Conference season (update 6): downstream merchandising for sustainable palm oil

6 December 2014: downstream merchandising issues for sustainable palm oil

On Wednesday morning I had a long 1 hour session to present on "Downstream merchandising of palm oil - adjusting for sustainability" with a Q&A after. Thanks to Trueventus for inviting LMC International. 

I presented on various key statistics for downstream example the oddity of number of trademarks on sustainable palm oil versus number of products being launched with the troubling "palm oil free" label. 

One palm oil merchandiser (some months ago) pointed out to me that certification to use a trademark to highlight the presence of palm oil is not what many manufacturers want to do. They would rather remain silent on the issue. This may explain the above factoid. Because of this apparent shyness, the logic is that a (presumably cheaper) traceability program that is more inclusive of the supply chain is a good alternative as it may be that the need is for a sort of insurance on the supply chain and not marketing publicity. Let's see how the marketing on sustainability / traceability evolves on this.

Downstream players also need to pay attention to their upstream sourcing strategies as traceability both within and outside certification points to a palm oil mill risk rating system.

29 November 2014: checking out Indonesia snack foods and sauces (post GAPKI)

Post conference, I hit the super market next to the conference venue and stocked up on Indonesia snack foods (instant noodles with a wonderful range of local regional tastes; flavoured chips / crisps from tapioca - spicy ones with lime / lime leaves especially caught the eye e.g. keripik singkong balado dengan daun jeruk) and ready mix sauces for Indonesia favourites like soto ayam, sop buntut, opor ayam and more. Indonesia domestic consumption of palm oil is very big, given the country's large population. However, I agree with a friend that the supermarket aisles in Thailand may have an even larger range of domestic processed and ready foods.

Shopping basket of Indonesia processed snacks and sauces

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29 November 2014: Day 2 at GAPKI conference, Bandung

Day 2, I was the first presentation of the day at the morning session in the technology grouping. However, while sustainability may be a technical and/or CSR issue, I focused on the commercial and strategic business issues relating to it.

At technology session

Price outlook speech

This website was pointed out to be for Indonesia palm oil information: http://www.sawit-center.com


28 November 2014: At GAPKI conference, Bandung

Day 1 was busy with meetings. President Jokowi unable to attend after all. It's a huge crowd here. Good to see industry friends and meet more.

 

I was here two years ago (venue was Bali), speaking on sustainability and I'm speaking on the same topic early this morning, with some nice data courtesy of work at LMC International. It's a big crowd here and its one of the must-go events of the palm oil calendar (with the highest production values and effort).

At GAPKI's Bandung conference this afternoon, Dr James Fry of LMC International (yes, where I work) will be talking about the energy sector prices in relation to palm oil prices. Energy sector cost of production indicators will also be referred to. That will be worth checking out.
Oil price news (update 5): OPEC keeps production up and oil prices drop, http://khorreports-palmoil.blogspot.com/2014/10/oil-price-news-its-fallen-from-105-110.html

at the GAPKI gala dinner

at the GAPKI opening on Day 1

View of Bandung

 

  

26 November 2014: Post RSPO RT 12 and ICIS Asian Surfactants

These were two useful events. Papers not freely downloadable though.

Our summary of RSPO RT12 here:
http://khorreports-palmoil.blogspot.com/2014/11/rspo-roundtable-rt12-2014-is-around.html and also search "RT12" in this site.


12 November 2014: MPOC POTS KL 2014 download link

Palm Oil Trade Fair and Seminar (POTS) Kuala Lumpur 2014 - Download Presentation

http://mpoc.org.my/Palm_Oil_Trade_Fair_and_Seminar_(POTS)_Kuala_Lumpur_2014_-_Download_Presentation.aspx


5 November 2014: At OFIC KL 2014 conference.

MOSTA is the key organiser.  OFI Congress Programme - organised by MOSTA; http://www.ofievents.com/asia/ofic. Awaiting downloadable presentation.

 

This is AOCS speaker on consumer attitudes and a nice infographic on GMO.

 

RSPO RT12: at the exhibit - online information (update 1)

21 November 2014: ZSL rating of palm oil companies

Ranking the world's best - and worst - palm oil companies in terms of sustainability by  mongabay.com; November 20, 2014; http://news.mongabay.com/2014/1120-palm-oil-sustainability-rankings.html#sthash.GU8j77hn.dpuf

 

18 November 2014: WRI's Global Forest Watch

 

We stopped by the exhibition stand of World Resources Institute. They have good online data mapping info to show on issues related to palm oil and environmental issues such as deforestation, fire and peat.

 

 see more at: commodities.globalforestwatch.org

 

Here's some excerpts from write-up by Mongabay.com on deforestation and transparency:

 



Surprising reasons to be optimistic about saving forests by Rhett A. Butler, mongabay.com

November 14, 2014; Note: this is the first draft of a commentary I submitted to Yale Environment 360 last month. A final first-person version is available at A Conservationist Sees Signs of Hope for World’s Rainforests; "....Tropical forest loss has remained at stubbornly high since the 1990s, declining from an average of 11.3 million hectares during the decade to roughly 9.3 million hectares per year between 2009 and 2012. Ranking at the top during both periods were the usual suspects: Brazil and Indonesia, both of which have extensive forest cover and surging agribusiness sectors....  But hidden in these high level numbers is a trend that holds important implications for efforts to conserve the world's forests. Today forests are more often cleared to produce commodities for consumption in urban markets and for trade, rather than for subsistence by poor slash-and-burn farmers. In other words, the tropics are shifting from poverty-driven to profit-driven deforestation.
Most companies however don't move on their own—they are pushed, often by consumer-focused campaigns led by environmental groups, which leverage corporations’ sensitivity to criticism. The results since 2006 have been nothing short of astounding: dozens of the world's largest buyers and sellers of soy, palm oil, cattle, and wood pulp have established policies committing them to excluding deforestation—and social conflict—from their supply chains. The biggest coup came last month when Cargill, which sells $135 billion worth of commodities a year, committed to zero deforestation across all its supply chains.... At the highest level, satellite imagery is widely available and is increasingly incorporated into monitoring systems. For example, the Brazilian government and the Roundtable on Sustainable Palm Oil (RSPO), an eco-certification body, are now requiring "shape files" that detail the coordinates of landholdings. This data can be used to determine compliance with environmental regulations and standards....  Satellite data is also integrated into platforms developed by civil society. The best example is Global Forest Watch, a project led by World Resources Institute that takes data from a range of sources and puts it on a map, providing unprecedented insight into the state of the world's forests, including tree cover gain and loss, forestry concessions, and fire history. Its integration of bi-monthly MODIS data provided by NASA enables the platform to serve as a near-real-time deforestation detection system, similar to that implemented by Brazil about the time its deforestation rate began to plunge dramatically in the mid-2000s. A study published last year by the Climate Policy Initiative attributed three-fifths of that decline to Brazil's monitoring system. Now that functionality is global...." http://news.mongabay.com/2014/1114-reasons-to-be-optimistic-about-rainforests.html#sthash.s4Jk57kp.dpuf

RSPO RT12: Eye on resolutions (update 3a) - at the General Assembly,declaration of mills and ACOP reporting; 5.15pm

Note: Declaration of mills is a biggie! This sets stage for differentiation within certification and alters balances. 

20 November 2014 - at the General Assembly, declaration of mills and ACOP reporting; 5.15pm

Resolution: Declaration of mills.  Proposed by Unilever. To promote transparency, buyer has right to know which palm oil mills (and plantations) and PK crushers RSPO certified product comes from. This would help market transformation. Mass balance would be struggle, Unilever has identified 1800 mills in its supply chain and added information is needed.

Arguments against: This seems to make sense for non-certified product. But within certified sphere, this would create tiers of mills. IP and SG could be used instead (but even in SG trader might not provide information on mills; need this information to build roadmaps to increase origins to targeted). If you know mills beforehand, you can choose from whom to buy and this is not fair to RSPO members (in off-market deals you can ask for declarations of plantations; without transparency, hard to know whom to work with). Agropalma can be IP entirely. By tracing everything how does this affect MB? What is intention going forward with this added information - rather than buying from scattered pool of certified segregated, then will support identified mills and companies in supply base?

Supporting argument: With PalmGHG, let buyer decide which mill to buy from, lower versus higher emissions. Those with lower emissions has better market potential and price than those with higher emissions. An incentive for growers improve. Univanich supports this that mills that have gone beyond RSPO requirements can be recognized when selling Greenpalm certificates.

Outcome: 96 for 84 against. This was a tighter vote. Resolution passed.


Resolution: Change ACOP reporting period to calendar year and improve the ACOP. Proposed by German retailers.  Alignment to calendar year for consistency and reduce work load for most. Improved ACOP can do with more guidance to improve its quality - better explanation and terminology clarification. It is useful to have macro information to understand market progress and tipping point indicators.

Arguments against: Current period is 2-3 months lag on reporting and for Roundtable would end up with older data than what is current and might miss fast developments. Separately, what to do with the non-ACOP reporting members? Tighten to end of April, to accommodate March deadline for certificates.

Outcome: 131 for. Resolution accepted.


20 November 2014 - at the General Assembly, allow wider usage of RSPO trademark by non-SCCS members; 4.25pm

Resolution: Allow members not required to obtain supply chain certification to use trademark on pack. Proposed by a group of retailers. Covers cases where retailer own brand products made by OEM do not get limited by manufacturer permitting their information on pack and/or retailer not to disclose supplier. Asks RSPO to look into easing this usage limitation.

Arguments against: Taskforce is already discussing this, so we do not need this resolution at this time (proposer replies wants to prioritise this, a non-controversial issue, and get wider feedback from members on this). Risk that this might limit the work of the Taskforce (especially if rejected) - it should be left free to look at all possibilities.

Outcome: Request Taskforce look into this, and withdraw resolution.


20 November 2014 - at the General Assembly, seeking non-membership (avoids reporting) for small users; 4.10pm

 

Resolution: Supermarket retailers are making a case for small users of palm oil not to require RSPO membership while still allowing them to be supply-chain certified. The retailers report that 80% of volume with top 20 suppliers - own brand products by retailers; the rest average 5 tonnes palm oil per annum. They note it takes weeks or months to join RSPO and have to report ACOP and  other problems. September 2014, 606 Supply Chain Associates use less than 500 metric tonnes. If they do not renew it is 3% of RSPO membership income budget. Reduce burden on those with complex supply chains and low volume usage - they find reporting complicated and using many other ingredients.

• Example 1: A supplier makes 6 x M&S cheesecakes - palm oil use = 13 tonnes/year. Palm oil footprint = 4.77 tonnes/year. Ingredients: cake margarine 0.99 tonnes/year, Arobake 1.82 tonnes/year, Digestive biscuit buttons 1.89 tonnes/year, paprika extract 0.01 t/year, Aeroplus duo 0.06 tonnes/year
• Example 2: Supplier makes 11 different Ahold products (palm oil use = 89 tonnes / year). Product palm oil footprint 0.8 tonnes/year. Palm oil content 5%, 10.5 grams of palm oil per box. Many ingredients including fractionated PKO in vanilla yoghurt coating, and PKO in peanut coating.

Arguments against: This would lose information from these producers who use less than 500 tonnes. At the other end, grower smallholders have to be members and also go through tedious works and efforts in the P&C. Not fair to run away from the system. Compromises spirit of equality and fairness. 5 tonnes for cheesecake is equivalent to 2 hectares is same as smallholder farmer; his commitment should be matched as small user. Worrying signal on lower transparency. Concern that the high 500 tonnes bar encompasses so many RSPO members.

 

Outcome: Resolution withdrawn and request Board to look into it. 

 

 

19 November 2014 - mill risk zoning, info disclosure, ACOP, non-members, suspension

 

Start of Day 2. First chat with a downstream specialist. Concern on resolution to include mill and more info in RSPO systems. This would shift from a binary certified vs non-certified status of mills to open up to more nuance of mill and supply base attributes and logically to perceived risk status (traffic light labelling of mills).
 

Others are also concerned on resolution with info disclosure on both eTrace and Greenpalm to mill and beyond. But at the other end of the supply chain with a resolution for non -members to become chain of custody certified; does this mean they would be part of ACOP (which has a resolution to be strengthened) or not (if not asymmetry of information might grow with a lot more required from the upstream).
 

Also a resolution to empower the Sec Gen to have power to suspend members on recommendation of the Board. Suspensions on the mind?

 

 

RSPO RT12: On social and labour issues

We did not attend at these sessions yesterday but thanks to a reader for highlighting key issues:

a) A new Labour Working Group is being set up. This is expected to work on ultimately getting company-level worker collective bargaining in place.

b) In social assessments a new approach will come about. We think this will come to inform Compensation Liability on social issues. Currently only monetary and non monetary values and methods are set for environmental concerns.

We'll update as we hear and learn more. Likely these will be hot implementation topics to come as they get fleshed out. As ever, the devil is in the administration details.

RSPO RT12: David Suzuki – on human overconsumption, the need for diversity, local knowledge of sustainability, risks of monoculture, over fixation on the market economy

Dr David Suzuki of UBC – on human overconsumption, the need for diversity, local knowledge of sustainability, risks of monoculture, over fixation on the market economy

Problem of consumption driven by appetite for stuff is amplifying our ecological footprint. Our numbers, technological power, consumptive power and global economy makes this the Anthropocene epoch – where our species undermines the support systems of the planet. Man’s brain invented an idea called “the future” – we are the only animal who can deliberately avoid danger and seek opportunity– this foresight allowed humans to survive and make us the planet’s dominant animal. We are the factor affecting the earth. We are heading down a dangerous path.

Half of Nobel Prize winning scientists alerted us and the press ignored it. The scientists warned that if not checked, our current practices puts at risk what we wish for the future of human society - fundamental changes are needed to avoid the collision – atmosphere, water, forest, species, over population etc. No more than one or a few decades for our chance to avert these threats will be lost.

Diversity is important. At level of the species there is diversity – genetic polymorphism. Species that thrive have inbuilt level of diversity, not homogeneity. This is part of life’s reliance. At ecosystem level, the more diversity, the more resilient it is. As conditions around the world change, there is a diverse pool.

Diversity should be built into everything we do. Sustain that diversity. Monoculture over large renders any group vulnerable to change – climate, new pests and disease. It is a great threat to long term resilience and survival of live.

For 95% of human existence, we were nomadic hunter gatherers. You are utterly dependent on nature for your survival and well-being. As humans spread across the planet, we brought extinction with it. Humans extinguished woolly mammoths and more, even with simple tools.

Indigenous knowledge is based on place – hard won practical experience accumulated over long periods of time. This is priceless knowledge of how to live in that place. Priceless as it cannot be duplicated by science. Hard won knowledge on how to survive from year to year. So much loss of what was known – a lot of it had to do with sustainability. Diversity in this ethnosphere helped humans survive. But now we are monocultured around the planet with a narrow knowledge base.

In history, most humans were farmers and they know about weather, pollination, nitrogen fixing plants and they are embedded in nature. From 1900, and amazing change. World population tripled to 6 billion in 2000. Huge cities and many cities. Transformation from village farming animal to a big city dweller. You can spend days and weeks not going outdoors. In a city, our perception of nature changes – who needs that? You just need a job. Then the economy becomes the highest priority. Thus, the Canada Prime Minister says you cannot do anything about GHG emissions, it will spoil the economy. Elevating the economy above all.

CEO of logging company asked “are environmentalists” willing to pay for the trees. So long as you argue within an economic framework. The real reason for fighting on the forest was not on services for humans i.e. pulp and paper versus alternative income form berries, flower arrangement and maybe a cure for cancer? Ecological services are mere economic externalities. Environmentalists have failed to shift the frame set by economics.

If you’ve to breathe polluted air, you’ll get sick. You need clean water. Bottled water from Europe in Malaysia? That should be criminal! Food and soil are high priorities too. Then whether you’re in oil palm or oil; how you do it should not undermine these foundations for life.

You live in a world constrained by laws of sciences and we live within it. Remember we are animals, we are subject to laws of carrying capacity of ecosystems. We have exceeded our biosphere by consuming the way we are. We are taking away from what rightly belongs to our children and grandchildren by over consuming.

Capitalism and the market economy. We invented these things! We can change these things so they conform to laws set by the natural world. Some see a forest as a sacred grove, rivers as a circulatory system – others see it as pulp and paper, irrigation system etc. Is the earth our mother or the mother lode?

Note: a cautionary view on the global free marketism approach including consumerism and global supply chains for processed products!

Call for higher palm oil promo spend?

FYI some comparative stats on Malaysia palm oil versus US agriculture promotional spending........ "The United States Department of Agriculture (USDA) in promoting American agriculture produce spends close to 1% of its total exports. In 2013, USDA data recorded USD 144 billion in export sales with USD1.3 billion spent on promotional marketing of such exports. If we use the USDA spend rate of 1% as a guide, the Ministry should spend about RM800 million a year to defend and promote palm oil, not a mere RM24.5 million. As such, we urge the Ministry to increase its spending to a more reasonable amount of RM200 million a year to turnaround and safeguard the future of this very important industry...."

Newslinks:

PKR rep cries foul over oil palm budget slash BY EILEEN NG Published: 18 November 2014
"Wong Chen (PKR-Kelana Jaya) said the Ministry of Plantation Industries and Commodities cut the budget for the promotion and defence of the commodity by 40%, from RM16 million this year to RM10 million next year. Also, the Malaysian Palm Oil Board (MPOB)'s budget also saw a decrease from RM25 million this year to RM14.5 million in 2015.... Wong said on an overall level, the ministry only allocated a "mere" RM24.5 million to defend and promote oil palm. "Palm oil is a RM80 billion export industry. To spend a mere RM24.5 million to defend and promote palm oil is a joke. RM24.5 million represents a mere 0.03% of total exports of palm oil," he said at a press conference in parliament today...." http://www.themalaysianinsider.com/malaysia/article/pkr-rep-cries-foul-over-oil-palm-budget-slash#sthash.wltkdmRc.dpuf

Defend national palm oil, increase budget allocation, urge Pakatan MPs BY PATHMA SUBRAMANIAMNovember 18, 2014; http://www.themalaymailonline.com/malaysia/article/defend-national-palm-oil-increase-budget-allocation-urge-pakatan-mps#sthash.UYsszKKU.dpuf

Press conference video here: http://www.kinitv.com/video/12888O8

RSPO RT12: On Compensation Liability and riparian reserves (update 1)

On Compensation Liability: RSPO reported that 35 companies submitted with 7 providing on LUC analysis. Observers ask if the previously cited $2500/hectare figure has now shifted to the higher end of $3000/hectare. Darrel Webber cites 280,000 hectares (globally) needs to be compensated.....

On riparian reserve remediation: These need to be 5 meters wide along small waterways. You need to measure at maximum width of the channel (ie. just before it floods, not the regular water's width). In some areas a wider reserve is appropriate if the waterway is upstream of communities (i.e. HCV 5) then the reserve width should 15-30 meters.

In areas of regular and extended flooding, the new RPSP P&C 2013 says there should be a review of suitable areas for planting. Thus, such areas should be left as natural vegetation.

Artificial waterways need not have a reserve. But since good water and soil management needed, for small channels which can transport pollution to natural waterways, there has to be reduced spraying of agro-chemicals within 10-15 meters of the edge of drainage channels linked to such natural water ways. Site planning should also reduce disconnected riparian zones which expand the risk of water pollution.

Restoration of degraded habitats.....
 

RSPO RT12: New GHG emission reduction scenarios for new plantings - Bumitama and Musim Mas case studies (update 1a)

RSPO’s Melissa Chin reported on how RSPO growers need to predict emissions from different development scenarios for their new plantings. In 2013, the Emission Reduction Working Group (ERWG) was set up to help companies on this new reporting requirement. The policy to assess and predict GHG emissions reductions is in RSPO Principles & Criteria 7.8. Previously required from 1 Aug 2014 it was shifted to mandatory on 1 Jan 2015. This needs to be submitted alongside New Planting Procedure but it is not required to be made public until 1 Jan 2017. Soil carbon, above and below ground carbon estimates are needed.....

Bumitama case study. GAR and Wilmar are key buyers requiring high carbon stock (HCS) policies. A mid-year discussion led to a pilot HCS assessment using their approach. Bumitama then committed on 12 September 2014 to use this on four target concessions. Concession KML had a base case plantable area of about 12,500 but was reduced to about 6,600 hectares on the planting scenario chosen. There was no planting on any peat (base case was plant on shallow peat). Significant areas of rubber agro-forest areas could not be replanted due to social or adat issues. Local people expect economic projects. They lodged a complaint with the regional government or Bupati on why Bumitama stopped development. Aidenvironment was hired to work on participatory mapping. Locals wanted to stop access to this NGO until it was shown that it worked with company to develop the land. The halt in development it also gave third parties the opportunity to approach the masyarakat to suggest a takeover so that the concession could return to faster development and some 1,000 hectares was “lost.” Planting less than the 12,500 hectares originally envisaged also means that the 20 percent area for plasma smallholder development is so much smaller under the new planting scenario. Bumitama has also engaged a lawyer to check if it has the right to conserve area to reforest. Can this really be done. However, a company still has to be run economically.....

 

 

Musim Mas case study. Using the RSPO carbon assessment procedure, Musim Mas presented two case studies, one already in new planting status and one before planting. The result was a GHG balance of -5 and -14 respectively; which means there was carbon sequestration from the two new estates. The company notes that the current default value for conservation areas is nil, but this is being reviewed and this will likely add on to the positive carbon balance of planting oil palm. Musim Mas is also doing mill POME biogas capture for all its facilties. These efforts will minimise its net GHG emissions........

 

Note: inherent in the RSPO carbon assessment are default values that will steer new plantings to minimize planting in high carbon stock areas. Under RSPO's Palm GHG calculator for carbon assessment, the default value for the oil palm is not bad ie. well above the earlier much bandied 35tC/ha measure. It is 55-65tC/ha of above and below ground carbon over a 25 year cycle.

 

Indonesia haze (update 4): KPK questions former Forestry Minister in Riau-Annas case

17 November 2014: KPK questions former Forestry Minister in Riau-Anas case

MPR speaker faces more questions from KPK BY Indra Budiari, The Jakarta Post, Jakarta | Headlines | Thu, November 13 2014, 9:23 AM; "For the second day in a row, the Corruption Eradication Commission (KPK) grilled People’s Consultative Assembly (MPR) Speaker Zulkifli Hasan, this time as a witness in a graft case involving Riau Governor Annas Maamun.... The KPK on Wednesday questioned Zulkifli, a former forestry minister, for his alleged role in the land-conversion permit abuse case implicating Annas.... On Tuesday, Zulkifli was grilled for 10 hours for his alleged role in issuing permits for a luxury housing project in Bogor, West Java.... “Their questions were very technical. I also explained spatial planning — I told them that spatial planning in Riau was an achievement because the project was incomplete for a very long time,” Zulkifli told reporters.... Zulkifli, a member of the National Mandate Party (PAN), expressed his disappointment at being dragged into a corruption case so soon after leaving office.... He also denied approving the land-conversion proposal filed by Annas.... “It’s true that the governor submitted a request for a land-conversion permit to me, which I then gave to my inspector general for consideration, but he never gave me his opinion of the permit, so it did not have my approval,” Zulkifli said.... The antigraft body arrested Annas and palm-oil businessman Gulat Manurung, who was also chairman of the Indonesian Oil Palm Farmers Association’s (Apkasindo) Riau chapter, in a raid on Sept. 27...." http://www.thejakartapost.com/news/2014/11/13/mpr-speaker-faces-more-questions-kpk.html


13 October 2014: Third Riau governor implicated in graft

KPK charges Riau governor in land conversion case by Rizal Harahap, The Jakarta Post, JAKARTA/Pekanbaru | Headlines | Sat, September 27 2014, 9:38 AM;
http://www.thejakartapost.com/news/2014/09/27/kpk-charges-riau-governor-land-conversion-case.html; "After hours of questioning, the Corruption Eradication Commission (KPK) has named Riau Governor Annas Maamun and palm-oil businessman Gulat Manurung graft suspects... during the operation, the KPK had also confiscated S$156,000 (US$122,450) and Rp 500 million (US$41,500), which allegedly was to be given by Gulat, who was also chairman of the Indonesian Oil Palm Farmers Association (Apkasindo) Riau chapter, to Annas. The money was allegedly given to the governor so he would issue a land-conversion permit for Gulat’s oil palm plantation business.
Meanwhile, KPK deputy chairman Bambang Widjajanto explained that Gulat had a 140-hectare oil palm plantation in Kuantan Singingi regency in Riau, which had been planted in an industrial forest area (HTI). Gulat then asked for the governor’s help to convert the area into a non-forest area, or area for other use (APL).... “As well as for the land-conversion permit, we suspect money was also given to the governor to facilitate Gulat’s future projects in Riau, but we will check that,” Bambang said.
Annas is the third consecutive Riau governor implicated in a graft case. The previous two governors, Rusli Zainal and Saleh Djasit, have already been sentenced in separate graft cases. Rusli was sentenced to 10 years’ imprisonment for his role in the Pelalawan forestry permit and Riau National Games graft cases, while Saleh got four years for his involvement in the procurement of fire-fighting
vehicles...."
29 September 2014: landmark peat fire fines

Indonesian government files lawsuits against companies that set forest fires by Hans Nicholas JongThe Jakarta Post/Asia News NetworkSaturday, Sep 27, 2014; The Environment Ministry has filed lawsuits against several agroforestry companies suspected of starting forest fires in Sumatra.
The ministry is taking legal action against seven agroforestry companies that allegedly set fire to forest areas in Riau in 2013. The ministry's law enforcement deputy, Himsar Sirait, said on Friday that the dossiers had been submitted to the Attorney General's Office (AGO). "We are currently completing the support documentation required by the AGO," Himsar told The Jakarta Post.
The seven companies, which are only referred to by their initials, are palm oil companies PT BHS, PT JJP and PT LIH, and industrial forest companies PT RUJ, PT SRL, PT SPM and PT BBH.
The ministry is also investigating allegations that two palm oil companies, PT TFDI and PT TKWL, and an industrial forest company, PT SGP, started forest fires earlier this year.... Between 2012 and now, the ministry has investigated and filed lawsuits against a number of Sumtra-based plantation companies. In 2012, the ministry filed lawsuits against PT Kallista Alam and PT Surya Panen Subur (SPS). Meulaboh District Court found Kallista Alam guilty of burning peatland in the Leuser conservation area in Nagan Raya regency, Aceh, and ordered the firm to pay a fine of US$30.5 million (S$38.8 million). The ministry, however, lost on Thursday the lawsuit it had brought against PT SPS - for allegedly burning peatland in Tripa Swamp, also in Aceh - which was heard at the South Jakarta District Court..." http://news.asiaone.com/news/asia/indonesian-government-files-lawsuits-against-companies-set-forest-fires#sthash.Ih8sCBsN.dpuf

Indonesia, Malaysia drawing up haze agreement by Zubaidah Nazeer, The Straits Times/ANN, Jakarta | World | Fri, September 26 2014, 11:42 AM; http://www.thejakartapost.com/news/2014/09/26/indonesia-malaysia-drawing-haze-agreement.html;
Indonesia and Malaysia are working on a bilateral pact to better tackle the annual transboundary haze, according to officials from both countries who said the tie-up would focus on better fire prevention and tougher penalties for open burning on peatland. Discussions for the memorandum of understanding (MoU) began a month ago on the sidelines of an Asean inter-ministerial meeting, and picked up pace after Indonesia's Parliament finally agreed last week to ratify an Asean haze pact....An aide to Malaysian environment minister Palanivel Govindasamay said both countries had "basically agreed on" the pact. But both sides declined to say when they might sign off on it.'"We are looking at exchange of information and experiences but, importantly, establishing joint research focusing on fire prevention, not just combating a blaze," Arief Yuwono, Indonesia's deputy minister for Environmental Degradation Control and Climate Change, told The Straits Times yesterday... The aide to Palanivel added that the information being exchanged would include details on many Malaysian companies operating in Indonesia, especially those in the palm oil industry.... The pact would also raise the fines for those caught carrying out open burning on peatland, the root cause of forest fires that spark off the annual haze. Officials declined to give specific figures for the new penalties...."


23 September 2014:

Khor Reports: Are there are any good investigations of possibility and cost of raising the water table in the peatsmog haze prone areas. We met the folk at Singapore Institute of International Affairs yesterday, and had a good chat on this as well as the efforts to use remote sensing to track fires and identify its culprits (you will recall that the Indonesian courts have started to take a "negligence" approach to this matter). Since the problem has been going on so many years, might a multi-prong, approach help? While NGO action has helped to publicize the problem and they have helped to get large plantations to agree to halt any development on peat (and stop buying from those still developing on peat), the next stage seems tougher and more scientifically technical. Thanks in advance to readers for any information on the question - how can we really stop / reduce the haze problem?

This ratification comes hot on the heels of a landmark ruling on peat fire where a charge of negligence results in a fine of almost S$2 million being handed down. I posted on this earlier, but repeat it here: http://news.asiaone.com/news/asia/malaysian-firm-fined-executives-get-prison-role-forest-fires; "...The Pelalawan District Court in Riau sentenced ADEI general manager Danesuvaran KR Singam to a year in prison and the option of paying Rp 2 billion (S$210,000) or serving an additional two months in jail for violating Article 99 (1) of the 2009 Environmental Protection and Management Law. "The defendant was negligent in his supervisory role of the estate. He should have actively prevented irresponsible parties from slipping into the estate and setting the fires," presiding judge Donovan Pendapotan said. Danesuvaran, however, was not sent directly to prison after the hearing. "We need to wait for a final and binding verdict from the Supreme Court before sending the defendant to prison," said prosecutor Banu Laksmana, adding that the prosecutors would appeal the sentence. The court found ADEI guilty of violating the same article in the 2009 law and handed down a Rp 1.5 billion fine or see its director, Tan Kei Yoong, serve five months in jail. The court also ordered ADEI to pay an additional Rp 15.1 billion to repair the environmental damage caused by the forest fires...." **Total fines and repair charges for the fire = Rp 2 + 1.5 + 15.1 billion = Rp 18.6 billion or about SG$1.95 million?


Editorial: Overdue haze treaty; The Jakarta Post | Editorial | Thu, September 18 2014, 8:16 AM
"The House of Representatives untypically changed its role from villain to hero on Tuesday when it ratified the ASEAN Agreement on Transboundary Haze Pollution. The belated move has saved Indonesia from international mockery, if not condemnation, for its failure to rein in the seasonal forest fires that have endangered the lives of its own people and those in neighboring countries.
For a decade the lawmakers, without any sense of culpability, refused to endorse the government’s acceptance of the pact for fear of possible infringement on Indonesia’s sovereignty, given the involvement of foreign, parties to the treaty in a joint task force that would fight fires inside Indonesia. Such a nationalist, if not xenophobic, mindset has led to a protracted, choking haze in the provinces of Sumatra and Kalimantan, home to oil palm plantations and logging activities. The disaster was recurring, which simply proved that Indonesia could not address the forest fires alone.
Tuesday’s unanimous approval by the House therefore marked an end to the politicians’ insensitivity to the suffering of many people..." http://www.thejakartapost.com/news/2014/09/18/editorial-overdue-haze-treaty.html

RI ratifies haze treaty by Margareth S. Aritonang, The Jakarta Post, Jakarta | Headlines | Wed, September 17 2014, 9:17 AM; "Indonesia has officially adopted a decade-old regional haze treaty following pressure from neighboring countries over forest fires on the islands of Sumatra and Kalimantan. A House of ReI presentatives’ plenary meeting on Tuesday endorsed the ratification of the ASEAN Agreement on Transboundary Haze Pollution, which obliges Indonesia, as one of the member states, to actively involve itself in efforts to mitigate air pollution, both nationally and through intensified regional and international cooperation. “Ratifying the [regional haze] agreement is the appropriate measure for Indonesia to prove its integrity as well as step up its role in solving problems in the region,” Environment Minister Balthasar Kambuaya told the meeting.
“As a country with one of the largest areas of forest, this will help Indonesia deal with pollution in the future,” he added. Indonesia was the only ASEAN country left to ratify the agreement, having signed the pact in 2002 along with the other member states. The agreement was formulated as a response to an environmental crisis that hit Southeast Asia in the late 1990s, which was mainly caused by slash-and-burn clearance for agricultural purposes in Sumatra and Kalimantan...."
http://www.thejakartapost.com/news/2014/09/17/ri-ratifies-haze-treaty.html

Text your say: Addressing the haze  | Readers Forum | Mon, September 22 2014, 9:33 AM
Your comments on the ratification of a decade-old regional haze treaty by the House of Representatives, following pressure from neighboring countries over forest fires on the islands of Sumatra and Kalimantan: This is only one of many steps to protect our forests and the people of neighboring countries... http://www.thejakartapost.com/news/2014/09/22/text-your-say-addressing-haze.html.

China market (update 2): To cap emissions and have 20% energy from zero-emission sources by 2030

12 November 2014: China to cap emissions and have 20% energy from zero-emission sources by 2030

China and US strike deal on carbon cuts in push for global climate pact by Lenore Taylor, Guardian Australia political editor, Tania Branigan in Beijing and agencies, theguardian.com, Wednesday 12 November 2014 06.54 GMT; "Barack Obama aims for reduction of a quarter or more by 2025, while Xi Jinping sets goal for emissions to fall after 2030...The United States and China have unveiled a secretly negotiated deal to reduce their greenhouse gas output, with China agreeing to cap emissions for the first time and the US committing to deep reductions by 2025... The pledges in an agreement struck between President Barack Obama and his Chinese counterpart, Xi Jingping, provide an important boost to international efforts to reach a global deal on reducing emissions beyond 2020 at a United Nations meeting in Paris next year.... China, the biggest emitter of greenhouse gases in the world, has agreed to cap its output by 2030 or earlier if possible. Previously China had only ever pledged to reduce the rapid rate of growth in its emissions. Now it has also promised to increase its use of energy from zero-emission sources to 20% by 2030...." http://www.theguardian.com/environment/2014/nov/12/china-and-us-make-carbon-pledge

4 November: Macau Casino Revenue Drops Record 23% as Austerity Bites  By Billy Chan  Nov 4, 2014 1:29 PM GMT+0800; "Macau’s casino revenue plunged by the most since the city started monthly records in 2005, as China’s crusade against corruption prompted gamblers to cut back on lavish spending...."
http://www.bloomberg.com/news/2014-11-04/macau-casino-revenue-plunge-record-23-as-austerity-bites.html

1 November: anti-corruption hits demand?

Khor Reports: We recently spoke to China market specialists. The problem there is not just the shadow financing / LC problem (the big players still have financing access). There is also significant concern of constrained demand growth as the China anti-corruption drive hits gifting in the food sector including restaurant meals and mooncakes. For example, it is noted that it was the first time in many years that "hairy crab" prices fell. China watchers point out that the country's oil & fats annual increase was in a higher range of 1.5-2 million tonnes but it is now down to a 1 million tonnes increase. Do view Desmond Ng's presentation from the recent MPOC POTS KL conference which forecasts China palm oil demand for 2014 at 5.62 million tonnes, down from 2013 and the slowest since 2008, and from which the chart below is extracted. The recent peak of over 60% of palm oil imported by "traders" is also consistent with information from our chats with China-based traders in the middle of the year - they also mentioned the increased size of shipments by traders up to that point.

 

source: Latest development, challenges and outlook of palm oil market in China by Desmond Ng, MPOC Shanghai, POTS KL 2014, October 2014

  

Newslinks:

 Chinese govt officials told to shun mahjong Published on Oct 29, 2014; The commentary was the latest in a series of state-issued broadsides against official extravagance, as Chinese President Xi Jinping attempts to improve the Communist Party's image in response to widespread anger over endemic corruption. Chinese officials have held secret sauna parties and have been hiding alcohol in plastic water bottles as they seek to get around a crackdown on extravagance, according to the People's Daily last year. "Constant reports of saunas held at farm houses" were evidence of a growing culture of "low-key extravagance" that was damaging the new President's anti-corruption drive, it reported. The Chinese government on Monday issued a ban on private clubs in historical buildings and parks, which are often frequented by officials, state-run media reported. The campaign against graft has been blamed for falling sales of luxury items, and has hit business at expensive hotels and restaurants. - See more at: http://www.straitstimes.com/the-big-story/asia-report/china/story/chinese-govt-officials-told-shun-mahjong-20141029#sthash.xtRmSRYR.dpuf

Decrease in mooncake bribery: survey(Xinhua) 13:20, September 11, 2014; BEIJING, Sept. 11 -- More than half of respondents to a survey on subtle corruption during China's Mid-Autumn festival believe there has been less use of public funds to buy traditional snacks this year, according to results published on Thursday. Some 54.6 percent of those polled by the China Youth Daily felt that there had been a marked drop in spending of public funds on mooncakes, while 76.7 percent said they have noticed the top anti-graft body's ban on this practice. Where respondents have received mooncakes, 49.4 percent said they bought them themselves, 32 percent got them from relatives or friends, 27.4 percent from employers, 6.7 percent from clients, and 4.5 percent from their subordinates. http://english.peopledaily.com.cn/n/2014/0911/c90882-8781306.html  

Xinhua Insight: Who are the winners of China's anti-corruption drive? English.news.cn | 2014-10-14 21:56:01 | Editor: Fu Peng; Now after more than 22 months since late 2012, the campaign is still going strong and likely to continue. Tens of "tigers" above the ministerial level have fallen, including a former member of the Standing Committee of the Political Bureau of the Communist Party of China (CPC)Central Committee. Xinhua reported earlier this month that restaurant owners in several places have demanded local governments pay their debts, which accumulated in the form of IOUs and at the cost of taxpayers. Even the hairy crab, a high-end delicacy mainly enjoyed by government officials, saw its first price cut in 12 years in September and can now be easily bought by ordinary people. http://news.xinhuanet.com/english/china/2014-10/14/c_133716535.htm

The importance of logistics hubs?

Interesting news in metals commodity news is Malaysia new role as Brazil Vale's logistics hub in Asia. Vale spends US$1.4 billion in Lumut to build its new Asia port terminal at Teluk Rubiah, Perak in the Straights of Malacca. Valemax 400,000 tonne vessels are just huge! We had neighbours who are engineers from Brazil to help implement this project. Progesys notes that "the stockyard is designed to be able to handle 30m tons of iron ore annually and can be expanded to take a maximum capacity of 60m tons per annum." The purpose: the Brazilian giant seeks to erode its geographic disadvantage in supplying Australian customers as falling iron ore prices hurt producers' margins. Thus, the terminal is a competitive strategic move. Read more here:  http://khoryuleng.blogspot.com/2014/11/malaysia-as-brazil-vales-logistics-hub.html

Is this akin to what's happening in palm oil merchandising? The likes of Wilmar and Musim Mas have taken strategies to have terminals / bulking / capacity / logistics in key end use regions such as Africa (Wilmar noted to have bought / built / booked up capacities to better serve Africa buyers) and Europe (Musim's notable biodiesel acquisitions).

From key industry sources, it is notable to hear Malaysia earlier had an allocated multi-billion Ringgit budget to help build up joint terminal / bulking facilities in strategic locations. This didn't get off the ground on apparent commercial disinterest by private companies.

Malaysia palm oil is facing stiff competition from Indonesia palm oil for markets. On the latter's upstream expansion, it is inevitable that it gains market share. Key plantation groups and trader-processors are transnational businesses.

Research highlights by MOSTA for OFIC KL 2014

Tan Sri Augustine Ong of MOSTA highlights the following new research featured at OFIC KL 2014:

• Palm oil mill with zero effluent. Think of palm oil fruit as pulp processing.
• Obesity and the impact chain length and fatty acid position on health outcomes which places palm oil in good status akin to olive oil.
• Genome guided breeding.
• A Melbourne expert presents on mega sonics in palm oil milling.
• Biodiesel substitute, B100. A two year field trial with engine dissection shows better state than petrodiesel use.

Sunny Verghese of Olam on structural trends

No slides during his talk but slide deck will be given later. Olam has stopped powerpoints for the last two years to improve communications. Previously, analysts will know Sunny Varghese was famed for big powerpoints.

 

He's now talking about FAO food index, previoys price declines and inflection to price rise in last decade plus. China inflation largely due to food prices. He expects higher food prices to stay with us.

Demand drivers. Population: 9 billion plus people by 2050 and many most populous countries will be in Africa. Per capita income: rising faster than in past on larger populations, notably China and India doubling in 12 and 16 years. Income and middle class size as low/mid/high income consume 2600/3000/3600 calories respectively.

 

Another game changer is urbanisation. Urbanites consume 2.5X dairy, 3.5X meat than rural. West consumes over 130kg per capita and it's not just culture as HK and Taiwan consume over 100kg meat.

 

Supply is "shot in foot" by biofuels. FAO blames 2008 price crisis in most part to misguided policy on biofuels. Plus there's loss of farm land over time. Supply affected by declining productivity growth that has halved more recently and is now below population growth. Expansion car usage means there's set aside 0.74 ha for each new China car and take away farm land.

 

Water tables are receding in large zones. Olam is the world's largest corporate farmer and knows that wells now cost $0.5 million, going to depth. Wars might come about over food and water if it can happen over oil. 1300 liters of water for a big breakfast. One calorie needs one liter if water. 55 liters for personal need and 1-2 liter for drinking. China imports water by importing soybeans.

Climate change. Evidence is there from extreme weather events.

 

We need lot more investment on agricultural research. So much spent on defense but hard to find sufficient spend on food. Also to reduce 40 percent wastage. 

 

Can companies create value without destroying the environment. Nature does not issue invoices. Olam buys 2 billion bees a year for its almonds estates for $80 million.

 

Can we have inclusive growth? 400 people have more money than 4 billion. Such massive inequality usually addressed by revolution. Politicians are not working on this.

 

Indonesia palm oil: 2025 outlook from PT SMART

Pak Daud of PT Smart speaks at OFIC KL 2014. This is the 166th year of palm oil in Indonesia.
 

2025 Indonesia palm oil consumption expected to be about half for food and oleo and half for biodiesel (under the 2014 energy decree). Mielke notes that this suggests no increase in Indonesia palm oil exports which will not serve global consumer needs. 

What is the 2015 biodiesel implementation expectation versus 2014 (10-20 percent transport-power under target)? With lifting of subsidy there can be extra funds for cash subsidy to the poor. The fossil fuel and palm oil price will be better balanced to improve prospects. Improved logistics is also needed and a policy priority.

Pak Daud expects new areas 350,000 ha per year expansion in 2015, falling to 150,000 ha by 2025. 

One land map is a challenge. Spatial mapping should be done by Ministry of Public Works. Forestry has its map for it's 110 million hectare area. This map should be done a day this will clarify land that can be cultivated and for other uses. This should be finalised in 2015.

Foreign ownership limit will be delegated and set by government regulation which is not known yet. 

MITI talks on Malaysia palm oil and FTAs

MITI explains that the ASEAN-Australia-New Zealand regional deal covers goods, investment, environment and labour. It is the more ambitious of the regional agreements, as most just cover goods. To explain on RCEP, she notes that its aims to pool (disparate) rules. This and the Transpacific Partner (TPP) Agreement are open agreements as membership can expand as more countries can opt in.

 

Malaysia is a small open economy and regards such networks as useful. Malaysia wants to be in room when new rules being made but it is another matter if Malaysia signs up. Two studies on TPP are done: I) one on national interest analysis and another ii) on impact on SMEs and Bumipura business. These two studies will be present to Parliament to make a decision. MITI reports that TPP will still take time to conclude its negotiations. MITI seeks a balance of benefits from the TPP Agreement. Once all 12 countries present their market impact commitments, then Malaysia can decide. MITI reiterates that it's important to shape outcome i.e. to be there when rules being formed.

A short update on others deals: The (stalled) Malaysia EU deal has similar issues as the TPP, and there is also the European Free Trade Area deal in the pipeline.

 

MITI talked about tariff rates facing palm oil, pointing India and Turkey rates as being rather higher potentially (the latter was hard to negotiate given the high rates scenario), and the relative impact on Malaysia and Indonesia if the import duties were to be raised.

 

Questions that the palm oil industry would have on TPP and other high level agreements:

• What is the potential impact on cost production impact versus trade gains?
• What is the impact on GLC plantations?
• What impacts from the labour and environment (sustainability) chapters?

  

Australia sugar marketing tussle: producer QSL versus foreign-owned processors

More on the producer versus processor tussle in Australia sugar. Call to legislate on "growers economic interest."

Export marketer Queensland Sugar Limited calls for legislation to formalise 'growers economic interest' QLD Country Hour – Craig Zonca  Updated Thu at 9:37am, ABC Rural; "... The inquiry was prompted by the decision of foreign owned milling companies, Wilmar, MSF and Tully Sugar to sever ties with the QSL-operated export marketing system in 2017... "Market failure is here," said QSL chief executive Greg Beashel. "Monopoly powers are being used to try to force marketing services onto growers... Growers won't accept that and neither will QSL... The best solution would have been for the industry to work this out commercially, we haven't been able to get that done so we now have the view the only option is legislative intervention."... In its submission to the senate inquiry, QSL argues for legal recognition of the long-held convention that farmers have an 'economic interest' in over two-thirds of the raw sugar produced by milling companies... The model is currently acknowledged in commercial agreements between cane growers and millers to set out the exposure farmers have to the raw sugar price. QSL believes that if 'growers economic interest' was formalised, growers would then have more power to choose how the sugar produced from their cane is marketed.
http://mobile.abc.net.au/news/2014-10-29/sugar-marketer-wants-government-action/5852148

Audio [5:11]QSL's Greg Beashel calls for government action to break sugar industry 'stalemate'
http://mobile.abc.net.au/news/2014-10-29/sugar-marketer-wants-government-action-audio/5851932

Other news links:

Australia's largest sugar miller argues reregulation would be 'retrograde' step, QLD Country Hour – Craig Zonca  Updated Thu 23 Oct 2014, 4:34 PM AEDT; "Wilmar argues reregulaton of the sugar industry would be a retrograde step.... Australia's largest sugar miller, Wilmar, remains resolute in its bid to market its entire sugar production from 2017. The Singaporean-based company started a bitter battle in the industry when it announced in April that it will sever ties with the century-old pool marketing system operated by Queensland Sugar Limited (QSL)..."
http://mobile.abc.net.au/news/2014-10-22/australias-largest-sugar-miller-argues-against-re-regulation/5834044

Cane growers welcome inquiry into sugar marketing changes, ABC Rural – Suzannah Baker  Updated Fri 5 Sep 2014, 4:03 PM AEST; "A senate inquiry has been announced into the sugar marketing issue that's been labelled as anti-competitive.... A Senate committee inquiry will examine the current bitter marketing battle that has divided the Australian sugar industry... It comes as rural lobby group Canegrowers fights for government intervention into the sugar marketing battle that has put a huge question mark over the future of the century-old, industry-owned sugar marketer, Queensland Sugar Limited (QSL).... At the centre of the debate is Australia's largest sugar miller, Singaporean-owned Wilmar, which is severing ties with QSL to instead market its two million tonnes of sugar in-house... Other sugar millers, the Thai-owned MSF and Chinese-controlled Tully Sugar, will follow suit and withdraw their share of sugar from the QSL pool at the end of the 2016 season.
Under the inquiry's terms of reference, the Rural and Regional Affairs and Transport Committee will consider growers' claim to sugar ownership, supply chain issues including equitable access to infrastructure, the impacts of foreign ownership and whether there is a need for stronger competition laws...." http://mobile.abc.net.au/news/2014-09-04/senate-sugar-inquiry-announced/5720252

Indonesia's new Plantation Bill (update 9): Sime Darby Indonesia plantation listing / spin off?

2 November 2014: Sime Darby Indonesia plantation listing / spin off?

It will not be surprising under Indonesia regulatory and economic nationalistic climate to see several foreign-owned plantations interested in domestic listings / spin offs.

Sime Darby may spin off Indonesian plantation assets Posted on 27 October 2014 - 05:39am; PETALING JAYA: "Sime Darby Bhd, which in the midst of talking to investment bankers to list its motor division in Malaysia, is considering listing or spinning off its Indonesian plantation assets in Indonesia next.... "This move could come in the form of an initial public offering (IPO) or a reverse takeover (RTO)," said RHB Research analyst Hoe Lee Leng...  Sime Darby told investors at Invest Malaysia Hong Kong (IMHK) recently that it is the group's strategy to continue to contemplate various options, including spinning off/listing its core divisions.... How said the listing or spin off of the Indonesian plantation division could potentially be in the form of a tie-up with an Indonesian partner which has a sizeable plantation landbank, which would be injected into a listed entity.... "This would help the company, as the Indonesian government has limited ownership by foreign companies to no more than 100,000ha of plantation landbank per company, as this ruling is not applicable to listed entities (presumably listed in Indonesia).... "A listing on the Indonesian exchange would also bode well for Sime should the Indonesian Government tighten regulations with regards to the foreign ownership of land," Hoe said...". http://www.thesundaily.my/node/278331


6 October 2014. Likely facing pressure for future Indonesia-listings, plantation interests point to problem of domestic funding - higher capital costs
Businesses breathe sigh of relief on new law by The Jakarta Post, Jakarta | Business | Fri, October 03 2014, 8:31 AM; "Plantation industry players breathed a sigh of relief as the House of Representatives canceled a plan to cap foreign ownership in local plantation firms at 30 percent.,,, Indonesian Palm Oil Producers Association (Gapki) executive director Fadhil Hasan also welcomed the new law as it handed over the determination of the cap level to the government.“We expect the government regulations to also [limit foreign ownership based on] the type of commodities or crops,” he told The Jakarta Post....... Understanding the government and the House’s intention to protect local and smaller companies, Togar Sitanggang, chairman of the Indonesian Oleochemical Manufacturers Association (Apolin), said most domestic plantation firms were either owned by foreign-listed companies or controlled by one or more foreign shareholders.Expensive financing from domestic banks was the main reason that forced local plantation firms to be listed abroad or to find foreign suitors, said Togar, who is also a senior manager at biofuel maker PT Musim Mas, citing Golden Agri-Resources Ltd., which owned Sinar Mas Agro Resources and Technology (SMART) and Bumitama Gunajaya Agro of the Singaporean-listed Bumijaya Agri Ltd. as examples...." http://www.thejakartapost.com/news/2014/10/03/businesses-breathe-sigh-relief-new-law.html


30 September 2014. Foreign limit will be set by regulations.

New plantation law limits foreign ownership by The Jakarta Post, Jakarta | Business | Tue, September 30 2014, 12:01 PM; http://www.thejakartapost.com/news/2014/09/30/new-plantation-law-limits-foreign-ownership.html; "The House of Representatives on Monday passed the plantation bill, which sets stricter rules on foreign ownership in the plantation sector so as to prioritize smaller local investors.... The limitation is to have no specific percentage value, although the House’s Commission IV has previously demanded a 30 percent foreign ownership cap. Instead, the law allows the central government to limit direct foreign investment in Indonesia’s growing plantation sector.... through government regulations (PPs). The limits, according to the new law, are to be based on the type of crop, the size of the producing company and certain geographical conditions.... A strict foreign ownership cap would discourage foreign investment in the upstream plantation sector, but a less stringent one, made general by the new law and specified by a PP, would be acceptable, according to the Agriculture Ministry’s director general for plantations, Gamal Nasir... The existing foreign plantation companies will be required to comply with the new law after their period of licensing of rights to cultivate land (HGU) has ended, the law stipulates....  The new law also regulates the scope of plantation areas and land concessions according to a number of variables, such as the type of crop grown, the company’s factory capacity, the area’s population density and certain geographical conditions. These points too will be detailed in PPs.... The central government will also have the right to turn over state-owned forests and abandoned plots of land to plantation owners. But the law also requires plantation owners to conduct discussions with indigenous residents over plots of lands to be acquired.... In order to develop the sector, the law also encourages cooperation in research and development between foreign and domestic individuals, businesses and universities, as well as between central and regional administrations.... Firms have been given five years to comply with the new law....  While praising some points of the law, such as the foreign ownership restriction, Indonesian Rubber Association (Gapkindo) chairman Daud Husni Bastari said the law did not properly support smallholders and criticized the lack of measures to mainstream the smallholder basis of plantation management...."

"Indonesia passes plantation bill but..." by CIMB September 30, 2014 says that "We are slightly surprised that the bill went through despite the tight deadline. However, we are not too surprised that the 30% foreign limit rule was omitted given that it could significantly hurt future foreign investment in Indonesia. Overall, we view the latest news to be slightly positive for Malaysian- and Singapore-listed plantation companies as they will be able to maintain their existing stakes in plantation assets in Indonesia. However, we expect Malaysian planters to be more cautious about future expansion in Indonesia in view of the foreign ownership risk...."


29 September afternoon. It's the day for the Indonesian Parliament to vote on the new Plantation Bill. As expected, Jakarta sources confirm that the worrying 30% foreign ownership limit article is dropped. We'll have to check out the final version in detail for all the regulatory shifts to come.

16 September afternoon. More reader feedback on Plantation Bill, SGD 1.95 million fines for role in Riau fire, forest boundary 5-year limit for complaints?

Feedback from another senior industry manager in Jakarta on the strike off of the foreign ownership clause from the upcoming Plantation Bill: "Thanks for the (Kontan) newslink. The discussion is on going and not yet decided...."

Malaysia reader points out: Is it off? I am not sure. My sources tell me the only thing changed is that the figure of 30% has been removed and will not be legislated. So, is it then open ended? Who then will have the power to decide the level? This is even worse than before if it stays open ended.

All other changes are still going to go through? 

Another Jakarta reader highlights this news link: Pembatasan Kepemilikan Asing Dicoret; Kontan  | Selasa, 16 September 2014; Hasil rapat dengan pemerintah dan DPR memutuskan mengeluarkan aturan maksimum batas kepemilikan asing di RUU Perkebunan; which talks about Minister of Agriculture Suswono seeking a delay to the Plantation Bill, and noting that policy for palm oil should be distinguished and separate from other crops....

Plus an alert from a reader based in Singapore: On the issue of fire, have you seen this, http://news.asiaone.com/news/asia/malaysian-firm-fined-executives-get-prison-role-forest-fires; "...The Pelalawan District Court in Riau sentenced ADEI general manager Danesuvaran KR Singam to a year in prison and the option of paying Rp 2 billion (S$210,000) or serving an additional two months in jail for violating Article 99 (1) of the 2009 Environmental Protection and Management Law. "The defendant was negligent in his supervisory role of the estate. He should have actively prevented irresponsible parties from slipping into the estate and setting the fires," presiding judge Donovan Pendapotan said. Danesuvaran, however, was not sent directly to prison after the hearing. "We need to wait for a final and binding verdict from the Supreme Court before sending the defendant to prison," said prosecutor Banu Laksmana, adding that the prosecutors would appeal the sentence. The court found ADEI guilty of violating the same article in the 2009 law and handed down a Rp 1.5 billion fine or see its director, Tan Kei Yoong, serve five months in jail. The court also ordered ADEI to pay an additional Rp 15.1 billion to repair the environmental damage caused by the forest fires...." **Total fines and repair charges for the fire = Rp 2 + 1.5 + 15.1 billion = Rp 18.6 billion or about SG$1.95 million?

Other regulatory news:

•  TATA BATAS HUTAN - Kuntoro: Jangan Berubah Terus; Kompas | Selasa, 16 September 2014; the process of affirming Indonesia's forest areas is now said to have reached 68% but under current regulations, the boundaries can still be adjusted for complaints without time limitation. Thus, UKP4 (Presidential Working Unit for Supervision and Management of Development) has suggested a time limit for five years to reduce this uncertainty for the public, government and development interests.

16 September morning. Troublesome foreign limit clause cut amidst heavy contestation? The Plantation Bill's worrying foreign ownership clause was strongly opposed by plantation business groups (several very large ones are foreign-listed in Malaysia and Singapore). However, Jakarta news report that others such as rubber producers (dominated by smallholders) point out insufficient smallholder support in the Bill and suggest the need for land reform to favour this group. The divergence between big business and domestic sentiment is increasingly apparent. Interestingly, I had a chat yesterday with an analyst familiar with the Jakarta banking sector; and he also noted the strong support for foreign ownership limits and selldowns among professionals in that sector. This is akin to the sentiment held by domestic Indonesia professionals within the plantations sector too.

Just earlier this morning, I received via a senior Malaysia plantation manager a news alert that reads positively for Indonesia plantation FDI i.e. the removal of the contentious clause: "Parliament and government have agreed on the withdrawal of foreign ownership limitation. In the final discussion of Agriculture law revision No. 18/2014 that was held yesterday, Parliament and government have agreed on the withdrawal of 30% foreign ownership limitation...." (attributed to Kontan, which I could not find online earlier - but since updated for 12 noon by reader (thanks Ibu Y) its location here: http://industri.kontan.co.id/news/pelaku-usaha-perkebunan-kini-bisa-bernafas-lega/2014/09/15; "Plantation business players are now able to breathe - Commission IV decides to eliminate the foreign ownership limit points of at least 30 %.. and quotes Vice Chairman of Commission IV Herman Khoiron on Monday 15 September on worries on foreign exchange, investment and ability of domestic business to replace foreign capital). However, on checking with a Jakarta source closely linked with the Indonesia Parliament this morning, the reply was that the clause has not been removed yet. Thus, the status of this clause has been quite contested?

Obviously, the Bill is an increasingly heated topic as Parliament is reported to have set 29 September 2014 as the date for its ratification at its plenary meeting. There are many clauses that adjust current business regulations - including the wide definition of "group" of companies for the ownership ceiling. Experts also point to a little known land ceiling adjustment in the Land Bill, and also new policies within the Native Customary Rights Bill.


Earlier news headlines:

Business groups oppose plantation bill by Linda Yulisman, The Jakarta Post, Jakarta | Business | Fri, September 12 2014, 7:39 AM, JAKARTA. "Plantation business groups have voiced their criticism toward the plantation bill, which is now in final deliberations at the House of Representatives, saying that it will hurt the business climate for plantation firms as well as growers. The bill, a revision to the 2004 Plantation Law, comprises restrictions on foreign ownership and the scope of plantation areas, stipulates punishment for land burning and encourages more local engagement. The House expects to pass the bill later this month... Indonesian Palm Oil Producers Association (Gapki) executive director Fadhil Hasan said on Thursday that the group strongly opposed the 30 percent foreign ownership cap as it would erode Indonesia’s competitiveness as an investment destination in the sector... Apart from capping foreign ownership shares, the bill also restricts land ownership by a plantation group to a maximum 100,000 ha. It also requires plantation firms to cooperate with growers by allowing them to hold a 20 percent share... The bill also requires local processing industrial firms relying heavily on imported raw material to open plantations to support their operation. For instance, a sugar refiner sourcing raw sugar overseas will have to build its own sugar cane plantations within three years of its operation... It also gets tougher on plantation owners or growers that commit land burning by imposing legal punishment on them... While appreciating some key points of the bill, such as the foreign ownership restriction, Indonesian Rubber Producers Association (Gapkindo) chairman Daud Husni Bastari also raised his objections, particularly with regard to the bill’s weak support for small holders and lack of measures to mainstream the smallholder-based perspective in plantation management. “What we need is land reform, which the bill still lacks. We also don’t see that the bill sufficiently sides with smallholders who should play a dominant role in managing plantations,” he said. Daud further said that the bill should have provided a specific land arrangement for smallholders the way Malaysia did with its authority for smallholders, the Rubber Industry Smallholders Development Authority (RISDA)..." http://www.thejakartapost.com/news/2014/09/12/business-groups-oppose-plantation-bill.html

Plantation, property firms oppose land bill over expansion plans by The Jakarta Post, Jakarta | Business | Wed, February 26 2014, 12:03 PM; "House Commission II member Budiman Sudjatmiko said that the capping was necessary to help prevent unjust land distribution. “This bill is a breakthrough as it would end land conflicts, which are mostly caused by unjust land distribution.”  Budiman quoted data from the National Land Agency (BPN) showing around 56 percent of national assets — 80 percent of which was land — was controlled by only 0.2 percent of the population." http://www.thejakartapost.com/news/2014/02/26/plantation-property-firms-oppose-land-bill-over-expansion-plans.html


9 September. SBY wants to crush proposed foreign ownership clause? His view was not known earlier (Jokowi did a slightly discouraging side stepping) and it was highly likely that there would be lobbying on this multi billion dollar matter.

Reuters cited Indonesia’s investment chief as saying that the president is against a draft bill that would retroactively limit foreign ownership of plantations at 30% as it may expose the government to legal action. According to the article, lawmkers and the government are at odds as to whether the law should be retrospective. The Chairman of Indonesian Investment Coordinating Board said that the guidance not to include an ownership limit was under the instruction of the President (summary from Ambank news alert)

Reuters news article: http://mobile.reuters.com/article/article/idUSL3N0R91MU20140908?irpc=932

26 August evening. I had a second high level industry meeting over dinner. I've also spoken to two seniors in the financial sector in the last two days; not surprisingly they are concerned about definitions and impact on foreign investor sentiment.

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The new Plantation Bill has been about two years in the drafting. Today, I have confirmation of yesterday's view that there is broad political consensusï among the legislators for the foreign ownership limit clause. However, there's little time left in this Parliament. This clause and other key revisions of concern to plantations include the land ceiling for a single company or group of companies (the definition of "group" talks about ownership and management relationships; rather than minority or majority stakes), the inclusion of plasma within the HGU and customary rights. The consensus arises from the amendments being made to aid the "rakyat kechil" (the people): apparent concerns over social conflicts and land for rural folk. There are three major bills being handled by Commission #4 - the Plantation Bill, the Land Bill and Customary Rights Bill.

I guess we know for sure by the end of September on the foreign ownership clause (and the rest of the Plantation Bill), or unless there are changes before then. The views from Malaysia are that it is unlikely for the foreign ownership limit ruling to pass, and if it does, there is hope that the new government will reverse it. There is also hope for a fair middle ground with no retrospective element i.e. no sell down for existing foreign owners. However, it is not clear how these hopes are being represented to the Indonesia legislators. It may be up to individual company lobbying among the key 20 legislators involved?

25 August evening. Jokowi side stepping question on proposed foreign ownership limits to Malaysia newspaper (see below)? I'm in Jakarta for three days. Getting some useful updates and political context to Indonesia regulatory changes and Jokowi-JK policy ideas from industry sources and seniors in the financial sector here. The views I'm hearing here seem different from Malaysia sources (even those with work / business here). The key question I'm asking is: what's the political consensus? I'm also getting some feedback on issues from bankers looking at their plantation portfolios.

Note: On Plantations the proposed limit is 30% with a 5 year adjustment (sell down) period and for financial services, it's 40% with a 10 year adjustment period. Jokowi points out that FDI is needed in these sectors: tourism, infra (build ports, airports and railways) and manufacturing.

 

Newslink:
 

Jokowi going for moderation by wong chun wai; Updated: Monday August 25, 2014 MYT 8:25:09 AM; http://www.thestar.com.my/News/Nation/2014/08/25/Jokowi-going-for-moderation-Indonesias-presidentelect-pours-his-heart-out-over-his-future-plans/

"> Malaysia-Indonesia relations and international trade. During your election campaign, many observers were concerned with the tone of presidential candidates playing the nationalist cards on the economy and Asean.  Can you clarify what are your investment policies, specifically on equity in financial services and plantations?

I am aware that there are domestic political pressures to limit foreign expansion, including in the financial services and plantations sectors. Still, to ensure future rapid economic growth we need massive investment and if domestic capital is not sufficient, then we will have to look abroad. It is my task as President to balance out these pressures. My commitment to the Indonesian people is to create economic growth and jobs. We need investments for tourism, infrastructure and manufacturing. We need support for the building of ports, airports and railways."

 

19 August 2014 afternoon. Thanks to several readers for discussing this new proposed bill.

An Indonesia policy analyst notes that the Indonesia media has not ran with this story since Reuters broke it on Friday. This may be regarded as maneuvering by the outgoing legislators as the draft bill (RUU) is apparently not in a format ready to be passed. The RUU corroborates the Reuters report, but conditions for foreign investment appears unrefined and includes a clause allowing foreign investment in the sector only if it involves new technology (Article 70).

There are doubts this can be enacted in the short-term, especially in its current draft. Bloomberg reports that Parliament has not tabled it yet as it hasn’t received a letter from the President. However, there is a rush to table this before the next administration comes in. If not, the new parliament will have to redraft the bill (newslink: Aug. 19 (Bloomberg) -- Bloomberg’s Alia Karenina reports on a draft bill by Indonesia’s government that would limit overseas land investment in the nation to protect small business. She speaks on “On The Move.” http://www.bloomberg.com/video/indonesian-palm-oil-plantations-may-face-ownership-limits-0F8VyMUmSJWXJu6X~w6q2Q.html).

Indonesia business consultants note that Jokowi is generally pro-business and pro-investment, and that his key priority is to lower fuel subsidies and to boost state income with tax reforms. Thus, as economic and fiscal status is the priority, some think that foreign investments limits would not be a priority at this point. A bigger concern for natural resource concessionaires (plantation, forestry and mining) will be stricter environmental regulations, tax compliance and such.


19 August 2014 morning

Khor Reports comment: This has been percolating for a while. I last spoke to friends in Indonesia palm oil about this back in March. We'll have to look into the details, including the schedule for the Indonesia Parliament vote on this bill and understand what discretion the incoming Presidential administration will have if it happens to be passed before the new President is installed (assuming Jokowi-JK have a differing view on this, which remains to be determined). If this is found to be the political consensus*, then as always, implementation and the details are everything. The 2009 changes to the mining bill were fundamental but were only strongly rolled out for implementation in 2013 (much to the surprise of the mining sector!). There are already retrospective foreign ownership limits with 4-year sell downs in place for the Indonesia horticultural sector. Also, many will recall Malaysia's own history and policies on such limits which may prove awkward in counterarguments. Analysts note that many Malaysian plantations** will be badly affected if this policy is put in place.

*We may want to note the wide readership that Thomas Piketty's "Capital" is getting among political economists and policy makers; http://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century. While it is generally pooh-poohed among international capitalists and mainstream financial media, it offers much grist for the mill of nationalistic policy makers on the fallacies of foreign ownership.
**For a breakdown of foreign plantation group exposure in Indonesia, check out AmBank's 14 August 2014 report.

Our other postings on this topic with some contextual information and recent Malaysia investor sanguine views:

• At the sidelines of POC 2014: (1) on new Indonesia regulations (update), http://khorreports-palmoil.blogspot.com/2014/03/at-sidelines-of-poc-2014-1-on-new.html: "The number one producer of palm oil in the world has been making some speedy and decisive changes in policy in the last few years. A key example was the deployment of the new biodiesel policy.... The advancing proposal for a 30% foreign equity ownership limit (revision of Law No. 18 Year 2004 on Plantations) in Indonesia was talked about. Could this happen before the end of the current Presidential term this year?...
•  Interview #2 Presidential race heats up, foreigners worry? http://khorreports-palmoil.blogspot.com/2014/07/interview-2-presidential-race-heats-up.html; "...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...."  

Newslinks:

New Indonesian plan to limit foreign ownership will hurt Malaysian firms by yvonne tan, updated: Tuesday August 19, 2014 MYT 7:18:05 AM; "Malaysian planters will be the biggest losers if Indonesia decides to restrict foreign ownership of plantation companies there to not more than 30% from the current 95%... “The proposal will have the biggest impact on Malaysian-listed companies, as most of them have gone into Indonesia in a big way and are highly dependent on Indonesian operations for future growth,” UOB KayHian Research told clients in a report... Some of the local companies with Indonesian operations include Sime Darby Bhd, Kuala Lumpur Kepong Bhd (KLK), Felda Global Ventures Holdings Bhd, IJM Plantations Bhd and Genting Plantations Bhd... Nevertheless, analysts pointed out that it was still early days for the policy, with Indonesian lawmakers still studying the possibility of limiting foreign ownership in the plantation sector.

Affin Investment Bank has maintained its “overweight” call on the sector for now... “It remains to be seen if the new Indonesian administration (led by Joko Widodo) will agree to the Bill as well as the foreign ownership limit, which is also being considered for other sectors, including banking and mining.” The investment bank suggests that Malaysian planters could consider mergers with Indonesian peers to reduce equity stakes in response to the new possible measure..." http://www.thestar.com.my/Business/Business-News/2014/08/19/New-policy-to-hit-planters-Indonesias-plan-to-limit-foreign-ownership-will-hurt-Msian-companies/

Indonesia lawmakers draft bill to slash foreign ownership of plantations By Michael Taylor and Yayat Supriatna; JAKARTA  Fri Aug 15, 2014 3:04am EDT; Aug 15 (Reuters); "Indonesian lawmakers are looking to restrict foreign ownership of plantations to no more than 30 percent, as the top palm oil producer tries to maximise land usage, protect indigenous people and tighten environmental controls in the sector....Indonesia's parliament is looking to finish discussions on the draft bill with the government soon and expects it to be approved before the new administration is in place, Gamal Nasir, director general of plantations at the agriculture ministry told Reuters....
If the draft bill becomes law, it would be retroactive for companies that already own plantations, said Herman Khaeron, an influential lawmaker and vice chairman of the parliamentary committee for agriculture, forestry, fisheries and maritime... This interpretation was rejected by agriculture ministry and industry officials. Firms would be given five years to comply with the new bill, according to a copy of the draft seen by Reuters, and those that refused to comply may face fines, temporary suspensions or the revoking of licenses...." http://www.reuters.com/article/2014/08/15/indonesia-plantations-law-idUSL4N0QL1X620140815