Three Interconnected Matches Accelerating Sustainability in the Indonesian Palm Oil Sector

May 10, 2023

Palm oil is a highly diverse low cost crop that is used in food, cosmetics and even as biofuel. Global demand has rapidly increased over the past 10 years and production consequently spread over vast areas of Southeast Asia. Unfortunately, the cultivation of palm oil comes with significant adverse effects on the environment. The positive news is that technologies are available to mitigate these negative impacts.

Palm oil plantations are predominantly found in Southeast Asia, Africa and Latin America. Indonesia is the world’s largest producer of palm oil, with the sector generating an astounding 4.5% of the country’s GDP and employing up to 3 million people (UNDP, 2019^[1]). Given how important the palm oil sector is for the Indonesian economy, and how many livelihoods are dependent on its production, it is essential to mitigate its adverse effects on the environment. One solution can be to mainstream and commercialize production techniques that help address environmental concerns. Sustainability certifications schemes can give a push in the right direction. It is also essential to get policymakers on board to support the transition to greener practices.

To ensure market efficacy and scalability of sustainable production techniques, such as green technologies, palm oil mills need to test them. However, testing ‘unproven’ green technologies always poses business and financial risks for palm oil mills. To help solve this problem, WIPO GREEN partnered with Winrock International – a nonprofit organization that provides solutions to complex social, agricultural and environmental challenges globally – and kicked off the WIPO GREEN Indonesian Acceleration Project in 2021. The objective: to match green technologies against environmental challenges in palm oil production.

Palm Oil Mill Effluent and Empty Fruit Bunches – Friends or Foes?

One of the by-products of palm oil production is palm oil mill effluent (POME), a brown oily wastewater that can damage flora and fauna in local river systems if not treated properly. It is also a large Green House Gas (GHG) emitter in the form of methane. But if used well, POME’s organic content can have environmentally friendly uses, for example by harnessing the methane and using it as biogas for electricity generation. For more information on the use of POME, explore the catalogue of technological options for the treatment and valorization of POME in Indonesia (available in English and Indonesian).

Empty Fruit Bunches (EFB) are the waste product from the palm fruits. They are often left unused around the mill, stored, or burned, creating environmental hazards that are against government regulations. Generally, EFBs are an unwelcome by-product of palm oil production and a nuisance to mill owners. But what if this waste product could be transformed into compost and sold as organic fertilizer to farmers? This would be doubly beneficial, as it would help both the palm oil mills in disposing of the unwanted waste and provide organic fertilizer to farmers – a green and economical alternative to the commonly used expensive chemical fertilizer.

This question was at the heart of the Acceleration Project: To deploy a technology that can turn environmentally harmful waste from palm oil production into something useful with the additional benefit of helping the acceleration of green transition in fertilizers.

Three Interconnected Matches

In 2021, the project matched three partners: the Palm Oil Mill Bungo Limbur, PT Indmira – a solution for EFB and POME decomposition, and QTA1 – a company that sells organic fertilizer to rice farmers. This three-way match came with three-fold benefits. Firstly, using both POME and EFBs effectively reduces GHG emissions. Secondly, using the waste products to create organic fertilizers is an innovative circular solution to palm oil cultivation and when the compost meets government standards, mills can earn sustainability certification, which is an important motivating factor for mills. Finally, selling the waste would be an opportunity for the mills to earn a supplementary income as well as to generate local business opportunities. It would also provide access to an alternative fertilizer that costs less than the commonly used chemical fertilizer.

Hari Yuwono – Team Leader at Winrock – has been involved in several sustainability certification schemes in the palm oil mill sector in Indonesia and has worked on POME utilization since 2010. He heard about PT Indmira’s technology, an EFB aerobic decomposition system (the decomposition of organic matter using microorganisms that require oxygen) that decomposes EFB together with POME. The technology had worked with good results on a small scale and Hari was interested to see the results on a larger mill. Together with Ade Sri Rahayu – Winrock’s Technical Assistant – Hari started conversations with different mills about their needs and possible interest in the technology.

After some time, they found the Bungo Limbur mill. The mill had already been in the process of starting to comply with Indonesia Sustainable Palm Oil (ISPO) – a national palm oil sustainability scheme – and were interested in testing the Indmira technology. Bungo Limbur doesn’t have its own plantation which means that they have to buy the fruit and then they struggle with the EFB. The compost created by the Indmira technology could be sold to other farmers (with the help of QTA1), making it a valuable source of income for the mill and a worthwhile business opportunity. When Winrock was evaluating Bungo Limbur’s technology needs, the company indicated interest in Indmira’s technology as it is cheaper than anaerobic composting technologies that generate biogas – an important consideration for mills focusing on carbon emission reduction. Another advantage was that both EFBs and POME could be treated with the Indmira technology providing a solution for both types of waste created through palm oil production onsite.

Challenges

The project encountered a series of challenges, ultimately illustrating the difficulties associated with the implementation of a new technology. There were many factors at play, ranging from practical difficulties, to regulations and incentives, to unexpected political challenges.

One challenge was the compost quality. The compost needs to meet the government standards to be certified as an organic fertilizer before it can become marketable. As the compost from EFB and POME is a new product, it will need to undergo lab testing to determine its composition and quality. So far, this testing has not been sufficiently conducted. 

Another major hurdle for the match was the crisis in the palm oil market in Indonesia in 2022.  The price of the fruit fluctuated – first steeply rising and then plummeting due to export restrictions. As the Bungo Limbur mill did not have its own plantation to supply the FFB (Fresh Fruit Bunches) it had to compete with other mills for FFB supply. Additionally, due to the war in Ukraine, the price of fertilizer skyrocketed (fertilizers are subsidized in Indonesia, but only for specific basic food crops). This could have provided an opportunity for an alternative fertilizer. But at this point the compost solution from EFB and POME hadn’t been tested and so couldn’t compete as an approved organic fertilizer. This illustrated the difficulties in testing new technologies in an unstable market.

As we have seen, the road towards green technology deployment is a steep one. Mill owners and other market actors are reluctant to use a technology that has not been widely adopted due to the risk of economical setbacks. But how can we reconcile environmentally friendly production techniques with livelihoods and economic growth?

Sustainability Certification Schemes and Policies

Sustainability certification schemes can be a driver to generate interest for sustainability in the palm oil sector. There are an increasing number of sustainability certification schemes, such as the Indonesian Sustainable Palm Oil (ISPO) and the Roundtable on Sustainable Palm Oil (RSPO) that have established criteria for certifying sustainable palm oil businesses. This will continue to be a major driver for future POME treatment solutions. The Ministry of Agriculture set up the ISPO policy both to increase the competitiveness of palm oil on the global market but also to demonstrate the Indonesian Government’s commitment to reducing negative environment impacts. The RSPO aims to transform the sector by bringing together stakeholders across the supply chain to develop and implement global standards for producing and sourcing certified sustainable palm oil. Getting the compost produced by POME and EFB into these schemes would make the solution more attractive for mills to adopt the technology.

Shinta Mulyasari from PT Ecody Agro Energi – a company working with palm oil mills – has extensive experience working on sustainability schemes. In the past, Shinta worked on mainstreaming the use of biogas in palm oil mills. This too did not happen from one day to the next, she says, but required long-term collaboration with a range of stakeholders. At that time, she worked together with Winrock and the United States Agency for International Development (USAID) who supported the mills directly by providing technical guidance. This hands-on support in the implementation process reduced the risk for mill owners and helped them to fully understand the technology. Shinta believes in the value of a technology that uses the EFB as they are a problem in most mills and owners would welcome ways to use them but lack the know-how. This is where advocacy and capacity building can help.

Ade, who has also participated in the biogas mainstreaming process and has interviewed several mills, argues that after a long advocacy process, mills are now familiar with biogas, and that the same process needs to happen for EFB. According to Ade, the most important consideration is to have proven technology ready. Both Shinta and Ade concur that most mills will be interested in a sustainable solution, as long as it has been proven successful, safe and yields an acceptable financial return on a large scale.

Thus, in addition to the aforementioned quality and regulatory matters, awareness raising is another key enabler to green technology deployment. In this context, stakeholder interviews indicate that it is imperative to have a multi stakeholder approach, bringing together value chain actors, certification schemes, regulatory bodies, policymakers and international organizations to work on successfully deploying an innovative green technology.