Agrofuels: key driver in new landgrabbing wave

Oil palm fruit

DTE 93-94, December 2012

Agrofuels are often promoted by the agrofuels industry, investors and government officials as a means of providing livelihoods for rural communities, but how does this square with the fact that agrofuels are part of the landgrabbing problem in countries like Indonesia?

The pro-agrofuel argument is that crops grown for fuels can help mitigate climate change by reducing carbon emissions because they can be used instead of fossil fuels for energy and transport. They can also fight poverty, according to these arguments, by providing livelihoods for farming communities.

In reality, however, agrofuels are taking a heavy toll on people and environment. Frequently, the impacts on small scale farmers, local communities and the environment are devastating. Many agrofuels are also bad for the climate because carbon-rich forests and peatlands are (directly or indirectly) cleared to grow them.[1] However, as with many policy developments which pitch business and political interests against the environmental and social interests of the poor, these impacts are often inaccurately measured or conveniently overlooked.

EU-RED boosting the palm oil boom

The long-lived palm oil ‘boom’[2] has been the staple in Indonesia’s national income for over three decades. In 2008, oil palm exports/sales/income represented 2.8% of the country’s GDP.[3] Since Indonesia’s economic collapse in 1997-98, palm oil has been a key commodity asset in President Susilo Bambang Yudhoyono’s push to increase foreign investment. Exports of crude palm oil, refined palm oil and palm kernel oil have increased from US$ 8.7 billion in 2007 to $20.4 billion in 2011. India, China and Malaysia are the top destination countries for palm oil exports.[4]

More recently, the palm oil boom has been boosted by market expansion of agrofuels resulting from the European Union’s Renewable Energy Directive (RED)[5] The RED requires each EU Member State to ensure that 10% of their transport fuel consumption is generated from renewable energy sources by 2020.[6] The prospect of a long-term lucrative European market for agrofuels has generated investor confidence in palm oil and a strong incentive for commercial investment in land acquisition for agrofuel plantation development.[7] Producing palm oil for the global commodity markets continues to be an attractive economic-development pathway for Indonesia[8]  and government targets have now been set to increase palm oil production by 15 million tonnes by 2020, from 25 million tonnes in 2012 to 40 million tonnes.[9]

Agrofuels: key driver

 Market opportunities for bioenergy production are inflating a “new bubble” of speculative investments or landgrabs.[10] The EU’s thirst for biodiesel from palm oil to fulfil EU RED targets for renewable energy threaten to drive yet more land acquisitions in Indonesia. Over three quarters of the EU’s agrofuels consumption will be met by biodiesel,[11] 20 per cent of which is projected to originate from palm oil produced in Indonesia and Malaysia.[12] In parallel, agrofuels continue to feature prominently in Indonesian government development plans,[13] with a predicted increase in biodiesel production from 1.8 billion litres in 2012 to 2.2 billion litres in 2013 and a conservative projected increase in exports to 1.5 billion litres in 2013.[14]

Translated into land figures, over 60 million hectares– an area nearly five times the size of England – could be converted to palm oil (for both fuel and non-fuel use) and agrofuel production by 2030.[15] According to the International Land Council (2011), 60 percent of grabbed lands are devoted to biofuels.[16]

As Santurino et al (2012) state, “There is no consensus as to how much land has been changing hands and on the methodologies of identifying, counting and quantifying land grabs”  This is particularly the case when trying to assess the more complex impacts of landgrabbing in Indonesia resulting directly from EU demand for palm oil for biodiesel. This is largely because palm-oil is a ‘flex-crop’ with multiple markets and uses, making it difficult to separate out whether crops like palm oil are being grown for fuel or non-fuel markets at any one time.[17]

However, there is a consensus that landgrabbing is underway and that it is significant (White et al. 2012)[18] and it is evident that Europe’s reliance on biodiesel to fulfil renewable energy targets could have significant land-use implications. Indeed, recent evidence suggests that globally, two thirds of big land deals in the past ten years are to grow crops that can be used for biofuels, such as palm oil and jatropha. [19]

‘Virtual’ landgrabbing - profiteering from ‘vacant’ land

Oil palm has a history of delivering a high rate of return, making it an attractive and reliable investment product. The 2020 deadline for the EU RED renewable energy targets has sparked a commercial scramble to grab vast swathes of land, quickly. This often results in failure to gain the consent of local communities whose livelihoods, local biodiversity and social and cultural wellbeing are dependent on the land. This situation is further exacerbated by the lack of Indonesian State policies and enforceable EU RED social sustainability criteria to ensure that local communities’ land rights are recognised and their right to give or withhold their free prior and informed consent (FPIC) to projects targeting their areas are respected.

Landgrabbing is also a highly speculative exercise which can reap significant rewards for the savvy entrepreneur. For those who lack the capital to implement a designated project or who see the potential to ‘buy now, develop later’, acquiring land for oil palm development can be a prosperous business. This approach to land acquisitions has been termed ‘virtual-land grabbing’.[21]

What McCarthy et al term ‘virtual land-grabs’ feature a “gap between plans as stated and schemes as implemented”. Companies may claim they are acquiring land for agrofuel production, and say they are contributing to global efforts to solve the climate and energy crisis. In reality, large areas of land is acquired and immediately cleared then left vacant as a capital investment for future development or profitable sale. These acquisitions are a strategy of investment risk mitigation which allows companies to pursue their own interest by securing the area for future expansion, generating up-front capital (largely through selling off the timber) and offsetting plantations investment costs.[22]   Some estimates show that European firms have already claimed over five million hectares of land for agrofuel development across the global South.[23]

According to John McCarthy (2012), “virtual land acquisitions associated with oil palm are now very extensive: by 2010, 26 million ha of oil palm plantation licenses had been issued, despite a capacity only to plant around 500,000 ha of oil palm each year”.[24] State authorities have the provisions to remove concessions when land remains unproductive for long periods of time, but commonly fail to use them .[25] Consequently, millions of hectares of forested or marginal land[26] which is otherwise essential as a carbon store, for biodiversity and natural resources conservation or as agricultural land for food crops, lay to waste, in some cases for up to a decade or more. [27]