How Brazil clamped down on deforestation

Khor Reports comment: Worth reading this piece from The Economist: http://www.economist.com/news/science-and-technology/21603409-how-brazil-became-world-leader-reducing-environmental-degradation-cutting. I'm hoping to soon get hold of a the source article in Science. I've been reviewing soy sustainability. State regulations are an important part, as are proactive and well functioning industry associations that seem well engaged with all levels of administration. Some sources point out that Brazil has a well-engaged and active domestic NGO sector, which also pushed the earlier changes via domestic contestation. To be sure, implementation was a major question mark and international pressure has been for Brazil's relatively strict regulations to be followed. There are also efforts at information reporting on GIS mapping of deforestation and such. Bottomline, Brazil annual deforestation is now about 500,000 hectares and it's attributed significantly / mostly to smallholders.

The Economist writes, "But how did it break the vicious cycle in which—it was widely expected—farmers and cattle ranchers (the main culprits in the Amazon) would make so much money from clearing the forest that they would go on cutting down trees until there were none left? After all, most other rainforest countries, such as Indonesia and the Democratic Republic of the Congo, have failed to stop the chainsaws. The answer, according to a paper just published in Science by Dan Nepstad of the Earth Innovation Institute in San Francisco, is that there was no silver bullet but instead a three-stage process in which bans, better governance in frontier areas and consumer pressure on companies worked, if fitfully and only after several false starts." It concludes: "By any standards, Brazil’s Amazon policy has been a triumph, made the more remarkable because it relied on restrictions rather than incentives, which might have been expected to have worked better. Over the period of the study, Brazil also turned itself into a farming superpower, so the country has shown it is possible to get a huge increase in food output without destroying the forest (though there was some deforestation at first). Still, as Dr Nepstad concedes, a policy of “thou-shalt-not” depends on political support at the top, which cannot be guaranteed. Moreover, the policies so far have been successful among commercial farmers and ranchers who care about the law and respond to market pressures; hence the effectiveness of boycotts. Most remaining deforestation is by smallholders who care rather less about these things, so the government faces the problem of persuading them to change their ways, too. Deforestation has been slowed, but not yet stopped."


Source: Economist.com

Interview #2 Presidential race heats up, foreigners worry?

In the last two weeks, I've been in touch with six (6) people who represent large business interests in Indonesia including in palm oil (domestic and international owners) and three (3) Malaysians who work and/or are invested in Indonesia palm oil.
 
View of Indonesia invested MNC interests:
One observed that Indonesia ethnic Chinese businessmen were initially fearful of the Prabowo candidacy (relating to uncertainty over his exact role during the violation of social rights during the height of the Reformasi crisis). However, one close observer thought that they now seem to be quite accepting of him, especially with Santiago Uno playing a lead role in his economic team. Supporters say there is no firm evidence of his role during the troubles.

Some felt that Kalla seemed a tired face to put next to Jokowi; and other gripes about against Jokowi were that his role would be determined by Megawati with significant dissension reported in the family-controlled PDI-P. Moreoever, another source had recently visited at a more rural province – in talking to locals at warung, he heard that they liked Jokowi, but because the governor supports Prabowo, they thought they should vote with his recommendation. Hatta is from Palembang, and some hope that he will be good for plantations since as he would know about palm oil and rubber from his home town area; further he has been Coordinating Minister and is an in-law of SBY.

International investors are concerned with Prabowo’s rise in the polls and his economic policy ideas. He has a significant nationalistic, strong-man image and widely said to have a temper. Thus, they worry about downward pressure on the Indonesian currency and other Indonesia financial assets if he should come to win[1].
[1] What do foreign investors think? Nomura, 2 July 2014, “Asia Insights - Indonesia election: Pitting investor expectations vs views on the ground” reports: “Our global investor survey on Indonesia’s upcoming presidential elections show an overwhelming 90% of respondents expect a Jokowi win and by an average 8.5% margin of victory over Prabowo. This expected margin is high compared with the latest polls which are showing between 3-5%. However, these polls, in our view, are increasingly capturing the realities on the ground.  Indeed, our recent trip to Jakarta gave a clear impression that the presidential race will go to the wire, and that the election outcome remains uncertain. There is therefore a rising risk of market disappointment, in our view.” Also, view Economist article: http://www.economist.com/news/asia/21606330-indonesias-presidential-race-tightens-election-day-approaches-knifes-edge?fsrc=nlw|hig|3-07-2014|5356bdcd899249e1cca0fce6|

Indonesia domestic business interests
Domestic business interests sound hedged either way (as one would expect), well prepared to lobby for sectoral interests. Reaching out to specialists, we were also updated that a mooted foreign ownership limit is still in the drafting. Clearly it was not ready to be in place before the start of presidential campaigning. We also heard of hopes to launch palm oil sector programs prior to the election, but these may have run out of time. On the question of the rumoured export duty change - it really depends who you talk to i.e. whether they have interest downstream processing (ex-refinery) versus upstream. Some moot a convergence with the Malaysia export duty regime, which would tend to give palm oil farmers a better price. In this regard, the final presidential debate should be of interest as it will also cover energy and agriculture.

A recent interview source notes that SBY has declared his support for the Prabowo team. Presumably, SBY must have good reason (data support?) to do so. As mentioned earlier, Hatta is his in-law. Some senior Indonesians consider the first Presidential Debate a bit of tie while the others were won by Prabowo-Hatta. It is noted that the mainstream newspapers support Jokowi (but note from Interview #1 that most of the large TV stations support Prabowo). Prabowo has the money and the better organization in the electoral campaign. The marked preference that foreign investors have for Jokowi is also noticed by highly-placed Indonesians and there is suggestion of some bias in the way Prabowo’s policies are reported in the international media and by foreign bank analysts[1].

Malaysia observers
In the previous election presidential candidate debates, a Malaysia observer was much struck by the difference between Megawati and the outgoing President SBY. In a past debate, one source remembered that the former was more kneejerk hawkish on her preferred approach to resolve Malaysia-Indonesia dispute matter while SBY quoted the Pancasila and pointed to the need to first negotiate[2]. Clearly there is some discomfort with overly strong nationalistic approaches. However, some Malaysia investors seem relatively sanguine about business regulatory changes. They note that while the candidates may sound more nationalistic in campaigning and new regulations may seem tough, the implementation usually ends up more practical and business-friendly.
[2] Those interested in foreign policy can read this: RSIS Commentary 125/2014 Aspiring Regional Power: Indonesian Foreign Policy Under Next President by Yang Razali Kassim, published 3 July 2014; which finds both candidates willing to negotiate, but reckons that Jokowi is more dove-ish.


Do also view: Indonesia presidential race (update 4), /khorreports-palmoil/2014/06/indonesia-presendial-race.html and Interview #1: Presidential politics and Indonesian palm oil,
/khorreports-palmoil/2014/06/interview-1-presidential-politics-and.html

Sustainability news links - Nespresso sustainability, BBC complaint, Greenpeace losses

University of Michigan MBA students win competition to inject sustainability into coffee production - video; "The 2014 Nespresso Sustainability MBA challenge, which aims to find new ways to inject sustainability and shared value into the coffee industry, saw 70 MBA schools worldwide take part. Students from Yale School of Management were one of two runners-up, recognised for their strategy to combine the goals for carbon reduction of both Nespresso and coffee producing country Costa Rica." http://www.theguardian.com/sustainable-business/video/university-michigan-mba-nespresso-sustainability-challenge-2014-coffee-video

Common sense prevails as BBC upholds Today programme climate complaint. BBC's Editorial Complaints Unit concludes interview with Lord Lawson and Professor Sir Brian Hoskins on climate change and floods broke guidelines on due accuracy; http://www.theguardian.com/environment/blog/2014/jun/26/commonsense-prevails-as-bbc-upholds-today-programme-climate-complaint; " Lawson made inaccurate and misleading statements about the science of climate change as he had done so in previous appearances on its programmes.
Furthermore, he was no doubt invited to participate in the interview on Today because he rejects the scientific evidence and chairs a campaign group for climate change ‘sceptics’, the Global Warming Policy Foundation...."

Greenpeace losses: leaked documents reveal extent of financial disarray; Emails and meeting notes show group’s finance department has a long history of problems in its handling of the £58m budget,
The Guardian, Monday 23 June 2014 10.09 BST; "The handling of Greenpeace International’s £58m budget has been in disarray for years, with its financial team beset by personnel problems and a lack of rigorous processes, leading to errors, substandard work and a souring of relationships between its Amsterdam headquarters and offices around the world, documents leaked to the Guardian show.
Coming after it emerged that a staffer had lost £3m on the foreign exchange market by betting mistakenly on a weak euro, the documents show that the group’s financial department has faced a series of problems, and that its board is troubled by the lack of controls and lapses that allowed one person to lose so much money.... Greenpeace, which prides itself on being largely funded by relatively small individual donations, apologised to supporters for the loss, claiming that the “serious error of judgment” was the result of a single staff member “acting beyond the limits of their authority and without following proper procedures”. But the documents show that internally the group is worried about the organisational failings that allowed it to happen....The leaked material seems to show disquiet over a continuing major restructuring, aimed at moving staff from Greenpeace International’s base in Amsterdam to national offices across the world to fulfil Naidoo’s goal of better tackling environmental problems in the global south. “This [2014] will be a testing year for all of us,” the strategy document warns....Gerald Steinberg, president of NGO Monitor, which seeks to make NGOs more transparent and accountable, said he saw parallels with the financial problems Amnesty International had experienced in recent years. “The extent of it [the financial problems] was not something I expected [at Greenpeace]. But it’s part of the fact that NGOs keep things very much within the organisation; there’s no culture of accountability. They call on governments to be accountable but they lack this in so many ways, so in that sense it’s not a surprise.”... http://www.theguardian.com/environment/2014/jun/23/greenpeace-losses-financial-disarray

To target Greenpeace's flying director is to miss the point, It's easy to set green against green, but the charity's problems run wider and deeper than one person's travel plans, The Guardian, Wednesday 25 June 2014; http://www.theguardian.com/commentisfree/2014/jun/25/greenpeace-flying-director-green-charity

Nielsen survey finds sustainability boost sales, sustainable consumption ranks #12

Khor Reports: An interesting ranking of CSR topics of "extreme concerns" in this Nielsen retail survey, where clean water and sanitation come up tops, and environment and biodiversity come #3 and #11 and "increasing the focus of sourcing products we consume sustainably" comes in #12 and benefiting local communities #20. The top ranking CSR topics are mostly traditional development concerns including child mortality, maternal health, disease, and disaster relief. Various commodities are shifting toward sustainable supply-chains, so it's interesting to see the ranking of their core targets relative to other concerns.

What's also interesting is Nielsen's recommendation to use KPIs and quantify program outcomes. There is seems to be a rising dissatisfaction from both growers and buyers that sustainability programs are of uncertain macro benefit. Many industry specialists think that commodity sustainability programs are part of the non-tariff barrier trend and used for commercial advantage[1] by various industry players. One buy-side industry sustainability expert I spoke to very recently said this: "imagine if we took all that money spent on (palm oil sustainability) certification, supply-chain mapping and so forth and just spent it on the ground (on traditional CSR programs)...."

[1] Note Nielsen's research finding of "average annual sales increase of 2 percent for products with sustainability claims on the packaging and a rise of 5 percent for products that promoted sustainability actions through marketing programs. A review of 14 other brands without sustainability claims or marketing shows a sales rise of only 1 percent.."


Consumers Believe They're Eager to Pay More for Do-Gooder Products  By Venessa Wong      June 20, 2014; http://www.businessweek.com/articles/2014-06-20/consumers-believe-theyre-eager-to-pay-more-for-do-gooder-products

Even the most earnest social-responsibility efforts are often tied deeply to corporate marketing goals, a long-standing link that appears to be growing stronger. Research by Nielsen (NLSN) has found that consumers are attracted to such initiatives and are even willing to pay additional money to satisfy do-gooder instincts. For companies, it seems that doing good is an increasingly viable sales strategy.
In Nielsen’s online survey of 30,000 consumers in 60 countries, 55 percent of respondents said they would pay more for products and services from companies committed to positive social and environmental impact. The age group most likely to say they’d pay a premium: millennials.... “Precision marketing and knowing your consumers intimately will yield the greatest results,” wrote Amy Fenton, Nielsen’s global leader of public development and sustainability.... Labels are a marketer’s best friend, as food companies discovered when consumers said they would pay a premium for claims such as “locally sourced” and “certified organic.” ...consumers’ top concern: The world’s premium-paying consumers cared most about access to clean water, Nielsen found, followed by access to sanitation and environmental sustainability.....


The Nielsen research found, in a retail analysis, that sales of products marketed as socially responsible grew more quickly than those of comparable products: “The results from a March 2014 year-over-year analysis show an average annual sales increase of 2 percent for products with sustainability claims on the packaging and a rise of 5 percent for products that promoted sustainability actions through marketing programs. A review of 14 other brands without sustainability claims or marketing shows a sales rise of only 1 percent.”

To capitalize on sustainability initiatives, Nielsen offers companies this road map:
1. Vision: Be clear, practical, and global.
2. Endorsement: Get adoption and action from senior leadership.
3. Strategy: Focus on outward messaging and consistent cause messaging.
4. Accountability: Use key performance indicators, internally and externally.
5. Measurement: Quantify program outcomes and return on investment consistently across markets.



Interview #1: Presidential politics and Indonesian palm oil

We've been chatting with Malaysia and Singapore palm oil industry specialists and noticed significant interest in the upcoming Indonesia Presidential vote. Early in the week, we had the opportunity to talk to a Khor Reports reader who was interested to talk about it, and so we present to you this interview. 

Political changes can bring major shifts in resource development policies as well as a different approach to NGOs such as seen in Australia. On the buy side, in major consuming countries, we should note the rise of right wing nationalistic parties who gained more power especially in the European Parliament.

Interviewee #1: Indonesian voter, palm oil industry senor manager, who was part of the student demonstrations in the 1998 ousting of Suharto. A Jokowi supporter.
#1 on the Presidential ballot is Prabowo-Hatta  and #2 is Jokowi-Kalla. The Presidential election is on 6 July 2014 (in just over 3 weeks time). 

What do you think of the recent poll numbers?

40% of Indonesia voters are undecided. Jokowi has a 10% lead. In the USA that would be a win, but Indonesians can decide at the last minute. Indonesians won’t take your money and vote for you like what we hear about Malaysia. There was a famous case where Rp 150,000 (US$14-15) bribe was given at a local election – that candidate just got three votes and he hired a debt collector to try to get back his money!

What's an important issue in Indonesia elections?
A major political lesson from 1998 is not to let food staples prices get out hand. Indonesia pays attention to "sembako"[1] which comprises 9 items, including rice, flour, eggs, milk, oil, sugar etc.  

What is Prabowo's plaftform?
He says that Indonesia is weak. Its riches has been taken by others. Indonesia has been bullied by Malaysia, Singapore, USA and others. It needs a strong leader who can say no and stand up to them. Like in the old days. He tells voters that Indonesia’s riches will go back to Indonesians. He will start nationalising industries. On corruption: he proposes to increase civil servants pay. On plantations: 5 million more hectares should be developed – you don’t need to conserve forest as this retards economic development. Prabowo is funded by business conglomerates, including his brother’s. He also gets money from Bakrie, and MNC media (he’s featured on 5 out of 6 major TV channels; only 1, Metro[2] features Jokowi).

The younger generation demonstrated on streets to topple Suharto. I shall never vote Prabowo as he ordered protestors shot. The “Jangan Lupa” Facebook campaign aims out to remind people about what Prabowo did in the past. Pro Jokowi army insiders recently leaked information that Prabowo was fired and left under a cloud. He is suing the army for leaking that letter. I am still worried that people will forget what he has done. This letter is not featured heavily in the major news.

What does Jokowi stand for?
Jokowi is about transparency, anti-corruption and a new way of thinking. On corruption: he says that pay should be based on merit and that the government should put all information online for the people to see. On plantations: he's for stability for the environment and development. Jokowi is using Obama-style campaign funding[3] – social media funding. From such donations he has raised Rupiah 17.2 billion (US$1.45 million @11,835). He’s not on significant business funding. Now that he has some money, his posters are up all over. Prabowo is suing him as he says that Indonesian law does not allow such public financing.

Jokowi uses the “good cop – bad cop” approach. When he was Governor of Jakarta, his public image was to visit the people while his vice/deputy was the tough guy. Now, Basuki  is Acting Governor of Jakarta – he is an ethnic Chinese;
http://en.wikipedia.org/wiki/Basuki_Tjahaja_Purnama. Muslim parties had protested against having a Chinese governor but the public said it had no problem with this. Basuki is a no nonsense guy. 


Christian support is going for Jokowi. FPI is a vigilante group attacking churches, going around demonstrating for Shariah law, shouting at Muslim women not wearing a headscarf and vandalising stores selling Christian objects. FPI is publicly supporting Prabowo and seeking Shariah in several provinces. Jokowi is saying that Indonesia is a diverse country and will not be drawn into such religious Shia argument. Shariah is only in Acheh.  

How did the 9 June debate go?
In the presidential debate[4], Jusuf Kalla was placed as the attacker; Jokowi spoke first to set the vision and positive messages. The winner of debate was Kalla as he nailed Prabowo until he couldn’t answer on his human rights record. Some thought the presidential debate was against traditional (less confrontational) cultural modes. Some asked why Jokowi spoke from notes. Prabowo spoke 90% of the time and his vice/deputy had 10% speaking time. Jokowi took about 60% and 40% went to Kalla in debating time.

What are the implications for Indonesia palm oil?
On 5 million hectares for oil palm development - this is part of Prabowo's campaign and it was also from the Bakrie program. But this may not all go to smallholders and it may not be good for the (Indonesia-Norway) Moratorium.

On Indonesia CPO export duty removal rumour – the CPO export duty was supposed to go to the farmers and industry; but there’s not much proof of this. How much has been spent in this way? Many say that it did not even go to the Ministry of Agriculture. As an Indonesian voter, I would support the CPO export duty removal as we don’t know where the money goes. As a palm oil industry person, I would also support its removal as it would bring a level playing field to the industry.

On NGOs in Indonesia - Indonesia ministries are keen to do something about the NGO incursion in Indonesia palm oil. President SBY is widely seen as a supporter of Greenpeace. Its “License to Kill” report against Wilmar quotes SBY a lot. SBY has also visited the Greenpeace boat[5].  Under the next presidency – can TFT and Greenpeace move about so freely in Indonesia? A key SBY advisor is a Greenpeace member. Did this advisor bring the 20% carbon reduction policy? Such a self-imposed policy by a developing country is surprising.


Note: Graphics from Greenpeace in May-June 2013.
Khor Reports note: This precedes significant new palm oil buying policy by Unilever in November 2013 and Singapore-based Wilmar in December 2013 with The Forest Trust, associated with Greenpeace in palm oil first via its work with Singapore-listed Golden-Agri Resources / PT SMART (Sinar Mas). Despite the NGO-government engagement and NGO-corporate deals, anti-palm oil campaigns continue: Protect Paradise: An Animation about Palm Oil by Greenpeace, 19 Feb 2014: http://youtu.be/0o6WHN4NDTk and a video produced by the KBRI (Indonesian Embassy) of Brussels to fight against the anti-palm oil campaign. Protect Paradise For All: An Animation on Anti-Palm Oil Dirty Secret, 14 May 2014: http://www.youtube.com/watch?v=FQ5_ITx1JoU.
 

So there's concern in Indonesia about foreign influence amidst nationalistic feeling?
Foreigners are seen to be “campaigning” for Jokowi. Prabowo points out that Jokowi is accepting undue foreign influence. But there has been no evidence of foreign funding for Jokowi. Voters may notice he spends time with foreigners. For example, when Jokowi cycled to work, the Sweden and Norway ambassadors cycled along with him. Their embassies were not even near the Governor’s office.

A minimum 20% vote is needed to nominate a presidential candidate. PDIP got 18.9% and it had to build a coalition to nominate Jokowi. Prabowo got 11% and he had to build an even bigger coalition with the National Amendment Party who provides his VP. PDIP is a nationalistic party – it is founded on Sukarno’s idealism for diversity, nationalism, and a strong independent country. Prabowo has been talking a lot about this too. Jokowi will have a rising nationalistic streak. He cannot issue laws without coalition support.

Jokowi might try to limit what NGOs are doing in Indonesia, but he’s an open and transparent person, so he may put more limits on NGOs, but in a reasonable manner. Jokowi will run country like he did Jakarta – every meeting he and his vice /deputy has had is on youtube. Prabowo will be different.



Related news:
/khorreports-palmoil/2014/06/indonesia-presendial-race.html
/khorreports-palmoil/2014/04/australia-resource-industries-seek-ban.html
/khorreports-palmoil/2014/03/at-sidelines-of-poc-2014-1-on-new.html


Notes
[1] sembilan bahan pokok are nine basic materials abbreviated as groceries covering basic needs. Set out by the Minister of Industry and Trade as: 1. rice, sago and corn,  2. sugar, 3.vegetables and fruits, 4.beef and chicken, 5. cooking oil and margarine, 6. milk, 7. eggs, 8. mineral oil or LPG gas, 9. salt.
[2] Metro is owned by Surya Paloh, head of the National Democratic Party – who did not get enough votes in the first round results. He threw his support with PDI-P behind Jokowi.
[3] Some campaign funding information here - http://www.thejakartapost.com/news/2014/06/05/jokowi-kalla-ticket-collects-rp-42-billion-campaign.html
[4] Five debates are scheduled between June 8 and July 5. 9 June debate can be viewed here: http://www.youtube.com/watch?v=XYAvBPVRdcc and impact on voter sentiment is reported here: http://www.thejakartaglobe.com/news/presidential-tv-debates-impact-still-undecided/.
[5]  http://www.greenpeace.org/international/en/news/Blogs/makingwaves/in-the-same-boat/blog/45492/: "Just a few hours ago, we met the President again, but this time on our iconic ship, the Rainbow Warrior, which is winding up a one-month tour through Indonesia raising awareness about the need to protect Indonesia's forests and oceans. The President visited the ship with the First Lady Ani Yudhoyono, his daughter-in-law, granddaughter and nearly half his cabinet including Ministers of Environment, Forestry, Fisheries, Foreign Affairs, the Cabinet Secretary, head of Indonesian Navy, Armed Forces and Police. It is a remarkable recognition of our work in Indonesia and of course a validation of our work to protect the country's rich environment..." http://news.mongabay.com/2013/0607-sby-greenpeace-ship.html:  "Indonesian President Susilo Bambang Yudhoyono met with Greenpeace International Executive Director Kumi Naidoo aboard the activist group's ship, the Rainbow Warrior, today in Jakarta to discuss Indonesia's environmental issues. The meeting took place 31 months after the Rainbow Warrior was barred from Indonesian waters under pressure from interests in the forestry sector.  Remarks from the Indonesian president while aboard the vessel underline the country's policy shift in forest management since 2010…..

Note: In Indonesia, the President is directly voted by the electorate and it takes over 50% of the public vote to win. There is no mediation by an electoral college which exists in places like the US. In Malaysia the Prime Minister is selected by the coalition which won power (in Malaysia’s mal-apportioned, first past the post electoral system, there is disconnect between the public popular vote which went to the opposition but with majority of seats staying with the ruling coalition) The Indonesia legislature does not have power to select the president, but they can impeach him. The upper house is purely for constitutional matters.