Sustainable Oil Palm Investments: Benefits of a Landscape Management Approach – CPI, IDH & Unilever

Taking a Landscape Management Approach to Palm Oil in Indonesia 1

BRAZILCHINAEUROPEINDIAINDONESIAUNITED STATES

Sustainable Oil Palm Investments: Benefits of a Landscape Management Approach

Global Landscapes ForumLondon, June 2015


Goals & challenges:

• Transform the rural economy in Indonesia (and ultimately globally)

• Focus on the oil palm value chain, to deliver net positive environmental impacts and improved smallholder farmer livelihoods

Challenges...

• Achieving the goal at least cost while ensuring supply chain security/integrity, delivering benefits at scale

• Sharing costs, risks and benefits among a critical mass of government, business, smallholder farmers and civil society actors


A ‘landscape management approach’ :

1. Working within a defined landscape

2. Partnerships between business, smallholder farmers, and governments to deliver outcomes and investment at scale

3. Allocating land within landscape to its highest value or best use

4. Increasing productivity and supporting protection of valuable ecosystems

5. Monitor and report results


1. Define the landscape

Working across an entire landscape helps to manage risks, costs and deliver benefits at meaningful scales.


2. Partnerships between business, smallholder farmers and governments


181MILLION

HECTARES

22% = land available forre-zoning & conversion or rehabilitation & protection51% = forested land available for protection or appropriate management

3. Map and allocate land to its highest value use

There are significant opportunities for government to improve land-use planning within key landscapes to provide better protection of forest ecosystems & release suitable land for high productivity agriculture.

15.3MILLION

HECTARES

3 of 22%

4 of 51%

1.2MILLION

HECTARES

7.3MILLION

HECTARES

2 of 22%

1.5 of 51% 1.3MILLION

HECTARES


• Governments have primary responsibility for land use planning, zoning and allocation

• Business and smallholder farmers must ensure new developments are suitably located and maximize value change efficiency

• Strengthened fiscal frameworks can provide appropriate incentives for action and are a key element of the landscape management approach.

3. Map & allocate land: fiscal policies determine decisions


3. There are opportunities to correct misaligned fiscal incentives

• Fiscal incentives currently encourage more licensing and investment in agricultural expansion rather than intensification & ecosystem protection.

• Partnerships can inform necessary fiscal reforms to promote improved allocation of land and sustainable, high productivity business practices.


4. Increasing productivity and supporting protection

• Improved policies and innovative financing mechanisms are necessary to support protection and increased productivity

• Strengthen industrial organization to integrate supply chains, reduce conflict, minimize risks and share benefits equitably

• Optimize business finance through development of accessible credit and risk management instruments

• Optimize business investment policies covering taxes, other fiscal incentives, public spending & revenue redistribution formulas

• Improve service access (energy & infrastructure)

• Improve logistics & technology


5. Monitor & report results

• Unilever, IDH, along with business and government partners will be able to show net positive environmental impacts across a landscape, rather than simply tracing to show that plantations within a direct supply chain were not responsible for deforestation.

• Government monitoring systems for land-use and local livelihoods will be important components of this, along with existing public tools, such as WRI’s Global Forest Watch, that enable this landscape scale monitoring.


Thank you

For more information see the report:‘Achieving a high-productivity, sustainable palm oil sector in Indonesia: a landscape

management approach’www.climatepolicyinitiative.org

http://www.climatepolicyinitiative.org/


Back-ups


Why take a landscape management approach?

• Allows improved allocation & management of land across a landscape from a production or protection standpoint– for example, an area of degraded mineral soils might produce the most

value if used for oil palm plantations, while a peat forest might be more valuable as a conservation area delivering a range of environmental services.

• Delivers productivity gains within land-use sectors (such as oil palm), and enables net positive environmental impacts and improved smallholder farmer livelihoods– whereas assessing environmental impacts and improved livelihoods on

a plantation by plantation basis can only ensure site-specific impacts.

• It also manages medium to long-term business risks and costs, building supply chain security within targeted landscapes and promoting consumer confidence. – It will create greater simplicity in monitoring and verifying

environmental impacts and livelihood benefits, compared to monitoring on a plantation by plantation basis.


Proposed Sei Mangkei landscape pilot

Proposed Pilot Landscape Area: Simalungun, Asahan, Serdang Bedagai, Labuan Batu Utara & Batu Bara

Rationale: Business perspective: Contains significant proportion of refinery supply base and includes key business partners with sustainability commitments & RSPO certification

Environmental perspective: contains 25% of North Sumatra’s peat soils and 10% or around 250,000 hectares of secondary forests (about 1/3 of which is currently outside the forest estate and at risk of conversion).

Administrative perspective: Aligned with district administrative boundaries. Districts have strong interest and engagement in oil palm industry.


4. Increasing productivity for smallholder farmers in Sei Mangkei landscape

SMALLHOLDER-

MANAGED

1.3

0.4

STATE-OWNED

ENTERPRISE

0.4COMPANY-MANAGED

0.5

Nearly 35% of oil palm plantations in North Sumatra are managed by smallholder farmers, and consequently optimizing their productivity and integration throughout the oil palm value chain is key. The IDH – PTPN III 2015-16 pilot program will support 320 independent farmers to increase productivity & become certified.

However, this needs to be dramatically scaled up across the landscape, which includes more than 130,000 smallholder farmer households to deliver sustained environmental impacts & improved livelihoods at scale The Landscape Management Strategy will recommend the most suitable organizational models & ideal financial structuring to scale up support for increased smallholder farmer productivity & sustainability throughout the Sei Mangkei landscape area. This will include a focus on supporting smallholder farmer replanting at scale.


Risk Type: Production Legal Supply Market

INDIVIDUAL PARTNERSHIP

• Each plot is separate production unit

• Risk borne by individual farmers

• Risk borne by individual farmers

• Fertilizer supply guaranteed by company

• Limited ability to improve infrastructure

• Off-take agreement with partner company, but highly sensitive to price fluctuations owing to scale

COOPERATIVE

Single production unit (comprised of farmer plots contributed by members)

Risk mutualized

• Risk mutualized

12ha currently under dispute – but all members still receive benefits from active plantation)

• Able to directly access fertilizer from suppliers owing to scale

• Able to invest in local infrastructure directly

• Protected by company partner thru guaranteed off-take

• Price fluctuations can impact, but established reserve fund to mitigate

COMPANY MANAGED

• Company holds risk

• However, if land becomes unproductive unlikely to provide income to farmers

• Farmers highly vulnerable without valid land certificate

• Company responsible - able to access fertilizer and invest in infrastructure

• Off-take guaranteed as company managed, but farmers remain sensitive to price fluctuations

Example: The different models of smallholder farmer organization involved different levels of risk and supply chain security. The cooperative model was best at managing risks and delivering sustained and predictable farmer benefits.