The International Finance Corp. (IFC) stopped financing the industry in 2009 after social and environmental complaints by smallholders and local communities in Indonesia, prompted a internal review of its lending practices.

The IFC has since taken inputs from nearly 3,000 stakeholders to create a new strategy of engagement with the $30-billion palm oil industry that will be forwarded to World Bank president Robert Zoellick by the first quarter of 2011 for approval.

Part of the new strat – egy involves supporting the Roundtable on Sustainable Palm Oil (RSPO) – a grouping of planters, green groups and consumers that formulated green standards for the industry, said IFC’s director of global manufacturing, agribusiness and services Atul Mehta.

“On our performance standards, we already encourage our clients to also aspire to internationally recognized certification very much along the lines of what the RSPO is promoting,” Mehta told Reuters in an interview.

Formulating new methods of assessing the palm oil industry’s social and environment impacts and favouring investments in firms that depend on small farmers for supply also feature in the new strategy, Mehta said.

Although IFC’s involvement in the sector is small, having invested $132 million in palm oil projects in Asia, central America, Ukraine and West Africa, the new guideliness may help more potential clients become more eco-friendly, Metha said.

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“Some companies are interested in peatlands and we are working with those who want to safeguard the environment and ensure our country’s prosperity.”

PALM PROTESTS: Protesters from Greenpeace, dressed as orangutans, demonstrating outside the Unilever building in London last year. Greenpeace said it wanted to raise awareness of companies who buy palm oil from companies that are

destroying Indonesia’s rainforests. Indonesia is pressing ahead with development of peatland forests for plantation crops such as palm oil. (RSPO).

Indonesia will press ahead with a plan to open up peatland forests for plantation crops such as palm oil, an official said Nov. 4, despite protests from green groups that such a land conversion speeds climate change.

The Southeast Asian country wants to maintain its position as the world’s top palm oil producer as it looks to hand over degraded land including peatlands to planters, Rosediana Suharto, head of the Indonesian Palm Oil Commission, said.

Peat is the accumulation of partially decayed vegetation in very wet places and burning peatland forests in Indonesia pumps large amounts of carbon into the atmosphere and fans choking smoke across the region during the dry season.

Suharto said Indonesia, the world’s third-largest CO2 emitter, has set aside only that portion of the peatlands that have low carbon stores to limit environment damage. Only eight per cent of its 25 million hectares of peatlands is being offered for conversion this year.

“We have not issued any licences so far because of the strict criteria like maintaining water tables and we do have a zero-burning tolerance for these lands,” she told Reuters at the sidelines of a palm oil conference in the Malaysian capital.

“Some companies are interested in peatlands and we are working with those who want to safeguard the environment and ensure our country’s prosperity.”

Indonesia has planted palm

estates of 7.1 million hectares. Palm oil generated exports revenue of $10.7 billion, or about 10 per cent of the country’s non-oil and gas exports in 2008.

PEATLANDS VERSUS PALM ESTATES

Suharto said companies belonging to the Roundtable of Sustainable Palm Oil (RSPO), an industry initiative trying to develop green standards for palm oil production and distribution, stand to lose out on valuable opportunities to expand.

“If the peatland we have set aside has low carbon reserves and given palm oil estates’ ability to act as net carbon sink, then expansion in these areas should go on,” Suharto said.

“We have not been wantonly cutting down forests the way the green groups accuse us of doing.”

About two million hectares are suitable for palm oil estates and since the 1970s, a little less

than half have been taken up by planters, Suharto said.

The rest of the peatland forests hold the world’s largest carbon reserves, holding around 37.8 billion tonnes, according to environment group Greenpeace.

Indonesia’s government has said the country has released 2.3 billion tonnes of carbon dioxide in 2005 – or 10 tonnes per Indonesian and forecast it would jump to 2.8 billion due to the farm and forestry sector expansion.

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Alternative energy fuels would be the only source of additional demand growth for vegetable oils, as demand from the food sector is expected to be flat, thanks to the credit crisis, said James Fry, managing director of Londonbased LMC International.

“In the way economies are going, I probably feel that in the 12-month period, demand growth for meal and vegetable oils is destroyed. The only growth in demand could very well come from biofuels,” Fry told Reuters.

“The gains for biodiesel in the new oil year are partly because high vegetable oil prices made biodiesel uncompetitive in the previous oil year unless there were subsidies.”

Prices of vegetable oils such as soyoil, rapeseed, sunoil and palm oil have galloped to record highs in a two-year rally from 2006, which came to a halt just months ago as investors sold down commodity markets to seek safe havens from the financial crisis.

Biodiesel mandates only worked in soyoil exporting nations such as the U. S, Argentina and Brazil where massive subsidies were in place to soften the impact of high feedstock prices.

However, palm-based biofuels have never really taken off in top producers Malaysia and Indonesia until recently when both governments rushed to shore up recent faltering prices with biodiesel mandates that will start next year.

Palm oil plummeted nearly two-thirds from record levels of 4,486 ringgit (US$1,233) per tonne hit in March and soyoil tumbled 57 per cent from a peak US71.26 cents per pound in the same month.

The drastic falls in vegetable oil prices since March have compelled top Asian consumers China, India and Pakistan to default or defer cargoes of palm oil and soyoil, which was the first instance of trade flows getting suffocated, Fry said.

Demand growth for vegetable oils from the food sector in the oil year to September 2009 could be minimal or even flat at 105 million tonnes as traders are unable to secure enough credit despite low prices, Fry said.

“Potential demand would be there at low prices but the overseas buyers via their traders cannot actually get to finance those trade flows and that obviously means there is demand destruction,” he said.

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