Analysis

One wicked problem, three major challenges

How to stop deforestation while boosting benefits for smallholders and meeting market demand?
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Cattle ranching is a major driver of deforestation in Brazil. Pablo Pacheco / CIFOR
Cattle ranching is a major driver of deforestation in Brazil. Pablo Pacheco / CIFOR

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To achieve zero deforestation, new ties need to be woven between different levels of government, the private sector and civil society. But in order to act on private-sector commitments, incentive systems and regulations that are reinforcing old patterns first need to be untangled.

Beef and soybean production are the main drivers of deforestation in Brazil, and oil palm expansion threatens Indonesia’s forests and peatlands. These two countries have the largest forest areas in the world – and the largest forest losses over the past five years.

Powerful industry and multi-stakeholder groups that have an extensive supply base in Brazil and Indonesia signed the New York Declaration on Forests in 2014, pledging to make their supply chains deforestation-free by 2030. The Indonesian government signed the declaration; Brazil did not, although some of its subnational governments did.

Add to these the Indonesia Palm Oil Pledge, the Sustainable Palm Oil Manifesto, and the corporate policies announced by consumer goods companies to help eliminate deforestation from soy, palm oil, beef and pulp and paper.

All are trying to meet three interconnected challenges: ending deforestation while protecting local tenure rights for smallholders and meeting the growing domestic and global demand for these commodities.

This is where it gets complicated.

The scope of these commitments, combined with goals to keep expanding supply, reveals the challenges facing corporations and governments in both Brazil and Indonesia.

Corporations are counting on voluntary commitments that put growing pressure on suppliers to halt forests clearing, while governments are focusing on policies to reduce deforestation and protect local tenure rights, such as those already adopted in the late 2000s to meet REDD+ requirements.

PRIVATE–PUBLIC EFFORTS IN BRAZIL

In Brazil, plans to reduce deforestation have been in place since 2005 aimed at changing the economic incentives favoring deforestation and improving compliance with existing environmental laws.

About 60% of deforested lands in the Brazilian Amazon are under pasture for cattle production, mostly by medium- and large-scale ranchers. Roughly 20% of cattle herds are on smallholder lands.

In Brazil’s current system, landholders voluntarily commit to protect or restore their legal forest reserves or permanent preservation areas in order to avoid sanctions and be able to sell their produce to the industry.

The private sector played a role in bringing this about. When supermarkets began to suspend contracts with suppliers linked to Amazon deforestation in 2009, the beef industry in turn placed pressure on landholders to comply with government environmental policy, resulting in voluntary commitments to supply ‘legal beef’ through the cattle agreement.

And a soybean moratorium signed in 2006 in the State of Mato Grosso helped limit soybean expansion to lands that had already been converted to pasture, yet this created on frontier lands.

As a result of these different actions, the annual deforestation rates in the Brazilian Amazon fell by 77% between 2004 and 2011, and have stabilized since 2010 at 5,000–7,000 square kilometers per year.

But while deforestation from medium- and large-scale landholders has fallen, it persists in smallholdings. And the beef industry cannot always tell which cattle come from noncompliant landholdings.

OIL PALM IN INDONESIA

In Indonesia, deforestation totaled 60,000 km2 in 2000–2012 and increased on average by 476 km2 per year. It was 8,400 km2 in 2012. Oil palm development is the main driver of deforestation, mainly in Sumatra and Kalimantan. Its expansion occurs mainly at the cost of agroforestry and rubber plantations, highly logged secondary forests, and selectively logged primary forests.

The Indonesian government allocates lands slated for forest conversion through concessions to palm oil companies for industrial oil palm development. About 25 groups dominate the market.

But more and more smallholders are converting their land to lucrative oil palm plantations, which now make up more than 40% of the total supply. There are different types of smallholders, and the process also involves a growing number of local investors, absentee urban landholders and independent mills, forming an extended network of intermediaries who buy from smallholders and sell to company mills.

The Indonesian government has made efforts to protect primary forests and peatlands. A moratorium came into force in 2011 and has been renewed twice. The government has also put into place the Indonesian Sustainable Palm Oil System of mandatory standards. But there has been some criticism about the effectiveness of the moratorium, and it is still early to know the ISPO’s impact .

The major players in the palm oil sector have adhered to zero deforestation goals under the Indonesian Palm Oil Pledge, and have begun working on developing a deforestation-free supply chain. But the Indonesian government has openly opposed the pledge, arguing among other reasons that it could harm smallholders.

THE DILEMMA

In both Brazil and Indonesia, pressure from consumer goods companies, the retail industry and, recently, banks and investors has been the main driver of behavioral change.

Palm oil companies in Indonesia need to find a way to meet the zero-deforestation conditions of consumer goods companies and traders while, at the same time, not violate Indonesian law that requires companies use all of their allocated land to develop plantations.

They also need to strike a balance, securing access to markets in the north by adhering to their zero deforestation pledges while keeping their shares in less-demanding markets such as China and India, and staying open to non-traditional markets (e.g. Pakistan and the Middle East).

The Indonesian government faces a tougher challenge, since it doesn’t have the legal basis to enforce conservation initiatives on lands slated for conversion to oil palm. It also needs to make sure that company pledges to zero deforestation don’t end up hurting smallholders who want to develop agriculture – and most likely plant oil palm – in order to support their livelihoods.

In turn, the Brazilian government faces the dilemma of continuing to impose regulations with the hope that industry will invest in cleaning up supply chains, while at the same time meeting a growing demand for commodities. And it can’t risk excluding medium-scale ranchers, who need to find ways to turn a profit without deforesting, by investing in intensification practices to get more out of the same piece of land. Smallholders are even more limited as they often can’t afford to change their farming practices.

If there is a way out of these dilemmas, all of these parties will need to work together.

COLLABORATION IS KEY

Since deforestation is a wicked problem, even the best government and individual efforts can’t stack up against these interconnected challenges. Government, the private sector and civil society need to work together to adapt existing supply chain management practices, incentive systems and regulations.

In Brazil, emerging public–private partnerships need landholders to play a more active role in finding options for intensifying ranching within integrated production systems. While in Indonesia, the government needs to support a private sector that stays competitive while also benefiting the environment and creating more social inclusion.

The issue is how to deal with all three issues at the same time – and whose rules to follow.

Pablo Pacheco

In both countries, the public sector needs to help businesses by lowering investment risks, facilitating gains in efficiency and providing public goods that improve opportunities for smallholders.

The private sector has to meet the standards of deforestation-free supply chains by creating incentives that reward sustainable practices, and mechanisms to upgrade smallholder production systems.

And civil society organizations have a key role in supporting all these actions by raising awareness on likely risks, independently monitoring outcomes, supporting innovations and sharing lessons learned.

Stopping deforestation in primary forests, improving benefits for smallholders, and expanding supply to meet a growing demand: each of these challenges affects the other two.

The issue is how to deal with all three challenges at the same time – and whose rules to follow.

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