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2021: The Year in Palm Oil

The year 2021 was a critical – and tragic – year for Indonesia. More than 140,000 people died from Covid as the country wrestled with an infection wave in the middle of the year.

For the palm oil community, away from the pandemic, there were six significant highlights throughout the year.

ISPO moved towards international recognition

As the UK introduced its due diligence regulation on commodities produced from illegal deforestation, it also announced that it would incorporate recognition pathways for national standards. The announcement was made during a visit to Indonesia, clearly with an eye on ISPO being recognised.

This was a significant development for Indonesia, and it contrasted heavily with the approach currently being taken by the European Union, which appears to be making a deliberate effort to increase barriers to palm oil imports as part of its deforestation regulation.

Switzerland stayed the course with Indonesia

A Swiss referendum on palm oil in the Indonesia-EFTA trade agreement in Switzerland resulted in approval for the trade pact – despite a significant palm oil scare campaign. The referendum effectively asked Swiss voters if palm oil should be included in the agreement. It was originally sponsored by an unwieldy coalition of agricultural protectionists and green extremists that appeared to be oblivious to the fact that most Swiss voters prefer stronger international ties with Southeast Asia – and don’t want them undermined.

The referendum – like the UK’s due diligence move – sent a signal to Brussels, which is also negotiating a trade deal with Indonesia. It’s quite simple: if the EU doesn’t want to support Indonesian communities, other European countries will be more than happy to.

Deforestation hits new lows

In March, the Government of Indonesia announced that the country’s deforestation rates had hit a new low in 2020, dropping 75 per cent from the previous year and falling to the lowest levels on record.

The view of many in Indonesia was that this was the clear result of a number of policies introduced by President Joko Widodo, specifically the continuation of the forest moratorium and the introduction of the palm oil moratorium.

Both of these policies had a significant impact across the plantation, forestry and broader agricultural sectors.

Despite this, a large number of international NGOs were keen to undermine both Indonesia’s achievements on deforestation and the policies of the President.

Fires ease off in La Nina year

Fires also remained at a low rate across Indonesia, with relatively low levels of fire, burning and haze in a La Nina year, the second in a row. As with 2020, there appeared to be a number of actors lining up to discredit the palm oil sector in the event of a major fire outbreak. Instead, fires across many Western countries burned significant areas of forest.

Recent research, however, has pointed to higher levels of burning in West Nusa Tenggara and East Nusa Tenggara over the past two years, making them the new ‘centres’ for forest fires in Indonesia.

It’s also worth noting that neither of those islands are significantly associated with palm oil. Experts and locals are instead pointing towards lack of firefighting capacity.

Labour Reforms Continued

The Indonesian Government, the industry, worker groups and international organisations continued to strive towards a unified position on labour rights in the country.

Stakeholders came together for a number of different events and seminars throughout 2021, which set Indonesia apart from other palm oil producing countries in terms of its multi-stakeholder approach.

But central to the movement was the ILO’s ‘Advancing workers’ rights in Indonesia’s Palm Oil Sector’ project, which has been supported by the United States Department of State. The program first kicked off in 2019 and will run until 2023.

Work on the program in 2021 culminated in the publication of a new palm oil labour inspection guide as part of the program.

Prices Hit Record Highs

Palm oil prices had an exceptional year in 2021 – benchmark futures hit a record all-time high of over $1,200 per tonne. Crucially, accompanying the dizzying high there was a long and consistent period of price stability in 2021, providing the industry with confidence and predictability even in the midst of a global pandemic, and the potential uncertainty of a La Nina year in 2022.

Indonesian’s biofuel mandate will likely continue to be an important driver of sustainable and stable palm oil prices in 2022.

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