Governing sustainable palm oil in Indonesia: An evolving policy regime

Multiple actors need to perform together
Palm oil trees and the forest in Sentabai Village in the province of West Kalimantan, Indonesia. 2017. Photo by Nanang Sujana/CIFOR

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Indonesian President Joko Widodo signed a recent moratorium on new palm oil concession permits. During the three-year freeze, the government will undertake a comprehensive nationwide review of oil palm licenses and develop efforts to enhance productivity – particularly for smallholders. This move is seen as a significant step forward to improving governance in this sector.

But is this enough? How can we ensure the existing palm oil supply is sustainable, reduce the negative impact on the environment while at the same time improving the performance of smallholders who are linked to palm oil supply chains, and depend on it for their livelihoods?

Research conducted at the Center for International Forestry Research (CIFOR) led by senior associate Pablo Pacheco examines how public regulations and private standards can address three major performance gaps affecting the palm oil sector. The study was focused on Indonesia – the world’s largest palm oil producer.

“We looked at how the current policy regime complex can address three major gaps, specifically land conflicts and yield differences between companies and smallholders and carbon emissions arising from deforestation and peatland conversion,” Pacheco said.

“We identified opportunities for more effective governance of the palm oil value chain and supply landscapes by analyzing disconnects, complementarities, and antagonisms between public regulations and private standards across global, national and subnational levels,” he added.

The scientists conclude that greater complementarities have emerged among transnational mechanisms, but found also that disconnects persist and antagonisms prevail between national state regulations and transnational private standards.

To improve the sector’s governance and address performance gaps, there is a need to overcome these disconnects and take steps to reconcile the antagonisms.

“The solutions for addressing the performance gaps need to be looked at in an integrated way and through adopting a multi-level approach,” Pacheco said. “In addition, the solutions have to involve both public regulations and private initiatives and efforts.”


Palm oil is used in thousands of products from food to cosmetics, cleaning products and biodiesel. This has created a growing global demand for the golden liquid.

“There is not a single sector that has grown as rapidly as palm oil,” Pacheco said. “However, these unresolved performance issues continue to follow this expansion.”

One of the key issues is the land used to grow oil palm. Land conflicts are difficult to solve and despite efforts to formalize tenure rights, encroachment on public lands continues to grow. Smallholders often rely on informal transactions to access land.

Smallholders produce around 40 percent of Indonesia’s oil palm, but yields are still less than they could be due to limited access to finance and services.

“Smallholders are unable to adopt best management practices and the use of sub-standard planting material remains widespread,” says Pacheco.

Reducing carbon emissions in the oil palm sector has been hampered by current regulations that allow the use of forested or high carbon stock areas for plantations combined with poor use of degraded and less productive areas.

“Many companies prefer to establish their plantations in peatlands and forestland because of the reduced likelihood of land conflicts and the potential to cover the cost of establishing a plantation by selling timber cleared for these plantations,” Pacheco said.

“The result has been a significant carbon debt,” he added.


In an effort to overcome the palm oil sector’s performance gaps, a very complex governance architecture has emerged that brings together governments and the private sector, as well as multi-stakeholder platforms.

The Roundtable on Sustainable Palm Oil (RSPO) is perhaps the best-known sustainability standard, and has been embraced by European Union-related sustainability initiatives. This is the most relevant complementarity which has helped to reach some agreed sustainability criteria.

Yet Indonesia and Malaysia have also devised their own sustainability standards (ISPO and MSPO) to counteract the influence of external players. Despite efforts to strengthen these mandatory standards, the scientists say it remains to be seen whether they are going to support zero-deforestation commitments embraced by main corporate groups.

Additionally, they say that greater impact could likely be achieved by building a process to harmonize the RSPO with these national standards.


Pacheco says for the palm oil sector to improve its performance, it is crucial to look at the implications and opportunities associated with the national fiscal incentives system, including those related to the use of the crude CPO Fund.

“For example, these funds should more actively link incentives for companies engaging in biodiesel supply with purchases from smallholders on condition they adhere to sustainability criteria,” he said, adding that this approach would help improve the environmental performance of smallholders while supporting the sustainable supply of palm oil for the domestic biodiesel market.

Another major disconnect is related to the fact that land regularization initiatives do not necessarily go hand-by-hand with those aiming at support sustainable palm oil supply, and improve the wellbeing of smallholders. This is a major bottleneck to overcome.

“Government efforts to implement agrarian reform along with social forestry to benefit local communities have not been fully effective in resolving these issues,” said Heru Komarudin, a researcher with CIFOR.

Another disconnect is linked to land use regulations. More and more buyers are looking for No Deforestation, No Peat, No Exploitation (NDPE) – suppliers, but critics say that although companies may have the policy in place, they do not always put those policies into action.

In some cases laws and regulations do not support companies that opt to conserve areas with high carbon stock or high conservation value, Komarudin said.

“These areas are often seen as unused lands and are at risk of being taken over by the government, and used for new plantations, instead of being protected from local people who may try to encroach on these areas,” he added.

More and more local governments are also adopting policies to protect high conservation value forests, and governments have started to adopt essential ecosystem area principles although no legally-binding rules are in place yet.

Moving Forward

The researchers note that different “experimentalist approaches” are emerging that address disconnects and antagonisms, while further exploiting existing complementarities.

These approaches are increasingly orchestrated by provincial level governors and facilitated by non-governmental organizations, which often tend to operate as intermediaries.

“There’s no silver bullet, no single solution. It’s clear we need an integrated approach to effectively govern the palm oil sector, one where all actors play key roles,” Pacheco said.

This research is supported by the United States Agency for International Development and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

For more information on this topic, please contact Pablo Pacheco at or Heru Komarudin at
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