This presentation by CPI, IDH & Unilever was given at a session titled "Sustainable Oil Palm Investments: Benefits of a Landscape Management Approach" at the Global Landscapes Forum: The Investment Case on June 10, 2015. For more, please visit http://www.landscapes.org/london/
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Sustainable Oil Palm Investments: Benefits of a Landscape Management Approach – CPI, IDH & Unilever
1. Taking a Landscape Management Approach to Palm Oil in Indonesia 1
BRAZIL
CHINA
EUROPE
INDIA
INDONESIA
UNITED STATES
Sustainable Oil Palm Investments:
Benefits of a Landscape
Management Approach
Global Landscapes Forum
London, June 2015
2. Taking a Landscape Management Approach to Palm Oil in Indonesia 2
Goals & challenges:
• Transform the rural economy in Indonesia (and
ultimately globally)
• Focus on the oil palm value chain, to deliver net
positive environmental impacts and improved
smallholder farmer livelihoods
Challenges...
• Achieving the goal at least cost while ensuring supply
chain security/integrity, delivering benefits at scale
• Sharing costs, risks and benefits among a critical mass
of government, business, smallholder farmers and civil
society actors
3. Taking a Landscape Management Approach to Palm Oil in Indonesia 3
A ‘landscape management approach’ :
1. Working within a defined landscape
2. Partnerships between business, smallholder
farmers, and governments to deliver outcomes
and investment at scale
3. Allocating land within landscape to its highest
value or best use
4. Increasing productivity and supporting
protection of valuable ecosystems
5. Monitor and report results
4. Taking a Landscape Management Approach to Palm Oil in Indonesia 4
1. Define the landscape
Working across an entire landscape helps to manage
risks, costs and deliver benefits at meaningful scales.
5. Taking a Landscape Management Approach to Palm Oil in Indonesia 5
2. Partnerships between business, smallholder
farmers and governments
6. Taking a Landscape Management Approach to Palm Oil in Indonesia 6
181
MILLION
HECTARES
22% = land
available for
re-zoning &
conversion or
rehabilitation
& protection
51% = forested
land available for
protection or
appropriate
management
3. Map and allocate land to its highest value use
There are significant opportunities for government to improve land-use
planning within key landscapes to provide better protection of forest
ecosystems & release suitable land for high productivity agriculture.
15.3
MILLION
HECTARES
3 of 22%
4 of 51%
1.2
MILLION
HECTARES
7.3
MILLION
HECTARES
2 of 22%
1.5 of 51% 1.3
MILLION
HECTARES
7. Taking a Landscape Management Approach to Palm Oil in Indonesia 7
• Governments have primary responsibility for
land use planning, zoning and allocation
• Business and smallholder farmers must ensure
new developments are suitably located and
maximize value change efficiency
• Strengthened fiscal frameworks can provide
appropriate incentives for action and are a key
element of the landscape management
approach.
3. Map & allocate land: fiscal policies
determine decisions
8. Taking a Landscape Management Approach to Palm Oil in Indonesia 8
3. There are opportunities to correct
misaligned fiscal incentives
• Fiscal incentives currently encourage more licensing and
investment in agricultural expansion rather than
intensification & ecosystem protection.
• Partnerships can inform necessary fiscal reforms to
promote improved allocation of land and sustainable,
high productivity business practices.
9. Taking a Landscape Management Approach to Palm Oil in Indonesia 9
4. Increasing productivity and supporting protection
• Improved policies and innovative financing
mechanisms are necessary to support protection and
increased productivity
• Strengthen industrial organization to integrate supply
chains, reduce conflict, minimize risks and share
benefits equitably
• Optimize business finance through development of
accessible credit and risk management instruments
• Optimize business investment policies covering
taxes, other fiscal incentives, public spending &
revenue redistribution formulas
• Improve service access (energy & infrastructure)
• Improve logistics & technology
10. Taking a Landscape Management Approach to Palm Oil in Indonesia 10
5. Monitor & report results
• Unilever, IDH, along with business and
government partners will be able to show net
positive environmental impacts across a
landscape, rather than simply tracing to show
that plantations within a direct supply chain
were not responsible for deforestation.
• Government monitoring systems for land-use
and local livelihoods will be important
components of this, along with existing public
tools, such as WRI’s Global Forest Watch, that
enable this landscape scale monitoring.
11. Taking a Landscape Management Approach to Palm Oil in Indonesia 11
Thank you
For more information see the report:
‘Achieving a high-productivity, sustainable palm oil
sector in Indonesia: a landscape management
approach’
www.climatepolicyinitiative.org
12. Taking a Landscape Management Approach to Palm Oil in Indonesia 12
Back-ups
13. Taking a Landscape Management Approach to Palm Oil in Indonesia 13
Why take a landscape management approach?
• Allows improved allocation & management of land across a
landscape from a production or protection standpoint
– for example, an area of degraded mineral soils might produce
the most value if used for oil palm plantations, while a peat forest
might be more valuable as a conservation area delivering a
range of environmental services.
• Delivers productivity gains within land-use sectors (such as oil palm),
and enables net positive environmental impacts and improved
smallholder farmer livelihoods
– whereas assessing environmental impacts and improved
livelihoods on a plantation by plantation basis can only ensure
site-specific impacts.
• It also manages medium to long-term business risks and costs,
building supply chain security within targeted landscapes and
promoting consumer confidence.
– It will create greater simplicity in monitoring and verifying
environmental impacts and livelihood benefits, compared to
monitoring on a plantation by plantation basis.
14. Taking a Landscape Management Approach to Palm Oil in Indonesia 14
Proposed Sei Mangkei landscape pilot
Proposed Pilot Landscape Area:
Simalungun, Asahan, Serdang Bedagai, Labuan Batu Utara
& Batu Bara
Rationale:
Business perspective: Contains significant proportion of
refinery supply base and includes key business partners with
sustainability commitments & RSPO certification
Environmental perspective: contains 25% of North
Sumatra’s peat soils and 10% or around 250,000 hectares of
secondary forests (about 1/3 of which is currently outside
the forest estate and at risk of conversion).
Administrative perspective: Aligned with district
administrative boundaries. Districts have strong interest and
engagement in oil palm industry.
15. Taking a Landscape Management Approach to Palm Oil in Indonesia 15
4. Increasing productivity for smallholder farmers in
Sei Mangkei landscape
SMALLHOLDER-
MANAGED
1.3
0.4
STATE-
OWNED
ENTERPRISE
0.4
COMPANY-
MANAGED
0.5
Nearly 35% of oil palm plantations in North
Sumatra are managed by smallholder
farmers, and consequently optimizing their
productivity and integration throughout the
oil palm value chain is key.
The IDH – PTPN III 2015-16 pilot program will
support 320 independent farmers to
increase productivity & become certified.
However, this needs to be dramatically scaled up across the landscape, which
includes more than 130,000 smallholder farmer households to deliver sustained
environmental impacts & improved livelihoods at scale
The Landscape Management Strategy will recommend the most suitable
organizational models & ideal financial structuring to scale up support for
increased smallholder farmer productivity & sustainability throughout the Sei
Mangkei landscape area. This will include a focus on supporting smallholder
farmer replanting at scale.
16. Taking a Landscape Management Approach to Palm Oil in Indonesia 16
Risk Type: Production Legal Supply Market
INDIVIDUAL
PARTNERSHIP
• Each plot is
separate
production unit
• Risk borne by
individual farmers
• Risk borne by
individual
farmers
• Fertilizer supply
guaranteed by
company
• Limited ability to
improve
infrastructure
• Off-take agreement
with partner
company, but
highly sensitive to
price fluctuations
owing to scale
COOPERATIVE Single production
unit (comprised of
farmer plots
contributed by
members)
Risk mutualized
• Risk mutualized
12ha currently
under dispute –
but all members
still receive
benefits from
active
plantation)
• Able to directly
access fertilizer
from suppliers
owing to scale
• Able to invest in
local
infrastructure
directly
• Protected by
company partner
thru guaranteed off-
take
• Price fluctuations
can impact, but
established reserve
fund to mitigate
COMPANY
MANAGED
• Company holds
risk
• However, if land
becomes
unproductive
unlikely to provide
income to farmers
• Farmers highly
vulnerable
without valid
land
certificate
• Company
responsible - able
to access fertilizer
and invest in
infrastructure
• Off-take
guaranteed as
company
managed, but
farmers remain
sensitive to price
fluctuations
Example: The different models of smallholder farmer organization involved
different levels of risk and supply chain security. The cooperative model was
best at managing risks and delivering sustained and predictable farmer benefits.
Editor's Notes
Corporate commitments to no deforestation so far rely upon tracing supply to points of origin to provide evidence that companies did not directly contribute to deforestation in their supply chain…
Defining the landscape boundaries will require some trade offs and context specific decisions. In determining the relative importance of the business investment, environmental and governance perspectives in the given context, the primary goal should be facilitating the greatest proportion of net positive environmental impacts & improved smallholder farmer livelihoods, with minimal impact on business investment costs.
A landscape management approach goes beyond traceability, which can only manage environmental and livelihood benefits in a patchwork of dispersed sites or plantations.
It involves partnerships to manage agricultural production and protection across a larger scale landscape, which enables more systematic allocation of land for production and protection purposes, and monitoring of net environmental impact and smallholder farmer livelihood benefits across an entire landscape area.
Dynamic partnerships identify and reduce risks & share the costs of transformation
Each actor has a necessary and unique role
Partnerships offer the greatest benefits from a business investment, environmental and farmer livelihood perspective
Note for Jeff and Hannah – I will spend 20 seconds on this slide
For example, while land-use contributes 40% of Central Kalimantan’s GDP, local government only receives marginal revenues & benefits outside of licensing fees.
And for business, the bulk of taxes and fiscal incentives related to oil palm are not linked to productivity, let alone encouraging sustainable practices.
Taking the case of small holders:
Nearly 35% of oil palm plantations in North Sumatra are managed by smallholder farmers, and consequently optimizing their productivity and integration throughout the oil palm value chain is key. The question is HOW.
In Central Kalimantan, analysis by CPI and our local partner, PILAR, has shown that there are at least four organizational models of smallholder farming. These deliver different levels of livelihood benefits and have different degrees of integration into the value chain and different levels of risk and supply chain security. The cooperative model was best at managing risks and delivering sustained and predictable farmer benefits.
Scale of the organizational model, along with operating costs & yield, all had significant impacts on farmer profits.
In the case of the Unilever IDH CPI partnership, the landscape management approach aims to identify most suitable organizational models & ideal financial structuring to scale up support for increased smallholder farmer productivity & sustainability throughout the Sei Mangkei landscape area. This will include a focus on supporting smallholder farmer replanting at scale.
In Sei Mangkei taking a landscape approach will involve some new business costs, as well as cost saving opportunities.
For example, protection of high value landscapes needs to be financed, as well as improved integration, productivity and replanting of smallholder farmer plantations.
Conversely, a landscape approach will reduce the need to purchase offsets to demonstrate sustainability.
These costs and benefits involve a mixture of public and private goods and services, and hence appropriate cost and benefits sharing arrangements and mechanisms need to be developed.
The landscape management strategy will recommend how costs, risks, and benefits can be shared by public and private actors throughout the value chain.
Taking a landscape approach will ultimately simplify the monitoring and reporting of results.