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Bio-fuelling Poverty?

Potential Social Impacts of Biofuel Developments


in Indonesia and the Philippines
and the Need for Social Standards

Shanghai, 13 November 2007


Biofuelling Poverty, or development?

• Biofuels should offer development and poverty


alleviation opportunities for poor peoples:
- Opportunities for poor farmers
- Opportunities for agricultural labourers
- Opportunities to reduce oil imports
- Opportunities to increase access to energy
• But in the absence of comprehensive and enforceable
social standards, biofuel production poses more in the
way of threats for poor people
List of Content
Context & Background
Oxfam’s Position
1. Social Impacts
2. Social Principles
Context and Background

Indonesia
Philippines
Context and Background-Indonesia
Indonesia Quick Profile:

 Population: 224.328 million (2007)


 About 60 percent reside in rural area and work in
agriculture sector (2007)
 Top agri export commodities: oil palm, rubber
 Poverty level: 16.58 percent or 31.17 million citizens
(2007)
(poverty line at IDR 166,697 (about USD 19) /month/cap)
about 80 percent of the poor reside in rural area
(Suryahadi, Suryadarma, Sumarto and Molyneaux, 2006)
Context and Background-Indonesia
Biofuels Development:
1. Existing and potential biofuels
feedstock production (palm oil,
jatropha, cassava, sugarcane etc)
‘Indonesia and Malaysia account for
about 80 percent of global palm-oil
production’
(Indonesia: concern grows over palm oil
production’, Oxford: Oxford Analytica,
2007).
2. Significant expansions to increase biofuels feedstock production
(plantation expansions, new investments etc)
‘Palm-oil cultivation is set to expand from its current six million
hectares to 20 million by 2020’
Context and Background-Indonesia
Biofuels Policy:
1. The shift of policy focus from energy diversification to
poverty alleviation and employment creation
(through the President Decree No. 10/2006 on the
Formation of the National Committee for Biofuels
Development to Accelerate Poverty and Employment
Reduction)
2. The important position of biofuels: 1. to contribute to
5 per cent total energy mix (the President Regulation
No. 5/2006); 2. Its policymaking and implementation
involves wider government institutions –national and
local
Context and Background-Indonesia

3. Main policy target to reduce poverty and


unemployment is hard to achieve:

 Shortage of land for plantations


 Industry structure and value chain problems,
which prevent smallholders to get adequate
benefits
 Lack of policy incentives and government
financing, especially for smallholders/micro,
small and medium enterprises
Context and Background-Indonesia

Employment Projection from Biofuel Development -2010

Oil Palm Jatropha Sugarcane Cassava Total

Direct Labourers 750,000 500,000 1,500,000 750,000 3,500,000


Indirect Labourers 1,167 68,182 6,250 11,538 87,137

Source: National Commitee on Biofuel, 2007


Context and Background-Indonesia
Emerging Issues
Biofuels development is seen as
opportunities to raise farmer’s
income, create employment and
boost rural development:
1. The Government of Indonesia
2. Parcell and Westhoff, 2006

However, while potentially


creating new market, employment
and livelihood opportunities,
biofuel developments instead
could create negative social
impacts.
Context and Background-Indonesia
Emerging Issues
In Indonesia, these impacts are emerged mainly caused
by following situations:
 High and increasing demand of biofuels feedstock
production from developed countries along with
poor standardisation

- EU’s target that biofuels must provide ten per cent


of member states’ fuels by 2020
(European Commission, Renewable Energy Roadmap)
- From 1993 to 2003, biodiesel production in EU
countries have increased by around 1500 per cent
(http://dataservice.eea.europa.eu)
Context and Background-Indonesia

 Insufficient regulations and its implementations


(Lack of coordination between government
institutions in central level and inter-level of
government: central, provincial and district level)

 Gaps in private sector engagement


Context and Background-Indonesia

Social
Impacts
Context and Background-Indonesia
Main Social Impacts –Palm oil Case:
1. Food security
Potential competition between food
and biofuel feedstock production
could cause food price rise.

 Cooking oil price has increased


by around 50 per cent in the last
five months
 The Increase of imported corn
price for farm animal feed that
eventually do harm to breeders
Context and Background-Indonesia

2. Land Conflict

There are several types of conflict, but at root many of


them share the same problem: well-resourced
companies are given legal concessions to clear the land
by the district governor. In contrast, the villagers rarely
have any legal titles, but base their claim on what is
called ‘customary land rights’
1. Happened in Kalimantan, Sumatera, Sulawesi and
West Papua;
2. The number of communities involved in conflicts
driven by palm oil plantation has mushroomed to
about 400 in the whole of the country. (Sawit Watch)
Context and Background-Indonesia

3. Biofuels-driven deforestation
 Natural forests in Indonesia are being cleared so
rapidly that up to 98 percent may be destroyed by
2022 (UNEP)
 Palm oil plantations are accused as a significant driver
of deforestation
 50 percent of new plantations are allocated on peat
lands
(Wetlands International)

 a lack of reliable statistics to confirm the exact rate of


deforestation and what percentage is caused by palm
oil development.
Context and Background-Indonesia
4. Unequal benefits for smallholders
The highly unequal structure of the palm oil industry in
Indonesia suggests that the lion’s share of the benefits will
accrue to large companies
There is strong evidence to suggest that the recent palm oil
boom is resulting in a shift to a more trans-national industry
structure
palm oil production: 30 percent in the hands of small
producers, about 50 percent by private companies and 20
percent by state companies. About 1.8 million hectares of
the 6 million hectares are held by small producers under
different landholding arrangements, and as many as 4.5
million poor people (if we include all family members) are
estimated to be dependent on the sector (Colchester and Jiwan,
2006)
Context and Background-Indonesia
The other smallholders’ problems:
1. Selling contract at fixed and low prices;
2. Long-term debt to the companies;
3. The small size of landholdings (two or three hectares);
4. Lack of proper consultation and transparency in the
companies’ dealings
(James Painter’s interview with local producers, the small producers’
association (SPKS) and Indonesian NGOs, July 2007)

Other Problems:
- The exacerbation of social and economic divisions
within communities
- Increased migration to find labour
Context and Background-Indonesia

Urgencies:

• More transparent price setting


• At least five hectares per farmer to have a decent
living
• Less harsh credit terms
• Proper consultation with small producers
• Greater recognition of customary land
rights/improved land tenure
Context and Background-Philippines
Country Profile : Quick Facts

Population 88.7M (2007 projection)


 70% rural; 2/3 depend on farming (41M)
 ~50% of the labor force engaged in
agriculture
 30% (26.6M)of the population are poor
 11M live on less than $1/day

Land Area 30,000,000 hectares


 Agricultural land 14M has.
 Forest lands 16M has.

Top Agri products: rice, corn, coconut,


sugarcane

Farm Size: small farms averaging 2 has;


85% of all farms no more than
5 has.
Context and Background-Philippines
Biofuels Development:
o RP-China Bilateral Trade Agreement
– 4/17MOUs involve land deals
amounting to 1.24M has for hybrid
corn, hybrid rice & sorghum(www.bulatlat.com)
o Dept of Agriculture (DA) currently
facilitating over 725,000 has of land for
various foreign investors (Australia, Japan,
US, China, UK, Germany, India) for
feedstock cultivation (sugarcane, cassava,
jatropha, oil palm & coconut)(www.da.gov.ph)
o 2 M has are being targeted for
agribusiness devt by 2010 (www.da.gov.ph)
Context and Background-Philippines
Biofuels Development:
o Lands currently planted to sugarcane and coconut
are insufficient to meet demand for biodiesel
feedstock production.(roadmap to bioethanol,www.da.gov.ph)
o Feedstock Requirements: Sugarcane
Blend Yield Liters Ethanol Area Required*
5% min blend 223 million 49,000 has.
10% min blend 482 million 106,000 has

*at 4550 liters ethanol/ha sugarcane (roadmap to bioethanol,www.da.gov.ph)

o Coconut: 122,000 hectares of coconut land are


needed to meet the demand for coco diesel under
the new law. (www.da.gov.ph)
Context and Background-Philippines
Biofuels Development:
o In related developments, 454,000 has are being
earmarked for oil palm plantations in Mindanao;
(www.allheadlinenews.com)

o For Jatropha, 1.1 M hectares are required to produce


5.5 MMT of biodiesel feedstock (www.da.gov.ph)
Context and Background-Philippines
Biofuels Policy:
 Legal and Institutional Context of the Biofuels Policy
– Philippine Energy Plan 2005-2014
• 60% self-sufficiency by 2010 and beyond
(www.doe.gov.ph)

– Biofuels Act of 2006 (RA9367)


• 1% blend with diesel fuel in 2007; 2% by 2009
• 5% blend with gasoline fuel in 2007; 10% by 2010
• Mandates the Dept of Agriculture to “ensure increased
productivity and guarantee sufficient supply of biofuel
feedstock; identify potential areas suitable for expansion
and production of raw materials as feedstock…” (DOE Dept
Circular No DC 2007-05-0006)
(www.doe.gov.ph)
Context and Background-Philippines
– Biodiesel Program & Bioethanol Program
(www.doe.gov.ph)

– CME or coco-biodiesel and jatropha


for bioediesel
– Sugarcane and cassava for fuel
ethanol
Context and Background-Philippines
Emerging Issues:
o Lack of transparency and meaningful consultations
could encroach on land rights and affect rural
livelihoods and smallholders;
o Land agreements being entered into violate
constitutional provisions on the lease of lands to
foreign citizens; and threatens the agrarian reform
program of the State
o Conventional plantation agriculture can deplete
water resources and cause soil degradation
Context and Background-Philippines

o Labor relations in sugar plantations in the country


have been traditionally exploitative and oppressive
o Potential demand for non-food use and for supplying
needs abroad, can compete with local food and
energy requirements, and thus threaten food and
energy security.
o The Biofuels Act is silent on environmental and
social standards on biofuels production
Oxfam’s Position
1. Social Impacts
2. Social Principles
Main Social Impacts

1.Destruction of livelihoods
2.Indecent work
3.Exploitation of smallholders
4.Food Security
Main Social Impacts
1. Destruction of livelihoods

– Displacement of people from their land; 60


million indigenous peoples (UN Report) and 5
million of these are in the Indonesian region of
West Kalimantan

– Unsustainable practices of conventional


plantation agriculture can harm water, air and
soil which eventually do harm to people’s
livelihoods
Main Social Impacts
2. Indecent Work

– In oil palm plantations in Indonesia, women are


drawn into unpaid work; and are routinely
discriminated against

– Proper training and safety equipment are lacking,


with serious implications on health

– Trade union rights are weakened by intimidation


and long mediation processes
Main Social Impacts
3. Exploitation of Smallholders

– 30% of Indonesian palm oil is produced by


smallholders, supporting up to 4.5 million people

– Smallholders are bonded to the palm-oil companies


that provide the credit and planting materials, as
debt accumulates over the first eight years before
oil palms become profitable

– Smallholders have no choice to whom they sell,


they are price takers
Main Social Impacts
4. Food Security

– Biofuel production creates competition for resources


for food and other agricultural products, and poor
people become at risk of increased food insecurity,
in terms of increasing food prices, & vulnerability to
economic shocks (e.g. link b/w oil & food prices)

– Low income countries that rely on food imports are


most at risk;

– FAO lists 82 countries as Low Income Food Deficit


Countries (LIFDCs); there are 40 in Africa and 21 in
Asia –Indonesia and the Philippines are included in
that list (FAO, Nov 2006)
Social Principles
 More flexibility on targets (such as EU biofuels
target) by taking account sustainability
 Develop social standards which apply to all bio-fuels
such that:
 All workers, men and women, enjoy decent
work as defined by the ILO
 Feedstock cultivation does not adversely
impact on local communities or indigenous
peoples
 Women and men smallholders are treated
fairly and transparently
 The right to food is preserved
Social Principles
 The process for developing principles and criteria
should be inclusive and participatory;
 Standards should provide means by which
smallholders can seek certification, such as group
certification schemes;
 Ensuring that transport emissions reductions do
not come at the expense of poor people’s
livelihoods.
Oxfam works with others to find lasting

solutions to poverty and suffering.

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