Accommodating Growth. Introduction: Two quick scan scenario s for the future. Palm oil consumption expected to grow strongly

Transcription

1 Accommodating Growth Two scenarios for oil palm production growth Jan Maarten Dros, AIDEnvironment September 2003 Introduction: Two quick scan scenario s for the future This quick scan elaborates two scenario s for increasing oil palm production to meetthe growing world demand: Business as Usual and Better Policies and Practices. The scenario s have been applied to Indonesia and Malaysia. 1 The Business as Usual scenario extrapolates recent ( ) growth trends in productive area, per hectare Crude Palm Oil (CPO) yields and CPO production up to 2020 and calculates the resulting forest loss. The Better Policies and Practices scenario assumes that through planning, law enforcement and implementation of better management practices, existing areas planted can be made more productive and expansion can be preferentially accommodated on existing idle lands. Future production of palm oil is based on the production levels as calculated under the Business as Usual scenario. For the Better Policies and Practices scenario future planted areas are determined by dividing the production by assumed improved yields resulting from implementation of these better policies and practices. Before comparing the scenario s, a brief outline of the global market for palm oil and description of production trends in the two major producer countries Indonesia and Malaysia is given. Palm oil consumption expected to grow strongly Oil palm, with the highest per hectare yield of all edible oils to date, is bound to become the most important vegetable oil in the world. In 2002, approximately 23% of world production and 51% of global trade of edible oils consisted of palm oil and palm kernel oil, both derived from the oil palm. In 2002, Malaysia and Indonesia together accounted for 84% ofglobal palm oil production. 2 With ongoing trade liberalisation, increasing demand for edible oils from developing countries and increasing application of vegetable oils for non-food uses (i.e. biodiesel), the world market for oil palm products is expected to grow strongly. Production trends in Malaysia and Indonesia The expansion of oil palm planting has been phenomenal: in Malaysia the area planted grew from hectares in 1960 to 3.50 million ha. in 2001 while production grew from 92,000 metric tonnes (mt) of CPO in 1960 to 11.8 million mt in The Malaysian Palm Oil Board expects million tonnes to be harvested from 5.1 million ha. in In Indonesia, palm oil planting boomed in the 1990 s, expanding from 600,000 productive ha. in 1990 to 2,2 million ha. in Planting slumped in the late 1990 s due to the Asian economic crisis but has picked up again in recent years. Government plans foresee a total of 30 million ha. planted with oil palm in 2020, of which so far 4.2 million ha. have been established, and million are productive. 5 1 The approach of this quick scan (extrapolation of past developments) is not suitable to determine the possibly significant expansion of oil palm in countries like the Philippines, Papua New Guinea or Cambodia, or the development of oil palm in South America, as there are no figures to extrapolate. 2 Mielke, Oil World Annual MPOB (2002): Prospects of Elevating National Oil Palm Productivity : A Malaysian Perspective; Oil Palm Industry Economic Journal - Volume 2 Number 2. 4 Mielke, Oil World Annual 1999 and

2 Mature areas grew by 5,6% per annum in Malaysia and by 12,4% in Indonesia between (table 1). Mostly as a result of recent expansion, yields 6 increased by almost 1% per annum in Malaysia and decreased slightly in Indonesia (table 2). References to yields refer to CPO yields only. Mature area (M ha) avg. Annual growth Malaysia % Indonesia % Table 1: Mature area oil palm. Source: Mielke 2000 and Yield (mt CPO / ha) Avg. annual growth Malaysia % Indonesia % Table 2: Average oil palm yields (Crude Palm Oil). Source: Mielke 2000 and The Business as Usual Scenario If we extrapolate the rate of expansion for oil palm plantings for the period, the total productive area in 2020 would be 6 million ha. in Malaysia 8 and 16 million ha. in Indonesia 9 (see figure 3). These areas would jointly yield a total of 78 million tonnes CPO per year (figure 1), or 37 % of projected world demand for edible oils and fats in 2020 (table 3). 10 Under the Business as Usual scenario, per hectare yields are extrapolated on a percentage growth basis (table 2). These assumptions result in the following production forecast: Palm oil production Malaysia Indonesia 40.0 Million mt / yr Figure 1: Development of palm oil production of Malaysia and Indonesia projections. 5 Government of Indonesia, department of Agriculture, DG estate crops, presentation at KL oil palm roundtable 2003; the GoI estimate for productive areas in 2003 (3.5 M ha) is higher than the Mielke (2003) forecast (2.94 M ha). 6 Yields have been calculated over a longer time span, , to filter out climatological effects as much as possible. Note that planted areas only become productive after three years. 7 Forecast (Mielke 2003). 8 Assuming linear growth of productive area of 160,000 ha. / year in Malaysia (extrapolation based on Mielke, 2003) 9 assuming 12% annual growth of the planted area up till 2010 and linear growth of 1 million ha. / yr afterwards (Extrapolation based on Mielke 2003, Ind. Min. of Agriculture, 2003 and Sawit Watch, pers. comm.) 10 Extrapolation of Mielke 2003; 4% annual growth of edible oils consumption ( ). 2

3 Production (million mt) Malaysia Indonesia Palm kernel oil (Malaysia + Indonesia) World (all oils) % world market share 15% 18% 22% 27% 33% 37% Table 3: Palm oil (CPO and PKO) production forecast up until Under the Business as Usual scenario, the following assumptions were made: In Malaysia, expansion of oil palm productive area continues in at the same area rate as in the period ; 160,000 ha. per year. 11 Planted area for a given year is assumed to be equal to the mature area three years later. For Indonesia, we expect strong growth on the short term as a result of expansion oriented government policies plantations: By 1996 BKPM had already allocated permits for oil palm development in a area of 9.14 million ha. 12 Despite the Government of Indonesia s January 2001 policy commitment to a ban on forest conversion, district and provincial governments continue to push the expansion of estate areas. The total area that local governments have suggested they intend to open up for oil palm plantations adds up to million ha. 13 Continued private sector interest in developing oil palm plantations. 14 The Ministry of Forestry reported in May 2000 that a total of almost 1,900 applications were submitted to develop an aggregate area of over 30 million ha. 15 An estimated 90% of these applications concern oil palm. 16 Therefore, for Indonesia the productive area growth rate of 12,4% per year 17 is extrapolated until After 2013, a linear growth of 1 million ha. per year is assumed. Yields increase or decrease at the rate as the average over the period. This implies an increase of 0.95% per year for Malaysia and a slight decrease of 0.15% per year for Indonesia. 18 For Malaysia, annual deforestation is assumed to be equal to FAO deforestation rates (1.2% per year). 19 For Indonesia, the WRI estimate for is taken (2 million ha. per year). 20 For Malaysia and Indonesia it is assumed that the deforested areas that are not developed into oil palm are not recovered for oil palm planting. These are developed for other land uses or left idle. 11 Mielke, Oil World Annual 1999 and Such expansion is most likely to occur in the State of Sarawak. For example, the Sarawak State Government is planning to develop 1 million hectares of oil palm plantations. Expansion beyond this area is not unlikely. At present Forest Management Unit holders are permitted to develop part (20%) of their long term logging concessions into oil palm. 12 Indonesian Commercial Newsletter 1996, quoted in Wakker and van Gelder, Estimate of Sawit Watch based on an assessment of main oil palm planting / expansion regions in Indonesia: Sumatra, Kalimantan and Papua, pers. comm Wakker and van Gelder, Sawit Watch, pers.comm Sawit Watch, pers.comm Mielke, Oil World Annual 1999 and Mielke, Oil World Annual 1999 and Food and Agriculture Organization: The State of the World's Forests World Resoures Institute: The State of the Forest: Indonesia;

4 The Better Policies and Practices scenario This scenario is based on the short-term implementation of a number of policies and practices: rational lands use, a forest conversion ban and improved plantation management practices. The Better Policies and Practices scenario provides the same amount of palm oil for every year as the business as usual scenario (figure 1). To calculate yields, planted and productive areas and impacts on forest cover, the following assumptions were made: Implementation of better management practices (for examples refer to MPOB 2002) leads to CPO yields of 4.5 mt/ha. for Malaysia 21 and 4.1 mt/ha. for Indonesia 22 by This is approximately 15% higher than yields in the period. After 2008 a productivity increase of 3% per annum is foreseen, due to further improvement of management practices. This leads to yield levels of 5.9 mt/ha. for Indonesia and 6.2 mt/ha. for Malaysia by CPO yields for the period are interpolated between actual 2002 yields and predicted 2008 yields. Oil palm expansion is accommodated on existing idle land. Estimates are 1 million ha. for Malaysia 24 and 10 million ha. for Indonesia. 25 In Indonesia 3 million ha. have been released for oil palm plantation development since 1997 that were not actually planted by A forest conversion ban is effectively implemented from 2004 onward in both countries. 27 Application of the above mentioned assumptions, based on the production figures as presented in figure 1, gives the following results: 21 MPOB (2002) indicates that with application of a number of relatively simple measures average productivity could be increased to 4.0 mt/ha. in 2003 and 4.8 mt/ha. in As the 4.0 mt/ha. target for 2003 has not been achieved, a conservative estimate (4.5 mt/ha. in 2008) seems more realistic. Note that for Malaysia, MPOB indicates a good commercial yield is 5.5 mt/ha. 22 Indonesia s average yield in 2008 with application of BMPs is still below the current average yield in Papua New Guinea, which is 4.2 mt/ha. 23 MPOB predicts that yields of 8.8 mt/ha. are achievable by 2020 based on implementation of BMP s, increased oil extraction rates and abandoning marginal and unsuitable areas (MPOB, 2002). As both scenarios assume that currently planted marginally suitable land will stay in production, the estimated 2020 yield is set at a lower level than this MPOB prediction. 24 The Forest Reasearch Institute Malaysia estimates 0.65 M ha. of idle agricultural lands exists in Peninsular Malaysia (FRIM 2002); a conservative estimate of 0.35 M ha. of available idle lands is estimated for Sabah and Sarawak. 25 Idle land estimates are notoriously difficult to make. This estimate is based on the 10 million hectares cleared for oil palm, timber and pulp and paper plantations since 1997 that have not (yet) been planted (WRI 2002). The figure may be higher as idle lands cleared before 1997 are not taken into account. It may also be lower as some of the cleared lands may have already found another (non- oil palm or timber) use, or it's owership may well be contested by local communities or other stakeholders. 26 WRI, Under pressure of the Consultative Group for Indonesia, a body of major aid donors and financiers of Indonesia, a natural forest conversion moratorium was agreed upon for Indonesia in 2001 (WRI, 2002). 4

5 Yield mt/ha/yr Malaysia Usual Malaysia BPP Indonesia Usual Indonesia BPP Figure 2: projected yields for Business as Usual and Better Policies and Practices scenarios forecasts. Yield (mt/ha/yr) Malaysia Usual Malaysia BPP Indonesia Usual Indonesia BPP Table 4: projected yields ( ) Per hectare yields are expected to increase substantially under the sustainable production scenario. Shifting investment from land acquisition and planting to implementing better management practices, rational land use and developing high-yielding varieties will enable the sector to produce the same amount of palm oil on smaller areas, as is shown below in figure 3. 5

6 Productive area Malaysia Usual Malaysia BPP Indonesia Usual Indonesia BPP 12 Million ha Figure 3: projected productive area forecasts. Palm oil productive area Indonesia Usual Indonesia BPP Malaysia Usual Malaysia BPP Table 5: Projected productive areas ( ). Influence on forest cover In Indonesia, the productive area would increase to 16.5 M ha. under the Business as Usual scenario whereas under the BPP scenario only 9 M ha. would be required to produce the same amount of palm oil. Under the assumptions made, this implies that 7.5 Million ha. of forest could thereby be saved. In Malaysia, the expansion would be moderate (with almost 1 million ha) and result in a total area of 4.3 M ha. in 2020, 1.7 M ha. less compared to the Business as Usual scenario. For both countries, sufficient idle land is available to accommodate the required expansion of oil palm planted area up to 2020 under the Better Policies and Practices scenario. However, the availability of currently idle land for other uses than oil palm (food crops, other plantation crops, timber plantations), especially for Malaysia, which lead to the conclusion that under this scenario pressure from other land uses may lead to conversion of forest areas. Under the Business as Usual scenario, 3.5 M ha. and 15.3 M ha. of forests would be converted for oil palm production in Malaysia and Indonesia respectively between 2003 and

7 Forest cover (area) Million ha Malaysia Usual Malaysia BPP Indonesia Usual Indonesia BPP Forest cover (%) 60% 40% 20% Malaysia Usual Malaysia BPP Indonesia Usual Indonesia BPP 0% Fig. 4 (above) and 5 (below): Projected forest areas in million ha. and % land cover. 7

8 Forest cover M ha Malaysia Usual Malaysia Sust Indonesia Usual Indonesia Sust % land area Malaysia Usual 52% 49% 46% 44% 41% Malaysia Sust 51% 51% 51% 51% Indonesia Usual 52% 47% 42% 36% 31% Indonesia Sust 49% 49% 49% 49% Table 6: Projected forest areas (M ha) and % land cover Projections for forest cover have been based on figures of WRI (2002) and FAO (2003). Under the Business as Usual scenario, deforestation for oil palm expansion amounts to 79% in 2004 for Malaysia, rising to 96% in 2020 (the average was 56%). 28 In Indonesia, the contribution of oil palm expansion is 18% in 2004, rising to 50% after From the average contribution was 9.5%. Figure 6: Projected idle land area for Malaysia and Indonesia, not including land uses other than oil palm. Idle land Under the assumptions made, it expected that that the current practice of failed or delayed planting after forest conversion 29 and lack of invest in better management practises and rational land use results in vast areas of idle land in Indonesia. Sawit Watch estimates that this ongoing development may result in 20 million ha. of idle land by The Business as Usual scenario indicates that between 2003 and million hectares of forests will be converted and not planted with oil palm, in addition to the 10 million ha. currently idle 31. Part of this area is likely to be planted with other (estate) crops. In Malaysia, where land is relatively scarce, this phenomenon is less apparent and almost all land lying idle in 2003 would be converted to oil palm in 2020 under the assumptions made under both scenario s. Conclusion This exercise suggests that the implementation of better management practices and rational land use of allows for tripling the CPO production in Indonesia and Malaysia between 2003 and 2020 (corresponding with an average annual growth of almost 8%) without any further sacrifices of (High Conservation Value) forests in Indonesia and Malaysia. A note of caution should, however, be made. Estimates of unutilised or under utilised land may not be based on the views of all relevant stakeholders. To assess whether rational use of idle lands will remove the need for conversion, an analysis of competing land uses (vis-a-vis oil palm), most notably food crops and timber plantations, should be carried out. 28 Based on FAO, 2003 and Mielke, 1999 and Numerous 'oil palm investors' are believed to be interested in gaining access to the timber resources rather than in developing oil palm estates (see e.g. WRI 2002). 30 Sawit Watch, pers. comm WRI,

9 Acknowledgement The author wishes to thank Ruddy Lemuru of Sawit Watch for sharing Sawit watch most recent field data and Eric Wakker of AIDEnvironment for his valuable comments and review. References Food and Agriculture Organization (2003): The State of the World's Forests FRIM (2002); Forest Research Institute Malaysia, Dr. Ang Lai Hoe; Rehabilitation of Idle Lands in Peninsular Malaysia: Afforestation of Tin Tailings; Kuala Lumpur. Government of Indonesia, department of Agriculture, DG estate crops, presentation at Kuala Lumpur Round Table on Sustainable Palm Oil Production, August 21-22, Mielke, Oil World Annual 1999, 2000, 2001, 2002, MPOB (2002); Prospects of Elevating National Oil palm Productivity: a Malaysian Perspective; B.S. Jalani et al, in: Oil Palm Industry Economic Journal (vol. 2(2)/2002), Kuala Lumpur. Sawit Watch (2003), pers. comm with Ruddy Lemuru, August / September Wakker, E. and J.W. van Gelder (2003): Risking the Forests, research paper for WWF, AIDEnvironment and Profundo, September 2003 (draft). World Resources Institute (2002): The State of the Forest: Indonesia. Several newspaper and magazine articles, quoted in Wakker and van Gelder (2003) 9