The Fight Over Palm Oil Funding

Called the Draft Framework for Engagement in the Palm Oil Sector, the 48-page document by the IFC seeks to provide the rationale for the bank group’s operations in fighting poverty without compromising economic, environmental or social sustainability. The final draft was presented to a World Bank group management session in Frankfurt on Sept. 1 and is now to be disseminated to interested parties who will attempt to sway it in different directions.

Sources say there is a considerable controversy going on within the bank itself between advocates of development and environmental critics. Whatever the World Bank and the IFC does is bound to have a big effect on the industry. The World Bank and the International Monetary Fund (IMF) together probably have more sway in the third world than any other institutions. The path of development suggested by the framework on palm oil can be expected to have a considerable impact, for good or ill, on what is called the earth’s green lung – the vast and endangered tropical rainforests of Africa and Southeast Asia.

The IFC, headquartered along with its parent in Washington, DC, is the largest multilateral source of loan and equity financing for private development in the developing world, providing aid for private industry to gain financing in international markets and providing technical advice and assistance for development, both to private interests and governments.

And, despite what looks like a feverish attempt to steer down the middle between environmentalists and palm oil producers, the IFC’s draft appears to have enraged the oil palm industry. World Growth, a nonprofit NGO that supports vastly increased oil palm planting, called the report "deeply flawed" and said it "undermines the response to the global food crisis."

Oil palms are cultivated commercially on some 12 million hectares globally, about 85 percent of that in Malaysia and Indonesia. For consumers in China, Pakistan and India, among others, palm oil is by far the biggest and cheapest source of edible oil. Nearly three million people are employed growing oil palms in Indonesia and about 6 million directly worldwide, with smallholders managing about 49 percent of Southeast Asia’s plantations and 80 percent in Africa.

But, despite the World Growth NGO’s emphasis on the plight of smallholders, plantation owners such as Sinar Mas in Indonesia and Sime Darby and others in Malaysia are vast conglomerates that can swing the way governments do business. In the face of the continuing passage of environmental laws and pronouncements from the capitols of Indonesia, Malaysia and other countries which have oil palm plantations, environmentalists charge, the big plantations continue to destroy rainforest with impunity.

The critics accuse the industry of being a major contributor to global warming by burning to clear land for plantations and with it destroying deep peat, releasing greenhouse gases into the atmosphere, and by devastating rainforest diversity of species including such endangered species as the orangutan

In particular, Greenpeace has earned the enmity of the producers by persuading major European buyers, including Nestle and Unilever, two of the world’s biggest consumer products companies, to stop using palm oil in their products.

Critics accuse the bank of paying little attention to local needs and of funding needless environmental destruction, particularly through the construction of big dams. Although the bank temporarily drew back from funding big dams in the 1990s, it has resumed, with bank officials saying that now they are paying attention to the social and environmental damage wrought by big dams. Critics disagree.

"Since its founding, the Bank has supported more than 550 dams around the globe, with over US$90 billion (in 2007 dollars) in loans and guarantees," charged the Berkeley, Calif. International Rivers Network in a 2007 report. "World Bank-backed dams include some of the world’s worst development disasters, and their legacy lives on."

The bank has also been criticized by environmentalists for lending to build coal-fired plants in developing countries. A US$3.75 million package to build a 4,800 MW facility in South Africa drew fire earlier this year, with critics saying the bank should seek to resolve its mission to alleviate poverty with its newer goal of helping reduce carbon emissions, according to the Bank Information Center, an NGO that seeks to influence to promote environmental and other causes.

In the framework document, the IFC said that, "depending on private sector interest and opportunities, the IFC will, through its investments and advisory services products, support private sector development and promote environmentally and socially sustainable palm oil production. These interventions will be informed by the four themes identified in the present framework and focus in particular on broadening support for smallholders, expanding the number of internationally certified companies and increasing the supply of Certified Sustainable Palm Oil.

The document also reports that "the process of land acquisition for large-scale oil palm development can generate negative impacts on communities including small farmers and indigenous groups, particularly when land titles are unclear or unrecognized," and that "about 70 percent (4.2 million ha) of Indonesia’s palm oil plantations are on land that was at one time forested; more than 56 percent of the expansion between 1990 and 2005 occurred at the expense of natural forest cover."

The IFC, the document says, "will invest only where its interventions will meet IFC’s Performance Standards and will have clear and measurable development impacts that contribute to economic growth and poverty reduction. In particular, IFC will only invest in plantation operations that are certified for sustainable palm oil production according t o an internationally-recognized certification scheme, or have a time-bound action plan to achieve such certification."

World Growth, however, argues that Greenpeace has faked its findings of environmental depredation and that cutting back on oil palm production will hurt smallholders in tropical countries and contribute to global starvation by ruining their livelihoods and making palm oil more expensive for the hundreds of millions of people who depend on it for their source of edible oil. Palm oil is about 30 percent cheaper for consumers than any other oil.

"The World Bank Group is bowing to the advocacy of environmental NGOs which do not factor development objectives into their environmental strategies," World Growth Chairman Alan Oxley said in a letter made public Monday. "The Bank has proposed a new policy approach for palm oil which will substantially alter the (bank) group’s current approach and runs counter to formal Bank policy. It will reduce Bank support for private investment in palm which has been more successful than almost any other commodity crop in reducing poverty"