Public Financing For Sustainable Palm Oil
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Presented by Dewa Ekayana, Fiscal Policy Agency-RCCC UI at GCRF Trade Hub Webinar - Towards global green deals: Sustainable trade in palm oil, coffee and songbirds in Indonesia on 20 January 2022.
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Public Financing For Sustainable Palm Oil
- 1. Photo by Axel Fassio/CIFOR Public Financing For Sustainable Palm Oil Dewa Ekayana Fiscal Policy Agency-RCCC UI
- 2. Background ❑ Indonesia is the primary global exporter of palm oil products, followed by Malaysia, with both countries making up to 90 percent of global productions of palm oil. ❑ In addition to its significant contribution to the GDP, the palm oil industry also plays an important role in economic empowerment and poverty alleviation; ❑ Indonesian palm oil industry is often criticized for its negative impact on the environment, smallholders is one blamed as a cause of deforestation in Indonesia; ❑ Currently, smallholder farmers make up a considerable amount of Indonesian oil palm plantations, owning around 40 percent of all plantations in the country; ❑ Considering smallholders’ important, but vulnerable position in the Indonesian palm oil industry, ensuring their access to reliable sources of finance is extremely pivotal to improve their welfare through economic empowerment; ❑ Public finance is an instrument that can be leveraged by the Indonesian government to provide industry supports in ways that generate inclusivity and balance between economic benefits and environmental sustainability.
- 3. Background Currently, there are three public financing sources that are available in Indonesian palm oil industry: 1. Crude Palm Oil (CPO) Funds – Managed by the CPO Fund Management Agency (Badan Pengelola Dana Perkebunan Kelapa Sawit/BPDPKS). 2. People’s Business Credit (Kredit Usaha Rakyat/KUR) – A credit scheme sourced from the State Budget (APBN) established by the Coordinating Ministry of Economic Affairs to ensure that Micro, Small and Medium Enterprises (MSMEs) in all sectors have access to a reliable credit source. 3. Village-Owned Enterprises (Badan Usaha Milik Desa/BUMDes) – A public financing option sourced from Village Funds (Dana Desa) and the local community that can be obtained through the establishment of business entities through partnerships between village government and the local/village community. Available public financing tools and programs do not seem to be generating meaningful impact to ensure socioeconomic and environmental sustainability of the Indonesian palm oil industry.
- 4. Methodology 1. The first part will start by exploring some case studies to identify several major barriers that have been preventing public financing efforts for the palm oil industry to be managed effectively. 2. The second part will follow with some discussions regarding the implications of these barriers on the implementation of government palm oil-related programs, smallholders’ access to public financing schemes and public financing of the industry in general. 3. The third part will try to offer some solutions based on the current industry condition to strengthen public financing mechanism and optimize existing public financing tools, which hopefully can generate meaningful impacts that are economically productive, improve welfare and also ensure sustainable practices are adopted within the industry in the long run Divided into three sections:
- 6. Results and Discussions a) Case I: Legality of Land Use and Ownership Challenges in legal compliance and documentations of land use and ownership have resulted in the lack of solid land management tools, such as land database, ownership record and use that allows effective management of Indonesian lands and agricultural plantations. Discrepancies in data owned by different government institutions have led to inconsistencies in law enforcement. b) Case II: The Lack of Adaptable Sustainability Standard or Best Practices as a Basis for Sustainable Palm Oil Industry Strategy The lack of adaptable and internationally-recognized sustainability standard or metric is making it difficult for the Indonesian government to ensure that public financing supports are empowering the industry, while at the same time holding stakeholders accountable on their production practices. More recently, the Indonesian government have further pushed the effort to achieve both profitability and environmental sustainability goals by making ISPO mandatory to all Indonesian palm oil stakeholders. Unfortunately, low adoption, lack of international recognition, as well as lack of alternatives due to RSPO’s unadaptable and highly-demanding criteria have been some major challenges that are yet to be solved for the solution to be effective c) Case III: Weak institutional Strategy Due to Lack of Robust Database and Consistent Smallholders’ Typology The absence of consistent and comprehensive database as reference for effective analysis and management, as well as smallholder’s typological issue have seemingly led to the lack of institutional direction and strong sectoral programing by the Indonesian government with regards to the palm oil industry. Adequate resources and information on all stakeholders, including smallholders, are needed in order to conduct a robust planning. However, building a solid data source will be difficult without a consistent typology, as different institutions might end up collecting different data due to differing criteria and variables being used to define conflicting terms such as “smallholders.” In order to better understand the challenges faced by the smallholder farmer, this paper analyze three select cases :
- 7. Results and Discussions a) Inequitable Distribution of Public Funds b) Legal Barriers Limiting Smallholders’ Access to Public Funding Supports c) Unclear Public Funding Strategies Due to Inconsistent Typological Framework d) The Lack of Diversity on CPO Funds Distribution Channels Implications of Smallholders Challenges on Palm Oil Public Financing Programs:
- 8. Results and Discussions a) Better Enforcement of Land Certification and Use Permit to Strengthen Industry’s Legal Foundation, Improve Financial Inclusivity and as an Industry Mapping Tool b) Maximizing ISPO as an Industry Sustainability Standard and Means to Collect Data on Smallholders c) Developing a More Consistent Smallholders Typology Actionable Solutions for a Sustainable Palm Oil Public Financing
- 9. Conclusions ❑ Finding the right balance between socioeconomic productivity and environmental sustainability have been a longstanding challenge for the Indonesian palm oil industry. ❑ Public finance is one of the tools that can be leveraged by the Indonesian Government to address these challenges, especially to ensure better supports and financial inclusivity for smallholders as one of the main, but most vulnerable stakeholders of the industry. ❑ Better public finance management will translate to higher sector productivity, improved stakeholders welfare and allow the government to address various environmental-related issues more effectively .
- 10. Thank You Dengan kolaborasi dengan Dengan dukungan dari