Roundtable on
Sustainable
Palm Oil:
The green
direction or
green washing?
Final report
Elvie Kromwijk - 6057284 - Economics Sarah Merabai - 5674417 - Earth Sciences
Eefje Smetsers - 10017097 - Business Judith Strik – 10094369 – Chemistry
Future Planet Studies
Tutor: Yrrah Stol
Supervisor: Prem Bindraban
Date: 24
thof May 2013
Word count: 8053
Abstract
One of the alternatives for fossil fuels are biofuels; a green direction in world’s energy provision. Palm oil is considered to be an alternative and sustainable energy source when the palm oil is used as a biofuel. Besides these industrial purposes palm oil is also used in many food products. The impact of palm oil production on the environment has been highly criticised. This led to the initiation of the Roundtable on Sustainable Palm Oil (RSPO). Through a multi-stakeholder discussion this board created a voluntary private certification that follows a set of principles and criteria. In this paper the economic and environmental effects of the implementation of these criteria are researched for now and in the next 20 years. Therefore, a case study has been conducted on the Keresa Plantation on Borneo in Malaysia. The results show that the implementation of the RSPO palm oil certification has decreased the environmental impact. Less agrochemicals are used and biodiversity appears to be protected by the RSPO principles. Thereby, due to a more sustainable production, RSPO-certified palm oil is counted by the EU’s renewable fuels target as a ‘sustainable’ biofuel. Since demand for biofuels is increasing the RSPO-certified palm oil will increase as well. This will probably lead to an expansion of plantations, which are most likely to cause an increase in the emission of greenhouse gasses, and reduction of biodiversity and soil degradation. Such soil degradation has economical disadvantages: since soil is part of the production factor capital, a degraded soil causes increased production costs and therefore decreased profits in the palm oil sector in Borneo. In conclusion, the RSPO created opportunities for the palm oil industry to enter the biofuel market and they are currently failing to include this problem of expansion due to biofuels into their certification.
Table
of contents
Abstract... 2
Table of contents... 3
Introduction... 4
Theoretical framework... 8
Sub question 1: What have been the effects of the RSPO certification on soil, air and
biodiversity at the Keresa plantation since its implementation?...8
Sub question 2: How does the RSPO certification in general affect the palm oil market?...9
Sub question 3: What will be the likely effects on Borneo’s soil, air and biodiversity of the
RSPO certification in the next 20 years?... 11
Sub question 4: What will be the likely effects of Borneo’s soil, air and biodiversity
changes on the palm oil industry at Borneo in the next 20 years?...12
Methodology... 14
Results... 15
Sub question 1: What have been the effects of the RSPO certification on soil, air and
biodiversity at the Keresa plantation since its implementation?...15
Sub question 2: How does the RSPO certification in general affect the palm oil market?...17
- RSPO-certified oil for food purposes………. 18
- RSPO-certified oil for biofuel purposes………... 19
Sub question 3: What will be the likely effects on Borneo’s soil, air and biodiversity of the
RSPO certification in the next 20 years?... 21
Sub question 4: What will be the likely effects of Borneo’s soil, air and biodiversity changes
on the palm oil industry at Borneo in the next 20 years?...22
Discussion... 24
Conclusion... 27
References... 28
Introduction
Global warming and escalating petroleum costs are creating an urgent need to find ecologically friendly fuels. One of the alternatives for fossil fuels are biofuels; a green direction in world’s energy provision. Palm oil is considered to be an alternative and sustainable energy source when the palm oil is used as a biofuel, for example by mixing the oil with petroleum or using the biomass of the palm tree (Mohammed et al., 2011). Besides these industrial purposes palm oil is also used in many food products. Compared to other vegetable oils it is relatively cheap, most versatile and has a high yielding (RSPO website, 2012a). As shown in figure 1, this led to a growing global demand for palm oil and previous literature only expects this trend to continue (e.g. Corley, 2009; Gunstone, 2012; WWF, 2013 and Lam et al., 2009).
Figure 1: Global demand for vegetable oils (RSPO website, 2012a)
Palm oil is considered to be an alternative and sustainable energy source when the palm oil is used as a biofuel. However, previous research showed that palm oil production appears to have severe effects on the environmental because of deforestation, soil erosion and water, air and soil pollution. Nitrogen fertilization is for example an agricultural activity on palm plantations causing ground-level ozone (O3)
an important air pollutant effecting human health, crop production and earth’s climate system (Hewitta et al. 2009). Therefore, the sustainability of palm oil production is doubted and the question rises if palm oil is the green direction, or can be seen as green washing?
Growing concerns about the environmental impacts of palm oil helped initiate the Roundtable on Sustainable Palm Oil (RSPO). RSPO is an initiative started by the WWF in 2004 as a non-profit, industry-led trade organization whose stated mission is to “provide RSPO-certified palm oil to the
market in a clear and transparent manner” and to “promote the growth and use of sustainable palm oil” (RSPO website, 2012a). The board members mainly consist of traders, for example multinational
consumer companies like PepsiCo, Unilever and L’Oreal (Paoli, 2010), manufactures and processors of crude palm oil. Through a multi-stakeholder discussion this board created a voluntary private certification that follows a set of principles and criteria, to reduce the effects of palm oil production on the environment (Terán, 2011). In order to become certified as sustainable palm oil producers, a company must comply with 39 sustainability criteria, organized under eight general principles (summarized in figure 2 and shown in appendix 1).
Figure 2: The eight principles of the RSPO (RSPO site, 2012a)
Since the establishment of the RSPO, there are some environmental organizations who criticized the organization. Laurence (2010) summarizes criticisms of environmental institutions and states that one of the main problems is the lack of controllability of the applied criteria on the plantations. In addition, Greenpeace (2009) stated that a specific company called Sinar Mas is violating the criteria through illegal land clearing and the destruction of High Conservation Value forest. No research has yet been done to investigate the overall picture and effects of the RSPO certification on this specific area. This paper therefore focusses on the effects of the implementation of the RSPO-certification on the Lavang Land District in Borneo. The following research question is examined:
What are the environmental and economic effects of the implementation of the sustainable RSPO palm oil certification on Borneo? A case study on the effects of the RSPO-certified Keresa Plantation on the Lavang Land District, Bintulu area in Malaysia.
For this case study the Keresa Plantation was chosen, which is a local Malaysian company with about 10 years of experience in oil palm plantation. Currently, Keresa owns 6,023 hectares of oil palm plantations at the Lavang Land District, Borneo, Malaysia (figure 3), and it has an annual production of 100,000 tons per year (Keresa Plantation website, 2010). The Keresa Plantation joined the RSPO in 2009 and stated that: “This marks an important landmark for our company and sets a new vision for Keresa to be a responsible producer of crude palm oil” (Keresa Plantation website, 2010).
Figure 3: Location of the Keresa Plantation on Borneo, Malaysia
Malaysia is at the moment the second-largest producer of palm oil worldwide and this production is increasing annually (Gunstone, 2012). Only Indonesia has a higher production of palm oil, but it was difficult to obtain the required data for this developing country. The Keresa Plantation is chosen as the case study, because it consists of one uninterrupted area. This makes the evaluation of the collected environmental data easier, for example data on the use of fertilizers on the plantation. Also, the Keresa plantation adapts a 100% RSPO-certified policy, while many other organizations only exports a small percentage of certified oil compared to their total production (RSPO website, 2012b).
The effects of the implementation of RSPO certification on the area of the certified plantation cannot be understood comprehensively if it is researched by disciplinary theories only. Different findings are made when solely the environmental and eco-toxically effects of the implementation of RSPO are researched; the same applies when only economic effects are taking into account. For example, the
effects of agriculture on the environment are previewed by the Earth science perspective as consequences of human interference in natural geological systems (Repko, 2012; p.229). Whilst, the economic perspective focuses more on market behaviour. In order to overview the total effects of the implementation of the RSPO certification integration is necessary. This integration is done by the following sub questions, in which the findings of each sub question are used as input for the next sub question:
1. What have been the effects of the RSPO certification on soil, air and biodiversity at the Keresa plantation since its implementation?
2. How does the RSPO certification in general affect the palm oil market?
3. What will be the likely effects on Borneo’s soil, air and biodiversity of the RSPO certification in the next 20 years?
4. What will be the likely effects of Borneo’s soil, air and biodiversity changes on the palm oil industry at Borneo in the next 20 years?
The time span of 20 years in sub questions 3 and 4 was chosen, whilst this is the minimum time palm oil trees are considered economically profitable (Oil Palm Fact File, 1999). This because the extraction rate of palm oil is only profitable from their third year until they reach 20 to 30 years. Thereafter, the trees are cleared in order to cultivate new palms which are more economic profitable.
This paper starts with a theoretical framework, in which the theories in order to answer the sub questions will be discussed. Next, the methodology will be explained. Subsequently, the results will be shown. After this, in the discussion, the results, limitations and recommendations for further research will be discussed. The paper ends with a short conclusion.
Theoretical framework
The theoretical framework is build up for each sub question as given in the introduction. In this section disciplinary theories are described for each sub question separately, which will be used in order to research the four sub questions.
Sub question 1: What have been the effects of the RSPO certification on soil, air and
biodiversity at the Keresa plantation since its implementation?
In conventional agriculture agrochemicals, including fertilizers, pesticides and herbicides, are used widely, because they are able to target short-term solutions to increase soil-fertility, among other features (Watson et al., 2002). Within a narrow definition, soil fertility is a result of the physical, chemical and biological properties which interact to provide nutrients, water, aeration and stability to plants, as well as freedom from any substances that may inhibit growth (Stockdale et al., 2002). Therefore, the sustainability of soil fertility can be measured as the ability for crop production in the long-term (Gosling & Shepherd, 2005).
It is generally accepted that the (over)use of agrochemicals, being mostly nitrogen-, phosphorus- or potassium-based, causes leaching into the soil and thereby soil degradation (Mózner, Tabi & Csutora, 2011). Therefore, a prophylactic use of agrochemicals needs to be avoided in order to prevent such irreversible damage to the environment. However, it is necessary to make a clear distinction between agrochemicals that are more harmful to the environment than others; e.g. type 1A en 1B as categorised by the World Health Organisation (RSPO Research Project, 2011). As mentioned by Carvalho (2006), even though some agrochemicals causes more damage to the environment that does not imply that all agrochemicals are useless or totally harmful. The risk of the application of agrochemicals needs to be balanced with the benefits of using these agrochemicals.
In addition, the application of agrochemicals into the environment leads to an increase in the amount of greenhouse gases (GHGs). This is due to leaching and runoff of the agrochemicals in the environment which causes GHG emissions (e.g. Chase & Henson, 2010). GHGs such as carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and ozone (O3), are gases that enhance the Greenhouse
Effect and thereby are considered to increase Earths temperature and enhance global warming (IPCC report, 2007). A significant part of climate scientists believe that the net increase of atmospheric
concentration of GHGs will result in climate change, which will have a considerable impact on the environment (e.g. Hewitt, et al., 2009).
A palm oil plantation affects the soil and air quality due to the use of agrochemicals and also affects biodiversity due to disturbed natural habitats. In order to acknowledge the current effects of the RSPO certification on biodiversity, the species diversity theory is also used. A reduction of species diversity is inevitable when a palm oil plantation disturbs species habitat (Harpole, 2012). Agriculture is at its essence a disturbance for species habitats. Species need a particular habitat wherein they can grow and reproduce. Species’ interference or cooperation with the environment is easily disturbed when an area is used for agriculture. Species mostly move to surrounding areas where biodiversity is still high and their needs for growing and reproducing are fulfilled (Kerr, 2001). The species diversity of the plantations natural surroundings is threatened primarily because of habitat fragmentation which occurs when a species habitat is used as agricultural land or when it is broken apart (Fahrig, 2003).
Next to the loss of species richness a losses of the natural functioning of palm oil plantation as an ecosystem is stated. The resilience theory is used in order to acknowledge the current effects of the RSPO certification on soil physical property and condition. The biodiversity and resilience theory are interrelated, both explaining the need for a good functioning of an environment as a system (Tilman, 1997). The biodiversity and resilience of an area is easily disturbed especially when land-use changes occur such as agriculture. The aspects that determine a system’s resilience are: the soil fertility depending on a systems nutrient cycle, soil stability, water retention, pollination and pest control (Gunderson, 2000). The functioning of those aspects is carried out artificially at the plantation. The resilience of a plantation is its ability to stay in equilibrium when those aspects are subjected to disturbances such as insect’s pest and soil erosion.
Sub question 2: How does the RSPO certification in general affect the palm oil
market?
Corporate social responsibility (CSR) has become more and more important for companies over the last decades, more than 80% of fortune 500 (an annual list compiled and published by Fortune magazine that ranks the top 500 U.S. companies based on their annual revenues) address CSR issues on their websites (Bhattacharya and Sen, 2004). The Commission of the European communities defines CSR as “a concept whereby companies integrate social and environmental concerns in their
business operations and in their interaction with their stakeholders on a voluntary basis” This growing importance of CSR is due to the fact that stakeholders are becoming more critical about the responsibility of a firm towards the rest of the world, (McWilliams and Siegel, 2001). Stakeholders are all persons and groups with a legitimate interest in the company, so for example consumers, suppliers, shareholders, NGO’s and governments. One of the most important stakeholders is consumers, because they have the possibility to boycott a company with a bad reputation, (McWIlliams and Siegel, 2001). On the other hand, they can embrace companies with a good CSR strategy. According to stakeholder theory, companies have obligations to all their stakeholders, so managers must take their wishes into account in order to generate a competitive advantage (Donaldson and Preston, 1995). McWilliams and Siegel (2001) also state that engaging in CSR will provide a company with better financial performance.
As explained above, consumer behavior is partly based on companies’ reputations. If a company’s reputation changes, the demand for its products will change as well. In order to analyze the effects of a change in demand on the palm oil market, the theory of supply and demand will be used. The theory of supply and demand, introduced by Cournot in 1838 and amplified by Marshall in 1879, is distinguished as one of the most important fundamental theories in the microeconomics and is also used in other economic facets. Due to this theory economists are able to predict changes in supply, demand and prices through their mutual dependencies, which is a useful skill for profit maximization (Humphrey, 1992).
The theory of supply and demand includes three main concepts: supply, demand and price. Supply is the amount produced and purchasable for consumers
respectively a certain price level, measured in units of the
product. Demand is the amount consumers are willing to
buy at a certain price level, again measured in units of the
product. The price is the product price, for a currency at the
option. The theory states there is a negative relation between price and demand, while there is a positive relation between price and supply. For that reason the
demand curve is downward sloping, while the supply curve is upward sloping. The intersection between the supply- and demand curve shows the equilibrium price and quantity, see figure 4.
Figure 4: Supply and demand
curve(Mike on ads, 2007)
In a perfect competitive market, the long run equilibrium price is equal to the marginal costs; this is also called the breakeven-point, because no firm makes profit. Even in an imperfect competition price, supply and demand influence each other, however the equilibrium price will be higher and the equilibrium quantity will be less than in a perfect competitive market. If the equilibrium price is disturbed by a change in supply or demand, two effects will occur according to the rules of supply and demand. In the short run the price will change. If the price increases, entering the market is profitable, so in the long run more producers will enter the market till the price is equal to marginal costs again, in the breakeven-point. If the price decreases, suppliers will leave the market, supply decrease in the long run and the price is equal to marginal costs again, in the breakeven-point (Snyder & Nichelson, 2012). Criticism to the theory is that the diagram is incomplete, a simplification of the reality. Price is not the only incentive for supply and demand changes (Martin, 2010).
Sub question 3: What will be the likely effects on Borneo’s soil, air and biodiversity of
the RSPO certification in the next 20 years?
The changes in the palm oil market as described in sub question 2 will most likely influence the amount of palm oil plantations in Borneo. This will have consequences for the agricultural cultivation on Borneo. In comparison, conversion of original tropical rainforest due to agricultural cultivation has occurred on large scale on Borneo in the last 30 years (e.g. Wicke, Sikkema, Doorburg en Faaij, 2011). With this land use conversion (LUC) most Greenhouse Gas (GHG) emissions in palm oil production are produced, which therefore contributes to the Greenhouse Effect as described earlier in the theoretical framework of sub question 1. This is not only due to the loss of carbon from previous crop or vegetation, but also due to GHGs that are emitted with land clearing and preparation for new plantations (Chase & Henson, 2010).
Furthermore, the biodiversity theory can be used to determine the long-term effect of those RSPO criteria’s on species diversity at the plantation and its surrounding ecosystems. A loss of biodiversity will have a considerable impact on the environment in the long run, because the ecosystems that surround the plantation depend on species diversity for the good functioning of the system. Soil fertility depending on a systems nutrient cycle, soil stability, water retention, pollination and pest control are all insured by the diversity of plants, animals and organism in the ecosystem (Gunderson, 2000). Additionally, the ecological resilience theory is defined as the amount of disturbance that an ecosystem could withstand without leaving one of its stable states (Gunderson, 2000, p. 425). A stabile ecosystem is a dynamic system near or close to a stable state; resilience is than the amount of disturbance a system can absorb without losing its equilibrium. An ecosystem has several stable
states; it can change structures and have a different amount of species in different phases nevertheless remaining in a stable state. The ability of a system to change structures is not unlimited; therefore it will difficult to remain in a stable state on the long run (Loreau, 2001).
Sub question 4: What will be the likely effects of Borneo’s soil, air and biodiversity
changes on the palm oil industry at Borneo in the next 20 years?
In order to indicate the economic effects of soil degradation, the theory of production will be used. The theory of production is developed and amplified by Smith, Ricardo, Marx, Walras, Marshall, Clark, Von Böhm-Bawerk, Wicksell and Samuelson and provide a simplified basic for analyzing production decisions (Kurz & Salvadori, 1995). The theory of production indicates the optimal production level and allocation of production factors in order to maximize a firm’s profit, by analyzing the relationship between the production function and the costs function.
The production function gives the relation between the production factors labor (l) and capital (k) and the production output (Q). Labor is defined as hours labor input, capital as machines/products usage during the period and output as the produced units of the product. An example of a basic production function is: Q = √k x √l. The cost function gives the total costs for the production process. The variables are labor (l), the price of labor (w), capital (k), the price of capital (v) and total costs (C). An example of a basic cost function is: C = wl + vk.
Since a firms profit (
) depends on the relation
= price x quantity – total costs, profit increases if revenue (revenue = price x quantity) increase or if total costs decrease. So in order to determine the optimal production level and allocation of production factors, the production function should be maximized and the cost function should be minimized. Since the basic costs function is a linearfunction, the cost function gives a linear curve. The total costs are equal among the curve, just the distribution of labor and capital changes. The closer the curve is to the origin of the diagram, the lower the costs are.
Figure 5: Relation production function and cost function (Schinkel, 2013a)
The production function on the other hand is a convex curve, which shows the distribution of production factors while keeping output constant. So the optimal allocation of production factors can be found at the intersection of the production function with the lowest costs function. In figure 1 the intersection with C2, which gives the optimal labor (l*) and the optimal capital (k*).
If something outside the model occurs and causes capital degradation, relatively more capital will be necessary for the production of the same amount of output. In mathematical terms, the production function will change from Q = √k x √l into for example Q’ = √(2k) x √l. Graphically, the production function curve changes and shifts to the right, as shown in figure 7. This new production function has no intersection with C2 anymore, but with C3. So if a firm wants to keep its production output constant, the production process will be more expensive (Snyder & Nicholson, 2012).
The most important criticism to the theory of production is that it is a simplification of the reality. For example labor, which is defined as hours of labor input, is far to simplified. For example, differences in labor productivity between different employers is neglected (Moses, 1958).
Figure 6: capital degradation - shift in production function, (Schinkel, 2013a)
Methodology
In this paper interdisciplinary research is conducted by an integration of the disciplinary theories from the theoretical framework. Repko (2012) describes interdisciplinary research as “a process of
conducting common ground, which is created between conflicting disciplinary insights or theories, preparatory for performing integration and producing an interdisciplinary product” (Repko, 2012: p.
56-57). This way, disciplinary concepts and theories could be modified in order to use it for collaborative communication between the disciplines. This ‘redefinition of concepts’ (Repko, 2012) can be best shown with the example of the concept of ‘degradation’: natural sciences might point out the occurrence of soil degradation due to human interferences in natural systems. Additionally, the concept can be redefined as part of the economic concept of degradation of ‘capital’, a production factor which makes production possible together with ‘labor’ (as further explained on page 12). Therefore, the natural sciences phenomena of soil degradation can be considered as part of the economic theory of production.
Following this, data has been searched in order to implement the theories on the case study. The used databases include the online and offline library of the university, google scholar and internet with some main keywords “Borneo”, “(sustainable) palm oil”, “ RSPO”, “Keresa plantation”. Only qualitative information on the case study is used, which is based on earlier researches that are comparable to our case study. From our theoretical framework the following visualization of ‘redefined concepts’ could be made on how different aspects of the palm oil plantation are affected by the implementation of the RSPO certification (figure 7).
Results
Sub question 1: What have been effects of the RSPO certification on soil, air and
biodiversity at the Keresa plantation since its implementation?
In order to answer this sub question on how RSPO certification affects soil, air and biodiversity, research was done on the consequences of the implementation of the certification at the Keresa plantation. Within the RSPO principles (2007) the principles on soil, air and biodiversity are described in principles 4 and 5.
Firstly, the current effects of the application of criteria 4.2 & 4.3 and 4.5 & 4.6 on the soil will be dealt with. These criteria are shown in table 1 and described more fully in appendix 1.
Table 1: Description of the researched four criteria of principle four of the RSPO principles (RSPO principles, 2007).
Criterion Description
4.2 Practices maintain soil fertility at, or where possible, improve soil fertility to, a level that
ensures optimal and sustained yield.
4.3 Practices minimise and control erosion and degradation of soils.
4.5 Pests, diseases, weeds and invasive introduced species are effectively managed using
appropriate Integrated Pest Management (IPM) techniques.
4.6 Agrochemicals are used in a way that does not endanger health or environment
Keresa has committed to no replanting of palm oil trees before 2017 and has a strict no burning policy (Allan, 2010). This will ensure the maintenance of soil fertility, in addition to a reduction in the amount of applied fertilizers. The Integrated Pest Management (IPM) techniques have ensured considerable reduction of agrochemicals (pesticides in specific). In the year 2008-2009 the amount of applied pesticides decreased twenty percent and in 2010 this amount has been further reduced to at least 30 % (Allan, 2010). Instead, the IPM makes use of growing beneficial plants such as the Tunera and snakes in order to reduce the amount of rats at the plantation. This has ensured that less pesticides are needed, which is reflected in the reduction of the pesticides as mentioned earlier. Also, there is no aerial spraying of pesticides in Keresa (ISO group, 2010). Furthermore, the agrochemicals that are being used are in compliance with the Pesticides Act (1974) of Malaysia and their use is being slowly reduced, by comparing records of pesticide usage with records of previous years and planning to reduce the usage. Regarding soil erosion, the Keresa plantation implements the number 4.3
criterion, minimizing and controlling erosion and degradation of soils by planting on slopes to prevent soil erosion and building levees to prevent water run-off (Allan, 2010).
Secondly, the current effects of the application of criteria 5.2 & 5.6 on the biodiversity and air will be dealt with. These criteria are shown in table 2 and described more fully in appendix 1.
Table 2: Description of the researched two criteria of principle five of the RSPO principles (RSPO principles, 2007).
Criterion Description
5.2 The status of rare, threatened or endangered species and high conservation value habitats if any, that exist in the plantation or that could be affected by plantation or mill management, shall be identified and their conservation taken into account in management plans and operations.
5.6 Plans to reduce pollution and emissions, including greenhouse gases, are developed,
implemented and monitored.
In order to fulfill to criterion 5.2, Keresa plantations identified the so-called high conservation value habitats (HCV), which are natural habitats that could be affected by the grower or miller. Wild Asia undertook the HCV assessment which has been approved by the RSPO. The HCV assessment concluded for the Keresa plantation, nor in the forest surrounding the plantation, that there were no rare or threatened species identified (Allan, 2010). Nevertheless potential high conservation value habitats were identified and more action was needed to ensure the conservation of biodiversity at those potentially threatened habitats. This is suggested for example by the assignment of buffer zones meaning that no hunting can take place in those areas. Field assistants and staff are engaged to monitor the maintenance of the buffer zone’s and the potentially threatened habitats (Allan, 2010). Overall, this RSPO certificated palm oil plantation takes measures to reduce those disturbances by conserving species habitat.
Furthermore, the effect of the implementation of the RSPO principles on air is best described in the Keresa Environmental Policy Statement (2010, see appendix 2). In this policy they have stated that they seek to reduce air emissions and other pollution sources, for the time lap of five years between 2010-2015. Allan (2010) also states that all emission sources are identified and plans are enforced to reduce this level of emission.
In conclusion, the current effects of the implementation of the RSPO certification on the Keresa plantation show that the application of the principles seems to improve the contemporary status of the soil, air and biodiversity in the area.
Sub question 2: How does the RSPO certification in general affect the palm oil
market?
As described in the introduction of this report the current market of palm oil is increasing rapidly for industrial and food purchases (Gunstone, 2012). As shown in the table below Gunstone (2012) over the last fourteen years there already was a major increase in the palm oil consumption worldwide.
Figure 8: Annual production, exports, and consumption in million tons (Gunstone, 2012)
There are different reasons to believe that the contribution of RSPO-certified palm oil will increase differently for the use of food and industrial purposes. Firstly the contribution of RSPO for food purposes will be discussed; secondly the use of RSPO-certified palm oil for biofuel purposes will be discussed.
At first, without making a distinction between conventional and RSPO-certified oil future, the demand for edible oil in 2050 will be nearly twice of today’s total, (Corley, 2009). Per capita consumption in individual countries will increase by 0.8 kg/year, which is based on the consumption of increasing welfare in developing countries and a continuous diet in developed countries, and an increase of the total world population (Corley, 2009), see figure 9.
Figure 9: Expected trends in world population and edible use of vegetable oil. Population from UNPD (Corley, 2009)
WWF (2013) shows that there is an increased trend towards RSPO-certified oil. They confirmed that the number of retailers has increased since 2009. In addition, as discussed in the theoretical framework, the current trend shows that consumers push companies to engage in CSR. Stakeholders are becoming more critical about the production of products they purchase. This also is applicable to the palm oil market. Multinational companies are trying to anticipate to the growing concerns of costumers, and therefore they are focussing on buying more sustainable ingredients for their products. For example Unilever, who claims that they will only buy certified palm oil at the beginning of 2015, (Unilever, 2013) or Nestlé who state that at the end of 2012, 80% of their total use will be certified palm oil, (Nestlé, 2012). It is therefore predicted that the palm oil production in general will continue to grow and RSPO will increase their contribution in the total production of palm oil, but no proof can be found that the RSPO-certification itself will increase the demand for food purposes ( see figure 10).
RSPO-certified oil for biofuel purposes
Global demand for biofuels has risen sharply over the last decade, driven initially by oil price hikes and the need for greater energy security. Support measures were established in many countries in recognition of the potential of biofuel development in reducing dependence on fossil fuels, increasing farm revenues, and generating less environmental damage through lower greenhouse gas (GHG) emissions compared to non-renewable fuel sources, (Al-Riffai, 2010). Biodiesel is the most common renewable fuel in Europe and it is produced mainly from domestically cultivated and processed oilseeds, (FEDIOL, 2013). Rapeseed accounts for 66% of the total production in Europe. As shown in the figure below, there is an increasing trend in the use of rapeseed Oil for Biodiesel.
Figure 11: Rapeseed oil supplied to food and biofuel markets (1000t)
Total palm oil
production
Expansion
biofuel
purposes
RSPO-certified
oil
Expansion food
purposes
(conventional
+RSPO)
Laurance (2010) stated that the RSPO is facing a weak market demand, which is partly due to the fact that RSPO criteria are insufficient to fulfil European Union directives for renewable energy and fuel quality. However in December 2012 the European Union evaluated the RSPO-criteria and the state that the Round Table on Sustainable Palm Oil RED’ meets adequate standards of reliability, transparency and independent auditing, (European Union, 2012) and it is therefore count towards the EU’s renewable fuels target as a ‘sustainable’ biofuel. In 2009 the EU Renewable Energy Directive set specified targets for use of renewable fuels and reduction of greenhouse gas (GHG) emissions across all energy sectors, with specific requirements for the subset of fuels used for transportation, (Biofuel Policy Watch, 2013). Every country in the European unit has a target of 10% renewable transport fuels and a 6% reduction of (lifecycle) greenhouse gas emissions for all transport fuels by 2020, (FEDIOL, 2013). This change of policy makes it possible for the palm oil industry to contribute in the European biofuel market. Since the demand for biofuels is rising, it is expected that the demand for palm oil will also rise (see figure 10), because as mentioned earlier it is relatively cheap, most versatile and has a high yielding compared to other biofuels, (Lam et. al., 2009 and RSPO website, 2012a).
In order to analyze the effects of the increased demand for RSPO-certified palm oil on the supply and price of RSPO-RSPO-certified palm oil, the theory of supply and demand will be used. As showed graphical in figure 2, the increased demand for RSPO-certified palm oil causes a shift of the demand curve to the right. The new intersection of the demand and supply curve shows an increased equilibrium price (P2) and if production capacity tolerates in the short run an increased equilibrium quantity (Q2). Due to the increased price for RSPO palm oil,
plantations will gain more profit. The profitable market becomes attractive for new plantations to enter, however in the short run it is not possible to start-up a new plantation.
In the long run, on the other hand, entering the market will be possible. New plantations in the market are shown graphical in figure 3 as a shift of the supply curve to the right. According to the theory of supply and demand the supply will increase till the amount where intersection of the demand and the supply curve shows equilibrium price (P1) again, which equals the price of the
Figure 12: increasing demand -
short run, (Schinkel, 2013b)
Figure 13: increasing demand
- long run, (Schinkel, 2013b)
break-even point. So in the long run the price of RSPO-certified palm oil will remain constant, while the supply will increase. As Carter, Finley, Fry, Jackson and Willis (2007) and Borneo Post (2010) state an increasing export of palm oil is indeed the case.
Concluding, RSPO-certified palm oil is becoming more popular in the palm oil market. There is evidence that the market will continue rapidly growth. The contribution of RSPO will only increase, since costumers force the market towards more sustainable alternatives for products and the European commission allows companies to use RSPO-certified oil as a renewable fuel. Therefore there will most likely be an increasing demand for RSPO-certified oil.
Sub question 3: What will be the likely effects Borneo’s soil, air and biodiversity of the
RSPO certification on in the next 20 years?
As described in earlier sub questions, it seems plausible that the number of RSPO-certified plantations will increase in the future. Therefore, the effects of an increasing number of plantations in the area are studied where the plantation of this case study is located: Borneo. At the Keresa plantation plans are created to reduce the amount of GHG emissions: in their environmental policy statement (Appendix 2) they have stated to seek for a direct reduction in air emissions, for example by applying less agrochemicals. Chase & Henson (2010) stated that the amount of applied fertilizers accounts for almost 9 % of the GHG emissions for palm oil production. However, the greatest source of GHG comes from land use conversion (LUC): in the model of Chase & Henson (2010) this LUC accounts more than 66 % of palm oil estates emissions. Therefore, if palm oil plantations will expand on Borneo it seems that Greenhouse Effect is more enhanced. This percentage of the total amount of GHG emissions is especially high if it is tropical rainforest that is being converted to palm oil plantations, because of the high biomass of that vegetation (Lange, 2011). Borneo consists mainly of high biomass land, i.e. primary forest, and will therefore be endangered by the deforestation caused by LUC which will lead to more GHG emissions (WWF, 2013).
In addition, the long-term effects of the RSPO certification on Borneo’s soil will depend on the fertilization methods. A balanced fertilization occurs when fertilizers input is adapted to the uptake of the palm tree leading to no surplus or shortage of soil nutrients. If the use of fertilizers is only recorded and monitored and not conformed to the specified needs of the palm tree soil degradation will occur (Tan, 2008).
Also, the long-term effects of the RSPO certification on Borneo’s biodiversity will depend on the habitat protection measures. Currently only the rare, threatened or endangered species are protected. Nevertheless, the focus on rare, threatened or endangered species is insufficient because those species also depend on less rare and not threatened species that have to be taken into consideration when habitat conservations measurements are implemented. At the Keresa plantation no protection measures are taken for species with needed ecosystem functionalities of now and the future such as nutrient retention, resource requirements and productivity (Koh, 2008). Loreau’s (2001) article on biodiversity and future challenges shows that the functionalities of some species can be unimportant now but could be in the future. It is also shown that in 20 years time a larger number of species will be needed to cope with environmental changes. In 20 years time only the rare and threatened species are protected at the Keresa plantation and not the whole scope of species needed to cope with changes (Loreau, 2001).
Consequently, in 20 years time soil degradation and biodiversity losses will affect the resilience of the plantation and its surroundings making the plantation more sensitive to disturbances such as erosion and insects’ pest. Those disturbances will on their turn influence the resilience of the surrounding ecosystems and reduce the ability of the plantation and the surrounding ecosystem to stay in an equilibrium.
In conclusion, if the plantation has expanded in 2020 the amount of GHG emissions will increase enormously which will enhance the Greenhouse Effect. When soil stability and soil fertility are threatened and soil degradation will occur in the surrounding ecosystem and in at the plantation, the ability to cope with disturbances will diminish significantly, i.e. the resilience of Borneo will decrease.
Sub question 4: What will be the likely effects of Borneo’s soil, air and biodiversity
changes on the palm oil industry at Borneo in the next 20 years?
As indicated by sub question 3, the quality of the soil in Borneo will decrease due to an increased amount of RSPO-certified palm oil plantations. ‘Soil degradation’ in ecological terms can be transformed into economical terms, to ‘capital degradation’. Capital includes all production factors expect labor and therefore soil is considered to be an essential part of this capital. Soil, which is a part of RSPO-certified palm oil plantations capital, becomes less productive if its quality is degraded. Assuming a plantation wants to keep its output level constant, more capital and labor should be used than before the degradation.
In order to estimate the economic consequences of the soil degradation the theory of production will be used. Assuming the production function of RSPO-certified palm oil before the soil degradation to be Q = √k x √l, the production function after the soil degradation will be Q’ = √(2k) x √l. And assuming the cost function of RSPO-certified palm oil will equal the basic cost function, the costs function will be: C = wl + vk. Cost functions do not
change due to the soil degradation. Figure 2 shows both production curves and costs function graphically. The closer the cost function curves are to the right upper corner, the costlier the production of RSPO-certified palm oil is. As shown the production function after the soil degradation (q’0) intersects with a higher cost function (C3 instead of C2).
Since a companies' profit is determined by
= price x quantity – total costs, RSPO-certified palm oil plantations profit will decrease if total costs rises. So the soil degradation has a negative economic effect on Borneo’s RSPO-certified palm oil sector and according to the same reasoning on other agriculture sectors in the area (Snyder & Nicholson, 2012).Discussion
In sub question 1: ‘What have been the effects of the RSPO certification on soil, air and biodiversity at
the Keresa plantation since its implementation?’ it seemed that the environmental impact of the
Keresa plantation was decreased by implementation of the RSPO certification. For example, RSPO wants to reduce the amount of agrochemicals used on palm oil plantations, which decreases the environmental impact. However, the application of less agrochemicals might decrease the yield per hectare by decreasing crop productivity. This might cause more land use change in the future (as described in later sections). Consequently, the risk of the application of agrochemicals should be balanced with the benefits of this application (Centi & Perathoner, 2003). It is therefore considered to be insufficient to only monitor and record the input of fertilisers and research is needed for analysing the needs of the palm tree during different growing stages. Furthermore, with help of agricultural management RSPO tries to protect the biodiversity. Currently, only rare or threatened species are protected and no threatened species were detected (Allan, 2010). However it is possible that there are not yet identified threatened species, which are not protected, and therefore biodiversity losses might occur.
The results of sub question 2, ‘How does the RSPO certification in general affect the palm oil market?’, show that the implementation of RSPO-certification has led to access of palm oil to the biofuels market. Therefore, the RSPO-certified palm oil is differentiated in two markets: the food market and the biofuels market (European Union, 2012). This development has caused an increased demand for RSPO-certified palm oil, which will lead to expansion of the palm oil sector. In order to fulfill this demand, more plantations are required. At the moment the principles of the RSPO appear to be not comprehensive enough to prevent such expansion. For example, conventional plantations can be certified after they have expanded and by this bypass the RSPO regulation concerning expansion. In addition, even if the RSPO-certified palm oil is more sustainable compared to conventional palm oil, it is doubtful if the environmental impact of a relative low production of conventional palm oil exceeds the environmental impact of a high production of ‘sustainable’ palm oil.
The answer to sub question 2 therefore puts sub question three ‘What will the likely effects on
Borneo’s soil, air and biodiversity of the RSPO certification in the next 20 years?’ into a new
perspective because the expansion will effect a larger area. This means that the total area of palm oil plantations on Borneo will increase which is likely to cause more deforestation, intensive land-use
and biodiversity losses. More Greenhouse Gas (GHG) emissions will be emitted with this land use change (LUC). In general, palm oil plantations need to be seeking for a zero emissions model in order not longer contribute to climate change. Therefore, intensification of the land (by use of agrochemicals) can contribute to ‘land sparing’, which will balance the increase in emissions due to LUC (Chase & Henson, 2010). In addition, it is stated in the Keresa plantation RSPO assessment that there will be an annual replantation programme. Nevertheless, replantation does not necessarily compensate for the biodiversity losses (Allan, 2010). The emphasize on rare species in the RSPO criterion 5.2 will also cause problems in the coming 20 years, because of the growing area of an agricultural area which is dependent of fertilizers and pesticides, an induced habitat fragmentation and an insufficient protection of a broader scope of species. In the next 20 years other ecosystem functionalities will be needed to buffer environmental changes then those which are important now, therefore a variety of species regardless of their rareness should be protected (Loreau, 2001). Additionally, only one of the 49 criteria specifically addresses the issue on biodiversity. Important criteria such as conservation of the tropical forest by only allowing the expansion of oil palm agriculture on pre-existing cropland or degraded habitats are also missing in the RSPO criteria’s (Koh, 2008). Furthermore, when soil fertility decreases during a long period of time, crops will be more sensitive to diseases.
The environmental effects discussed in question 3 provide significant details in answering the last sub question ‘What will be the likely effects of Borneo’s soil, air and biodiversity changes on the palm oil
industry at Borneo in the next 20 years?.’ Soil degradation, which is in economic terms part of the
production factor capital, causes increased production costs, which lead to decreased profits in the palm oil sector. However, in this research there has been made an approximation of the effect of soil degradation on the production function of RSPO-certified palm oil. In order to analyze the exact total costs rising, a more comprehensive mathematical analysis should be done.
Overall, while the effects on the long run appear to be negative for the environment and wealth, RSPO (n.d.) is still content with the certification and with RSPO-certified palm oil’s entering the biofuel market. They argue that if RSPO-certified palm oil is banned from the biofuel market, other crops like soy will substitute this gap in supply. Substitution crops like soy require more land than palm oil in order to produce the same quantity of oil (RSPO, n.d.). Furthermore the RSPO does not hold itself responsible for the allocation of palm oil, they have written in a factsheet about biofuels:
‘While it is outside the scope of RSPO to determine the allocation of palm oil for food, fuel and other uses since palm oil trades on an open market, RSPO’s Principles and Criteria where implemented will
give biofuel producers and consumers the condence [confidence] that the RSPO certied [certified] palm oil they are buying has been produced sustainably and responsibly.’ (RSPO, n.d., p.2)
A prohibition of the RSPO to use RSPO-certified palm oil as biofuel would approximately not solve the problem. The oil palm industry cannot be considered in isolation from the total vegetable oil market (Corley, 2009). Prohibition will only transfer the problem to another sector, since substitution crops will replace the palm oil as biofuel. In order to prevent further environmental impact due to expansion, intervention on the biofuel market is recommended. If consumers are aware of the negative consequences of biofuels, the demand will probably decrease. This intervention could be started in the Netherlands, because the Netherlands is the largest importers of RSPO-certified palm oil (RSPO, 2012).
Limitations
This research is mainly based on information required from the RSPO and the Keresa Plantations. Laurance (2010) emphasizes the lack of controllability of these criteria in his research. The data that has been used to examine the effects on the soil, biodiversity and air are based on a report by Allan (2010). This report was written in name of BSI group, an independent organization which is hired by the Keresa Plantation to make a report about their fulfilment of the RSPO criteria. Due to the interests of Keresa plantation at the outcome of such assessment, the results should be regarded critically. It is therefore recommended to do a field research to collect more reliable data and to filter out the problem of controllability. This field research would at least include collecting data samples and information in person in this specific area. Furthermore, this research did not take into account all of RSPO’s criteria. Further research should also include the criteria left out of this research (law perspective, social-political perspective). At last, more research should regard solutions on how environmental impact can be decreased due to the increased demand for biofuels and therefore expansion of palm oil plantations.
The information required at the four sub questions will provide a basis for the answer on the main question: ‘What are the environmental and economic effects of the implementation of the
sustainable RSPO palm oil certification on Borneo? A case study on the effects of the RSPO-certified Keresa Plantations on the Lavang Land District, Bintulu area in Malaysia.’
The RSPO palm oil certification has decreased the environmental impact of palm oil production in the short run. Less agrochemicals are used and furthermore the known rare, endangered and threatened species are protected by the RSPO principles. Thereby, due to a more sustainable production, RSPO-certified palm oil is counted by the EU’s renewable fuels target as a ‘sustainable’ biofuel. Since demand for biofuels is increasing the RSPO-certified palm oil will increase as well. The supply side of the market will anticipate on this development by expansion of plantations. This expansion are likely cause land use changes in the next 20 years by converting forest and other soils into plantations. More plantations emit more greenhouse gasses, and are also likely to reduce biodiversity and cause soil degradation. Thereby reduced biodiversity and soil degradation are likely to cause a less resilient area in Borneo. This soil degradation has also economical disadvantages: since soil is part of the production factor capital, a degraded soil causes increased production costs and therefore decreased profits in the palm oil sector in Borneo.
So even though biofuels are supposed to be the green direction to a more sustainable energy provision, it has led to unsustainable side effects. Agriculture expansion, including expansion of the RSPO-certified palm oil sector, increases the environmental impact and decreases economic prosperity. The incentive of the RSPO was to create a more sustainable palm production, which can be seen as a successful green direction. Nowadays, the RSPO created opportunities for the palm oil industry to enter the biofuel market and they are currently failing to exclude this green washing of palm oil production into their certification.
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Appendix
Appendix 1
