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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
The Centre for Climate Risk and Opportunity Management in Southeast Asia Pacific CCROM - SEAP, a research centre at Bogor Agricultural University, in collaboration with the World Resources Institute
WRI, assessed the potential to reconcile growth of the palm oil sector and reducing deforestation through i the expansion of palm oil plantations on low-carbon land, and i increasing productivity.
The study focused on economic analysis to identify investments required to redirect increases of production. It also identified measures that would need to be implemented simultaneously to enhance
protection of existing forests to prevent perverse incentives increased productivity could create perverse incentives to deforest new areas.
i Expansion on degraded land Degraded land suitable for palm oil expansion was identified through using a number of criteria including
land cover, topography, rainfall, and soil type. It was assumed that 70 of suitable degraded land would be allocated to palm oil, reflecting the current proportion of palm oil to other commodities and crops.
ii Productivity increases The report differentiates between four producers types: i independent smallholders; ii ‘plasma’
farmers, i.e. farmers linked to the Indonesian petani plasma system of partner companies; iii ordinary companies; and iv RSPO-certified companies.
The assumptions in the analysis were that independent smallholders’ production of fresh fruit bunches increased from 8 to 10 tha, and from 12.5 to 17.7 tha for plasma smallholders.
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Reducing agricultural expansion into forest: analysis of implementation financing gap 4. Key findings, risks and policy recommendations
The report demonstrates that from existing plantation which currently stands at 1 million hectares, Central Kalimantan province could double oil palm production by 2020 from the current level as most of their
existing plantations are still at very young age. However, the province has set up a target to increase the plantation area up to 3.5 million ha. With this target, it was estimated that the palm oil production by
2020 will be over three times of the current production. With this plan, about 1 million ha of forested land will be deforested. The study argues that Central Kalimantan could revise its current target of 3.5
million hectares’ oil palm to 2.9 million ha to avoid the deforestation without significantly reduce the production level.
In order to save the 1 million hectare of the “forested land”, two principal mechanisms: that should be done i the undertaking of a ‘land swap’ between ‘forested’ and ‘non-forested’ areas, coupled with a
broader spatial planning exercise, and ii improvement of smallholder yields
i Land swap policy Government of Central Kalimantan Province have allocated land for palm oil plantations by about 3.21
million hectare for 272 companies of the 3.5 million hectare target. Of the 3.21 million ha, areas granted with HGU were about 39, while the remaining is still in process of getting HGU
8
. Of 3.21 million hectares, only about 25 that have been planted with palm oil, while the remaining is still covered by
forest 28 mostly secondary forest, shrubsgrassland 29, agriculture 9 and others mining, rice field, ponds, transmigration area etc. About 11 of the areas are located in peatland. In addition, about
656,000 ha of the unplanted land are not suitable for palm oil Figure 1
9
. Areas which have not been granted with permits unlicensed lands and suitable for palm oil located in
convertible production forest and APL
10
are about 963,000 hectares. About 18 of these lands are still covered by forest, i.e. 11 in convertible production forests HPK and 7 in APL. On the other hand,
about 240,000 ha of lands in production forest area is not covered by forest anymore, while by regulation this land cannot be used for non-forest based activities such as palm oil plantation.
To avoid the conversion of forested land in HPK and APL, Ministry of forestry needs to change the status of forest functions under a land swap mechanism. Total area for land swap is about 315,000 ha, i.e. non-
forested land of production forest HP to convertible production forest HPK about 240,000 ha and forested land of convertible production forest HPK to production forest about 75,000 ha Figure 1. The
cost of this for 315 000 hectares would go up to 9.8 million USD. Procedures of changing such Forest Area classifications can be found in Government Regulation No. 10 of 2010 and Ministry of Forestry
Regulation No. 34 of 2010. This process must also be closely coordinated by the on-going process of the provincial and district government’s spatial plan revision.
8
About 21 in the form of izin lokasi location permit and 40 are still in the early stage of process or no information.
9
Suitability indicators used in the study followed WRI and Sekala’s proposed indicators with slight modification.
10
HPK and APL are lands that can be used for development e.g. palm oil plantation etc
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Reducing agricultural expansion into forest: analysis of implementation financing gap
The public cost of swapping land exchanging forest function is estimated at IDR 3.4 billion or USD 375 000 per 12 000 hectares
11
. The unofficial cost may even be higher and this seems to be the main barrier to pursue this policy. It is believed that much of this cost could be lowered if strong political leadership
supports these measures.
Figure 1. Distributions of licensed lands which are suitable left and not suitable right for palm oil. Note: HGU in the map refers to lands allocated for palm oil Based on forest function of the
MoF under Minister Forestry Decree Number S.292 Menhut-II2011. Non-suitable lands for palm oil plantation are areas highlighted with yellow in APL horizontal lines, and yellow and
light blue in HPK vertical lines and HP oblique lines.
According to Head of Economic Division of Development Planning Agency of Central Kalimantan Province, as more than 3 million hectare of lands already allocated for big plantation, the release of HPK
for APL will not be intended for big companies anymore, but it would be allocated for small holder farmers.
Changing the status of forested land in HPK with non-forested land in HP faces challenge. Many of non- forested land in forest area are occupied or used by communities. Giving these lands to other parties
such as company always create the social conflict. Some companies left their lands unplanted due to high social cost. Current policy of Provincial Government for limiting the issuance of new land use right to
big companies is very appropriate. Coupling this policy with the new Minister of Agriculture Regulation on Indonesian Sustainable Palm Oil or ISPO No. 19PermentanOT.14032011 will be perfectly
11
Muliana and Sudana, 2012
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Reducing agricultural expansion into forest: analysis of implementation financing gap
matched
12
. ISPO obliges all oil palm companies including the existing ones to establish plasma plantation with size of at least 30 of their concession areas. Total of palm oil plantation in Central
Kalimantan already reached 1.5 million ha and most of the companies have not met their obligation in establishing plasma plantation. Thus targeting the communities who used the non-forested lands in HP
that will be changed to HPK for plasma plantation will create good synergy between these two policies.
Figure 2. Distribution of unlicensed forested and non forested land in APL, HP and HPK
ii Yield improvements Yield improvements can contribute to reduction of the land demand by about 232,000 hectares. With this
program, some of the forested lands that have been allocated for palm oil could be saved. There are still about 544,000 ha of the licensed lands covered by forest. Following this findings, this study evaluate
three land use scenarios as shown in Table 1, i.e. land swap, improved yield and save all forested lands of the licensed lands. To implement the last two scenarios, local governments need to revisit the land
licensing process. Lands that have been allocated for palm oil plantations but still covered by forest and no HGUs are issued, may need to be suspended and cancelled. However, it should be noted that the most
important barriers to companies expanding onto degraded land is the socio-legal risks involved. Land tenure needs to be addressed by the national and regional governments, with the support of transition
12
ISPO will be officially effective as of March 2012 and it is targeted that all oil palm plantation companies will obtain the ISPO certificates by 2014
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Reducing agricultural expansion into forest: analysis of implementation financing gap
finance, in order for these to take place. Interim REDD+ finance and international development cooperation would be a key source of such finance, especially at the early stages of implementation.
Table 1. Land allocation scenarios for the establishment of palm oil plantation in Central Kalimantan
Lands for palm oil plantation
Baseline Land-swap
Improved Yield Saved all forested
land Forested
land Non-
Forested Lands
Forested land
Non- Forested
Lands Forested
land Non-
Forested Lands
Forested land
Non- Forested
Lands Un
planted Licensed
lands Suitable
571,737 720,189
571,737 720,189
544,049 720,189
720,189 Not-
Suitable 324,787
332,132 204,387
332,132 332,132
332,132 Non-
licensed lands
APL 45,525
277,198 277,198
277,198 277,198
HPK 75,025
276,635 276,635
276,635 276,635
HP 240,949
240,949 240,949
Sub-Total 1,017,073 1,606,154
776,124 1,847,103 544,049 1,847,103
0 1,847,103 Total
2,623,227 2,623,227
2,391,152 1,847,103
This study estimated that future production pattern of the CPO of the land swap and improved yield scenarios will be the same as that of the baseline scenarios. The production of the CPO will continue to
increase until 2033 with peak production of about 12.5 million tons and start declining slowly. However for the save all forested land scenario, the CPO production will continue to increase up to 2030 with peak
of production 11.2 million tons and the decline quite rapidly since more plantations have completed their life cycle. If the existing plantations of the plasma and independent farmers that will be replanted later
are also targeted for the yield improvement program, the implementation of the saved all forested land scenario might not result in production which is significantly different from the other scenarios.
The future production pattern of the CPO of the land swap and improved yield scenarios will be the same as that of the baseline scenarios. The production of the CPO will continue to increase until 2033 with
peak production of about 12.5 million tons and start declining slowly. However for the save all forested land scenario, the CPO production will continue to increase up to 2030 with peak of production 11.2
million tons and the decline quite rapidly Figure 3.6 since more plantations have completed their life cycle. If the existing plantations of the plasma and independent farmers that will be replanted later are
also targeted for the yield improvement program, the implementation of the saved all forested land scenario might not result in production which is significantly different from the other baseline scenario.
Therefore, in the future oil palm production targets should be expressed in tonnes of oil produced rather than hectares occupied, and encourage efficiency over horizontal expansion.
The report shows that the upfront costs of investment to increase productivity would be amply paid back through an increase in value accruing over a 25-year cycle. Increases in productivity are achieved through
investments in soil health, and uptake of better varieties. The independent smallholders bear the greatest opportunity to increase yields. To increase the benefit of an independent smallholder 5 ha by IDR 59
million, one has to spend additional costs of IDR 39 million; for plasma farmers, spending additional costs of IDR 27 million will increase benefits to IDR 95 million.
At present in Central Kalimantan, there are about 145 000 hectares of small holders and 88 000 hectares plasma farmers respectively. If this were to be implemented all over Central Kalimantan, it will require
additional cost of about IDR 1.6 trillion. Implementation of the Government Policy to prioritized small
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Reducing agricultural expansion into forest: analysis of implementation financing gap
holders for the future development of palm oil plantation, this study estimated there will be about 930,000 ha of lands allocated for small holders 70 plasma and 30 independent farmers. If this were also to
be implemented, there will an additional cost of about IDR 5.6 trillion.
Implementation of improved yield scenario for small farmers and plasma farmers will have positive impact on environment as it will reduce the demand for lands from 2.62 to 2.39 million ha or about
232,000 ha and this could avoid the conversion of forested land at that size. In combination with land swap, forested land that can be saved will increase to 473,024 ha. This is equivalent to reduction of
emission from deforestation of about 480 million ton of CO
2
. If government decides to save all forested land allocated for palm oil as conservation area, there will be an additional of 544,049 ha forested land
being saved, thus in total will be about 1,017,073 ha see Table 1. And this is equivalent to reduction of emission of about 746 million ton CO
2
. With this reduction, the potential earnings received from carbon credit for those saved forests could not cover the additional cost required for yield improvement program.
However, the additional benefit from yield improvement will result in significant increase in income
5. Next steps
