9. Social, Economic, and Political Impacts

We have conducted interviews with a wide range of stakeholders in 2008. The interviewees are selected based on our literature review and inputs from the partner in Brazil (Table 9.1).

Based on the interview results, the following categories, described below, are identified as the key stakeholders that have interests in increasing the ethanol production for exports to Japan. Production of sugarcane in Brazil is concentrated mainly in the State of Sao Paolo and Brazil’s northeastern region called Nordeste. The available land in the Nordeste region, however, is limited due to its hilly topography, and a large-scale production increase is unlikely. Therefore, we have focused on the possibilities of increased production in the State of Sao Paolo and other states on its north (namely, Mato Grosso do Sul, Minas Gerais, and Goias).

We carried out interview surveys of various stakeholders in Indonesia in September 2009. Prior to the survey, we identified the interviewees from relevant literatures as well as by consultation with the research collaborators inside and outside Japan.

The key issue which the Indonesian palm industry faces is the sustainability of the production process, including its impact on the environment and society.

Biodiversity may be lost and the rights of the indigenous peoples violated as the result of deforestation and peat bog development as part of new plantation development as well as the destruction of the existing ecosystems due to these activities. If small farmers practice their slash-and-burn method of farming in the process of switching to palm cultivation, peat bogs, which are extremely flammable during the dry season, can be easily ignited and develop into forest fires. Such forest fires will inevitably lead to the loss of biodiversity and the violation of the rights of the indigenous people, as well as the emission of greenhouse gases (GHG).

Water pollution in these regions as a result of wastewater discharged from the oil extraction process as well as the use of agricultural chemicals and fertilizers during cultivation may also lead to the loss of biodiversity and the violation of the rights of the indigenous people. It is apparent that the ecology of wildlife and the livelihood of the indigenous peoples will be in a very vulnerable situation as the logical conclusion of these various issues.

In addition to the abovementioned problems which are applicable to the palm industry as a whole, particular important issues relating to the production of biodiesel from palm oil include a macroscopic problem of an increased demand for biofuel competing with the demand for food supply and a question as to whether replacing petroleum-based fuels by biodiesel actually leads to the reduction of the GHG.

The issues relating to the palm oil industry and the palm oil-based biofuel production are intertwined in an extremely complex way. An overview, however, indicates that these problems can be divided into environmental and social issues, which may arise from palm oil farming and biofuel production (i.e., an issue of sustainability of the palm production); political issues, which prompt environmental and social issues; and economic issues, which may become an obstacle for the palm oil-based biofuel production in the future. Figure 9.1 illustrates the major issues.

There are six categories of common stakeholders in the production of biofuels in these countries. The first category is feedstock producers, including plantations, smallholders, and manual laborers. The second category is refineries, including those companies operating biofuel refineries as well as those producing machineries and developing plants. Investors are the third category. It includes trade companies and banks (national/corporate). The fourth category, transportation operators, is often neglected in the study of biofuels. Utilizing biofuels at the global scale means that they will be an equivalent to crude oil, which means safe transportation of biofuels will be a major concern from the perspective of protection of ocean environments as well as of geopolitics. The fifth category is government agencies. Multiple ministries and agencies are involved even in a single country, and they are often ill coordinated, particularly in Indonesia. Therefore, government should not be considered as a cohesive and integrated group of stakeholders. Rather, different agencies should be considered separately in studying stakeholders in biofuel utilization. The final category of stakeholder is NGOs. While those concerned about natural environment are most active in the field, we should not forget about the human rights and animal rights advocates because plantation expansions and efficiency improvements in feedstock production can have significant impacts on pristine animals and manual laborers in the area.

Through an analysis of interview results, the authors identify the following seven categories of enabling and limiting factors that affect the increased production of biofuels at a large scale in these countries. First of all, domestic and international demands for biofuels define the course of biofuel production for sure. Second, domestic policies and regulations have substantial effect on the production of feedstock and the deployment of biofuels in these nations. Third, domestic political culture also has impacts on it. This is different from policies itself; it is about how policies change and how well they are implemented. Fourth, pressures from supranational institutions and international NGOs can have an influence from the demand site. Fifth, availability of transportation infrastructure is a crucial factor in the supply chain of feedstock and biofuels. For instance, further development of sugarcane-based ethanol is likely to require the development of pipelines. Sixth, investment environment in each country has influences on the future development. While foreign investors have substantial interest in the development, they are also concerned about the uncertainties associated with the investment in these countries particularly because of the legacy of instability of these nations’ economic policy. Seventh, mechanization of harvesting processes is another crucial factor in the production of feedstock. And finally, R&D for the improvement of feedstock species is likely to be a major challenge in a near future. In order to achieve sustainable development, plantation owners are now faced with the challenge of increasing productivity per unit of area. Improving the yield, as well as increasing the portion of useful content in each crop, through hybridization and genetic engineering will be required for the sustainable future.

Through interviews with stakeholders in Brazil and Indonesia, the authors identified a few areas that the Japanese government can contribute for the sustainable utilization of biofuels.

First of all, the lack of government’s committed mandate and/or deployment strategy is causing confusion on the side of potential exporters. For instance, Japanese government has expressed its interest in importing palm-based biodiesels from Indonesia particularly during the visit of Prime Minister and other senior officials to Jakarta. Such informal encouragements had certain influence among the biodiesel producers. On the other hand, Japan has not yet imported a sizable amount of biodiesel from Indonesia. A few stakeholders, including those in Brazil, explicitly expressed their frustration with the lack of more formal commitment on the Japanese side. Therefore, it would be beneficial for all stakeholders in this field if the Japanese government sets official target regarding the import of biofuels.

Secondly, as mentioned above, the lack of appropriate transportation infrastructures in these countries could be a major bottleneck for importation. This is an area in which the Japanese government can assist through developmental aid and other schemes to fund infrastructure development projects. The Japanese government and aid agencies can be strategic in selecting the applications by considering proposed projects’ implication to the transport of biofuel to Japan and other parts of the world.

The last concern about the Japanese government is its sustainability standard. While it is an area where scholars and stakeholders are still debating about, one pragmatic proposal would be to internalize sustainability standards, such as the one proposed by Roundtable on Sustainable Palm Oil, into Japanese regulatory structure. While some NGOs are still critical about the utilization of biofuels at the global scale, such a strategy could justify the biodiesel import to some extent because these international efforts have consciously involved nongovernmental stakeholders and tried to seek an agreement that these concerned parties could live with.