Palm oil, Russian fighters and the European Parliament

GIS Statement

GIS statement by Prince Michael of Liechtenstein

Indonesia, the world’s fourth-largest country population-wise, is the world’s largest exporter of palm oil. The value of this export exceeds $12 billion per year, which accounts for some 8 percent of the value of Indonesia’s total exports. Palm oil production and export is a crucial part of the country’s economy. The main importers are India, China, the European Union and Pakistan.

Palm oil is a tropical product and there is concern that too much rainforest is being cleared, especially in the Indonesian archipelago, to free land for palm oil production. Deforestation is a problem. It cannot be stopped, however, by trying to limit the production of palm oil. Sustainable harvest, and proper use and marketing of tropical timber and other products are parts of a better solution. The commercial value of the rainforest to the local population also needs to be recognized, like Alpine forests are. These are key components for an effective approach to stop excessive deforestation.

The problem in Indonesia is not the production of palm oil, but the lack of market incentives for a sustainable, economically and ecologically viable use of the forests. Such incentives make preservation in the population’s interest.

Rain forests are important. A market for tropical products exists. Economies do not respond to sticks, but they work fine with market carrots. The underlying cause, unfortunately, of the tropical deforestation problem is a combination of a short-term view and the lack of property rights. Forestry is a very long-term business. A tree planted today will only be harvested two generations later. Sustainable forestry, with the exception of selected preserve areas, cannot be enforced by putting limits on timber or other products, such as palm oil or coffee. Only property rights, efficient regulation of the use of forests and efficient markets lead to the desired results. This can be achieved in Indonesia and elsewhere.
Against this backdrop, it is rather arrogant for the Western world to try to force developing countries into declaring major parts of their territories as natural preserves that cannot be touched. The United States and Europe cannot be the nannies telling Asian, African and South American countries how to use their national resources. It is naive to believe that this concept can work.

Unintended consequences

Ignoring reason, the European Parliament passed a resolution in April 2017 to promote the reduction of palm oil imports to fight deforestation. It certainly meant well, but the policy is wrongheaded and harmful to Indonesia’s emerging economy.
A long-term, sustainable effect could be achieved by promoting the policies mentioned above and offering access for tropical timber and other products to European markets – at reasonable (not dumping) prices.
It is fascinating how immediately the EU parliamentarians’ “good” intentions triggered a development frustrating the initiative. It happens that Indonesia needs to upgrade its air force with a new generation of fighter planes. Instead of buying American, as in the past, Jakarta is ordering Russian Su-35 fighters and will pay for them with tropical crops, mainly palm oil. This transaction will compensate Indonesia for potential losses in EU markets, and is therefore in its vital interest.
Oops! So, Indonesia will continue exporting palm oil, a necessity for its economy, wellbeing and social stability. Russia secures a needed supply of tropical products, and, additionally, expands the markets for its defense industry. This helps Russia’s economy and its military strength. At the same time, the outcome weakens the effectiveness of the Western sanctions against Russia and underscores the futility of the EU Parliament’s forest preservation policy.
“Feel-good” initiatives should be carefully thought through before implementation, and their effects weighed between the intended and unintended potential consequences.

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