There are many paradoxes in Indonesia: it is an oil producing country which has a fuel shortage; it is the world's largest producer of palm oil (together with Malaysia) yet there is a domestic shortage of cooking oil. This is the situation in Indonesia as 'biofuel fever' spreads through entrepreneurs, government elites and even certain circles of environment activists.
[Source: Tempo Interaktif 11/Jul/07]
It seems the dream that the expansion of large oil palm plantations would bring prosperity to communities is an illusion. For example, Jambi has 403,467 ha of oil palm plantations which produced 4,682,975 tonnes of crude palm oil in 2005, but there are persistent shortages of cooking oil in this province. Ironically, cooking oil prices in Tebo district - the heart of the province's palm oil production - are even higher than elsewhere at Rp10,000/kg.
There are a number of reasons why this situation has arisen. The development of oil palm plantations in Indonesia has always been part of the government's scenario of export-led growth, rather than fulfilling demand from the domestic market. Exports have increased rapidly as the area of oil palm plantations has expanded and recently established plantations mature. Exports of Indonesian CPO have increased sharply from 11.5 million tons in 2005 to 13.6 million tons in 2006.
Clearly Indonesian palm oil producers are more interested in selling CPO to the international market, where prices are currently US$750-US$800/tonne, up from US$400-450/tonne this time last year (see graph). At the same time, some local entrepreneurs are stockpiling supplies in the hope that they will benefit from even higher prices in the future. The same thing is probably happening at the international level, for example as energy companies are building power stations in Europe to run on biofuels. Estimated demand for biofuels, including palm oil, for these alone is 1-1.5 million tonnes/year.
CPO export volume and value
[Source: Central Statistics Bureau]
The position is unlikely to improve since the governments of Indonesia and Malaysia have publicly agreed to provide 12 million tonnes of CPO to meet demand for biodiesel feedstock. Half this will come from Indonesia, yet the country's total palm oil production for 2006 was only 15.9 million tonnes: 12.1 million tonnes for export and 3.3 million tonnes for the domestic market.
It is therefore calling for:
(Sources: SETARA's Position Paper Indonesia Under Biofuel Fever by Rukaiyah Rofiq is available in Bahasa Indonesia and English from firstname.lastname@example.org.
Prices and volumes of CPO production have been updated from the Indonesian Statistics Agency and Department of Trade figures in Bisnis Indonesia 1/May/07, 3/May/07; www.tempointeraktif.com/ 11/Jul/07;
Additional information from SETARA Briefing Paper Biofuel untuk Mesin 25/Jun/07, Department of Trade Press Release 8/Jun/07 www.bi.go.id/NR/rdonlyres/272B52A221F0-417F-8F2D-9E9820922FC0/6350/
Original sources: Liputan6 SCTV 11/May/07 am; Antara 1/ May/07; Kompas 13/Mar/07, Jambi Ekspres 4/Jun/07; Riau Pos 7/Jun/07
An example of Fidel Castro's criticism of US policy to use food crops for biofuels can be read at news.bbc.co.uk/2/hi/americas/6525059.stm.)
'Biofuel fever' is being driven by government policy as well as market forces. For example, the European Union has said that 5.75% of all vehicle fuel must be biofuels by 2015 and proposes an ambitious increase in this target to 10% by 2020 as part of measures to reduce greenhouse gas emissions.
Why the demand for biofuels?
Such decisions have more to do with the geopolitics of fossil fuel reserves than concerns about climate change. It is highly questionable whether biofuels based on palm oil do in fact result in significantly lower greenhouse gas emissions once all the factors have been taken into account, including land use change, use of fertilisers and agrochemicals, transport and processing costs. Meanwhile international policy makers are keen to stimulate biofuel production in order to increase 'energy security', in the face of diminishing supplies of fossil fuels in Europe and North America and potential conflicts in countries in the Middle East and the former Soviet Union. Such considerations send out power signals to the markets, further increasing speculation on biofuels prices, including palm oil.
Many activists now prefer to use the term 'agrofuels' rather than 'biofuels' to avoid the impression that energy sources including palm oil are somehow innately better for people and the planet.