Burning questions for the palm oil industry

Reading Time: 3 minutes
Arno Maierbrugger
By Arno Maierbrugger

The Sumatra forest fires that covered Singapore and Peninsular Malaysia even with hazardous haze over the past two weeks and caused an estimated damage of more than $1 billion due to disrupted business, departing tourists, air travel delays and huge healthcare costs are poised to change the ecosystem of the palm oil business fundamentally. Everything else would be irresponsible.

Brunei’s ASEAN meetings over the past days have been the stage of heated arguments and have shown the diplomatic rift that has opened between the three affected countries, Singapore, Malaysia and Indonesia. A final solution should be immediately sought for the problem of forest fires that occur regularly during the dry season in Indonesia to clear land for plantations but have never been as disastrous as now. There have also been less noticed bushfires in Sarawak that affected Brunei as well over the past days.

Large palm oil conglomerates listed at the stock exchanges in Singapore, Kuala Lumpur and Jakarta have denied any involvement in the fires, though some of them said “they can’t always fully control the activities of their subsidiaries and concessionaires on the ground”. Anyway, they were punished on the trading floor. The share prices of almost all large plantation companies slumped heavily over the past days.

If the strategy of burning down rainforest to gain land for palm oil plantations carries on unchanged, Sumatra’s jungle will disappear in about 20 years, which will have even more negative impact on the regional climate. In only a few years, logging and agribusiness have cut Indonesia’s vast rainforest by half. And on Borneo Island the situation isn’t much better than on Sumatra.

Vast areas of rainforest in Malaysia and Indonesia are nominally protected, but the forest is fragmented, national parks are surrounded by plantations, illegal loggers work with impunity and corruption is rife in government.

Corruption has been named as one of the major causes of the disaster. Environmental organisations have said that corrupt local officials in tandem with palm oil companies are taking advantage of lax law enforcement and murky regulations to continue clearing forests at an increasingly rapid rate. Vast areas, especially in Indonesia, are still controlled by government cronies, and officials look the other way when companies engage in illegal practices after they got their kickbacks.

Major logging, palm oil and mining companies have a strong lobbying apparatus that influences politics, and commercial plantations have control over most of the land, as well as over local authorities who in the case of the Sumatra fires in a first reaction arrested two small farmers for deliberately setting fire instead of questioning palm oil firms.

The situation also has significant impact on investment activity as foreign investors now have even more reasons to doubt that corporate governance mechanisms in the palm oil sector are really functioning. All of this needs to be discussed at length to kick off a transformation process in the entire industry, it has been going on for too long.

Who should take over responsibility for the forest fires? What regulations should the ASEAN community introduce for the palm oil industry to prevent environmental disasters from the very beginning? Let us know through Twitter: @insideinvestor

 

This comment is part of Inside Investor’s weekly column series in Brunei’s leading newspaper Brunei Times and is published every Monday.

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Reading Time: 3 minutes

By Arno Maierbrugger

The Sumatra forest fires that covered Singapore and Peninsular Malaysia even with hazardous haze over the past two weeks and caused an estimated damage of more than $1 billion due to disrupted business, departing tourists, air travel delays and huge healthcare costs are poised to change the ecosystem of the palm oil business fundamentally. Everything else would be irresponsible.

Reading Time: 3 minutes

Arno Maierbrugger
By Arno Maierbrugger

The Sumatra forest fires that covered Singapore and Peninsular Malaysia even with hazardous haze over the past two weeks and caused an estimated damage of more than $1 billion due to disrupted business, departing tourists, air travel delays and huge healthcare costs are poised to change the ecosystem of the palm oil business fundamentally. Everything else would be irresponsible.

Brunei’s ASEAN meetings over the past days have been the stage of heated arguments and have shown the diplomatic rift that has opened between the three affected countries, Singapore, Malaysia and Indonesia. A final solution should be immediately sought for the problem of forest fires that occur regularly during the dry season in Indonesia to clear land for plantations but have never been as disastrous as now. There have also been less noticed bushfires in Sarawak that affected Brunei as well over the past days.

Large palm oil conglomerates listed at the stock exchanges in Singapore, Kuala Lumpur and Jakarta have denied any involvement in the fires, though some of them said “they can’t always fully control the activities of their subsidiaries and concessionaires on the ground”. Anyway, they were punished on the trading floor. The share prices of almost all large plantation companies slumped heavily over the past days.

If the strategy of burning down rainforest to gain land for palm oil plantations carries on unchanged, Sumatra’s jungle will disappear in about 20 years, which will have even more negative impact on the regional climate. In only a few years, logging and agribusiness have cut Indonesia’s vast rainforest by half. And on Borneo Island the situation isn’t much better than on Sumatra.

Vast areas of rainforest in Malaysia and Indonesia are nominally protected, but the forest is fragmented, national parks are surrounded by plantations, illegal loggers work with impunity and corruption is rife in government.

Corruption has been named as one of the major causes of the disaster. Environmental organisations have said that corrupt local officials in tandem with palm oil companies are taking advantage of lax law enforcement and murky regulations to continue clearing forests at an increasingly rapid rate. Vast areas, especially in Indonesia, are still controlled by government cronies, and officials look the other way when companies engage in illegal practices after they got their kickbacks.

Major logging, palm oil and mining companies have a strong lobbying apparatus that influences politics, and commercial plantations have control over most of the land, as well as over local authorities who in the case of the Sumatra fires in a first reaction arrested two small farmers for deliberately setting fire instead of questioning palm oil firms.

The situation also has significant impact on investment activity as foreign investors now have even more reasons to doubt that corporate governance mechanisms in the palm oil sector are really functioning. All of this needs to be discussed at length to kick off a transformation process in the entire industry, it has been going on for too long.

Who should take over responsibility for the forest fires? What regulations should the ASEAN community introduce for the palm oil industry to prevent environmental disasters from the very beginning? Let us know through Twitter: @insideinvestor

 

This comment is part of Inside Investor’s weekly column series in Brunei’s leading newspaper Brunei Times and is published every Monday.

Brunei Times logo

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