Aidilfitri 2014

Wishing to all celebrants Selamat Hari Raya Aidilfitri!

How Brazil clamped down on deforestation

Khor Reports comment: Worth reading this piece from The Economist: http://www.economist.com/news/science-and-technology/21603409-how-brazil-became-world-leader-reducing-environmental-degradation-cutting. I'm hoping to soon get hold of a the source article in Science. I've been reviewing soy sustainability. State regulations are an important part, as are proactive and well functioning industry associations that seem well engaged with all levels of administration. Some sources point out that Brazil has a well-engaged and active domestic NGO sector, which also pushed the earlier changes via domestic contestation. To be sure, implementation was a major question mark and international pressure has been for Brazil's relatively strict regulations to be followed. There are also efforts at information reporting on GIS mapping of deforestation and such. Bottomline, Brazil annual deforestation is now about 500,000 hectares and it's attributed significantly / mostly to smallholders.

The Economist writes, "But how did it break the vicious cycle in which—it was widely expected—farmers and cattle ranchers (the main culprits in the Amazon) would make so much money from clearing the forest that they would go on cutting down trees until there were none left? After all, most other rainforest countries, such as Indonesia and the Democratic Republic of the Congo, have failed to stop the chainsaws. The answer, according to a paper just published in Science by Dan Nepstad of the Earth Innovation Institute in San Francisco, is that there was no silver bullet but instead a three-stage process in which bans, better governance in frontier areas and consumer pressure on companies worked, if fitfully and only after several false starts." It concludes: "By any standards, Brazil’s Amazon policy has been a triumph, made the more remarkable because it relied on restrictions rather than incentives, which might have been expected to have worked better. Over the period of the study, Brazil also turned itself into a farming superpower, so the country has shown it is possible to get a huge increase in food output without destroying the forest (though there was some deforestation at first). Still, as Dr Nepstad concedes, a policy of “thou-shalt-not” depends on political support at the top, which cannot be guaranteed. Moreover, the policies so far have been successful among commercial farmers and ranchers who care about the law and respond to market pressures; hence the effectiveness of boycotts. Most remaining deforestation is by smallholders who care rather less about these things, so the government faces the problem of persuading them to change their ways, too. Deforestation has been slowed, but not yet stopped."

Source: Economist.com

Interview #2 Presidential race heats up, foreigners worry?

In the last two weeks, I've been in touch with six (6) people who represent large business interests in Indonesia including in palm oil (domestic and international owners) and three (3) Malaysians who work and/or are invested in Indonesia palm oil.
 
View of Indonesia invested MNC interests:
One observed that Indonesia ethnic Chinese businessmen were initially fearful of the Prabowo candidacy (relating to uncertainty over his exact role during the violation of social rights during the height of the Reformasi crisis). However, one close observer thought that they now seem to be quite accepting of him, especially with Santiago Uno playing a lead role in his economic team. Supporters say there is no firm evidence of his role during the troubles.

Some felt that Kalla seemed a tired face to put next to Jokowi; and other gripes about against Jokowi were that his role would be determined by Megawati with significant dissension reported in the family-controlled PDI-P. Moreoever, another source had recently visited at a more rural province – in talking to locals at warung, he heard that they liked Jokowi, but because the governor supports Prabowo, they thought they should vote with his recommendation. Hatta is from Palembang, and some hope that he will be good for plantations since as he would know about palm oil and rubber from his home town area; further he has been Coordinating Minister and is an in-law of SBY.

International investors are concerned with Prabowo’s rise in the polls and his economic policy ideas. He has a significant nationalistic, strong-man image and widely said to have a temper. Thus, they worry about downward pressure on the Indonesian currency and other Indonesia financial assets if he should come to win[1].

[1] What do foreign investors think? Nomura, 2 July 2014, “Asia Insights - Indonesia election: Pitting investor expectations vs views on the ground” reports: “Our global investor survey on Indonesia’s upcoming presidential elections show an overwhelming 90% of respondents expect a Jokowi win and by an average 8.5% margin of victory over Prabowo. This expected margin is high compared with the latest polls which are showing between 3-5%. However, these polls, in our view, are increasingly capturing the realities on the ground.  Indeed, our recent trip to Jakarta gave a clear impression that the presidential race will go to the wire, and that the election outcome remains uncertain. There is therefore a rising risk of market disappointment, in our view.” Also, view Economist article: http://www.economist.com/news/asia/21606330-indonesias-presidential-race-tightens-election-day-approaches-knifes-edge?fsrc=nlw|hig|3-07-2014|5356bdcd899249e1cca0fce6|

Indonesia domestic business interests
Domestic business interests sound hedged either way (as one would expect), well prepared to lobby for sectoral interests. Reaching out to specialists, we were also updated that a mooted foreign ownership limit is still in the drafting. Clearly it was not ready to be in place before the start of presidential campaigning. We also heard of hopes to launch palm oil sector programs prior to the election, but these may have run out of time. On the question of the rumoured export duty change - it really depends who you talk to i.e. whether they have interest downstream processing (ex-refinery) versus upstream. Some moot a convergence with the Malaysia export duty regime, which would tend to give palm oil farmers a better price. In this regard, the final presidential debate should be of interest as it will also cover energy and agriculture.

A recent interview source notes that SBY has declared his support for the Prabowo team. Presumably, SBY must have good reason (data support?) to do so. As mentioned earlier, Hatta is his in-law. Some senior Indonesians consider the first Presidential Debate a bit of tie while the others were won by Prabowo-Hatta. It is noted that the mainstream newspapers support Jokowi (but note from Interview #1 that most of the large TV stations support Prabowo). Prabowo has the money and the better organization in the electoral campaign. The marked preference that foreign investors have for Jokowi is also noticed by highly-placed Indonesians and there is suggestion of some bias in the way Prabowo’s policies are reported in the international media and by foreign bank analysts[1].

Malaysia observers

In the previous election presidential candidate debates, a Malaysia observer was much struck by the difference between Megawati and the outgoing President SBY. In a past debate, one source remembered that the former was more kneejerk hawkish on her preferred approach to resolve Malaysia-Indonesia dispute matter while SBY quoted the Pancasila and pointed to the need to first negotiate[2]. Clearly there is some discomfort with overly strong nationalistic approaches. However, some Malaysia investors seem relatively sanguine about business regulatory changes. They note that while the candidates may sound more nationalistic in campaigning and new regulations may seem tough, the implementation usually ends up more practical and business-friendly.
[2] Those interested in foreign policy can read this: RSIS Commentary 125/2014 Aspiring Regional Power: Indonesian Foreign Policy Under Next President by Yang Razali Kassim, published 3 July 2014; which finds both candidates willing to negotiate, but reckons that Jokowi is more dove-ish.


Do also view: Indonesia presidential race (update 4), http://khorreports-palmoil.blogspot.com/2014/06/indonesia-presendial-race.html and Interview #1: Presidential politics and Indonesian palm oil,
http://khorreports-palmoil.blogspot.com/2014/06/interview-1-presidential-politics-and.html