Trase Yearbook 2020
The state of forest risk supply chains
A review of commodity deforestation and expansion, the traders and markets that dominate exports and their exposure to associated deforestation risk, and the effectiveness of zero-deforestation commitments for half of global trade in forest-risk commodities.
Indonesian palm oil
Major steps towards sector-wide traceability
Some 80% of Indonesia's palm oil exports were covered by a zero-deforestation commitment in 2018. Traceability reports on sourcing to mills are a big step forward for transparency of the sector. Despite this, exports continued to be linked to deforestation risk.
There was 566,826 ha of deforestation across Indonesia in 2015
Indonesia is the world’s largest palm oil exporter, accounting for 55% of globally traded flows. In 2018, Indonesia’s oil palm plantations covered more than 165,000 km2, an area around four times as big as the Netherlands. In 2018, most palm oil production (65%) took place on the island of Sumatra, with Kalimantan accounting for another 31%.
There was 77,875 ha of palm oil deforestation in 2015
Nevertheless, deforestation rates are slowing in the archipelago, with a 45% decrease between 2015 and 2019, from 566,954 hectares to 309,852 ha. This pattern is also seen in West Papua and Papua provinces where the majority of Indonesia’s intact primary forests remain, with deforestation declining 56% in this same period from 80,751 ha to 35,344 ha .
There was 77,875 hectares of deforestation for oil palm plantations (palm oil deforestation ) in 2015 (nearly 15% of total deforestation) . While Sumatra produced twice as much palm oil as Kalimantan in 2015, much more palm oil deforestation had taken place in that year in Kalimantan (61,000 ha) than in Sumatra (11,400 ha).
Although Papua produced only 0.53% (167,468 tonnes) of Indonesia’s palm oil in 2015, it represents a possible new frontier of oil palm plantation expansion and associated deforestation.
Palm oil trade dominated by a handful of export groups and markets
The top 5 exporter groups accounted for 74% of export volume and 73% of linked deforestation risk in 2015
While 352 individual traders exported palm oil from Indonesia in 2015, Trase research into companies’ legal ownership suggests that just five exporter groups handled over 70% of exports in 2015: Sinar Mas (19%), Wilmar (19%), Musim Mas (18%), Royal Golden Eagle (11%), and Permata Hijau (6%).
India has been the main importer of Indonesian palm oil in recent years, followed by the European Union and China. The gap between the EU and China has been narrowing, with China overtaking the EU in 2019.
of palm oil deforestation risk per 1000 tonnes of palm oil exports in 2015
Domestic consumption is the largest market overall for Indonesian palm oil. It has been growing steadily since 2015 and the Indonesian government has ambitions to continue its expansion, including by increasing the mandatory share of palm oil-derived biofuel in diesel to 30% from the start of 2020 – the highest mandatory mix in the world.
First sector-wide view of palm oil and links to deforestation
Shedding light on Indonesia’s opaque palm oil millsSee insight
The five largest traders of palm oil from Indonesia all provide traceability reports that identify the mills they source from. This level of public transparency, which covers nearly two thirds of all palm oil produced in 2015, far outstrips efforts in other commodity supply chains. However, the sheer number of mills each group sources from (between 200 and 450 out of a total known mill base of 1,096 mills) and the fact that these reports do not include the volume sourced from each mill, make it impossible to assess precisely how exposed they are to deforestation risk via the mills’ sourcing. In a promising sign, a few companies are now taking the next step and reporting volumes.
Trase has provided the first sector-wide map of palm oil sourcing, by aggregating and cleaning these traceability reports and connecting them to data on domestic and international shipments of palm oil by companies, company ownership of refineries, mills and plantations, and palm oil production. This is currently limited to 2015 due to data limitations but will be updated in the near future.
Sustainable sourcing commitments high, but challenging to implement
81% of palm oil exports were covered by a zero-deforestation commitment in 2018
In Indonesia most zero-deforestation commitments (ZDCs) are framed as “no deforestation, no peat, no exploitation” (NDPE). In 2018, 81% of palm oil exports were covered by an NDPE commitment. This is a much higher level of ZDC coverage than most forest-risk commodities and the highest of all commodities Trase currently tracks. The large coverage is mostly due to the dominance of a small number of main exporter groups that have made NDPE commitments.
of palm oil deforestation risk were associated with an export covered by a trader’s zero-deforestation commitment in 2015
However, the top five exporter groups, all with NDPE commitments, were still exposed to significant deforestation risk associated with their exports in 2015: Sinar Mas (50,495 ha), Wilmar (30,777 ha) Musim Mas (36,577 ha), Royal Golden Eagle (13,824 ha) and Permata Hijau (7,266 ha). In some groups, these risks were concentrated within a subset of subsidiary traders. For example, 48% of Sinar Mas’s deforestation risk exposure is associated with its subsidiary Sinar Mas Agro Resources and Technology. However, this company only trades 26% of Sinar Mas’s total exports, indicating that it contributes a disproportionate share to Sinar Mas’s total deforestation risk. In contrast, another Sinar Mas subsidiary, Sumber Indahperkasa, was responsible for 17% of Sinar Mas’s deforestation risk, while exporting 32% of the group’s total exports.
Low vertical integration of dominate palm oil traders brings transparency challengeSee insight
Also notable is that companies with NDPE commitments, responsible for 81% of exports, were responsible for 78% of all deforestation risk. The fact that companies with NDPE commitments have a similar deforestation risk profile to their competitors highlights the need for more aggressive implementation of commitments to achieve a vision of zero-deforestation palm oil.
While the largest exporting groups directly controlled most of the refineries they sourced exports from, they controlled a much smaller share of mill capacity (with the exception of Sinar Mas). Mills and plantations are owned by hundreds of smaller corporate groups and individual companies, and hundreds of thousands of independent smallholders contribute towards production.
of (16 out of 249) palm oil-producing kabupaten accounted for half of palm oil deforestation in 2015
This creates a traceability challenge. However, the largest traders remain embedded in landscapes where deforestation risk is high, by virtue of the mills they do own (the top four exporting groups each own mill capacity equivalent to more than 1.5 Mt of crude palm oil) and through long-term relationships with independent mills. This gives them an opportunity to engage producers on the ground in these regions in order to achieve positive change.
More information on data sources and methods .