Recommendations to establish sustainable palm oil operations in the Republic of Gabon
This piece is part of a series of assessment submissions from Warwick Economics’ Introduction to Environmental Economics module for first-year students.
Executive Summary
In recent decades, the global market for palm oil has grown significantly. With South-East Asia’s land availability becoming increasingly scarce, the next low-cost frontier for production is Africa, more specifically Gabon. Gabon has cheap factors of production paired with an equatorial climate conducive to cultivating palm oil. Palm oil has benefitted Malaysia and Indonesia by alleviating rural poverty and offering a lucrative income source (Olagunju, 2008). Similarly, introducing palm oil in Gabon has employed thousands, grown the economy and provided rural development, but not without an environmental cost (Umunay, 2017). Various organisations, like the Intergovernmental Panel on Climate Change (IPCC) and International Union for Conservation of Nature (IUCN), have illustrated that palm oil cultivation degrades fragile ecosystems and threatens carbon resources. In fact, nearly 193 critically endangered animals, endangered animals and endemic plant species are threatened by palm oil expansion (Meijaard et al., 2018).
The purpose of this brief is to leverage the lessons from palm oil expansion in Southeast Asia and institute sustainable practices in Africa. For example, the existing Roundtable for Sustainable Palm Oil (RSPO) standard is recognised yet ineffective. It has been scrutinised in the literature for lack of transparency, disregarding secondary forestry and having a misalignment of interests among members. In light of such problems, this brief proposes a national sustainability standard for Gabon together with an environmental disclosure practice to reconcile growth and sustainability objectives.
1. Context of Gabon and the importance of deforestation
Gabon is home to a variety of forest-dwelling species, a burgeoning tourism sector and a growing palm oil industry. The fundamental issue with palm oil production is that it requires immense tropical deforestation, which in turn has adverse consequences on native biodiversity and the global commons. Some of the common peripheral effects of deforestation include pollution of water and air, soil degradation and the fragmentation of habitats (Meijaard et al. 2018). Fig 1. shows a 62% decline in the forest elephant population from 2002-2011 in Gabon following increased deforestation and the construction of logging roads.
The growing global demand for palm oil in foods, cleaning products, biofuels and cosmetics are hurting the environment further. Corley (2009) estimated global demand of circa 240 million tonnes by 2050 and supplying that needs 44 million hectares of land, much of which is expected to come from Africa. With 88% of land covered by forests, Gabon’s development of palm oil requires careful thought (Burton et al., 2016).
The palm oil industry in Gabon is solely represented by the Singapore listed agri-business company, Olam International. They received a concession from the Gabonese government based on the US$750 million investment commitment (Olam International, n.d.). However, numerous NGOs have criticised Olam for the deforestation of High Carbon Stock (HCS) and High Conservation Value (HCV) forestry, which together are instrumental in regulating the ecosystem (Burton et al., 2016). Other issues highlighted are the water pollution caused in Sanga village, rendering their only water source unsafe for drinking, and the gaps in supply chain transparency (WRM, 2018). Olam and future entrants need to ensure profit maximising behaviour does not undermine the environment, or else third parties may bear the brunt.
From an economic perspective, deforestation causes damage to the global commons, which results in a divergence of the marginal private cost (MPC) and marginal social cost (MSC) curves (Fig 2.). This inefficient allocation of resources creates a market failure, which manifests as deadweight loss (Keohane and Olmstead, 2007).
This deadweight loss may also be explained by transboundary pollution, an international externality stemming from deforestation. The haze crisis of 2015 in Indonesia exemplifies how over-burning of virgin forestry can have catastrophic health and tourism effects on neighbouring nations. Although burning is less common in Gabon, logging of HCS forestry releases emissions into the atmosphere which damages the stratospheric ozone layer and increases the risk of acid rain, ultimately fuelling global warming (Hanley et al., 2007). Hunt (2010) adds that removing tropical forestry causes carbon to escape into the atmosphere. Furthermore, roots controlling soil erosion during monsoon seasons are weakened and nutrient-rich soil is lost, leading to smaller yields. Decreased yields mean farmers are forced to increase their use of artificial fertilisers which not only reduces profit margins, but also results in eutrophication which damages the environment even more. In this respect, economic valuation efforts have shown the indispensable role of biodiversity in providing ecosystem services – take for instance insect pollinators that help crop yields, and therefore, commodity export growth or soil biodiversity that prevents flooding of local infrastructure (Atkinson et al., 2012). The problems outlined require government oversight of private sector activities in order to minimise the costs to the environment.
2. Deconstructing present and suggested policy options
I. ROUNDTABLE FOR SUSTAINABLE PALM OIL
The most popular indicator of sustainable palm oil is The Roundtable for Sustainable Palm Oil (RSPO) established in 2004. The RSPO certification is a voluntary sustainability standard for palm oil production, which consists of consensus voting from stakeholders. By 2017, nearly 21% of all palm oil around the world was RSPO certified and deforestation fell by 33% after the certification was in place (Carlson et al., 2017). In spite of this, the RSPO has received scrutiny for disregarding important social and environmental factors.
Firstly, there is a significant lack of transparency. There is no traceable path from the original supply of the fresh fruit bunch (FFB) to the Crude Palm Oil mill. An investigation carried out by Eyes of the Forest (EoF) found that Wilmar and Golden Agri-Resources were illegally harvesting FFB on protected land in Sumatra, even though their supply chain was certified. Thus, NGOs have called for more active monitoring schemes. The second problem is with regard to forest protection. The RSPO does not stop the conversion of secondary or degraded forestry into plantations, only HCV forestry. However, degraded and secondary forestry are very important support pillars for species and the climate (Kusumaningtyas, 2018). Lastly, Kadarusman and Herabadi (2018) discover that the constituent stakeholders have a misalignment of interests, which ultimately feeds environmental exploitation. For instance, the RSPO consists of more than 750 private companies, but only around 10 NGOs (Fig. 3).
In addition to the already active RSPO, a commonly proposed alternative instrument in the literature is a moratorium – a temporary suspension of deforestation. In May 2011, Indonesia instituted a national moratorium to reduce emissions from deforestation. The absolute effects are nebulous, but Busch et al. (2015) consider the counterfactual and find that in the absence of the moratorium from 2011-2015, emissions from deforestation would have been 1%-2.7% higher.
However, a moratorium is impractical in the Gabonese context. Firstly, zero-deforestation commitments clash with national economic development goals. Gabon is heavily reliant on imports and halting deforestation could hinder its goal to become self-sufficient (Export.gov, 2019). Furthermore, eliminating deforestation altogether slows down commodity exports and may cause capital flight. Secondly, banning palm oil production will simply divert energies to other inefficient oil crops to meet demand. This will displace the deforestation and loss of biodiversity rather than eliminate it (Meijaard et al., 2018). Lastly, companies can still deforest using existing concessions. As such, moratoriums are better thought of as a temporary solution while more formal institutions are consolidated (Busch et al., 2015).
3. Evidence and analysis of feasible policy options
Although the optimal scenario would be abating palm oil production, this is disadvantageous to the Gabonese economy. Thus, the following paragraphs outline tools used in Malaysia, Indonesia, the Philippines and the U.S. that shape the policy recommendations that come after.
Prescriptive standards like the RSPO have a good structure, but local modifications are necessary to avoid the external validity issue. Indonesia and Malaysia have adopted their own streamlined mandatory versions of the RSPO, the Indonesian Sustainable Palm Oil (ISPO) in 2011 and the Malaysian Sustainable Palm Oil (MSPO) in 2014 respectively. In line with national regulation, they emphasise the inclusion of small-hold farmers and conserve high biodiversity areas, which are home to indigenous flora and fauna (Rival et al. 2016).
The literature also expresses a strong support for information disclosure strategies. Othman and Ameer (2009) highlight the low levels of environmental disclosure in Malaysia, which they think caused information asymmetry and magnified the environmental damage from palm oil expansion. Furthermore, Tietenberg (1998) explores the efficiency of the U.S. Congress’ Toxic Release Inventory (TRI) programme, the Philippines’ EcoWatch model and Indonesia’s Program for Pollution Control, Evaluation and Rating (PROPER) in informing financial decisions of the public while also improving the environmental performance of companies.
4. Policy Recommendations
Building on the abovementioned decisions made by other jurisdictions, this brief proposes a two-part solution for the Republic of Gabon.
I. NATIONAL SUSTAINABILITY STANDARD
Drawing on wisdom from Malaysia and Indonesia, the first part involves implementing a national sustainability standard that is mandatory for concession-holders and small-hold farmers. Unlike the voluntary nature of the RSPO, this standard should be compulsory and independent from stakeholders (Brandi et al., 2013). The standard should be grounded on local factors and hence be bespoke to current land management legislation. As Koh and Wilcove (2008) have discovered, conversion of virgin forestry has a greater negative effect on biodiversity than replacing existing farmland. Thus, there should be a minimum percentage of future palm oil development that should be on pre-existing cropland.
II. ENVIRONMENTAL DISCLOSURE PRACTICE
The second part includes implementing an environmental disclosure practice in annual reports. This compulsory reporting will ensure adherence to the standard, but also keep the public informed, incentivising further compliance. The ISPO and MSPO are considered weak in their environmental impact assessments (EIA) and the European Parliament’s Committee on the Environment, Public Health and Food Safety have voiced concerns that certifications that fail to cap greenhouse gas (GHG) emissions are unsustainable (Kusumaningtyas, 2018). Mindful of this, the disclosures should require reporting of forest conversion, peatland development and GHG emissions. By reporting, there is also a formal recognition of the ecological function of HCV, HCS and secondary forestry while maintaining economic transparency. A violation of these practices should result in fines or sanctions.
Introducing a national sustainability standard and a simultaneous disclosure strategy means the Gabonese government will need to invest more in bureaucracy. Experts need to be engaged to audit the documentation. This could put strain on the government budget which may have to be funded through taxation on the industry. Nonetheless, the cadre of environmental professionals needed for the above activities will result in employment creation. However, the rigour of the audits must be balanced as Hasegawa et al. (2018) believe that overly restrictive environmental policies can amplify food insecurity.
The recommendations above need to be put into action expeditiously. With the European Union recently deeming biofuels to be unsustainable, palm oil export markets are suffering. There is an opportunity for Gabon to use these policies to make the EU reconsider their decision (Transportenvironment.org, 2019).
5. Conclusion
In summary, agricultural commodities like palm oil are a backbone for Gabon and many other African economies. They not only feed the population, but are also fundamental drivers of human and economic development. Leaving development to the private sector does not always yield an environmentally friendly outcome. Thus, public regulation is needed to monitor and improve market operations. The most pressing policy priorities should be the development of the national sustainability standard and environmental disclosures by market participants, which will signal commitment to sustainable development to the international community. In doing so, the Gabonese government is not only dedicating time and effort to curb deforestation, but also minimising habitat loss, biodiversity degradation, water and air pollution because they are all inextricably linked.
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