Build Indonesia with

PALM OIL

English Version

Build Indonesia with palm Oil Original text by: InfoSAWIT Magazine Photo Credits by: InfoSAWIT Magazine, PP Lonsum, PT SMART, PT Astra Agro 2009, GAPKI (Gabungan Pengusaha Kelapa Sawit Indonesia) Majalah InfoSAWIT Published : PT Mitra Media Nusantara No part of this book may be reproduced, store in a retrieval system or transmitted in any form or means electronic, mechanical, photocopying, recording or otherwise, without written permission of the Indonesian Palm Oil Association and InfoSAWIT Magazine.

3 3

10 Facts about Oil Palms

44

Oil palms help reduce poverty rates in developing countries. The oil palm business in Indonesia provides work for 3.06 million workers, 2.7 million of whom are involved in plantations, thereby stimulating the national economy. The oil palm industry in Malaysia employs 800,000 persons, of whom 405,000 work in plantations. 80% of palm oil production comes from developing countries; this has a positive impact in boosting peoples incomes.
Source: MPOB, Dirjen Perkebunan, InfoSAWIT Data Bank

Small farmers own large amounts of oil palm plantations. In Indonesia, the oil palm land area owned by farmers comes to 3.2 million hectares, or 46% of the total area cultivated in oil palms. In Malaysia, the oil palm land area owned by farmers accounts for 540,000 ha, or 12.04% of the total oil palm area.
Source: MPOB, Dirjen Perkebunan, InfoSAWIT Data Bank

As raw material for biodiesel, palm oil has a lower greenhouse gas emission track record than other commodities. Using a life cycle analysis approach, greenhouse gas emissions from palm oil are estimated as equivalent to 835 kg of carbon; soybean emissions are estimated at 1,387 kg, and rapeseed at 1,562 kg.
Source : MPOC

Oil palm plantations have high carbon absorption capacity, because palm plantations have a life cycle of 25-30 years. This means that oil palms can absorb great amounts of carbon dioxide, mimicking natural forests, through their permanent leaves and canopy cover.
Source: MPOC, InfoSAWIT Data Bank

The productivity of oil palms is higher than that of other vegetable oil commodity crops. They are also superior in terms of land use efficiency. In terms of land use, oil palms need 0.26 ha to produce 1 ton of CPO. In contrast, one ton of soybean oil requires 2.22 ha of soybean plants; sunflower oil requires 2 ha for 1 ton; and canola oil requires 1.52 ha. In terms of productivity, oil palms produce 3.5 tons/ ha/ year. Compare this with 0.36 tons/ha/year for soybean oil, 0.55 tons/ha/year for canola oil, and 0.36 tons/ha/year for sunflower oil.
Source: MPOC, MAKSI , InfoSAWIT Data Bank

55

Oil palms do not contribute greatly to the reduction of tropical rain forests. In Malaysia, land devoted to oil palm cultivation accounts for 20% of the land allocated for agriculture and plantations. In contrast, 60% of Malaysias land area is reserved for forest zones. Compare this with Europe, where forest land averages only 25 percent. In Indonesia, the total area of oil palm plantations is 7.3 million ha, compared with 20.5 million ha of conservation forest and 33.3 million ha of protected forest.
Source: MPOC, Forest Departmen, InfoSAWIT Data Bank

Oil palm plantation operators follow both domestic and international regulations. The Indonesian and Malaysian governments impose strict regulations on the clearing and cultivation of land for oil palms. World oil palm producers are united in the RSPO to create sustainable practices of oil palm management.
Source: InfoSAWIT Data Bank

Palm oil has strategic functions as raw material for food, cosmetics, medicine, and energy. Nearly 50 countries around the world use palm oil to meet their peoples needs, because it is inexpensive and good for health.

Source: InfoSAWIT Data Bank

Oil palms are a form of renewable energy. Palm oil can reduce dependence on fossil fuels.

Source: InfoSAWIT Data Bank

10

Oil palm waste has many uses, as it can be recycled. For example, oil palm press residue can be used as animal feed; oil palm waste can also be used as raw material for furniture.

66

Source: InfoSAWIT Data Bank

The Economic Value of Oil Palm

77

Oil Palm as Prime Commodity

In Indonesia, oil palms are considered a superior commodity because they produce a great amount of economic value. This can be seen from the rapid increase in both the volume and the value of palm oil exports from year to year. For example, in 2007 Indonesia exported 11.8 million tons of crude palm oil (CPO) and its derivatives, with an export value of US$ 7.8 billion; in 2008, Indonesias palm oil production increased by around 21% to 14.3 million tons with export value of US$ 12.4 billion. In contrast, back in 1980 Indonesias palm oil production was only around 503,000 tons, with export value of US$ 255 million. In other words, by 2008 it had increased 50-fold.

Volume and Value of Indonesias Palm Oil Exports

CPO Year 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 Volume (000 tons) 503 816 1,818 1,849 2,805 2,892 3,820 4,565 4,840 5,701 7,904 Value (US$ Million) 255 204 476 406 892 1,062 1,444 1,593 1,791 3,739 6,557 Other Palm Oil and Derivatives Volume (000 tons) 2,292 3,054 3,529 3,494 4,842 5,811 7,261 6,174 6,387 Value (US$ Million) 611 674 1,200 1,393 1,998 2,164 3,027 4,130 5,845 Volume (000 tons) 503 816 4,110 4,903 6,334 6,386 8,662 10,376 12,101 11,875 14,291 Total Value (US$ Million) 255 204 1,087 1,081 2,092 2,455 3,442 3,757 4,818 7,869 12,402

Source: Central Statistical Bureau (BPS) and Agriculture Department

Job Creation
Apart from its direct economic value, the oil palm industry also provides many jobs, thereby indirectly helping the government to overcome the high unemployment level in Indonesia. The oil palm industry is in fact divided into three major sectors: upstream, middle, and downstream, each of which creates many jobs. Among these three sectors, the upstream oil palm sector is the most labor intensive. Just to manage a 5000-hectare oil palm plantation, around 60 employees are needed, including managers, field assistants, supervisors and administrative personnel. Then, if one plantation laborer is needed working in the field for every 2 hectares, this 5000-ha plantation would need around 1000 laborers. Considering the huge land area devoted to oil palms, you can imagine how many workers the oil palm plantation industry absorbs. Currently (2009), the area of oil palm plantations in Indonesia comes to around 7.3 million ha, consisting of 3.2 million ha of smallholder plantations, 617,000 ha of national plantations, and 3.5 million ha of large private plantations. This means that the state-owned and large private plantations create jobs for around 1.047 million workers, while the smallholder plantations employ around 1.9 million workers. Furthermore, a palm oil mill with production capacity of 30 tons/hour needs 135 workers. There are 470 palm oil mills in Indonesia, so together they employ roughly 63,450 workers. And we havent even mentioned the middle and downstream sectors. Altogether, from upstream to downstream, the oil palm industry employs around 3.06 million people.

Downstream 1 million ton capacity oleochemical plants: + 4,000 workers 1.5 million ton installed capacity biodiesel: + 3,300 workers Total jobs created in oil palm industry from upstream to downstream: 3,062,114 Middle 117 cooking oil factories + 24,000 workers

Source: InfoSAWIT Data Bank

Upstream * Oil palm plantation are in Indonesia = 7.3 million ha * Total jobs created by state and large private plantations = 1.047 million * Total labor absorption at smallholder level = 1,920,000 persons * One palm oil mill with 30 ton/hour capacity = 135 workers * Number of palm oil mills in Indonesia = 470 mills * Total labor force absorbed by palm oil mills = 63,450 workers

10 10 10

Farmers Welfare Improves

Oil palms have brought great prosperity to farmers. This can be seen from the growth of oil palm plantation area owned by farmers. In 1980, small farmers owned only around 6,000 ha of oil palm plantation; by 2007, this had increased sharply to 3.2 million ha. The farmers income depends on the selling price of oil palms; this year, the average selling price for fresh fruit bunches at the smallholder level was around Rp 1,300/kg. If one hectare produces on average 28 tons/year, then a farmer can expect income of around Rp 3.03 million per month. Its no wonder that so many farmers have switched from growing other commodities to oil palms; they can see that oil palm farmers have good incomes.

Revitalization of Oil Palm Plantations (2009)

No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Province Southeast Sulawesi South Sumatra Central Sulawesi Central Kalimantan East Kalimantan North Sumatra Jambi Riau West Sumatra West Kalimantan Bangka Belitung TOTAL
Source: Department of Agriculture

Participating Farmers (Households) 1.000 14.812 500 3.165 8.702 7.550 3.115 500 4.249 6.024 75 49.692

Land Area (Ha) 2.000 30.374 1.000 6.551 19.696 17.700 7.847 1.000 8.418 308.837 138 403.561

Process of Clearing/ Developing Oil Palm Land for Smallholder Farmers

No Model Year Core plantations (Inti) (000 ha) 1 2 3 4 5 PIR-BUN PBSN PIR-Trans PIR-KPPA Swadaya/KKPA 1977-1993 1981-1986 1986-1999 1995-2000 68 71 164 79 425 193 1,786 Smallholder suppliers (Plasma) (000 ha) 161 Smallholder plantations (000 ha)

Source: Department of Agriculture

11 11

CSR
Corporate Social Responsibility (CSR)
Law No. 40 of 2007 on Limited Liability Companies contains a requirement that companies set aside part of their income for their social and environmental responsibilities, and oil palm plantation companies have therefore done so. But if we look into the past, oil palm plantation companies have been operating here since the Dutch colonial era. And even before this Law came into force, many companies were already engaging in activities to fulfill their social and environmental responsibilities. This is evident from the social, educational and medical care facilities built for plantation employees and their families, and the fact that many of these are also open for use by the local community.

12 12

Plantation companies have even been known to provide assistance directly to neighboring communities by building social, educational and medical facilities. Generally speaking, the Corporate Social Responsibility (CSR) activities of oil palm plantation companies fall into six major categories: social, economic, political, cultural, environmental, and personal/spiritual.

13 13

CSR Programs of Indonesian Oil Palm Company

SECTOR
Education 1. Establish School 2. Improve and increase educational infrastructure such as laboratories, library, computer, etc 3. Improve the welfare of teachers 4. Provide scholarships for outstanding students 5. Procurement of textbooks schools 6. School guidance and education to be a superior school Sanity 1. Provide optimal health services for the surrounding community through hospitals and clinics 2. Improve and increase the health infrastructure such as medicines, vaccinations, and medical equipment building facilities for public health 3. Health education and free medical treatment to villages surrounding the plantation (mill) Social Program 1. Construction of worship facility including all equipment to encourage religious activities 2. Construction and improvement of road facility and adequate transportation from village to city 3. Construction of village facility such as police station and village halls 4. Construction and improvement of sport facility such as football field/area 5. Construction and improvement of clean water facility such as artesian well and a healthy toilet (MCK) facility (sanitation) 6. Dike construction and improvement 7. Organize youth activities such as sport tournament, blood donors 8. Natural disaster aid Conservation Program Economy 1. Making forest conservation 1. Trainings related to oil palm and plantation business 2. Escalate community earning with Inti-Plasma Partnership program 3. Empowering society surround mill or plantation as supplier of employees daily needs 4. Loaning oil palm seed to society 5. Plantation Employees Cooperative
Source: Any Source processed by InfoSAWIT Data Bank

ACTIVITIES

BENEFITS
Improve teaching and learning activities, in order to improve the quality of education, especially around the plantation and mill

Public awareness about the importance of health

Expedite the existing transportation

Directing people to use clean water and a healthy toilet (MCK) facility Prevent flood Foster unity among community and employees of plantation or mills Improving conservation effort To escalate community earning

14 14

Environment
Land Clearance without Burning
Land Clearance without Burning Land clearance is now done without burning, using mechanical processes. Bulldozers and excavators are used to clear new land and to clear away old trees for plantation revitalization. The wood produced from the land clearing activities can be used to improve the soil fertility, by chopping it up to be converted into compost. Zero burning is a commitment by oil palm operators to reduce greenhouse gas emissions and slow global warming.

Use of Oil Palm Waste

There are two types of oil palm waste: liquid and solid. Solid waste includes empty fruit bunches, shells, press residue, and branches. In 2008, the industry generated 19 million tons of empty fruit bunches. Empty fruit bunches and oil palm tree branches can be used as raw material to produce compost fertilizer, as they contain nitrate, phosphate, magnesium and potassium. Empty shells can be processed into charcoal for industrial purposes, and oil press waste can be used as livestock feed. Each year, Indonesia produces 58 million tons of liquid oil palm waste, which is now being used to produce fertilizer and biogas.

15 15

Integrated Pest Control

Palm plantation operators employ integrated pest control as a way to reduce the used of pesticides. For example, controlling the field rat population with owls can reduce costs by up to 40%. Similarly, entomopathogenic nematodes, pheromones and the biofungicide Marfu-P are being used in place of chemical insecticides.

High Conservation Value

Indonesias oil palm companies are committed to implementing High Conservation Value (HCV) as their contribution to maintaining biodiversity, protecting the environment, and preserving traditional lifestyles of local communities.

Environmental Impact Analyses

Every nation oil palm plantation has to produce an environmental impact analysis, known in Indonesian as AMDAL, as required by Government Regulation No. 7 of 1999. These analyses are produced before the start of the land clearing process.

Several oil palm companies in Indonesia have applied HCV to create practices that protect rare animal species such as orangutans. Likewise, oil palm companies protect and preserve rare plant species by setting aside special areas within the plantation area, so that the plants environment is not disturbed. The application of HCV also considers the land use rights of local communities for certain lands near or within the oil palm plantations, thus fostering harmony between the plantation and the local community.

The documents include the AMDAL prepared at each stage of plantation activities (ANDAL), environmental impact management plans (RKL), and environmental impact monitoring plans (RPL). In applying the AMDAL, the company considers the chemical, physical, biological (flora and fauna) impacts on the environment, as well as the social, economic and cultural impacts.

16 16

Composition of Oil Palm Land and Forests

The development of oil palm plantations in Indonesia needs to bear in mind environmental sustainability and conservation areas. Forest zones still need to be preserved, even though the Department of Forestry has allocated some production forest areas to be converted into oil palm developments.

Total of Indonesian Forest Area Based on Function 2007

Criteria Size (ha) Percentage (%) Permanent Forest Conservation F. 20,142,049.47 15.07 Protection F. 31,604,032.02 23.64 Production F. 59,152,642.69 44.24 Limited Prod. Forest 22,795,961.00 17.05 Total 133,694,685.18 100

Source: Ministry of Forest 2008, processed by InfoSAWIT Data Bank

17

Contribution of Atmospheric Oxygen

According to data from Chan (2002) and Oil World, oil palms contributed 196.8 million tons of O2 and absorbed 270.7 million tons of CO2, from the total oil palm area of 9.24 million hectares in 2006. This means that on average, oil palm plantations contribute 21.3 tons of oxygen per hectare to the planets atmosphere, while absorbing around 29.3 tons of CO2 per hectare. In the same year, soybean plants provided 236.5 million tons of O2 and absorbed 325.7 million tons of CO2 from the worlds 92.4 million hectares of land planted in soybeans. In other words, soybeans contribute 2.56 tons of oxygen and absorb 3.52 tons of carbon dioxide per hectare. Thus, oil palms absorb much more CO2 and produce far more oxygen than other vegetable oil crops.

18 18

Non-Food Consumer Products

Consumer Products
Palm oil is the main raw material for many products we use every day, such as soap, shampoo, detergent, toothpaste, and cosmetics. Some major advantages of products made from palm oil are that they are biodegradable and safe to use, as they do not cause skin irritation.

Biofuel

Palm oil can be used as an alternative energy source, thereby reducing dependence on fossil fuels. Biodiesel from palm oil is being produced in many countries, as it reduces CO2 emissions.

19 19

Food Safety
Nutritional Content
CPO contains good nutrition, with no cholesterol or trans fats. It also has a well-balanced composition of fatty acids and contains linoleate, an essential fatty acid (Dr. Purwiyatno, 2007). Palm oil also contains beta carotene, or pro-vitamin A, and vitamin E. Palm oil is a natural source of monounsaturated fatty acids (MUFA) and polyunsaturated fatty acids (PUFA). One gram of palm oil contains 9 kilocalories of energy two and a half times as much as a gram of protein (4 kcal) or of carbohydrate (4 kcal).

Composition of Minor Components in Various Oils and Fats

20 20

Total Fat Content of Palm Oil

Health Values
Palm oil stores quite a high content of Mono Unsaturated Fatty Acid (MUFA) or Omega 9. It also consists of around 40% of a saturated fatty acid, palmitate. Although palm oil has quite a high palmitate content, this is a positive thing, as it can reduce LDL cholesterol (Prof. Tien R Muchtadi). Thus, the Omega 9 content in palm oil functions to help prevent coronary heart disease. With its betacarotene content, palm oil stores vitamin A, which functions as an antioxidant to help strengthen the bodys immune system and reduce the risk of cancer, heart disease, and cataracts. Compared with other vegetable oils, palm oil contains more vitamin E (tocopherol & tocotrienol) to reduce harmful free radicals within the body and to slow the aging process.

Fatty Acids 12:0 14:0 16:0 16:1 18:0 18:1 18:2 18:3 20:0
Source: Maksi

% Total Fats Range 0,1 1,0 0,9 1,5 41,8 46,8 0,1 0,3 4,2 5,1 37,3 40,8 9,1 11,0 0,0 0,6 0,2 0,7 Average 0,2 1,1 44,0 0,1 4,5 39,2 10,1 0,4 0,4

Composition of Minor Components in Various Oils and Fats

21 21

Infrastructure
Ports and Road
Indonesia has two major CPO ports: Dumai and Belawan. The capacity of the Port of Dumai is 5 million tons of CPO, and the Port of Belawan can accommodate 3.5 million tons. Apart from these state-owned ports, there are 31 dedicated CPO ports owned and operated by the private sector. Given the production of 20 million tons, the existence of special ports is essential to support export activities.

22 22

23 23

Social and Public Facilities

For the communities living near them, oil palm plantations provide excellent services in the form of social and public facilities such as places of worship, football fields, and schools. We often find a full range of educational institutions, from kindergarten up to high school, located in the middle of an oil palm plantation.

24

712.000 Share: Indo : 172.000 Mal : 40.175

5.159.000 Share: Indo : 2.187.000 Mal : 2.052.771

EU-27

Oil Palms Contributions to Indonesia

earnings.

1.200.000 Share: Indo : 68.000 Mal : 1.047.668

2.010.000 Share: Indo : 717.000 Mal : 1.297.888

914.000 Share: Indo : 478.000 Mal : 118.553 441.000 Share: Indo : 119.000 Mal : 129.396 800.000 Share: Indo : 411.000 Mal : 347.558

5.724.000 Share: Indo : 4.684.000 Mal : 970.374

5.682.000 Share: Indo : 1.906.000 Mal : 3.794.494

305.000 Share: Indo : 207.000 Mal : 28.121

1.739.000 Share: Indo : 384.000 Mal : 1.257.396

World Pal Oil Demand 2008 (Metric Ton)

Source: InfoSAWIT Data Bank

Oil palms are a commodity with high economic value, as they are a major source of vegetable oil. For Indonesia, this plant, originally from West Africa, has great importance, because as well as creating jobs for the countrys people, it also serves as a source of foreign exchange

World Vegetable Oil Consumption and Market

1993 2000 Market (%) 15.3 20.6 11.2 9.0 3.4 40.5 100.0 Consumption (ton) 21,771 25,135 14,471 9,404 2,962 39,689 113,432 Market (%) 19.2 22.2 12.8 8.3 2.6 34.9 100.0 2007 Consumption (ton) 37,900 37,090 19,090 11,160 3,160 13,830 122,230 Market (%) 31.0 30.3 15.6 9.1 2.6 11.4 100.0 2008 Consumption (ton) 42,380 37,880 19,740 10,320 3,130 14,260 127,710 Market (%) 33.2 29.7 15.5 8.1 2.5 11.2 100.0 Description Palm Oil Consumption (ton) 13,200 17,760 9,645 7,730 2,930 34,857 86,122

Indonesia is now the worlds largest palm oil producer, and demand for palm oil continues to grow year by year. According to data from Oil World, palm oil consumption in 2007 reached 37.9 million tons, and 2008 it grew further to 42.3 million tons. Meanwhile, palm oil production was 40 million tons in 2007, rising in 2008 to 42.2 million tons. Thus, with the steady increase in the worlds population and the improvement in the worlds economy, demand for palm oil will continue to rise. India, China, the European Union and the Middle East are currently the main markets for Indonesias palm oil.

Soybean Oil Rapeseed Oil Sunflower Oil Coconut Oil Others* World

Source: Oilworld processed by Ditjenbun * Palm oil Kernel, Cottonseed Oil, Coconut Oil, sesame Oil, Corn Oil, Olive Oil, Jatropha Oil , bj. Rami Oil, Tallow Oil

25 25

Palm Oil Compared with Other Vegetable Oils

It is undeniable that palm oil has many advantages compared with other vegetable oils such as soybean, canola, sunflower, or coconut oil. Palm oil can also be used in many industries because of its relatively complete structure and nutritional content. For example, palm oil can be processed into cooking oil, shortening, margarine, oleochemicals, cosmetics, pharmaceuticals, and biodiesel. And the abundant supply of palm oil has another great advantage: the high efficiency level of palm oil compared with other vegetable oils, which makes palm oil the least expensive source of vegetable oil. In terms of productivity, palm oil far outshines other vegetable oils at 4.26 tons/hectare, compared with soybean oil at only 0.41 tons/ha, canola oil at 0.66 tons/ha, and sunflower oil at 0.43 tons/ha.

Vegetable Oil Yield Comparison 2009

Vegetable Oil
Palm Oil Soy Bean Canola Sunflower Others Total dari 13 minyak nabati
Note : * Palm Oil & Palm Kernel oil Production Source : Oil world 2009

Area (1000 ha)

11.257 91.790 29.441 23.262 76.738 232.488

%
4,84 39,48 12,66 10,01 33,01 100,00

Production (1000 ton)

47.914* 37.664 19.393 10.100 19.374 134.445

%
35,64 28,01 14,42 7,51 14,41 100,00

Yield Ton/ha
4,26 0,41 0,66 0,43 0,25 0,58

26

Vegetable Oil Consumption

Consumption (MMT)
Coconut Oil Cotton Seed Oil Olive Oil Palm Oil Palm Kernel Oil Peanut Oil Rapeseed Oil Soy Bean Oil Sunflower Oil Total
Source: USDA

2005/06
3.51 4.84 2.72 35.21 4.20 5.00 16.93 33.57 9.81 115.79

2006/07
3.33 5.01 2.88 37.57 4.53 4.67 17.45 35.79 10.27 121.50

2007/08
3.44 5.09 2.92 39.72 4.77 4.86 18.42 37.71 8.93 125.86

2008/09
3.41 4.80 2.94 41.95 5.16 4.85 20.09 35.93 10.96 130.09

Ags 2009/10
3.60 4.76 2.96 44.44 5.25 5.03 21.27 37.26 11.12 135.69

Sep 2009/10
3.61 4.71 2.96 44.95 5.24 4.74 21.23 37.29 11.13 135.86

Comparasion Production Cost 4 Vegetable Oil

6 Production Cost ($/tonne) 5 Annual Yield per hectare (tonnes) 4 3 2 1 0 100 200 300 400 500 600 700 800 Rapeseed Oil Soybean Oil Sunflower Oil Palm Oil

Production Cost ($/tonne) Source: Oil World, processed by InfoSAWIT Data Bank

27

GAPKI Gabungan Pengusaha Kelapa Sawit Indonesia/ Indonesian Palm Oil Association Sudirman Park Rukan Blok B-18 Jl. K.H. Mas Mansyur, Kav. 35 Karet Tengsin, Jakarta Indonesia InfoSAWIT Magazine Komplek Bukit Permai Jl. Anjasmoro G2 No. 1 Cibubur, Jakarta Timur Indonesia

28