920 (207 USD). A relevant factor is the managementofthecompany;bigplantationsareoftenverywellporganisedandstructured. However,oneoftheassociationmembersofEMPAarguedthatbigcooperationshavethree main levels of management: shareholders, company management and plantation management,whereassmallercompaniesonlyhaveonemanagementlevel.consequently, onepmanagementplevel companies are more flexible to reorganise and adapt to upcoming 42

53 disturbances. Concerning droughts and flooding, plantation companies are aware of the relatedrisksandhavedevelopedseveralemergencypracticestoadjusttothesesituations. Financialcapitalandprofitability Ingeneral,plantationcompaniesstatedthatoilpalmplantationisaveryprofitablebusiness compared to other crops such as rubber or cocoa since the market is less volatile and the pricesarehigh.plantationarestillabletomakeveryhighprofitsinsuccessfulyears,despite theheavytaxations(seesection4.3.1).plantationownersreportedthatthereisnosubstantial risks,especiallyifthelandwasacquiredinthepreviousdecadeswhenthelandpriceswere comparativelylow.mostoftheinterviewedplantationownerssaidthattheycouldgenerate savingsandhence,theywereabletoovercometheprofitlossescausedbydrought.theprofit lossescausedbyfloodeventsareevensmallersincetheyieldseffectsaremuchlower. Informationandlearning Theindicatorofinformationandlearningdisplaysarelativelyhighresilienceforplantation companies.mostlyplantationmanagershaveauniversitydegreeortheyhaveseveralyears ofexperienceinmanagingplantations.interestinglymanyplantationownersdonothavea professionalbackgroundinagriculture,buttheylearnedabouttherelevantpracticesandthe industry dynamics over the years. Most of the owners showed broad knowledge on agronomical management and palm oil markets. There are also several seminars and conference by MPOB, NGOs or companies themselves. Besides that, further knowledgeis accessiblethroughvariousnewspapers,journalsandbrochures.furthermore,plantationscan call an expert, if they need advice. Bigger cooperation employed their own agronomists. Usually, plantations have a strict record keeping on rainfall, FFB production, fertiliser and pesticideapplicationsandfurtherfactorssuchassoilfertility.inaddition,theyalsodoyield estimationsforthecomingweeks. Transformability Manyintervieweeshadaveryconstructivethinkingandrecognisedthevariouschallengesof the industry well. As discussed in Section , one of the main topics in the industry is sustainable development. Especially big cooperations have realised that their image is increasingly depending on the display of sustainable activities; hence they have started to changetheirpractices.consequently,therehasbeenachangeofthinkingonenvironmental issueswithinthewholeindustry.manyoftheintervieweeswereawareoftheenvironmental challengessuchassoilerosion,deforestationandexcessivefertiliserapplication. RegardingElNiño,mostoftheplantationmanagershaveadaptedtodroughtintheshortP term,byapplyinglessfertiliserorherbicidesandbychangingtheirworkscheduling.some planterspointedsoilandwaterconservationpracticessuchasclosingthedrainagecanals, building silt pits and terraces, planting cover crops and applying mulch. In addition, some plantation managers mentioned that financial management (savings expenses, cashpflow management, )isofgreatimportancetoovercomeadroughtperiod.nonetheless,itwas difficult to assess if plantations generally are wellpprepared for a future drought. In comparison to drought, plantations that are in floodpprone areas, showed a high adaptive capacitytowardsfloodevents. 43

54 4.3.5 Mills( ' Table'8:'Resilience'score'for'mills' Attribute Drought Flooding Exposuretopressure Modularity Bufferingcapacity Environmentalcapital Governancecapacity Profitability&fin.cap. Information&learning Transformability Exposuretopressure Most of the mills were affected by the El Niño phenomenon in 2015/2016 since their FFB supplywassignificantlylower.asaresult,millshadalowerrunningcapacityandshutdown theirmillsforoneortwodaysaweek.theadditionaltimewasusedtodomaintenancework, butsomeofthemillmanagersexpresseditasachallengenottohavesufficientworkfortheir workers.oneortwooftheinterviewedmillsdidnotexperienceanynegativeeffectssincethe supplyingplantationshadbeenintheprocessofreplantingandthereforetheirsupplyhad alreadybeenlowinthemonthsbefore.alltheinterviewedmillsexplainedthattheywereable torecoverfromthedroughtimpacts. Incontrasttodrought,themajorityofthemillshavenotbeenaffectedbyflooding.Themain reasonisthatsincetheestablishmentofamillisahighinvestment,thepositionofthemillis planned in floodpfree areas. Nonetheless, some mills experienced a reduction in their FFB supply,ifthesurroundingplantationareawasflooded.inaddition,theirroadaccesscanbe blocked,sothatnodeliveryofcpoorffbispossible.themostseriouseffectofhigherrainfall istheeffectsontheffbqualityandthusonthecpoquality.millmanagerspointedoutthat FFBhaveahigherfreefattyacid(FFA)content,ahighermoisturecontentandthecollected cropsaredirtiersothattheimpurityofcpoishigherwhenthereishigherrainfall. Modularity Ingeneral,sincethedistributionofmillsinSandakandivisionisrelativelycompact,thehigher competitionforffbsupplymaynegativelyaffectamill.onthereverseside,ifamillhasa breakpdownorisnotabletoprocessallthesupply,therearesufficientoptionstodivertthe crops.afurtherpositiveaspectisthatmillsdependonseveralfarmers;somementioned50 to 200 farmers for their FFB deliverance. Mills also spread their risk in hiring at least two transportationcompanies,incaseonetransportcompaniesfailstotaketheirorder.oneof the weaknesses of mills is that they only depend on CPO production in their activities. However, it remains uncertain how many companies have ventured into other business activitiestobalancethisrisk. Bufferingcapacity OneofthemajorrestrictionsofmillsisthattheycannotstoreFFBlongerthan48hours.CPO, ontheotherhand,canbestoredintanks.thus,millshavestoragetanksbetween1500tonnes to7000tonnes,whichisaround3to10%oftheirannualproductiondependingonthemills 44

55 capacity and policy. Storage tanks are a major benefit in times of flooding when the road systemisblockedandnotransportationispossible.inaddition,millsarerequiredtopaya penalty,iftheirffaconcentrationishigherthan5%.tohandlethisissue,theystorecpowith averylowffacontent,sothattheycanblenditiniftheffacontentistoohighofnewly producedcpo. Furthermore,theinterviewedmillingcompanieshavethemostcriticalsparepartsoftheir machinery in storage, so that a breakpdown can be remedied as fast as possible and the operationsarenotinterruptedforlong.regardingdrought,themajorissueiswaterscarcity. Most mills have ponds for waterpharvesting; nevertheless, the harvested water was not sufficientforallthemills.thereforesomeneededtobuywaterandtransportittothemill site.however,allthemillsthatmentionedtohavehadwaterscarcity,havealreadybuiltmore ponds. Environmentalcapital Dependingonthepolicyandfinancesofthemills,maintenanceoftheroadinfrastructureas wellasoftheirmachineryappearstobegood.millsevenhavetheirownelectricitysupply throughaboilerandasparegeneratorpsetasabackpup.millshaveadvancedinrecyclingtheir waste by using fibre and shell for their boiler and they are sending the EFB back to the plantations.pomeusedtobereleasedintotheriver,whichledtoseverewaterpollutionin severalrivers.however,throughthenewgovernmentregulation,themillseffluentisrequired to be below 20 parts per million. Hence, mills were obliged to change their management practiceandinvestintonewtechnologies.however,theproductionofmethanegasfromthe POMEtreatingpondsisstillaconcern.Therefore,thegovernmenthaslaunchedaninitiative, thatallmillsarecompelledtoinstallabiogasplanttoreducegreenhousegasemissionsuntil 2020(GovernmentofMalaysia,2010). Governancecapacity Especiallymillsthatneedtocomplywithacertificate,suchasInternationalSustainabilityand Carbon Certification(ISCC), are required to improve the living conditions of their workers. Millsusuallyprovidehousing,asmallhealthclinic,cleanwatersupplyandelectricityfortheir workers.however,therearestillhugedisparitiesbetweenmills,wherebysomeofthemare deficientintheircareforthelivingconditionsandthesecurityoftheirworkers.furthermore, itcanbestatedthatmillsaremostlywellporganisedintheirmanagementandtheiractivities. The interviewed mill managers stood out in their ability to anticipate problems and find a solutionforthem.millsalsodonotdependongovernmentsupportduringtimesofshockbut havethecapabilitytoovercomethechallengesthemselves. Financialcapitalandprofitability Millsareingeneralwellcoveredbyinsuranceoftheirworkersandtheirmachinery.Compared toplantations,millsusuallyhavesufficientworkersfortheiroperations.theinterviewedmill managersstatedthatmillingisanotveryriskyinvestmentexceptinvestmentsintobiogas plants.asmentionedthegovernmentpressuresmillstoestablishbiogasplantsuntil2020,but thecostofsuchaplantreachesuptorm10million(2.25millionusd).itwasstatedasahigh investment especially for smaller milling companies. The profitability of mills is highly dependent on the global market price of CPO (see Section ). Therefore, companies mostlyhavehighfinancialcapital,whichsupportsthemtoendureandrecoverfromshocks. 45

56 MillshaveafinancialscopeinsellingtheirCPO;eithertheysellon spot orbythesopcalled "MPOBpricing".MPOBpricingmeansthatmillsannouncethequantityofCPOthattheywill sellattheendofthemonth,andthenmpobreleasestheaveragemonthlypriceatwhichthe declaredcpowillbesold.whereassellingonspotaimstosellcpowhenthepricespeak. Hencecompaniesspeculatetoreachtheidealmomenttoselltheirproduce.Theupsideof therecentdroughtisthatthepricesonthemarketincreased.hencethehighproductioncost could be buffered to a certain extent. One company mentioned that during the time of drought,theywerelosingmoneysincetheycouldnotmeetthedeclaredquantity.thus,they wereobligedtobuycpoonthespotmarket,wherethepricesweresignificantlyhigherthan theaveragemonthlyprice. Informationandlearning Informationandlearningscoredahighresiliencelevel,becauseofthehighknowledgeand experience level of the actors as well as good access to information and advice. All the interviewed mill managers have studied engineering, and most of them were very experiencedindealingwithissuesonthegroundsincetheygainedmuchexperiencethrough theirmillingcareer.besidesthat,companieshavetrainingfundsfortheiremployees.workers receive different internal training for example on safety operations and the mill managers obtainnewinformationfromconferencesortechnicaltrainingfromconsultants.companies thatarecertifiedhaveaprescribednumberoftrainingdaysthatemployeesneedtoreceive. Mills also record the obtained quantity and quality (Deterioration of Bleachability Index [DOBI],FFA,moistureandimpuritiescontent)andtheyalsogradetheFFBbeforeprocessing. Transformability As mentioned already, mill managers have a very constructive thinking and are eager to improve their processes as much as possible. Furthermore, mill manager said that the compliancewithcertifications,suchasrspooriscc,haveimprovedtheirsafetyandhealth standards and their emission control. Stricter enforcement and unexpected spot checks of governmentalagenciessuchasdoshandepdhavealsoadvancedthemilloperationsand standards. Moreover, mills have already learnt their lesson from the recent drought event and have alreadyimprovedtheirwatermanagementbybuildingnewpondsorrecyclingwatermore diligently. The same transformability pattern can be observed with flooding, mills have adaptedwelltotherecurringeventbyincreasingtheirstoragecapacitiesforcpo,dieseland sparepartsaswellaspreparingfortheshockearly.inconclusion,millshaveahighcapability offacingweatherprelatedshocks. 46

57 4.3.6 Refineries Table'9:'Resilience'score'for'refineries' Attribute Drought Flooding Exposuretopressure Modularity Bufferingcapacity Environmentalcapital Governancecapacity Profitability&fin.cap. Information&learning Transformability Exposuretopressure Theinterviewedrefineryemployeesstatedthatthemainissueduringthedroughtseasonwas adeclineincposupply.consequently,therunningcapacityofthewholerefinerieswaslower andprocessingcostperunitincreased.onetheotherhand,cpoqualityisbetterduringdry weather conditions compared to normal circumstances. The higher CPO quality is characterisedbylowerimpuritieslevels,lowerffaconcentrationsandhigherdobiscores. These parameters are opposite during excessive rainfall. Therefore, refineries have higher processingcostfordegummingandbleachingofcpo.duringtimesofflooding,someofthe millsarehinderedindeliveringtheircpo,whichprolongsthestorageperiodandtherefore thequalitydecreasesaswell.however,noneoftherefineriesexperiencedanyfloodingevents on their processing sites, which makes them more resilient towards this shock. All the intervieweesclaimedthattheywereabletorecoverwellfromdroughtandfloodevents. Modularity Intherecentyears,thenumberofrefineriesinSabahhasincreasedtoeleven;consequently the proportional share of CPO supply per refinery has decreased. This high competition especiallyaffectstherefineriesduringdroughtperiods,whenthetotalcposupplyinsabahis lower. RefineriesreceivetheirCPOsupplyfromseveralmills(around15to40).Hence,theriskofnot receiving CPO supply on time is spread over several suppliers. Refineries also have several buyersallovertheworld,butinregardtoresiliencetowardsdroughtandfloodingthisfactis negligible. Bufferingcapacity Financially,mostoftherefinerieshavesufficientbuffercapacitysincetheyareoftenlarge corporations with enough funds to overcome a disturbing time. However, some of the refineriesdidnothavesufficientwaterforsteaming.nonetheless,refineriescanbuywater outsideoftheircompanyandtransportitwithtankers.therefore,theywillnotrunoutof water,butasaconsequencetheirprocessingcostincreases. Refineriesrecognisetheimportanceofhavingsufficientstoragecapacities.Theinterviewed refineriesclaimedtohavebetween85,000to175,000metrictonnesofstoragecapacityfor CPO and processed products, which enables them to store products for several weeks. 47

58 Particularlyduringseasonsofhighprecipitation,additionalstoragecapacityisneededwhen thecpoproductionincreasesoriftheshipmentisdelayedduetoastormysea.refineries alsostorethemostcriticalsparepartsfortheirprocessingplantsincaseofabreakpdown. Besidesthat,refineriesalsohaveanowngenPsetintheeventofelectricitycutPdowns. Environmentalcapital The most relevant environmental capital factors concerning flooding are the condition of infrastructure such as buildings and roads, electricity supply and communication infrastructure.manyintervieweeshadtheopinionthatthecurrentcommunicationsystem andelectricitysysteminsabah,requiresimprovement,whereascompanypropertiessuchas theplantsoraccessroadsareingoodcondition. MostoftherefineriesareISCCcertified.However,itremainsunclear,whattheinfluenceof thiscertificationisontheresiliencetowardsdroughtorflooding.wateristhemostcritical aspectregardingenvironmentalcapital.hence,refineriesincreasinglyaddressthisissueby recyclingwaterwithintheplant. Governancecapacity In times of shock, refineries rely on company measures and do not receive any additional governmentalsupport.refineriesarecharacterisedbyhighleadershipskills.mostofthese enterprisesdolongptermplanning,andcompanyemployeesrevealedagoodunderstanding of the effects of drought and flooding. They were also able to mention the required interventions to overcome such a shock. Companies usually have the necessary skills and knowledge to implement them. Hence, the governance capacity can be rated as very high towardsdroughtandflooding. Financialcapitalandprofitability Theresiliencescoreoffinancialcapitalandprofitabilityforbothshocksishigh.Onefactoris thatrefinerieshavesufficientlabourforcetoconducttheprocessandtheydevelopedtowards moreautomatedprocesses.furthermore,refineriesarewellcoveredwithinsurancetowards work accidents, machine breakdowns, infrastructural damage and product transports. Another factor is the profitability of refineries in Sabah. An interviewed refinery manager claimed that older refineries in Sabah have a higher profitability compared to newly constructedones.newrefinerieshavehigherfinancialriskssincetheyhavehigherinvestment coststopayoff. OneintervieweealsosaidthatthemarketpriceismorerelevantthanthegivenCPOsupplyin regardtotheirprofitability.intimesofdrought,thepriceshavebeenrelativelyhigh;therefore thesupplyshortagewasbalancedoutbyincreasedmarketprices.intervieweesstatedthat floodingonlyaffectedtheirprocessingcost,buttheeffectonthetotalprofitwasinsignificant forthem. Informationandlearning Theinterviewedmanagersdemonstratedahighlevelofknowledgeabouttheprocessesand challengeswithintheindustryandhadseveralyearsofexperience.companiesalsoinvestin training their staff through internal as well as external training by the government, certificationschemesorotherrelevantactors.refineriesalsoattributehighimportanceto recordkeepingandqualitycontrol.forexample,fromeveryenteredtanker,asampleistaken 48

59 tomeasureffacontent,dobi,moistureandimpuritiescontent.besidesthat,refinerieshave started to recognise the importance of trustworthy relationships to mills, so that they can maintainandgainagreatershareofcposupplyinsabah.ingeneraltrustbetweenmillsand refinerieswasratedashigh. Transformability ItcouldbeobservedthatrefineriesareopenPmindedtoimprovetheirpracticesinordertobe better prepared for a future drought or flooding events. As soon as the companies profitabilityisatrisk,companiesarewillingtomodifytheirmanagement.however,notmany interventions were mentioned by the interviewees to enhance the resilience of their companies. The reason might be that the overall resilience of refineries appears to be relativelyhighcomparedtoothervaluechainactors.onesupplychainmanagerpointedout the importance of better water management through water catchment ponds, water conservation and recycling practices. Another employee said that the company aims to improvetheirmarketingstrategies,sothattheycanincreasetheircposupply Transportation Table'10:'Resilience'score'for'transport'companies' Attribute Drought Flooding Exposuretopressure Modularity Bufferingcapacity Environmentalcapital Governancecapacity Profitability&fin.cap. Information&learning Transformability Exposuretopressure MostofthetransportationbusinesseswereseverelyaffectedbytheElNiñophenomenon.All the interrogated transportation companies claimed that the numbers of orders for CPO transportationdecreasedmassivelyin2016.somestatedareductionof20to30%intheir orders, whereas others experienced a decrease of 50 to 60 %. Nonetheless, most of the companiessaidthattheywereabletoendurethedroughtperiodandrecoversteadilyfrom it. Incontrasttodrought,transportmanagersindicatedthatfloodinghadnotbeenarelevant challenge for them in the past years. Although at certain sites yearly flooding occur, the companieshaveadaptedwelltothisdisturbance.transportersexplainedthatmillscallthem ifaccessroadsareimpassable,sothattheycandelaythetransport.onechallengeisthatthe roadconditionsareworseduringrainyseasons,especiallyifthemillsdonotmaintaintheir accessroadproperly. Amajorprobleminthemanagementoftransportationcompaniesarefrequentaccidentsand truckbreakdowns.thereasonthereforearepoorroadconditions,inadequatemaintenance of trucks and dangerous driving style of the truck drivers. One transport manager 49

60 unexpectedlypointedoutthataccidentshappenmoreoftenduringdryperiodsthanduring rainyseasonssincecarandtruckdriversspeedmoreoften. Modularity Interviewees in Sandakan replied that the competition between transport companies is relativelyhigh.theymentionedthatmostofthemillshavetwoorthreehiredtransportation companies as measure of diversifying their risk. This may negatively affect transportation businesses in times of drought when demand for transport services are lower. However, transportation companies also have several mills as customers. The interviewed transport companiesoftenhadanothersourceofincome,suchasoilpalmplantationortimberlogging business. Bufferingcapacity Companiesthathavebeeninthebusinessfornumerousyearsmentionedthattheywereable to overcome a drought better due to their savings. A further relevant buffering capacity includesthestorageoraccesstosparepart,toreactrapidlyifthereisatruckbreakdown. Somecompaniesstoresparepartsandothersdonot.InSabah,theaccesstobasicspareparts hasimprovedinthepastyearssincetherearemorehardwarestores.however,morespecific componentsareoftenorderedfromthepeninsularwithalongdeliverytimeofaroundone monthorveryhightransportationcost,whentransportedbyplane.inaddition,transporters statedthattheyhaveatleastonesparetruck,inthecaseofabreakdown. Environmentalcapital Fortransportationcompanies,theenvironmentalcapitalinregardtotheresiliencetowards droughtandfloodingfocusesontheconditionoftheirbuiltresources.onemajorconcernof transportersisthepoorroadinfrastructureinsabahthatsignificantlyaffectstheiractivity. Due to the bad road performance, transport companies experience frequent truck breakdowns, tires need to be changed often, and the probability of accidents is high. Consequently, transport owners bear increased costs. A further factor is the condition of trucks,whichheavilydependsonthecompany'spolicyandmanagement.althoughthereare somecompaniesclaimtoinvestmucheffortinmaintainingtrucksingoodconditions,there aremanytrucksthatarenotmaintainedwell. Governancecapacity Transportationcompaniesprovideafairlivingstandardfortheirownersandworkers.Since accidentsandbreakdownsareverycommon,sometransportcompaniesputgreateremphasis onsecuritymeasures.mostofthecompaniesarealsopreparedtosendoutamechanicteam orareplacementtruckinthecaseofabreakdown.however,duetoeconomicreasonsand thereducednumberoforders,transportownersarechallengedtosustaintheircompanies throughthecurrentdisturbances.however,itishardtoevaluatehowwelltheycanrecover fromit. Financialcapitalandprofitability Floodingisonlyanorganisationalissue,sincethetimingoftransportshifts,butdoesnotaffect themsignificantlyincomepwise,whereastherecentdroughthasaffectedtheirprofithighly. Mostofthecompaniescouldonlycovertheirexpensesorwereinthered. 50

61 Although the business of transportation is not risky, the interviewed transport companies pointedoutthatbecauseofthehighcompetitionandthelowmarginsfortransportation,they wouldnotinvestintothetransportationbusinessanymore.companieshadsufficientsavings toovercomethecurrenteconomicchallengessuchaslowerorders,theriseofminimumsalary andtheintroductionofgst.however,transportationcompaniesareuncertainhowstable theirbusinesswillbeinthefuture.therefore,companiesdependontheirownsavings,except forbuyinganewtruck,theysometimestakeloansfromthebank. Alltheinterviewedmanagersclaimedtohaveinsurancefortheirtrucks,theirdriversaswell asforthecpoincaseofabreakdown.however,healthinsurancefordriversismostlynot provided,duetohighcost.concerningthelabourmarket,transportersstatedthattheyface difficultyinfindingwellptrainedmechanicsanddrivers.duetothehighseasonalvariabilityof supply, some transport companies employ their drivers temporarily, whereas others give themanextendedholidayduringthelowseason. Informationandlearning Theknowledgeandexperiencelevelofthecompanymanagersdependedonthesizeofthe companies. The investment into education is minimal; companies only do internal training concerningsafetyissuesfordrivers.theyalsoclaimedthatmechanicsusuallydonothavea mechanicaleducation,butonlydevelopedtheirskillsbyworking.besidesthat,transportation companies claimed to have a good relationship with their customers and that their communicationusuallyworkswell. Transformability ThewellPeducatedtransportcompanyownersindicatedhowtoimproveafutureshockby keepingtightstocks,goodcashpflowmanagementandreducingtheirdebt.furthermore,they alsoemphasisedtheimportanceoftheircompanyimageinregardtosecuritymeasuresand reliability.concludingitcanbestatedthatcompaniesareopenforchangesincetheyseeitas anecessitytosustaintheirbusinessinthefuture. 51

62 4.3.8 Comparison(of(resilience(towards(drought(and(flooding( Table'11:'Summary'of'resilience'score'towards'drought'of'the'whole'value'chain' Valuechainstep Attribute Inputsupply Production Processing Distribution Wholevalue chain Input Traders Nurseries Smallholders Estates Mills Refineries Transporters Exposuretopressure Modularity Bufferingcapacity Environmental capital Governancecapacity Profitability& financialcapital Information& learning Transformability Table'12:'Summary'of'resilience'score'towards'flooding'of'the'whole'value'chain' Valuechainstep Attribute Input Traders Inputsupply Production Processing Distribution Wholevalue chain Nurseries Smallholders Estates Mills Refineries Transporters Exposureto pressure Modularity Bufferingcapacity Environmental capital Governance capacity Profitability& financialcapital Information& learning Transformability Resilience Score Verylow resilience Low resilience Medium resilience High resilience Veryhigh resilience 52

63 Exposuretopressure All the stakeholders have a high to very high resilience score in exposure to pressure concerningflooding,whereasthescoresfordroughtarelowtoverylow.thisvastdifference indicatesthatdroughthasseverelyaffectedtheoperationsofthevariousactorinthepalm oil value chain compared to flood events. The variation can also be ascribed to the long recoveryperiodofdroughtcomparedtofloodingandthatsomeofthestakeholdershavenot beensignificantlyaffectedbyfloods. Modularity Theresiliencelevelofmodularityforfloodanddroughteventsisingeneralmedium.However, for certain stakeholders such as input suppliers, transport companies and refineries the resilience level is higher for flood events. The reason, therefore, is that the competition between these actors is greater during times of drought and in times of flooding a larger numberofsuppliersisofgreaterimportance. Bufferingcapacity Insummary,thebufferingcapacityishigherforfloodingcomparedtodrought.Fordrought, lowavailabilityofwater,whichmanystakeholdersstruggledwith,isamajorindicatorforthe lower buffering capacity score. Furthermore, the lower impact of flooding on the financial capital of the various stakeholders also increases the buffering capacity score in regard to floods. Environmentalcapital Environmentalscoresaresimilarforallthevaluechainstepsfordroughtandflooding.The relevanceofbuiltresourcesishigherforfloodcomparedtodroughtevents.naturalresources, ontheotherhand,arecrucialforbothshocks.fordroughtevents,theavailabilityofwater andwaterconservationpracticesinthesoilareessential.forflooding,ontheotherhand, practices to reduce soil erosion and nutrient leakage are of great importance. Various practices such as cover crops increase the environmental capital scores for flooding and drought. Governancecapacity Governance capacity scored the same resilience level for both shocks. The explanation, therefore,isthatattributesaslongptermplanning,managementskillsandtheabilitytoselfp organizearecrucialinovercomingbothshocksandarehenceshockindependent. Informationandlearning All the value chain actors have the same level of resilience concerning information and learningbycomparingthetwoshocks.thereason,therefore,isthatthevariousattributes (knowledge and experience level, trust between actors, ) are equally relevant for both shocks. Plantations, mills and refineries have a very high resilience level, smallholders, in contrast,havealowscore. Profitabilityandfinancialcapital Financial capital and profitability indicator appears to be shockpindependent. Although droughtaffectedtheprofitsduringtheshock,assetssuchassufficientlabourorsavingsare relevanttoendureandrecoverfromdroughtandflooding. 53

64 Transformability Ingeneral,transformabilityscorestendtobehigherforfloodcomparedtodroughtevents. The major difference is that most value chain steps have adapted their operations more towardsfloodingoverthepastyears. Summary Insummary,theresilienceofthepalmoilvaluechainishighertowardsfloodingthantowards drought.theresiliencescoresforgovernancecapacity,informationandlearning,profitability and financial capital are relatively similar comparing drought and flooding. By contrast, exposure to pressure clearly reveals the highest difference of resilience scores. Buffering capacity,modularity,environmentalcapitalandtransformabilitytendtobeinthesamerange ofresiliencebutdifferforcertainactors. 4.4 Building(resilience(in(the(palm(oil(value(chain(in(Sabah( Stakeholder(workshop( Theresultsofthissectionwereelaboratedduringthestakeholderworkshop(seeSection3.4). Theparticipantsoftheworkshopdiscussed,whichinterventionsaremostimportantfortheir activitytoovercomeaprospectivedrought.thegovernmentgroupdiscussedinterventions forthewholevaluechain. Table'13:'Summary'of'proposed'interventions'against'drought'of'workshop'participants' Intervention Process Smallholders Estates/ Inputsupply Mills Wholevalue chain Watermanagement Soilconservation 2 1 Trustbetweenactors 3 Savings 3 Incomediversification SelfP organization/management Governmentalsupport Qualityofinputsources 3 ' Smallholders Smallholderfarmerspointedouttwokeyareasforimprovement.Oneofthebiggestissues forthesmallholdersistheirinsufficientaccesstowaterduringdrought.hence,theyproposed variousinterventionstoimprovetheavailabilityofwaterfortheirhouseholdsandfarms.they arguedthatthegovernmentshouldprovidewaterpipelinessothattheyhaveaccesstoclean drinking water. Furthermore, they discussed that they could harvest and store water by buildingpondsandsettingupwatertanks.theotherkeyinterventionaddressestheirhigh dependencyonoilpalmproduction.smallholderfarmerssuggesteddiversifyingtheirincome, forexamplebyplantingvegetablesasanadditionalincomesource. 54

65 Inputsupply&estates This group included nursery owners, trading company managers and plantation owners, hencetheirinterventionsaddresstheinputsupplyandplantations.theseparticipantsclearly putemphasisontheimportanceofgoverningtheirbusinessesproperlyandbeingproactive in their management. They argued that companies need to be able to have independent decisionpmakingpoweraswellastheabilitytoadapttheirpracticestowardsashockevent. Plantationsandinputsupplierarerequiredtocomeupwithnewideastoadapttheiractivities tothenewchallenges. The second most important measures should focus on soil and conservation. This group arguedplantationsshouldbuildpitsandterracesforwaterretentionaswellasbuildingand adapting their drainage system to retain additional water. Moreover, plantations require harvesting reservoirs, so that workers and surrounding communities can be supplied with cleandrinkingwater. Thethirdinterventionfocusesonimprovingqualityinputs.Inputtradingcompaniesshould focusonadaptingtheirproductrangetowardsmoredroughtsuitableproducts. All of them agreed that the government is required to improve the water availability by constructingdamsandwaterpipelines.apartfromthis,thegovernmentisresponsiblefor adequatefirefightingandmaintainingtheroadsystemwell,sothatinthecaseoffires,fire engineswouldreachtheemergencyareafaster. Lastly,theseparticipantsdebatedaboutincreasingthemodularityoftheiractivities.Inthe caseofplantations,theycoulddiversifytheircropstoreducetheirdependencyonoilpalm, whereasinputsuppliersshouldexpandtheircustomerportfolio. Mills Thisgroupconsistedofmillmanagers,whichwereverydeterminedandveryparticularabout theirinterventions.firstly,theystatedthatitisnecessarytoimprovethewatermanagement. Millsshouldincreasethewateravailabilitybyexpandingtheirwatercatchmentareasaswell asbyincreasingtheefficiencyoftheirmachinery.theystatedthattheboilerandturbinehave thehighestwaterconsumption;thereforetheyneededtoregulatethemmorediligently. Thesecondinterventionthatthemillmanagersagreedonistheadequatemanagementof theiroperations.theypointedouttheimportanceofcontrollingtheirprocessestightlyduring timesofdrought,toensurehighquality,reduceloss,achieveahighextractionrateandto reducetheprocessingcost. Thirdly,theyarguedthatthecommunicationbetweentheestatesandthemillsbeessential sothatmillsreceiveffbwithhighqualityandareabletoplantheiroperations.therefore, effortsneedtobemadetobuildingtrustbetweenmillsandtheirsuppliers. Wholevaluechain This group consisted of two government officials of the department of agriculture, an association representative of MPOA and staff from TFT that collaborate closely with smallholderfarmers.hence,thisgroupdiscussedhowtheentirepalmoilindustryinsabah 55

66 couldbuilditsresiliencetowardsdrought.however,theirdiscussionswerefocusedmainlyon theplantationactivities. This group rated soil and water conservation practices as the most relevant area of improvement. They argued that more water catchment areas be required as well as to improve the management practices in the plantations. Secondly, planting fruit trees and keepinglivestockwereproposedasameasureofdiversifyingtheincomeoffarmers.they rated having sufficient savings to overcome times of drought as the third most important intervention.furthermore,theystatedthatselfporganizationoffarmersintocooperationor by joining an association as an appropriate step to address the challenges of drought collectively.thisgroupalsodiscussedhowthegovernmentshouldsupporttheindustry.the criticalpointintheirpointofviewwasthatthegovernmentshouldfindtherightbalancein advisingtheindustryversusenforcingcertainmeasurestoovercomeatimeofshock. Workshopsummary According to the overall workshop discussions, three key areas of intervention were emphasised.duetowaterscarcity,eachactivityneedstoimprovetheirwatermanagement bycollecting,storingandrecyclingwater.furthermore,productionsystemsareadvisedto improvetheirsoilmanagementpracticestoimprovewaterretentioninthesoil.furthermore, the various groups argued that management skills and selfporganization be essential to prepare and endure for a future drought. In particular for smallholders and mediumpsize plantations, the diversification of their crops and incomes was debated as a necessary intervention,toreducethedependencyonoilpalmandtherelatedrisksintimesofdrought. Figure'19:'Participants'of'second'workshop' 56

67 4.4.2 Summary(of(interventions(( In Table 14, the key weaknesses of each value chain step are pointed out and potential interventionsarelistedthatwerementionedduringthesecondworkshopandinterviews. Table'14:'Summary'of'weakness'in'resilience'and'potential'interventions' VALUECHAINSTEP WEAKNESSESINRESILIENCE Inputtrading companies Nurseries Smallholder farmers Estates Mills Refineries Transport companies Lowprofitability Nomodificationofactivities Uncertaintyofsales lossofseedlings Wateravailability Wateravailability Lowproductivity Lowfinancialcapital Highdependencyonoilpalm Lowknowledgelevels Weakmanagementskills Landinsecurity Wateravailability Highdependencyonoilpalm Lowerwatersupply LowerFFBsupply Lowerwatersupply LowCPOsupply high competition Lowprofitability Accidents POTENTIALINTERVENTION Productdiversification droughtpsuitableproducts Expandcustomerportfolio EncourageproPactive management IncreasenumberofpreP orders Waterharvestingtechniques Waterconservationpractices Waterharvestingtechniques Waterpipelinesforclean drinkingwater Soilandwaterconservation practices Accumulatemoresavings Incomediversification Improveextensionand advisoryservices Changelandtitleprocedures Waterandsoilconservation practices Incomediversification EncourageproPactive management Waterharvestingtechniques, waterrecycling Strictprocesscontrol, encouragepropactive management Communicationbetween plantationsandmills Waterharvestingtechniques, waterrecycling Investintherelationshipwith suppliers/bettermarketing strategies CashPflowmanagement,debt reduction Incomediversification Improvedsafetymeasures 57

68 Figure'21:'Presentation'of'posters'during'the'second'workshop' Figure'20:'Discussions'during'the'stakeholder'workshop' 58