Assignment 4 – Group Assignment

Palm Oil Dilemma in Indonesia

Natural Resource Economics 601 – Lecturer: John Karasinski Word Count – 2,016 (not including Tables and Figures)

Aaron Smith: 1662 4483 Leonardo Molinari: 1728 4820 Reuben Dias:1313 9900

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Executive Summary
Indonesia’s GDP is estimated at $US868 billion in 2013, which classifies it as a lower middle income country. GDP growth has averaged almost 6% over the last decade with a population growth averaging at 1.4%. Indonesia’s population is expected to grow at an annual growth rate of 0.57% to over 271 million by 2030. Indonesia’s industrial sector largely dominates production, contributing over 48% to aggregate economic activity (including oil and gas which accounts for 10% of GDP). The palm oil industry has the potential to generate significant social and economic development in Indonesia. It is Indonesia’s largest agricultural export and provides income and economic development to the large proportion of rural poor Indonesia. In recent decades the global market for palm oil has seen exponential growth with current production estimated at over 45 million tons, with Indonesia being one of the world’s, largest producers and exporters, producing over 18 million tons of palm oil annually. Although only contributing 8 % to GDP, the palm oil plantations provide for around two thirds of rural household incomes. Over 41% of plantations were owned by small land holders and produced 6.6 million tons of palm oil. Considering over half of Indonesia’s population live in rural areas of which 11.4% live below the poverty line, the palm oil industry is a vital component to poverty mitigation and perspective economic benefits for the country as a whole. Beyond the socio and economic benefits, the dilemma created by this industry in Indonesia presents high threat to tropical rainforests, climate change, livelihoods of local communities and increasing conflicts associated with land acquisition. To address the Palm oil dilemma government intervention is required through: Regulation and policy change to curb undesirable activities (conversion of forests to plantations) Financial incentives to promote desirable activities (production of certified sustainable palm oil) Financial disincentives to curb undesirable behaviour (tariffs on uncertified palm oil) Promotion of alternative economically diverse industries (shale gas, horticulture and fisheries) Remove fuel subsidies (maximum 10% increase in fuel price each quarter until 100% of subsidy is removed)

There is no one single approach to dealing with the Palm Oil dilemma in Indonesia but a mixture of regulations, incentives, disincentives and economic diversification at all sectors within the industry is necessary to alleviate the problem in the short term and long term.

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TABLE OF CONTENTS
Executive Summary 1.0 Introduction 2.0 The Indonesian Economy
2.1 Overview 2.1.1 GDP 2.1.2 Population 2.1.3 Monetary Policy 2.1.4 Currency 2.1.5 Sovereign Credit Ratings 2.2 Vision and Mission 3.0 Economic Analysis 3.1 Fuel Price Increases 3.2 Palm Oil Industry

2 4 5
5 6 6 7 7 8 9 11 13 14

4.0 Palm Oil Industry – Indonesia
4.1 Palm Oil Overview 4.2 Deforestation 4.3 Ecological Issues 4.4 Downstream

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17 18 19 20

5.0 Recommendations
5.1 Policy Reform and Development Implementation Plan

22
25

Conclusion References Appendix

26 27 29

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1.0 Introduction
This report outlines the natural resource dilemma of the regulated Palm Oil industry in Indonesia for consideration of;  Ir. H. Suswono - Minister of Agriculture of Indonesia  Dr. Darwin Zahedy Saleh – Minister of Energy and Mineral Resources of Indonesia This report addresses the Indonesian economy, analysis of issues facing aspects of the economy, the palm oil dilemma and recommendations going forward in the short and long term.

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2.0 The Indonesian Economy
Indonesia’s rapidly expanding Palm Oil industry has worldwide attention, particularly with many environmental groups/agencies. This global attention led us to explore what we consider to be a natural resource dilemma. This dilemma has come to fruition due to Indonesia’s economic transformation and the interrelated dilemma of becoming a net importer of crude oil. The following section provides;   an overview of the Indonesian economy analysis of the economics related to; o the fuel price subsidies and; o the growth in the Palm Oil industry

2.1 Overview
Indonesia, the largest economy within the Association of Southeast Asian Nations (ASEAN), is ranked the 16th biggest economy in the world (ADB 2013). Figure 1, highlights the stellar performance of the Indonesian economy to 2013, where it declined for the first time since 2001.

Figure 1. Indonesia GDP 2000 – 2013 (CIA The World Fact Book 2014)

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2.1.1 GDP The estimated GDP by composition for 2013 is shown in Figure 2. The 2013 GDP stood at US$868bil, with GDP per capita of US$3,475.00. The World Bank (World Bank 2014b) estimates GDP growth as follows; 2014 – 5.3% 2015 – 5.6% and 2016 – 5.6%

Figure 2: GDP by composition (CIA The World Fact Book 2014)

2.1.2 Population Indonesia’s population was estimated to be 249.9Mil in 2013, with 52% of the population now living in urban areas, up from 42% in the year 2000 (Figure 3). Remarkable improvements in unemployment levels from a peak of 11.2% in 2005 to 6.2% in 2013, along with improvements to the incidence of poverty, falling to 11.4% of the population, indicates the National Long Term Development Plan 2005-2025 (RPJPN) is making progress.

Figure 3: Indonesian Population 2000-2013 (CIA The World Fact Book 2014)

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2.1.3 Monetary Policy The central Bank of Indonesia (BI) is targeting inflation rates of 4.5% and 4.0% for 2014 and 2015 respectively (Investments 2014a). The inflation rate rose sharply during 2013 to 6.9%, (Figure 4). This inflationary pressure combined with a depreciating Rupiah, led the BI to increase interest rates from a historical low of 5.75% in May 2013 to 7.50% in December 2013 (World Bank 2014a, 5) (Figure 4).

Figure 4: Indonesian Population 2000-2013 (CIA The World Fact Book 2014)

2.1.4 Currency Due to the speculation surrounding the end to the US quantitative easing program, the growing account deficit and inflation woes during 2013, Indonesia became victim to capital outflows resulting in the depreciation of the Rupiah against the USD (Figure 5).

Figure 5: Indonesian Rupiah Jan 11 – Jul 14 (CIA The World Fact Book 2014)

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2.1.5 Sovereign Credit Ratings The Government of Indonesia (GOI) and Central Bank are showing disciplined management of the economy; however it is the current account deficit, having been negative since Q42011, that the international community is monitoring closely (Figure 6). Indonesia is currently targeting a deficit of 3% of GDP (Investments 2014b).

Figure 6: Indonesian Current Account Deficit 2000 - 2013 (IMF 2014)

Recently Moody’s stated that they “…expect Indonesia’s sovereign credit fundamentals to remain intact.” Moody’s (2014). Table 1, provides the views of two other agencies, sharing similar outlook as that of Moody’s.
Agency Long Term 1 Rating Comment
2

Date

1

Moody’s

Baa3

Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity. Considered highest speculative grade by market participants

Jan 18 2012

th

Fitch

BBB-

Nov. 15 2013

th

S&P

BB+

April 28th 2014

1. Refer Appendix A 2. Sources: (Moody’s 2014b, 5), (FitchRatings 2014, 9), (Standard&Poors 2011, 10) Table 1: Credit Agency Ratings

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2.2 Vision and Mission
The RPJPN vision and mission, is to establish a country that is; developed and self-reliant, just and democratic, peaceful and united. Complimented by the ambitious, Master plan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), Indonesia is aiming to be a developed country by 2025, targeting GDP of US$4-4.5Trillion and GDP per capita income of US$14,250-$15,500. Table 2 and Figure 7, present the 3 main goals of this plan and what they want to achieve beyond into 2045.
Goal MP3EI Goal Description Increase value-adding and expanding the value chain for industrial production processes, and increase the efficiency of the distribution network. In addition, to increase the capability of the industry to access and utilize both natural and human resources. These increases can be attained by the creation of economic activities within regions as well as among regional centers of economic growth Encourage efficiency in production and improve marketing efforts to further integrate domestic markets in order to push for competitiveness and strengthen the national economy Push for strengthening of the national innovation system in the areas of production process and marketing with a focus on the overall strengthening of sustainable global competitiveness towards an innovation-driven economy

1

2

3

Table 2: MP3EI Goal Description Source (MP3EI 2011,15)

Figure 7: Plans for Indonesia’s GDP (MP3EI 2011,15)

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Based on stakeholders’ agreement the focus of development was classified into 8 main programs, i.e. agriculture, mining, energy, industrial, marine, tourism, telecommunication, and the development of strategic areas. The eight main programs consist of 22 main economic activities. This is illustrated in the ‘8 out of 22 plan’ shown in Figure 8.

Figure 8: Indonesia’s 22 Main Economic Activities (MP3EI 2011,22)

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3.0 Economic Analysis
With the economic transformation taking place in Indonesia and as a result of Indonesia becoming a net importer of crude oil in 2004 (Figure 9), the GOI has rapidly expanded the Palm Oil industry in pursuit of not only meeting the targets set for transformation of the economy, but furthermore to reduce the growing costs of fuel imports and their associated consumer subsidies, estimated to be 17% of the national budget (IISD 2012, 5). The following provides recent examples of such efforts; 1. Targeting 25% biodiesel blending rate by 2025, current target 10% (Mriganka Jaipuriyar, 2013) 2. Increasing export taxes on CPO – progressive rate to 22.5% (GBG 2013) 3. Increasing the price of fuel on average by 33% thus far (Investments 2013) 4. Biodiesel subsidies (Mriganka Jaipuriyar, 2013) 5. Ban on imports of biodiesel 6. Export tax on Biodiesel – currently at 2% A tabulated summary of the potential outcomes due to the above Government intervention is provided in Table 3 below.
Government Intervention 25% Biodiesel blend rate Impact Increases domestic demand for Crude Palm Oil, used as feed stock for production of Biodiesel Promotes development of downstream business, extracting full value from Palm Oil Plantations Refer Appendix B CPO export tax Encourages domestic supply due to a reduction in producer surplus (shift in export supply curve upwards) when export tax imposed Negatively impacts Indonesia’s comparative advantage over other international suppliers of CPO Fuel price increases/reduction in subsidies Aim to reduce consumption/demand Will allow the market to become more efficient and reduce inefficient overproduction/imports (dead weight loss and/or opportunity cost) Will impact high-income population more as they are the largest consumers Reduction in GOI expenditure on imports and exposure to the volatility of these costs, due to the impact of FOREX rates and global crude oil prices Biodiesel subsidies Producer subsidy, supporting economic development of the industry and providing competitiveness with fossil fuel costs. Promotes development of downstream business, extracting full value from

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Palm Oil Plantations, refer Appendix B Biodiesel import bans To promote domestic industry and eliminate foreign supply, extracting full value from Palm Oil Plantations through downstream processing, refer Appendix B Differential tax applied to CPO as compared to Biodiesel. Encourages exports of Biodiesel as opposed to CPO. Again extracting full value from Palm Oil Plantations through downstream processing, refer Appendix B

Biodiesel export tax

Table 3: Government Intervention and Impacts

Figure 9: Indonesia’s Energy Consumption vs Production Source (BP Statistical Review 2014)

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Consideration to the actions and effects of fuel price increases will now be analyzed given the wide spread impact on the Indonesian Economy, following on the report will discuss the economic theory related to the explosion in growth of the Indonesian Palm Oil industry. 3.1 Fuel Price Increases The GOI increased fuel prices on average by 33% during June 2013 (Investments 2013) with an attempt to reduce the financial “fuel subsidy” burden. The following summarized outcomes are illustrated in Figure 10;  reduction in subsidy from Psub1 to Psub2 ; o increase in price to consumer and supplier/producer benefits decreased o reduced “cost of subsidy” (area within red dashed lines) to GOI o reduced dead weight loss – A/B/C area (frees up funds/regains lost opportunity cost, for use elsewhere ie. infrastructure and social spending) demand curve very much inelastic; o results in minimal impact to quantity demanded, when compared to price movements, aligning somewhat with continued demand within Indonesia post price hikes (Investments 2013)



Figure 10 – Fuel price hike economic impact

Subsidies such as those imposed on fuel, encourage over consumption and the real benefits are only seen by the wealthier portion of the population who can afford to “over consume” by way of larger/luxury vehicles etc. Conversely the middle and lower class portion of tax payers do not benefit as much. Finally, as highlighted earlier the following are the negative impacts to the Indonesian economy to such a large increase (33%) in fuel prices;   spike in inflation rates to 6.9% Figure 4, page 8 resulting in; increase in interest rates to 7.5%
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3.2 Palm Oil Industry The global demand for Palm Oil has increased significantly in the last decade; despite the increase in production the global shortage continues to rise (Figure 11).

Figure 11 – World’s supply, demand and shortage of Palm Oil according to USDA (2014).

Indonesia is a key player in the Palm oil industry and is now the world’s leading crude palm oil (CPO) producer since 2012, well ahead of Malaysia. Summary of Facts;    In 2013, the country produced 31 million tonnes of CPO (48% of the world’s total production) (Figure 12) Indonesian CPO production increased at 7.8% per year over the last decade ahead of global demand increasing at 5%/yr (MP3EI 2011, 53) 2013 production represented ~50% of the Agricultural contribution (15%) to Indonesia’s GDP (World Bank 2010)

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35000 30000 25000

Tonnes

20000 15000 10000 5000 0 199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013 Indonesia Palm Oil Production by Year

Figure 12 – Indonesia’s Palm Oil Production (USDA, 2014)

Indonesia’s CPO production has a significant impact on the world’s supply of CPO, reflected in the price movements as modeled in Figure 13.

A)

B)

Figure 13 – Theoretical Palm Oil Supply-Demand Economic Model; (A) highlighting increase in Supply and in Demand from 2006 to 2013 pushing price up. (B) Recent downward price movement due to over-supply and demand decrease.

The supply-demand models assume supply as an inelastic product since the output of CPO is related to the total plantation hectares available in a specific year. Therefore, a shift in the supply curve means additional acreage was made available for production. Historically, CPO prices were set by normal market (supply and demand) behavior achieving a peak price of USD$1,110/t during 2013 (Figure 13A). Since then, the CPO price has fallen and currently trades at ~USD$780/t (Figure 13B).

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The downward movement in price is due to two important aspects;   over supply attributed to significant increase in land1 available for CPO plantations and; expected decrease in demand, from major consumers such as China and India2

Indonesia’s CPO production in 2014 is expected to rise to 33.5 million tons (USDA, 2014). According to the World Bank (2010), 50%-65% of total production is exported in the crude form (CPO). Of the remaining, ~50%, 22.5% is processed into cooking oil. Only a small percentage of Indonesia’s production is processed into biofuels.

1 2

Indonesia’s oil plantations currently cover over nine million hectares with a current yield of 4.9 tons/Ha.

Journal, Wall Street. 2014. Despite El Nino Threat, Palm Oil Prices Dive. Accessed 15/07/2014, http://www.wsj.com.

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4.0 Palm Oil Industry – Indonesia
The many socio-economic dilemmas’ that are associated with the Indonesian Palm Oil industry will now be further analyzed.

4.1 Palm Oil Overview
The global market for palm oil has experienced rapid growth in recent decades with current production of palm oil estimated at over 44 million tons. It is the most widely produced vegetable oil worldwide. It has the highest yield of any oil crop and is the cheapest vegetable oil to produce and refine (Figure 14).

Figure 14. Worldwide palm oil consumption use (Rainforest Rescue 2014)

It is Indonesia’s second largest agricultural product having exported over $14.5 billion in palm oil related products last year (Figure 15). Indonesia’s palm oil industry development has long been the dilemma of three major aspects, declining environmental quality; land grab issues and an increase in the nations down streaming activities.

Figure 15. Indonesian commodity share of Agricultural production (Rainforest Rescue 2014)

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4.2 Deforestation
Due to the consistently ideal climate in Indonesia, plantations are established at the expense of rainforests. Indonesia’s oil plantations currently cover over 9 million hectares with a projected 26 million hectares by 2025 (Figure 16).

Figure 16. Expansion of Indonesian Palm oil ( Rainforest Rescue 2014)

The forest area in Indonesia has decreased 5%, from 99.4million hectares to 94.4million hectares. However;   The rate of decrease has lessened from the previous decade, where it decreased at over 1.75%/yr and; Although the year-on-year percentage change in forest area has been increasing the decrease in forest area has been less in absolute terms (Figure 17).

Figure 17. Indonesian Forest Area Source: (Rainforest Rescue 2014)

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Official figures show more than half of Indonesia's rainforest, the third-largest region in the world has been felled in a few years and permission has been granted to convert up to 70% of what remains into palm or acacia plantations. The government recently renewed a moratorium on the felling of rainforest, but nearly a million hectares are still being cut each year and the last pristine areas, in provinces such as Ache and Papua, are now ideal targets for large palm oil producers. Research has shown that many of Indonesia's wildlife species could be extinct in the wild within 20-30 years. Orang-utan numbers are in precipitous decline, only 250-400 tigers remain and fewer than 100 rhino are left in the forests (Andriani et al. 2012) Millions of hectares are nominally protected, but the forest is fragmented, national parks are surrounded by plantations, illegal loggers work with impunity and corruption at the local government level is common.

4.3 Ecological Issues
Indonesia's Palm oil dilemma has been accompanied by a number of other biodiversity and ecological issues; these are detailed in Table 4.
Ecological Issue Description Palm oil is also linked closely to human capital. Over 6.7 million tons of palm oil was produced by smallholders with over 2 million people working in the industry. Over 41 % of total palm oil plantations are owned by smallholders, 49 % privately owned and 10 % owned by the government. As a result of the large human capital invested in the industry from rural areas, the number of negative social impacts has greatly risen during land acquisition and plantation development operations. Last year, more than 600 major land conflicts and human rights abuses cases were recorded in the palm plantations. Nine villages have been in conflict with a large Canadian palm oil producer, which has permission to convert 450,000 hectares of deep peat forests on the Kampar Peninsula in central Sumatra (Ramdani Fatwa and Jupesta 2012). The conflicts often arise when companies are granted dubious logging or plantation permissions that overlap with community-managed traditional forests and protected areas such as national parks Indonesia is still cutting down its forests faster than any other country. Loopholes in the law mean the moratorium only covers new licenses and primary forests, and excludes key peat land areas and existing concessions which are tiger and elephant habitats. (Wisnu et al. 2011).

Land Grab

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The lowland rainforests that are ideal for palm oil plantations contain high levels of biodiversity and peatlands that house significant carbon reserves. Deforestation and land conversion contribute 20 to 30% of global carbon emissions, converting rainforests to plantations is estimated to cause 610 tons of CO2 per ha of carbon debt, this number increases to 6000 tons of CO2 per ha if plantations are established in peatlands. Recent assessment estimates 1.7 million ha of plantations have been established in carbon rich peatlands. Palm oil plantations along with the milling processes cause serious air pollution issues, especially during the conversion of land stages as burning is the cheapest and most efficient way of clearing mass area of land quickly. Palm oil plantation expansion is projected to contribute more than 558 million metric tons of carbon dioxide to the atmosphere in 2020. Land Conversion CO2emissions and repayment time Land Type Tropical lowland forest Tropical peatland forest

CO2 Emissions

CO2equivalent ~610 Mg of CO2ha-1 + ~55 Mg from drainage

Time to repay 86 years 423 years

Table 4. Ecological and Biodiversity Dilemma’s (Wilcove David and Koh 2010)

4.4 Downstream
Processing Palm Oil into biofuels is an important strategy to decrease Indonesia’s dependency on fuel imports. However, if not managed appropriately this could increase the demand for CPO, requiring additional land for palm plantations, resulting in the aforementioned deforestation and ecological concerns. Increasing palm oil output in Indonesia without compromising its forests is possible by producing higher plantation yields per hectare. In 2009, average yield in Indonesia was ~3.8ton/Ha, Figure 18. Current yields are slightly higher, Figure 19. A result of the initiatives proposed in the MP3EI (2011, 54-55). Although improvements have been made, current CPO outputs remain lower than the potential yield of 7.0ton/Ha (MP3EI 2011, 54) or 10.0ton/Ha as proposed by PwC (2012, p12).

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Figure 18 – Palm Oil Plantation yields in Indonesia during 2009. (Source: MP3EI 2011)

Figure 19 – Current Yields comparison between Indonesia and Malaysia (RSPO 2013). Current yields are higher then 2009, resulting a better productivity as result of the initiatives proposed in the MP3EI (2011).

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5.0 Recommendations
The RPJPN and the MP3EI have introduced key policies to achieve Indonesia’s 2025 goals. Some policies have provided positive results, while others have not performed as expected. On this basis the recommendations in the report provide for;   current policies that either; o require amendment and/or, o are to be maintained as they are and; suggested new policies for implementation

The recommendations and policy direction is categorically divided in Table 5 along with the definition and proposed actions for each policy. A proposed Schedule of implementation for the recommended new policies is also tabulated below.
Policy Development – New policy for implementation The implementation of the new policies below are recommended to be initiated in the near future aiming to improve Indonesia’s situation. Stakeholder CPO Producers and Small scale farmers Regulation/Policy Policy Development 1 Encourage sustainable Palm Oil production and growth Purpose Future plantation to be away from forests and on degraded land Increase the small land holders and/or government ownership rather than private Ensure all producers are ISPO certified Biodiesel industry and CPO operators/farmers Policy Development 2 Promote the Biodiesel Industry Advanced biodiesel plants – Generation 2 & 3 Clusters to facilitate vertical and horizontal integration, Tax incentives Small Land Holders Policy Development 3 Focus Training of small land holders Provide R&D incentives Increase the small land holders and/or government ownership rather than private as a policy Better handling of Palm Oil between crop and refinery will increase ultimate productivity Latest technology available to small farmers. Improve infrastructure to reduce costs of production Impact Environmentally friendly Palm Oil production growth. Certification can increase small producers cost.

Facilitate Training and Education related to Palm Oil Production

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Policy Development 4 Importing countries and Indonesian governments Tariff exemption for certified oil

To encourage certified sustainable palm oil production

The exporters of certified sustainable palm oil plantations would not pay export tariffs. The importing companies would not pay import tariffs to the governments. This would need a robust system and strict checks in place to insure compliance. It would also need cooperation from importing countries to offer tariff exemptions. The community could possibly own degraded land which could be converted to palm oil plantations. The community would maintain ownership in the land but have equity stakes in the oil production. The local communities living in poverty will sell their livestock and sustenance farming areas for whatever the palm oil companies will pay and the oil companies would potentially profit from the deal.

Ensure all producers are ISPO certified

Policy Development 5 Palm Oil Developers and smallholder/local communities Approval is only given under collaborative partnership between landholders and developers Communities have an ownership stake in the palm oil venture or are formally employed by the developer

Maintain Policy The policies in this category are regulations currently in place that have been implemented by the government and are producing positive effects to the economy. Stakeholder Growers and producers of palm oil Regulation/Policy Usage of high quality seed in Palm Oil Plantations Purpose Increase Palm Oil Crops Yields Impact Yields can still be improved in particular with “small holders” in order to reduce land conversion Improve productivity in a quicker timeframe than doubling from 3.57 tonnes per hectare by 2025

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Policy Reform – Require amendment Some of the policies currently in place are not providing significant economic benefit or even deteriorating Indonesia’s current situation; therefore we recommend to discontinue them or consider modifying current Stakeholder Regulation/Policy Policy Reform 1 Remove Fuel Subsidies Purpose Maximum Increase of 10% each quarter over the next 2 years until 100% of subsidy is removed. Introduce Government financial assistance to those that are mostly impacted by fuel price rises. Ie. cash payments and/or quotas/vouchers to low income earners Impact

Allows for Government expenditure in other areas such as education, health and infrastructure, as opposed to the inefficiencies that are generated through fuel subsidies Prevent overconsumption and minimize the importing of expensive fuels of which the costs are exposed to the volatility of FOREX and Crude prices Avoid escalating inflation and allow economy to adjust.

Foreign Oil and Gas investors

Policy Reform 2

Attract foreign investments in exploration and production

Increase oil and gas production in country

Amend existing Oil and Gas legislation to improve regulation and improve the efficiency of issuing PSC's

Promote efficiency in PSC awarding to conventional and unconventional resources Directly address the threat to biodiversity posed by new plantation in new forests. Palm oil industry could still expand through the acquisition of six million hectares of degraded land.

Decrease the need to import fuels

Policy Reform 3 Growers and producers of palm oil Restrict new palm oil plantations to degraded lands or lands designated for agriculture

Tax breaks for companies growing certified sustainable pal oil Success of Palm oil production on degraded land depends on quality of land available.

Table 5. Recommendation of policies

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5.1 Policy Reform and Development Implementation Plan
Recommended timings for implementation of the recommendations provided previously.

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Conclusion
The Indonesian Government’s role in creating policies and encouraging creative and innovative thinking should be the long term goal to achieving socio-economic and environmental sustainability within the Palm Oil Industry. To address the Palm oil dilemma government intervention is required through: Regulation and policy change to curb undesirable activities (conversion of forests to plantations) Financial incentives to promote desirable activities (production of certified sustainable palm oil) Financial disincentives to curb undesirable behaviour (tariffs on uncertified palm oil) Promotion of alternative economically diverse industries (shale gas, horticulture and fisheries) Remove fuel subsidies (maximum 10% increase in fuel price each quarter until 100% of subsidy is removed)

There is no one single approach to dealing with the Palm Oil dilemma in Indonesia but a mixture of regulations, incentives, disincentives and economic diversification at all sectors within the industry is necessary to alleviate the problem in the short term and long term.

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References
Agency, Central Intelligence. 2014. The World Fact Book - Indonesia. CIA. Accessed 10th July 2014, https://www.cia.gov/library/publications/the-world-factbook/geos/id.html. Andriani, Rubeta, Agus Andrianto, Heru Komarudin, and Krystof Obidzinski. 2012. "Environmental and Social Impacts of Oil Palm Plantations and Their Implications for Biofuel Production in Indonesia." Ecology and Society 17 (1): 25-38. Bank, World. 2014a. Indonesia Economic Quarterly - March 2014. World Bank. http://www.worldbank.org/content/dam/Worldbank/document/EAP/Indonesia/IEQMarch2014-english.pdf. Bank, The World. 2014b. Contry and Region Specific Forecasts and Data. The World Bank. Accessed 22nd July 2014, http://www.worldbank.org/en/publication/global-economicprospects/data. BP p.l.c. 2014. BP Statistical Review of World Energy 2014. BP p.l.c. http://www.bp.com/en/global/corporate/about-bp/energy-economics/statisticalreview-of-world-energy.html. Development, International Institute for Sustainable. 2012. A Citizens Guide to Energy Subsidies in Indonesia 2012 Update. http://www.iisd.org/gsi/sites/default/files/indonesia_czguide_eng_update_2012.pdf. FitchRatings. 2014. Definitions of Ratings and Other Forms of Opinion. FitchRatings. https://www.fitchratings.com/web_content/ratings/fitch_ratings_definitions_and_scale s.pdf. Guide, Global Business. 2013. An Overview of Indonesia's Palm Oil Industry. Global Business Guide. Accessed 19th July 2014, http://www.gbgindonesia.com/en/agriculture/article/2013/an_overview_of_indonesia_ s_palm_oil_industry.php. Investments, Indonesia. 2013. New Government Policy Increases Indonesia's Biodiesel Consumption. Van der Schaar Investments B.V. Delft 26th November 2013 Accessed 19th July 2014, http://www.indonesia-investments.com/news/todays-headlines/newgovernment-policy-increases-indonesias-biodiesel-consumption/item1349. Investments, Indonesia. 2014a. Inflation in Indonesia (Consumer Price Index). Accessed 13th July 2014, http://www.indonesia-investments.com/finance/macroeconomicindicators/inflation-in-indonesia/item254. Investments, Indonesia. 2014b. Update Indonesia's Current Account Deficit and Foreign Exchange Reserves. Indonesia Investments. 28th May 2014 Accessed 15th July 2014, http://www.indonesia-investments.com/news/todays-headlines/update-indonesiascurrent-account-deficit-and-foreign-exchange-reserves/item2044. Jaipuriyar, Mriganka. 2013. Indonesia Could Become Self-Sufficient in Gasoil with New Mandate. Platts, McGraw Hill Financial. 23rd September 2013 Accessed 19th Jul 2014, http://www.platts.com/news-feature/2013/oil/indonesia-gasoil/index.

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"Masterplan for Acceleration and Expansion of Indonesia Economic Development 2011 - 2025." 2011. edited by Ministry of National Development Planning/ National Development Planning Agency, Republic of Indonesia: Cordinating Ministry for Economic Affairs. PWC PricewaterhouseCoopers. 2012. Palm Oil Plantation. Jakarta, Indonesia. http:///www.pwc.com/id. Ramdani, Fatwa, and Joni Jupesta. 2012. Overcoming the Oil Palm Industry Dilemma with Sesar Strategy. Japan. www.academia.edu/1788800/Overcoming_the_Oil_Palm. Rescue, Rainforest. 2014. Facts About Palm Oil and Rainforests. Rainforest Rescue. Accessed 13th July 2014, http://www.rainforest-rescue.org/topics/palm-oil. Service, Moody's Investors. 2014a. Moody's: Electoral Outcome in Indonesia Has Neutral Impact on Sovereign Credit. https://www.moodys.com/research/Moodys-Electoral-outcome-inIndonesia-has-neutral-impact-on-sovereign-PR_303826?WT.mc_id=NLTITLE_YYYYMMDD_PR_303826. Services, Moody's Investor. 2014b. Ratings Symbols and Definitions. https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004. Standard&Poors. 2011. Guide to Credit Rating Essentials. http://img.en25.com/Web/StandardandPoors/SP_CreditRatingsGuide.pdf. Wilcove, David S, and Lian Pin Koh. 2010. "Addressing the Threats to Biodiversity from Oil-Palm Agriculture." Journal of Biodiversity and Conservation 2 (19): 999-1007. Wisnu Caroko, Heru Komarudin, Krystof Obidzinski, Petrus Gunarso. 2011. Policy and Institutional Frameworks for the Development of Palm Oil-Based Biodiesel in Indonesia. Centre fo International Forestry Research. http://www.cifor.org/library/3660/policyand-institutional-frameworks-for-the-development-of-palm-oil%C2%96based-biodieselin-indonesia/.

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Appendix
APPENDIX A

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APPENDIX B:

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