Tag Archives: industry
The Politics of Palm Oil
Palm oil is Indonesia’s most valuable agricultural export and the industry employs nearly 2 million people. Indonesia has laws prohibiting the slash-and-burn method of clearing fields for large plantations, explains Pavin Chachavalpongpun, of Kyoto University’s Centre for Southeast Asian Studies. Yet allowances for small farmers and a regional culture of patronage politics may hamper enforcement. Growing global demand for palm oil – for cooking or even biofuels – contributes to choking smoke spreading from large fires in Indonesia to neighboring states, and the search for blame began. Foreign investors based in Singapore and Malaysia control more than two thirds of the total production of Indonesia’s palm oil, and small farmers represent about 40 percent of the industry. “Strong connections with leaders at the top can help lubricate all kinds of transactions,” Chachavalpongpun notes. “The intricate connections within the palm oil industry create an awkward situation, and more importantly, a crisis of good governance in Southeast Asia.” – YaleGlobal The Politics of Palm Oil Global demand for palm oil drives FDI in Indonesian plantations and rapid land clearing Pavin Chachavalpongpun YaleGlobal, 17 September 2013 Oil and smoke : Indonesian drive to export more palm oil (top) led to burning to clear land for plants and sent plumes of haze affecting the region. Singapore residents don masks to protect themselves. KYOTO: Palm oil plantations and processing have become a strategic industry for Indonesia. Palm oil is the country’s third largest export earner, contributing substantial foreign exchange earnings and providing opportunities for small-scale farmers to partake in this vibrant agro-business, thus developing the rural economy and spurring local employment. In Southeast Asia, palm oil is a traditional commodity dating back to the colonial period. But by the 1980s, increasingly high global demands for palm oil – for food products, cosmetics and even biofuels – led to industrial-scale plantations, particularly on Indonesia’s Sumatra and Kalimantan islands with their favorable climate and fertile, loamy soil conditions. In 2008, Indonesia’s replaced Malaysia as the world’s top exporter of palm oil as a result of a series of state-led programs designed to boost palm oil production, such as privatization of previously state-run estates. Today, Indonesia has 6 million hectares of oil palm plantations. It produces up to 25 million tons of palm oil annually, or half of the world’s total production, delivering around 5 percent of the country’s annual gross domestic product. This success is also due to the industry opening to foreign investment. Malaysia and Singapore happen to represent the majority of foreign investors, outnumbering those from outside the region. Through single investments and joint ventures with local companies, the two countries control more than two thirds of the total production of Indonesia’s palm oil. S moky haze from Sumatra poses economic loss and potential health hazards for Malaysia and Singapore. This context provides an inexorable correlation between investments from Malaysia and Singapore and the forest fires caused by the habitual slash-and-burn method used by farmers as a cheap and convenient way to clear the land for rapid turnaround of cultivation. This year in particular, the smoke haze from Sumatra has caused an even greater devastating impact on Malaysia and Singapore, in terms of economic loss and potential health hazards. The polluted haze reached dangerous levels in the two neighboring countries; Malaysia even declared a state of emergency in Muar and Ledang districts in the southern Johor state So when the governments of Malaysia and Singapore condemned Indonesian farmers, they seemed to overlook the fact that private firms from their own countries have played a major part in the outbreak of the smoke haze. A crisis of good governance is responsible for this transnational problem. Indonesia does have laws prohibiting slash and burn methods. For example, Article 78 of the 1999 Forestry Law stipulates that anyone found guilty of burning forests is subject to up to 15 years in prison and a maximum fine of Rp 5 billion (US$525,000). At the same time, Central Kalimantan issued its own regulation in 2008 which allows controlled burning by some small farmers. The rationale behind such regulation is that a complete ban would have adversely affected small producers and hurt the province’s rice output. A patronage system supports production, marketing and distribution of palm oil. One question that must be tackled is why can managers of commercial plantations of the palm oil in Indonesia continue to pose a threat to the environment and regional economy? Helena Varkke, who studies corporate communications and sustainable development, argues in a recent study that the regionalization of the oil palm plantation sector has shaped a political culture characterized by a deep-rooted patronage system. Owing to a similar shared culture of patronage politics, Malaysia and Singapore were successful in inserting themselves into the existing patronage networks in Indonesia, which are also operating in key industries like palm oil. In the palm-oil sector, the patronage system serves as an essential structure involving around the production, marketing and distribution, while connecting significant actors together to facilitate their businesses through legitimate mechanisms such as palm-oil consortiums. These consortiums normally consist of local producers, senior bureaucrats and influential businessmen who have forged close links with top national leaders. For example, in the case of Indonesia, a powerful politician plays a leading role in key decisions in the group which owns a large palm oil company. These decisions could cause a huge impact on the nation’s palm oil industry. For foreign companies, it is imperative to establish links with Indonesia’s powerful individuals or institutions to break into the industry. Several Malaysian companies doing palm oil business are significant investors with connections with Indonesian authorities, Varkkey explains. Singapore companies have in recent years also emerged as players in the Indonesian palm oil industry. Some of these conglomerates have become the world’s largest palm oil producers based in Indonesia. Normally, their board of directors consists of high-flying Singaporean personalities in politics and business. As an example of the existing patronage system, many Malaysian companies gained benefits from the Malaysian-Indonesian investment treaty in 1997 when Indonesia pledged to allocate 1.5 million hectares of land to Malaysian investors for palm oil development. Following the pattern of Indonesia’s patronage system, Malaysian and Singaporean companies found the need to build relations with local strongmen and the national leaders of Indonesia. From setting up subsidiaries, earning licences to production and property rights to plantation lands, to appointing influential Indonesian figures to sit on the board, Malaysian and Singaporean companies have further entrenched the patronage politics within the palm oil industry. Strong connections with leaders at the top can help lubricate all kinds of transactions. G overnments of Indonesia, Malaysia and Singapore must delve into the roots of their shared problem. Peatlands are suitable for oil palm, yet also extremely prone to fire. Under such sensitive conditions, the Indonesian government enacted legislation in 1999 for the control on proportions of peatlands used for palm oil plantations and the ban on slash-and-burn tactics. Often, such legislation is ignored, simply because of protections offered to firms by those of influence within the Indonesian government and a lack of enforcement. Thus, plantations prefer ground burning instead of the more expensive and inconvenient mechanical approach to clear land using excavators and bulldozers. Indonesia’s Duta Palma is one the companies with the worst record in illegal burning, Varkke claims. And many political leaders largely remained silent or showed indifference when the smoke struck Singapore and Malaysia in June, with one party member telling Singapore to stop acting like a child. Some state agencies, like the Indonesian Anti-Corruption Commission, work closely with a local NGO, Indonesia Corruption Watch, and are investigating a number of cases involving foreign companies and alleged illegal land clearing. But their efforts are stonewalled by the Indonesian courts. Instead of acting in defence of good governance, courts choose to protect the powerful in the industry in which they have vested interests. In 2010, an unnamed Malaysian-owned plantation was brought to court, but the case was stopped from continuing on to a higher court. The intricate cross-border connections within the palm oil industry create an awkward situation and, more importantly, a crisis of good governance in Southeast Asia. With name-calling and scapegoating over the polluted haze, the governments of Indonesia, Malaysia and Singapore have engaged in a rhetorical exercise. In reality, all parties are skating around the real issues, discomforted over delving too deeply into the root of their shared problem. Pavin Chachavalpongpun is associate professor at Kyoto University’s Centre for Southeast Asian Studies. Continue reading
India slaps 15 per cent duty on gold import
India slaps 15 per cent duty on gold import Issac John / 18 September 2013 India raised import duty on gold jewellery on Tuesday from 10 per cent to 15 per cent, a move that is expected to have immediate ramifications in the UAE, the most sought-after jewellery shopping centre for Non-Resident Indians (NRIs). India’s Ministry of Finance on Tuesday set duty on jewellery higher than the 10 per cent levied on raw gold in a move to protect the domestic jewellery industry. “To protect the interests of small artisans, the customs duty on articles of jewellery … is being increased,” the ministry said. The government has also curbed raw gold imports through measures including three duty hikes this year to a record 10 per cent. The Reserve Bank of India has put tight restrictions on importers that have sharply curtailed supplies. India imported gold jewellery worth $137.57 million in the four months from April to July this year — a fraction of overall bullion imports, which were $2.9 billion in July alone. For Dubai’s jewellery retailers, who have been hoping for a big sales boost with the advent of the festival season in India, the move came at the right time. Shamlal Ahmad, Managing Director International Operations, Malabar Gold, a leading jewellery chain in the GCC and India, said NRI consumers and local jewellery trade would stand to benefit from the raised duty as a substantial price gap has been building up between prices in the UAE and what the same would cost in India since New Delhi started to raise duty as part of a series of curbs to slash its widening current account gap and support a weak rupee. Precious metal analysts in Dubai said while Indian jewellery fabrication, which jumped by 25 per cent in the first half to almost 350 tonnes, will get a boost while it will also have positive implications on Gulf’s gold jewellery business with NRIs rushing in to exploit the more attractive price advantage here. Dubai’s tax-free status has made it one of the cheapest places to buy gold in the world. The hike in import duty on jewellery had been a demand from the industry to ensure the viability of the domestic jewellery manufacturing, and avoid imports of cheaper jewellery from the GCC, Thailand and Malaysia. All India Gems and Jewellery Trade Federation hailed the move as very positive for the local industry and hoped it will support the jewellery-manufacturing sector. — issacjohn@khaleejtimes.com Continue reading
What Happened To Biofuels?
Energy technology: Making large amounts of fuel from organic matter has proved to be more difficult and costly than expected Sep 7th 2013 SCIENTISTS have long known how to convert various kinds of organic material into liquid fuel. Trees, shrubs, grasses, seeds, fungi, seaweed, algae and animal fats have all been turned into biofuels to power cars, ships and even planes. As well as being available to countries without tar sands, shale fields or gushers, biofuels can help reduce greenhouse-gas emissions by providing an alternative to releasing fossil-fuel carbon into the atmosphere. Frustratingly, however, making biofuels in large quantities has always been more expensive and less convenient than simply drilling a little deeper for oil. Ethanol, for instance, is an alcoholic biofuel easily distilled from sugary or starchy plants. It has been used to power cars since Ford’s Model T and, blended into conventional petrol, constitutes about 10% of the fuel burned by America’s vehicles today. Biodiesel made from vegetable fats is similarly mixed (at a lower proportion of 5%) into conventional diesel in Europe. But these “first generation” biofuels have drawbacks. They are made from plants rich in sugar, starch or oil that might otherwise be eaten by people or livestock. Ethanol production already consumes 40% of America’s maize (corn) harvest and a single new ethanol plant in Hull is about to become Britain’s largest buyer of wheat, using 1.1m tonnes a year. Ethanol and biodiesel also have limitations as vehicle fuels, performing poorly in cold weather and capable of damaging unmodified engines. In an effort to overcome these limitations, dozens of start-up companies emerged over the past decade with the aim of developing second-generation biofuels. They hoped to avoid the “food versus fuel” debate by making fuel from biomass feedstocks with no nutritional value, such as agricultural waste or fast-growing trees and grasses grown on otherwise unproductive land. Other firms planned to make “drop in” biofuels that could replace conventional fossil fuels directly, rather than having to be blended in. Governments also jumped on the biofuels bandwagon. George Bush saw biofuels as a route to energy independence, signing into law rules that set minimum prices and required refiners and importers to sell increasing amounts of biofuel each year. By 2013, America was supposed to be burning nearly 3,800m litres a year of “cellulosic” biofuels made from woody plants. Toil and trouble But instead of roaring into life, the biofuels industry stalled. Start-ups went bust, surviving companies scaled back their plans and, as prices of first-generation biofuels rose, consumer interest waned. The spread of fracking, meanwhile, unlocked new oil and gas reserves and provided an alternative path to energy independence. By 2012 America’s Environmental Protection Agency (EPA) had slashed the 2013 target for cellulosic biofuels to just 53m litres. What went wrong? “Even if processes can be economically scaled up, that might in turn highlight a further problem.” Making a second-generation biofuel means overcoming three challenges. The first is to break down woody cellulose and lignin polymers into simple plant sugars. The second is to convert those sugars into drop-in fuels to suit existing vehicles, via a thermochemical process (using catalysts, extreme temperatures and high pressures) or a biochemical process (using enzymes, natural or synthetic bacteria, or algae). The third and largest challenge is to find ways to do all this cheaply and on a large scale. In 2008 Shell, an energy giant, was working on ten advanced biofuels projects. It has now shut most of them down, and none of those that remain is ready for commercialisation. “All the technologies we looked at worked,” says Matthew Tipper, Shell’s vice-president for alternative energy. “We could get each to produce fuels at a lab scale and a demonstration scale.” But bringing biofuels to market proved to be slower and more costly than expected. The optimism of five years ago may have waned, but efforts to develop second-generation biofuels continue. Half a dozen companies are now putting the final touches to industrial-scale plants and several are already producing small quantities of second-generation biofuels. Some even claim to be making money doing so. Consider Shell. Raizen, its joint venture with Cosan of Brazil, produces more than 2,000m litres of first-generation ethanol annually from sugarcane juice. Usually the fibrous stalks left over are burned for power or turned into paper, but next year Raizen will start turning them into second-generation bioethanol, using a cocktail of designer enzymes from Iogen, a Canadian biotechnology firm. Raizen hopes to produce 40m litres of cellulosic ethanol a year, cutting costs and boosting yield by co-locating its cellulosic operation with a traditional ethanol plant. Under this model, second-generation biofuels complement and enhance first-generation processes, rather than replacing them outright. Three plants in America are expected to start producing cellulosic ethanol from waste corn cobs, leaves and husks in 2014: POET-DSM Advanced Biofuels (75m litres) and Dupont (110m litres), both in Iowa, and Abengoa (95m litres) in Kansas. But the first company to produce ethanol using enzymes on an industrial scale is Beta Renewables, a spin-off from Chemtex, an Italian chemical giant. An 80m-litre cellulosic ethanol plant in Crescentino, near Turin, has been running at half capacity over the summer, using straw from nearby farms. It will run on corn waste in the autumn, rice straw in the winter and then perennial eucalyptus in the spring. Beta Renewables has already licensed its technology for use in Brazil and Malaysia, and expects to sell several more licences by the end of the year. All Beta’s plants can already make biofuels at a profit, albeit only in areas with very cheap feedstocks, says the firm’s boss, Guido Ghisolfi. Just as this cellulosic ethanol comes on to the market, however, demand for fuel is waning in many developed countries due to improvements in fuel efficiency and lingering economic weakness. As a result, demand for ethanol for blending is falling, too. In America, petrol containing up to 15% ethanol, while permitted by the EPA and promoted by ethanol producers, is still a rare sight on station forecourts. Other biofuels companies are continuing to pursue drop-in fuels. One attraction is that compared with ethanol, the demand for which depends to a large extent on government mandates that it be blended into conventional fuels, drop-in fuels are less susceptible to changing political whims. Another is that drop-in fuels are commonly made with sugar as a feedstock, either conventionally sourced or cellulosic, and sugar is widely available and easily transported. Stepping on the gas Amyris, based in California, genetically engineers yeasts and other microbes to ferment sugar into a long-chain hydrocarbon molecule called farnesene. This can then be processed into a range of chemicals and fuels. After a few rocky years when it over-promised and under-delivered, Amyris is now producing limited quantities of renewable diesel for public buses in Brazil and is trying to get its renewable jet fuel certified for commercial use. Solazyme, another firm based in California, is also focusing on renewable diesel and jet fuels, in its case derived from algae. Microscopic algae in open-air ponds can use natural sunlight and atmospheric or industrial-waste carbon dioxide to produce oils. But harvesting the fuel, which is present in only very small proportions, is expensive and difficult. Solazyme instead grows algae in sealed fermenting vessels with sugar as an energy source. The US Navy has used tens of thousands of litres of its algal fuels in exercises, and Propel, an American chain of filling stations, recently became the first to offer algal diesel. But although its technology clearly works, Solazyme remains cagey about the economics. A 110m-litre algae plant in Brazil, due to be up and running by the end of the year, may clarify Solazyme’s commercial potential. If drop-in biofuels are going to have an impact worldwide, they will have to be economic away from the tropical climes of South America, where sugar can be grown cheaply. The only commercial facility currently making drop-in fuels directly from woody biomass is operated by a start-up called KiOR. Its 50m-litre plant in Columbus, Mississippi, turns pine-tree chips into drop-in petrol and diesel for customers including FedEx, a logistics firm, and Chevron, an oil giant. KiOR uses a thermochemical process called fluid-catalytic cracking that borrows many technologies from conventional oil refineries and, unlike fussier biochemical systems, should scale up easily. KiOR is planning a 150m-litre facility in nearby Natchez. However, the Columbus plant is not yet running at anywhere near full capacity, and KiOR has a lot of debt and is still losing money. In August disgruntled investors launched a class-action lawsuit. Some observers doubt whether even the most sophisticated biofuels can compete with fossil fuels in the near future. Daniel Klein-Marcuschamer, a researcher at the Australian Institute for Bioengineering and Nanotechnology, conducted a comprehensive analysis of renewable aviation fuels. He concluded that producing first-generation bio-jet fuel from sugarcane would require oil prices of at least $168 a barrel to be competitive, and that some second-generation algae technologies would require crude oil to soar above $1,000 a barrel (the current price is around $110) to break even. Mr Klein-Marcuschamer has made his model open-source in an effort to help the industry find ways to make biofuels more competitive. Even if second-generation processes can be economically scaled up, however, that might in turn highlight a further problem. To make a significant dent in the 2,500m litres of conventional oil that American refineries churn through each day, biofuel factories would have to be able to get hold of a staggering quantity of feedstock. Mr Ghisolfi of Beta Renewables points out that a factory with an annual output of 140m litres needs 350,000 tonnes of biomass a year to operate. “There are only certain areas, in Brazil and some parts of the US and Asia, where you can locate this much biomass within a close radius,” says Mr Ghisolfi. “I am sceptical of scaling to ten times that size, because getting 3.5m tonnes of biomass to a single collection point is going to be a very big undertaking.” Billions of tonnes of agricultural waste are produced worldwide each year, but such material is thinly spread, making it expensive to collect and transport. Moreover, farms use such waste to condition the soil, feed animals or burn for power. Diverting existing sources of wood to make biofuels will annoy builders and paper-makers, and planting fuel crops on undeveloped land is hardly without controversy: one man’s wasteland is another’s pristine ecosystem. Dozens of environmental groups have protested against the EPA’s recent decision to permit plantations of fast-growing giant reed for biofuels, calling it a noxious and highly invasive weed. Just as the food-versus-fuel argument has proved controversial for today’s biofuels, flora-versus-fuel could be an equally tough struggle for tomorrow’s. Continue reading
