Indonesia Palm Expansion To Halve With Climate Deal

Niluksi Koswanage, PlanetArk 1 Jun 10;

Indonesia's annual oil palm expansion may halve to 50,000 hectares from 2009 levels once a $1 billion climate change deal with Norway comes into effect next year, a top industry official said on Monday.

Following a financing deal signed with Norway last week, the Southeast Asian country plans to revoke existing forestry licenses held by palm oil and timber firms to save its vast rainforests and peat lands that are seen as a carbon sink.

The government has promised land swaps for cancelling some forest concessions, a process that may take years to fine tune and also prevent the world's No. 1 palm oil producer from achieving its 40 million output target by 2020.

"That target would be achievable if oil palm estates expanded at a rate of 200,000-300,000 hectares a year but not with this. We will need to boost productivity," Derom Bangun, vice-chairman of the Indonesian Palm Oil Board (IPOB) told Reuters in an interview.

Expansion in Indonesia hit 300,000 to 400,000 hectares at the height of the commodity boom in 2007 and 2008 but has fallen back due to pressure from green groups and the financial crisis that had stymied investment into the sector.

This year top planters like Singapore listed Wilmar and Sime Darby are gearing up to expand and plant in new concessions across Indonesia as land prices soften from record $15,000-$20,000 a hectare in 2008, analysts say.

Although a government official told Reuters compensation could be offered to the planters, Bangun said it may be a time-consuming process that may involve huge payouts.

"Just initial investment to clear the land can reach $3,000 to $5,000 a hectare alone. It is hard to see whether they can fully compensate," he said. "It will be a messy, complicated affair."

OUTPUT STILL UP

Green groups say Indonesia has huge tracts of tropical forests but a rapid deforestation rate, a practice which releases vast amounts of global warming emission.

Industry and government data show that palm oil acreage in Indonesia now hovers around 7.9 million hectares

Indonesia has pledged to cut emissions by 41 percent by 2020 if it gets foreign funding and by 26 percent if it doesn't.

Palm oil production is expected to grow 8.7 percent to 22.6 million tonnes as more oil palms planted during the surge in acreage expansion come into maturity, Bangun said.

"We can hold up in production still. Unlike Malaysia, oil palms are spread all over the archipelago so the effects of EL Nino are not so severe," he said.

Rival Malaysia, the second largest palm oil producer, may well miss its 18.1 million palm oil production target as El Nino-driven drier weather hit key growing regions of Sabah and Sarawak on Borneo island.

(Editing by James Jukwey)