The oil palm industry: A road to poverty reduction

There is a potential controversy surrounding oil palm that could discourage domestic and foreign investments. If not nipped in the bud, it will have an impact on poverty reduction, particularly in Mindanao.

This past month, a Malaysian industry group expressed interest in investing $575 million to develop some 66,000 hectares of land for oil palm plantations. This was reported by Mindanao Development Authority Chair Lualhati Antonino. One area cited by the media was Liguasan Marsh in Maguindanao reportedly as part of peace dividends. Various Mindanao-based civil society organizations (CSOs) immediately opposed the proposed investments.

Wetlands

The Liguasan Marsh is one of the largest wetlands in the country. It is composed of three marshes—Liguasan proper, Libungan and Ebpanan—and is an important wetland habitat of water bird species. Most are underwater during rainy season. About 140,000 hectares dry out during dry season and are cultivated.

The main threat in the past has been the conversion of marshes to rice paddies and other agricultural land. A fisheries project will involve the conversion of large areas into aquaculture ponds and fish pens. The marsh is settled by more than 100,000 Maguindanaoan families who are dependent on fishing when water levels are high and agriculture when the water is low. (Incidentally, my birthplace Pigcawayan, Cotabato, is located at the northern boundary of the marsh).

The CSOs noted that oil palm plantations have been named as a main driver of deforestation in Indonesia.

Greenpeace claims that clearing and burning forests for plantations are a major cause of air pollution in Southeast Asia.

Oil palm planters are also being accused of causing the loss of habitat for the Orangutan and the Sumatran Tiger.

One said that messing up with nature can lead to destructive typhoons like Pablo and Sendong. International media support Greenpeace’s claims.

But Mindanao is not Indonesia.

There is mass rural poverty in the region, despite great agro-climatic potentials for oil palm.

According to official statistics, eight of the 15 poorest provinces are in Mindanao, among them Zamboanga del Norte, 52.9 percent (the highest), Agusan del Sur 51.2 percent, and Maguindanao 44.6 percent.

Where are we?

There are only about 70,000 hectares of land planted to oil palm in the Philippines. The Philippines heavily imports palm oil, the primary processed product of oil palm. It imported about 550,000 tons of refined palm oil in 2011, mostly from Malaysia that supplied 80 percent of the country’s requirements. The remaining 20 percent, about 120,000 tons, came from local farms.  As the country grows, so will the demand for palm oil for cooking, baking and food service.

The private sector has so far invested in processing plants that serve thousands of farmers in Agusan, Bohol, Bukidnon, Maguindanao, North Cotabato, Palawan and Sultan Kudarat, among others. There are two mills in Agusan, and one each in Bohol, Bukidnon, Palawan, Sultan Kudarat and Maguindanao.

The nascent oil palm industry has used idle and underutilized lands. It saves dollars through import substitution, provides jobs, and generates taxes for local communities in Agusan, Maguindanao and Sultan Kudarat.  It has also helped to build communities.

The potential is there. The Palmoil Industry Development Council estimated a potential of about one million hectares. This is on the high side, as oil palm areas are also suitable for other tree crops such as rubber, coffee and cacao.

By contrast, millions of hectares have been developed in Southeast Asia starting in Malaysia, then Indonesia and Thailand. Some 1.5 million small farmers grow oil palm in Indonesia, mostly under the nucleus-outgrowers scheme, and around 500,000 small growers in Malaysia mostly under centrally managed schemes. Expert studies show that the crop has been instrumental in reducing or eliminating rural poverty in these countries.  The industry has created millions of farm and non-farm jobs and drove agriculture exports to high levels.

Contrasts

Because of natural endowment and current state of areas for development, there are significant differences between the experiences of Malaysia and Indonesia and those of the Philippines.

The environmentalists are on the right track in raising the red flag on forest destruction in Kalimantan and Sumatra, Indonesia.

At least eight million hectares of oil palm are planted and are projected to reach 10 million hectares by 2015. About 40 percent are planted by small farmers.

Indonesia’s president, Susilo Bambang Yudhoyono, recently signed a decree to bring into force a two-year moratorium on new forest concessions.

The moratorium was supposed to start in January 2011. It covered 64 million hectares of primary forests and peat lands. But this is being contested by environmentalists as not comprehensive enough as it did not cover all forests.

In Malaysia, the conversion of forests is a thing of the past. Certainly, this was done in the 1950s to 1970s when rubber and oil palm plantations were opened. The most famous was the Jengka Triangle in Pahang State.  New developments came from the conversion of rubber estates into oil palm.

However, the Philippine case is a contrast.

In the Philippines, most of oil palm is grown in logged-over areas, unproductive uplands, low-yield corn lands, and cogon lands. Oil palm does not do well 500 meters above sea level, so the highlands cannot be used. Rice lands were left untouched. No forests were cut down and burned.

Growers cultivate their own farms. My estimate is that there are easily 7,000 growers in the country and about 15,000 workers and the number is increasing.

Things are also changing in Southeast Asia.

Malaysia, the second-largest producer of palm oil, has pledged to conserve a minimum of 50 percent of its total land area as preserved forests.

As of 2010, 58 percent of Malaysia’s land was forested.

Oil palm’s economic and social benefits

The proposed 66,000-hectare integrated project will have immense economic and social benefits.

Based on my experience, the project will have a direct employment of about 15,000 workers and farmers benefiting about 90,000 people.

Workers will get regular wages every 10-14 days for harvesting. Total annual wages will top P1 billion. The project will produce over 300,000 tons of palm oil, replace imports and save the country $240 million at current prices.

Moreover, it will generate taxes for local and national governments. Perhaps more important is that it will be a landmark investment in the Autonomous Region in Muslim Mindanao.

But the use of Liguasan marsh as a site of oil palm development must be subjected to environmental impact and social assessment.

An investor commented that touching the marsh land may not be a good idea but that there are thousands of idle, cogonal lands that are good for oil palm in Mindanao and thousands more on the periphery of corporate plantations such as Dole, Del Monte and the like.

Also, the government has to do its share in infrastructure such as farm-to-market roads to make it easier to plant on DENR forestal areas (which are logged over and cogonal), curb technical smuggling, and innovate on long-term finance.

Still, oil palm is a good choice to help reduce poverty in our country.

Ultimately, the decision on Liguasan development will have to be made by the Bangsa Moro people themselves. There are many suitable idle lands in Maguindanao. Given the bad publicity, the Malaysians may have second thoughts about Liguasan.

Moving forward

Mindanao badly needs investments to create jobs and incomes to address the high poverty incidence in the region.

There are well-meaning groups that are concerned with the welfare of the poor. However, they must not only criticize and discourage investors.

They must offer viable livelihood alternatives to address extreme poverty. Like a medical doctor, the diagnosis of the ailment of the patient must consider available remedies. Not all remedies are risk-free. There could be some minor complications. What is important is that a cure is being found.

Mindanao has similar climatic endowment for tree crops like Malaysia, south Thailand and parts of Indonesia. Rural poverty has been reduced or practically eliminated there. Meanwhile, Mindanaoans continue to suffer.

What is the choice?

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is the executive director of the Center for Food and AgriBusiness of the University of Asia & the Pacific. Feedback at [email protected]. For previous articles, visit <map.org.ph>.)