Executive Summary: Financing oil palm expansion in Indonesia and Malaysia (20 June 2013)

Introduction1

As global demand for palm oil for food, chemical and biofuel uses continues to grow, increasingly more resources are needed to finance investments targeting the expansion of oil palm plantations. This development may continue to threaten valuable forests and natural habitats in many tropical countries. Hence, careful planning of expansion plans for oil palm plantations is necessary to prevent further deforestation as much as possible.

Apart from governments, commodity producing companies and their investors also have an important responsibility in this respect. This report therefore aims to explore current patterns of investment and financing of the palm oil sector in the two biggest palm oil countries, Indonesia and Malaysia.

The objective of this report is to understand the patterns of public and private investments and financing in the production and processing of palm oil in Indonesia and Malaysia over the past ten years (2002-2011), thereby trying to identify likely future trends. A better understanding of investment and financing patterns will help to understand which mechanisms could be used to stimulate investors and financiers to avoid deforestation and reduce as much as possible the costs associated with land use change associated with oil palm expansion.

The contents of this report are as follows: Chapter 1 describes the research objective and methodology. Using this methodology, the next two chapters analyse the trends in the financing of the oil palm sector in Indonesia (Chapter 2) and Malaysia (Chapter 3). Chapter 4 gives a detailed overview of the most important financial institutions financing the oil palm sectors in Indonesia and Malaysia, and also combines the findings of Indonesia and Malaysia to draw conclusions on financing trends in the Asian Pacific oil palm sector.

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1A research paper prepared for Rainforest Action Network and Transformasi untuk Keadilan Indonesia (TuK INDONESIA) by Jan Willem van Gelder & Joeri de Wilde