14 February 2015

A difficult balancing act

Thomas Cleary is a current student at the University of Sydney Business School and participant in the 2015 New Combo Plan (Jakarta), an Australian Government initiative which aims to expand knowledge of the Indo-Pacific in Australia and strengthen institutional relationships through study and internships undertaken by Australian undergraduates in the region

Students from the University of Sydney Business School had an opportunity visit Sinar Mas, one of the largest conglomerates in Indonesia, which has subsidiaries in pulp and paper, agriculture, financial services, property, telecommunications, energy and infrastructure. Interestingly, the visit came about through a chance meeting a one of our transport academics had with an employee at a bus station. The company is the largest producer of palm oil in Indonesia (accounting for roughly 10% of total production) and the second largest globally (Sinar Mas, 2015)

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So why is this an issue?
Palm oil can only be successfully grown in tropical regions along the equator, meaning deforestation for the purposes of palm oil often occurs in areas rich in biodiversity. The expansion of palm oil poses a serious threat to a number of species, including the orang-utan, Sumatran tiger and rhinoceros (World Growth, 2011). Sinar Mas has been in a constant battle with environmental groups. The company was criticised in 2010 when it began cleaning land for plantations without receiving approval, and more recently, for hazing operations across the Raiu plane of Sumatra, which caused significant pollution in Singapore (Guardian, 2013)

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The economic argument
In 2013, palm oil accounted for 11% of Indonesia’s total export earnings, generated $5.7 billion in taxation revenue and employed an estimated 3.5 million people, particularly the rural poor living in Sumatra (Guardian, 2013). Globally, the demand for palm oil is expected to increase, given it is used in the production of popular cosmetics, soaps, pharmaceuticals and retail foods. To meet this demand, the Indonesian government plans to increase palm oil production to 40 million tonnes annually by 2020 (World Growth, 2011). This raises a number of questions about the prioritisation of economic interests over the sustainability of natural resources. Moreover, there seems to be reluctance on behalf of purchasers to buy palm oil certified by the Roundtable for Sustainable Palm Oil (RSPO). Unilever purchases 100% of their palm oil from certified producers, whereas other multinationals such as McDonalds (13%) and PepsiCo (17%) are seriously lagging behind. (Guardian, 2014)

So what is the solution?
I don’t think there is one. With Indonesia so dependent on palm oil as a source of revenue and provider of jobs, it’s hard to foresee any serious change. Environmental groups often urge consumers to boycott brands – but an individual’s brand loyalty can often override their environmental conscience. Is a consumer really going to boycott Garnier Fructis shampoo for containing palm oil when the majority of its competitors do as well? Are people really going to boycott McDonalds or the myriad of products owned by Proctor and Gamble? The marketing power of FMCG companies will always outweigh that of environmental groups. I think the way forward is for changes to be made to the Indonesian regulatory environment, to ensure that companies purchasing palm oil are doing so from the 40% of Indonesian producers that are certified by the RSPO - this way the responsibility is shifted from the consumer toward the companies actually purchasing the product.

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Balch, O. 2014, ‘Palm oil: WWF name and shame top global buyers’, The Guardian, 28 January, viewed 5 February 2015

McClanahan, P. 2013, ‘Can Indonesia increase palm output without destroying its forests?’, The Guardian, 11 September, viewed 6 February 2015, < http://www.theguardian.com/global-development/2013/sep/11/indonesia-palm-oil-destroy-forests>

Sinar Mas 2015, Agribusiness and food, Indonesia, viewed 6 February 2015, < http://www.sinarmas.com/en/agribusiness-and-food/>

World Growth 2011, The economic benefits of palm oil to Indonesia, viewed 4 February 2015, < http://worldgrowth.org/site/wp-content/uploads/2012/06/WG_Indonesian_Palm_Oil_Benefits_Report-2_11.pdf>

This blog was originially published on Sydney Life: Student experiences at the University of Sydney.

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