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Reducing agricultural expansion into forest: analysis of implementation financing gap
EXECUTIVE SUMMARY
1. Indonesia: Context
Palm oil is one of the most important agricultural commodities in Indonesia, and plays a significant role in the country’s economic development, representing 2.8 of the country’s GDP 14.5 billion USD in
2008. Various studies have shown that the net present value NPV of one hectare of palm oil could be as much as US3,400 over a 25 year period
1
. The palm oil industry employs as many as 6 million people
2
. As such, it is no surprise that Indonesia has set a target to increase its palm oil production from 25 million
tonnes in 2012 to 40 million tons by 2020. Between 2005 and 2010, 26 of deforestation in Indonesia could be attributed to the expansion of palm
oil
3
. Therefore palm oil has been associated with the loss of biodiverse tropical rainforests and Indonesia’s high rate of deforestation.. Other causes include logging for timber, pulp and paper,
subsistence agriculture, mining, and commercial agriculture.
The average annual growth rate of palm oil plantations has grown rapidly, going from 14,000 hectares per year 1967-1980 to 365,000 hectares per year 1991-2010
4
. According to the FAO-OECD, global consumption is expected to increase over 30 in the next decade
5
. Based on current production trends, an additional 12 million hectares of oil palm plantings may be required to meet global demand by 2050
6
. It is worth noting that that palm oil is the most efficient crop in terms of productivity i.e. oil yield per
hectare of land occupied by the crop. The average yield of palm oil in Indonesia and Malaysia is respectively 9.3, 7.6 and 5.8 times higher than the averages for soybean oil, rapeseed oil and sunflower
oil
7
. In 2009, the President of the Republic of Indonesia announced a voluntary emissions reduction target of
26 by 2020, and 41 if it received international assistance. In 2010, Indonesia and Norway signed a Letter of Intent to reduce deforestation.
Since land use change is responsible for 83 of Indonesia’s emissions, reducing forest and peatland conversion is key. This report assesses the potential to reconcile growth of the palm oil sector and
reducing deforestation through i increasing productivity; and ii the expansion of palm oil plantations on low-carbon land.
1
Cason et al., 2007; BisInfocus, 2006
2
Goenadi, 2008
3
Fahmuddin Agus et al, 2011
4
Ditjenbun, 2011
5
OECD-FAO, 2009
6
Corley, 2009
7
Teoh, 2010
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Reducing agricultural expansion into forest: analysis of implementation financing gap 2. Central Kalimantan
Central Kalimantan was selected as the REDD+ pilot province under the Indonesia-Norway Letter of Intent
. There is therefore political momentum to redirect Central Kalimantan’s development path towards low carbon development and a policy process is underway. However, there are also strong economic
interests to develop coal mining and large-scale agriculture in ways that are not necessarily compatible with this low carbon development model.
With available land for agricultural expansion growing scarcer and scarcer in the islands of Java and Sumatra, palm oil expansion is increasingly taking place in Central Kalimantan and West Papua. The
Government of Central Kalimantan has established a target to increase its area of palm oil plantations from 1 million hectares to 3.6 million hectares by 2020.
44 of Central Kalimant an’s population relies directly on palm oil for their livelihoods. Most of the
palm oil production in Central Kalimantan is dominated by plantation companies 89. Only 11 of the area under palm oil production is cultivated by smallholders.
3. Analysis
