Presented by Pablo Pacheco in Palo Alto, 2016.

1. Public policy and private-driven standards and
commitments: synergies and antagonisms from
formulation to implementation
Pablo Pacheco
Palo Alto, CA
April, 2016

2. HIGHLIGHTS
 Broader sustainability goals are increasingly shared among stakeholders
 BUT, different understandings of what sustainable supply means in practice
 There are still some tensions about what (public/private) rules to follow
 Sustainability processes increasingly circumscribed to stopping deforestation
 YET, solutions to halt deforestation are not enough to support sustainability
 For zero deforestation to work, there is need of sustainable intensification
 This may only be possible under more complex public-private arrangements
 AND, by linking supply chain governance to territorial-based approaches

3. BASIC OBSERVATIONS
 Different ‘policy mixes’ [carrots and sticks] lead to different outcomes
 The effectiveness of market-driven mechanism is still under question
 Commitments from end-buyers to specific targets have proven crucial
 Commitments can be based on certification [palm oil] but not always [beef]
 In some cases [Brazil], they are complemented or driven by public policy
 In others [Indonesia], they are conflicting with existing policy frameworks
 Much depends on what is catalyzing public and private convergence
 The resultant socio-environmental trade-offs are not always clear …
nor who are the actors reaping the benefits along the value chain

4. PUBLIC AND PRIVATE INTERACTIONS
GLOBAL
SUB-
NATIONAL
Incentives
Regulations
Policies
POLICY REGIMES
Upstream
Downstream
 Investment strategies
 Procurement policies
 Supply chain management
 Business operations
 Tenure
 Land use
 Zoning
 Industrial
 Infrastructure
 Fiscal
 Commercial
 Financial
Macro
Sectoral
LANDSCAPES
SUPPLY CHAINS
Technologies
Markets
Institutions
MEDIATING FACTORS
“Sticks,
carrots and
sermons”
Finance and
investments
Global and
regional trade
Policies [ESG integration]
Finance sector initiatives
Codes of conduct
Import regulations
Voluntary
standard
systems
Mandatory
sustainability
standards
 EP
 SCC
 PRI
Transnational
processes
CFS-RAI,
VGGT
Self-regulatory
commitments

5. HOW TO UNDERSTAND AND TRIGGER CHANGE?
 Polycentric systems (decision-making is distributed)
 Non-linear causality (associated to complex systems)
 Incremental change (at different places and levels)
 Multiple feedback loops (positive and negative)
For sustainability, needed to closing performance gaps
 Management, investment, benefits, environmental.
AND, required to address critical structural factors
 Policy and implementation failures
 Market asymmetries and distortions
 Unequal power relationships

6. BEEF CATTLE IN THE BRAZILIAN AMAZON
Total cattle
population
81
Million heads
Slaughterhouses
95
In the Brazilian Legal
Amazon
Cattle population in
smallholdings
20%
out of total BLA
Pasturelands
60%
out of total
deforested lands
Cattle
population
38%
out of total in the
country
Stockingratio
1.0
Head/ha
3
corporate groups
control most of
the supply

7. BRAZILIAN SUCCESS … STILL SOME WAY TO GO
 Public sector taking the lead – yet commitment from industry was key
 BUT also local territorial agreements at municipal level [green municipalities]
 Public and private actions effective for reducing deforestation at large-scale
 Beef industry cut out suppliers that were considered risky suppliers
 BUT, unable to control leakage and laundry [as it could be expected]
 AND, smallholders increased their relative participation in deforestation
 Few incentives to support an agrarian transition to more intensive land uses
 AND, solutions do not work in favor of medium- and small-scale suppliers
 Often good practices work only for the most large-scale and capitalized ranchers
 AND, solutions to intensification tend to rely too much on chemical inputs

8. A FEW CONSTRAINTS TO INTENSIFICATION
 Legal and institutional obstacles to intensification:
• Land tenure, a long awaited but still little realistic goal
• Credit is available but conditions do not make it accessible
• Technological options are based on chemical inputs
Interesting land-use dynamics emerging:
• Deforestation mainly occurred in areas
close to rivers for cattle raising
• New deforestation tends to expand in
clayey soils (preferred to soy production)
• Soy production tends to take over the best
pasture lands [not the more degraded]
Deforestation accordant to solil type in Paragominas
Piketty et al. 2015 Forests

9. LESSONS FROM PUBLIC – PRIVATE ARRANGEMENTS
 Clear legal frameworks and distribution of responsibilities among different levels of government
 Enforce regulations consistently based on transparent monitoring open to the wider society
 Governments at intermediate levels play a key role in land registration, planning and enforcement
 Institutional mechanisms to make individual producers and company buyers accountable
 Economic policy instruments (public credit, fiscal transfers) to support environmental regulations
 Agreements among key actors (e.g. retailers, industry and state) and compliance monitoring

10. CONTRASTING DYNAMICS: BRAZIL AND INDONESIA
 Brazil and Indonesia are two quite contrasting cases
 Much land available in Brazil when compared to Indonesia
 AND, palm oil and beef sector respond to different market dynamics
 BUT, at the same time there are several commonalities
• Traceability a major issue under complex supply chain networks
• Smallholders left behind due to company commitments
• Industry captures the benefits vis-à-vis upstream suppliers
• Leakage effects expected, and indirect social outcomes
 Indonesia is also a more complex case of public-private interactions
 AND, disparate sustainability standards not clearly harmonized

11. 10.5
Million hectares
cultivated
Labor
3.0
Million people
27.8
Million tons CPO
Smallholders
42%
of total cultivated
area
~600
Palm oil mills
25
corporate groups
control most of
the supply
Indonesia
3.5
Tons CPO/ha/yr
53%
global CPO supply
PALM OIL IN INDONESIA
Farmers
2.1
Million households

12. INDONESIA, PERSISTENCE AMIDST CHANGE
 Palm oil production contributes to national earnings but negative environmental effects
 Ambiguous sectoral policies for palm oil expansion, economic growth and poverty alleviation
 Major corporate groups have been making bold commitments towards sustainability
 Strong open opposition from Indonesian government to ‘zero deforestation’ movement
 Some governments at the sub national level are embracing some policy innovations
 Expansion of medium-scale investments and multiplication of independent mills
 Smallholders filling out the spaces that were not occupied by oil palm plantations

13. MANY STANDARDS FOR THE SAME DROP OF PALM OIL
 Between voluntary and mandatory sustainability standards
 Many standards are adopted for the same drop of palm oil
• RSPO, ISPO, ISCC
 Contrasting views on definitions of sustainability [under refinement]
RSPO [slow adoption but grows over time], RSPO Next [its uptake is
little realistic], ISPO [implementation is also behind schedule] / RSPO
and ISPO converge on several issues, but diverge in key ones
 AND, also no common definitions of [high-carbon] forests
• HCV under RSPO, HCS and HCS+ [being harmonized]
 Harmonization is still a long way to go [but is it desirable?]
 Much of the development driven by end-buyers

14. THE POLITICS OF ZERO DEFORESTATION
 Bold commitments of five major palm oil conglomerates to zero deforestation:
• Putting in place traceability systems [from refineries to mills]
• Significant difficulties to trace third-party and independent suppliers
• Important pressure from Greenpeace to make and disclose progress
 Strong opposition from the government under a dual rationale:
• Commitments risks excluding smallholders from markets
• Foreign corporate-driven rules clash with national regulations
 IPOP companies accused of collusion and anti-competitive behaviors
• Alleged of using environmental standards as pretext
• Violation of Law No. 5/1999 [monopoly and business competition]

15. ATTEMPTS FROM GOVERNMENT TO REFORM POLICIES
 Moratoria to conversion of primary forests and peatlands [since 2011]
 Measures to stop oil palm development in peatlands [Oct 2015]
 Measures for peatland restoration in areas affected by fires [Oct 2015]
 New measures to stop granting of oil palm concessions [Abril 2016]
 BUT, at the same time:
• Expand domestic market for biodiesel through subsidies
• Attempts to incentivize development of downstream industry
• Efforts to diversify markets [beyond China and India]
• Support recognition of tenure rights for smallholders
 Policy ambiguities, and tensions among levels of government

16. PUBLIC – PRIVATE INSTITUTIONAL ARRANGEMENTS
 RSPO certification only comprises a few major corporate groups
 Adoption of ISPO mandatory sustainability standards is still low
 Not clear mechanisms for control of independent mills
 No definition on tenure rights between customary and statutory
 Many (illegal) smallholders not entitled to receive state support
 Difficulties for monitoring given constraints to disclosure of permits
 Incentives for downstream investments and expansion of
biodiesel domestic markets still triggers expansion of plantations
 Enough sources of finance for plantations development, much of
those through national banks and informal lending systems

17. LINKING TENURE, SUPPLY AND BUSINESS MODELS
 Assessing patterns of supply chains and networks
across different regions and groups (based on secondary
data) [3 groups, 44 refineries, ~900 mills, 2500 estates]
 Mapping smallholder lands, identification of
smallholder types, and analysis of business models
with options for upgrading the production systems of
smallholders (Riau, Central and West Kalimantan)
 Assessing de facto land uses versus legal
allocations to determine (e.g. smallholders
within concessions, and industrial palm oil
plantations outside concession lands)
 Monitoring the direct (e.g. land use, GHG,
employment), and indirect impacts of
commitments (e.g. land use pressures,
smallholder inclusion, livelihoods displacement)

18. EMERGING PERSPECTIVES
 Increasing control and incentives in the supply chains
- Extend the traceability from direct to indirect suppliers
- Monitor and rewards for improvements in performance
- Technical assistance with flexible technological packages
 Lowering risk and increasing investment attractiveness
- Land regularization and clarification of tenure rights
- Land taxation with differentiated rates depending on use
- Integrating environmental criteria in commercial lending
 Jurisdictional and/or territorial arrangements
- Systems to monitor social and environmental performance
- Fiscal incentives to support good environmental performance
- Policies of preferential sourcing by processors/industry
- Assessment (and certification?) of territorial performance