Oil palms and forests in tug-of-war over money

By Sebastian Lee

The Heart of Borneo (HoB) runs from the north of the east Malaysian state of Sabah down to the south-west of Borneo, some 220 sq kms (85 sq miles) that form about a third of the world’s third largest island. Here are South-East Asia’s last swathes of virgin jungle. Shared by Malaysia, Brunei and Indonesia, here is where the superlatives start. It has the tallest rainforests in the world and the largest of many things in the wild; the most endangered plant life and animals such as the orang-utans, sun bears, pygmy elephants and Sumatran rhinoceros. And it has the most fragmented forests. Keeping them for all eternity costs lots of money. The daunting task for the three countries is finding the cash.

At a forum on the HoB in Kota Kinabalu on October 26 and 27, Sabah told its gritty story of conserving rainforests that occupy slightly more than half its size: almost 4m hectares that form all the northern part of the Heart. It has done all it can in balancing sustainable forestry and conservation at great sacrifice. Forest revenue, once the leader, has fallen sharply over the last 20 years. From a high of slightly more than 2 billion ringgit ($588m) in 1988, it dropped more than four folds to 446.5m ringgit last year. It is now in 4th place behind tourism, palm oil and petroleum. Tourism gave the state 4 billion ringgit last year.

No one denies that Sabah is a trail blazer in forest conservation. It has the best managed forests in Malaysia. About 16% of its protected areas, 1.2m hectares, exceeds the International Union for Conservation of Nature’s (IUCN) 10% target. And Sabah’s conservation management is the benchmark for South-East Asia, according to the World Commission on Protected Areas (WCPA).

“Sabah forestry department is the most advanced in conservation,” declares Dorjee Sun, the chief executive officer of Carbon Conservation, who has just been named by Time magazine as one of the world’s environmentalists of the year.

The Deramakot forest reserve in the Heart of Sabah is the world’s first certified South-East Asian tropical forest of the Forestry Stewardship Council (FSC). But it has been a long and arduous process for Deramakot in sustainable forest management (SFM). After 20 years of forest rehabilitation and low-impact logging to produce small volume of high quality and high priced timber products, it is expected to turn in its first meagre profit of 2.8m ringgit this year. The SFM cost to Deramakot which covers 55,083 hectares is a staggering 91.6m ringgit. Under this model, 4,000 hectares are conserved while the rest are replanted with tropical timber trees and logged. Sabah aims to have all commercial forests certified by FSC by 2014.

More forests for conservation

In August, Chief Minister Musa Aman walked the talk by putting aside 22,000 hectares, about the size of Penang island, of primary forests for protection in the Heart. This has raised the forest protection figure to 1.2m hectares, leaving 2.7m hectares of other forests for commercial use – logging and agriculture. And this is where the heartaches begin.

The Deramakot experiment is bad business, but good for conservation. “Can society wait 20 years all the time to see a return on investment?” Sam Mannan, the director of Sabah forestry department, asks. “Forest management suffers because it is inherently long term and it spans generations. You may be lucky to see the fruit of your labour.”

Between logging, turning logged forests into plantations, mostly oil palms, and keeping them untouched, the Sabah government has little choice.

Years of depressed prices because of falling overseas timber demands compounded by a global recession have made logging unattractive. The temptation has always been to turn logged forests into oil palm plantations as the returns are fast and many times higher than just logging the forests for their timber.

The Sabah Foundation’s oil palm-based agro-forestry project on about 100,000 hectares at Benta Wawasan is a good example. Mr Mannan says his department stands to earn about 100m ringgit from royalties from oil palm harvests and taxes from crude palm oil sales just from 70,000 hectares of oil palms. This is about enough to pay for his department’s operating expenses and SFM programmes for a year.

Indeed, palm oil is the “green gold”. The world’s most widely used vegetable oil gave Sabah 19 billion ringgit last year, making up three-quarters of the state’s exports. Sabah has about one-third of Malaysia’s 4.5m hectares of oil palms and it contributes 30% of national palm oil exports. Earnings last year at 62.5 billion ringgit made it the third national export earner.

Thus nothing pleases the industry more than turning more logged forests into oil palm estates. This, the Sabah government is reluctant to do. And for good reason. Oil palms already cover one-fifth of Sabah; badly fragmenting forests, killing and endangering wildlife, destroying priceless plant life and contributing to global warming.

The HoB, an idea of the World Wide Fund for Nature (WWF), is partly a response to pressures from western NGOs to keep rainforests from devastation by new oil palm plantations. A major objective of the HoB is to reconnect forests by building wildlife corridors so that animals such as the orang-utans that are driven to extinction may have a better chance of survival in a bigger and better habitat.

 Big money challenge

Another one is to protect as much of Borneo’s wild plant life. The island holds about 15,000 species of vascular plants, about 5% of the world’s total. What makes this task significant is that Borneo’s forests, according to scientists, are the most biologically diverse and least explored. In the last 10 years 361 new species have been found. One of them has shown promises of a cure for AIDS and cancer.

But balancing conservation with forestry and agriculture poses a big money challenge largely for Malaysia and Indonesia. The tiny oil-rich sultanate of Brunei, wedged in Malaysia’s Sarawak state, does not depend on logging and agriculture for its economy. But it has given more than half its 5,765 sq kms to the Heart in wanting to protect the island’s fauna and flora.

Next year the Sabah forestry department and the Royal Society will carry out a study on the Stability of Altered Forest Ecosystems (SAFE), hailed as the world’s biggest ecological experiment. As the name suggests, it will find out whether forest ecosystems changed by logging and oil palm cultivation are stable enough to support biodiversity.

There was good understanding and agreement at the HoB forum that logged forests must not give way to more oil palms. But money from the private sector for conservation and rebuilding forests is only just trickling in. All this while, governments of rainforest countries have been funding their forest conservation.

Japan’s Itochu Corporation, one of the buyers of Sabah timber, has just given 4.3m ringgit to restore 967 hectares of degraded forests in the Northern Ulu Segama Forest Reserves while PBB Oil Palms Berhad, which owns 18% of Singapore’s Wilmar International Ltd (the world’s biggest palm oil producer), made a small gesture to rebuild 382 hectares of riparian area in their plantation along the Segama river.

The most encouraging has been the rehabilitation of forests at Ulu Segama Malua, which houses the world’s first Great Apes Survivor Partnership (GRASP) orang-utan conservation of some 241,000 hectares. It has the highest concentration of orang-utans: 5,000 of the last 11,000. About 70% of the 100m ringgit has come from the private sector with Sime Darby being the biggest donor. It has given 25m ringgit to rebuild 5,403 hectares of forests here over 10 years.

"Pay us and pay us well"

Sabah, says Mr Mannan, is preparing for a “period of famine” as its concerted conservation and sustainable forestry management means that forest revenue will be drastically reduced for the next 20 years.

“We expect rewards for these endeavours because indirectly or directly, we are benefiting the world, be it in mitigating climate change, reversing the demise and extinction of biodiversity, keeping water resources healthy and much more,” he says. “So, pay us and pay us well.”

Although funding opportunities abound, particularly from the United Nations Development Programme (UNDP), the Asian Development Bank (ADB) and businesses, the question is whether the funds pay more to keep forests intact than to turn them into oil palm estates.

One exciting proposition is forest carbon trading in which the rich industrialised world pays rainforest countries to refrain from chopping down trees in return for credits that it can use to offset its carbon emissions. Clearing of rainforests for oil palms releases one-fifth of all carbon emissions into the atmosphere. And pressures have increased on governments in tropical countries to cap oil palm development.

A recent United Nations report concludes that biodiesel palm oil grown on deforested land is filthy, releasing a lot more carbon dioxide than previously thought and 20 times more than fossil fuel if grown in peat. That logging and converting logged forests into oil palm estates raise climatic temperatures in Sabah is evident by the erratic weather pattern of intense monsoons and long dry spells. Last year Felix Tongkul of the centre for natural disaster studies of the University of Malaysia Sabah said that surface temperature in Malaysia had increased in the last 40 years at a rate between 2.7^oC and 4^oC every 100 years.

Notwithstanding a new climate treaty at Copenhagen next month that will raise targets to reduce carbon emissions, the European Union will only buy biodiesel that reduces CO2 emissions by 35% of fossil fuel from next year. This effectively bans biodiesel palm oil from the EU which says it only reduces CO2 emissions by 19%. Europe is the third largest importer of palm oil at about 4m tonnes last year.

Famine years or carbon feast

At the forum, Dorjee Sun made a hard-sell of avoided deforestation saying that the Sabah forestry department could turn its “famine years” into “20 years of carbon credit feast”. Mr Mannan however is not convinced. “Show me the money,” he says. “I want to see the money first and smell it before I believe it.”

One difficulty is calculating the carbon store in trees and putting a price on it which at the moment seems rather arbitrary. Carbon stock in logged forests may be between 120 and 160 tonnes a hectare. Carbon price in the small voluntary market is between 17 and 170 ringgit a tonne.

Hectare for hectare, this does not compare well with oil palms. A hectare yield of 25 tonnes of fresh fruit bunch will give 10,000 ringgit at 400 ringgit per tonne. Average oil yield in Malaysia is 3.7 tonnes a hectare but Sabah palms give higher per hectare yield at about five tonnes. At an average crude palm oil price of 2,000 ringgit a tonne, a hectare of palm oil will fetch 10,000 ringgit. “What if the CPO price goes up to 4,000 ringgit a tonne?” Mr Mannan asks. It did early last year.

Mr Sun refrains from discussing pricing for forest carbon. It is meant for negotiation with timber concessionaires who are prospective carbon sellers. Neither does he shed light on the first tropical forest carbon deal that he sealed with Merrill Lynch last year. Mr Sun says the deal is worth between 30m and 1.5 billion ringgit for the carbon of 770,000 hectares of pristine jungle in the Indonesian province of Acheh.

But any forest carbon deal is likely to cap oil palm development as the only land left for crop cultivation is that of logged forests. Mr Sun does not think so. He tells Insight Sabah that badly degraded forests, where only tree stumps stand, or grassland can be turned into palm plantations. However, these are hard to find in Sabah. Even the poorest forests have trees with good carbon stock.

Avoided deforestation or reducing emissions from deforestation and degradation (REDD) does not seem attractive enough for Sabah when viewed against the vast earning potentials of palm oil. But the future of palms isn’t that rosy as pressure on producers to produce sustainable oil without clearing rainforests and peat intensifies. More so when they are forced to account for carbon emissions.

This week Malaysia and Indonesia, two of the world’s biggest palm oil producers, rejected a proposal at a Kuala Lumpur meeting of the Roundtable on Sustainable Palm Oil (RSPO) to account for carbon emissions in their production. Mamat Salleh, chief executive officer of the Malaysian Palm Oil Association (MPOA), says accounting for greenhouse gas will raise the cost of palm oil production so high that it will no longer be sustainable.

Yet it is measures like this that is going to make forest carbon deals palatable. But any hope that Copenhagen is going to redress the Kyoto climate protocol to allow avoided-deforestation schemes has been dashed. A proposal to stop rainforest deforestation has been dropped from the Copenhagen treaty. And oil palm plantations will be classified as forests. This means that countries will still be receiving money to keep forests even though they have been planted with palms. This will be a blow to REDD which has counted on Copenhagen to boost it.

Right now, Mr Mannan is appealing to the palm oil industry to help restore and manage Sabah forests. But money from the industry to help in building wildlife corridors and enhancing biodiversity has been slow in coming.

“Our core business for the next 20 years is to restore forests,” Mr Mannan tells palm oil industrialists. “You need our help to dispel the growing anti-oil palm lobby and negative perception around the world. Let’s work closely as a team with our other partners, to present a gentler, kinder approach with responsibility.”

Between oil palm cultivation and conserving forests for their carbon, the question is money. And money does indeed grow on trees, Mr Sun. But which one bears more? – Insight Sabah

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