Coca to jatropha: The changing face of Indonesia's plantations

http://www.thejakartapost.com/detaileditorial.asp?fileid=20061212.E03&irec=2

December 12, 2006

Opinion

Julian Hill, Jakarta

Taking a snapshot of Indonesia's major crops in 1920, the world's largest producer of coca leaf and its derivative, cocaine, was right here on Java. And while the Latin Americans simply said cocaine production here was totally banned by decree. But also in 1920 more than 90 percent of the United State's high end cigar tobacco wrapper leaves were grown on Sumatra.

World opinion and politics ended cocaine production and the great depression ended expensive tastes in tobacco. Tea and coffee replaced coca in Java and rubber replaced tobacco in Sumatra. Two major crops displaced for two entirely different reasons, and thus we see the trend that fashion, politics and technology are all capable of changing the crops and the economics of Indonesia's plantations.

Dunlop's invention of the pneumatic tire spawned demand for rubber and as motorized transport grew between the wars so did the need for tires. By 1942, the need was so great that it was a major motivation for the invasion of Indonesia. Post World War II technology, particularly in the non-tropical USSR, began to replace natural rubber with synthetics made from petroleum. No need for natural latex, said the tire manufacturers and rubber prices fell.

Out came the rubber trees and planters started with a new super crop, oil palm. The tire manufacturers over did it though, and whilst they succeeded in keeping the price of latex down, they became worried about shortage of supply. A few years ago they admitted that although synthetic rubber worked well in tire treads, natural rubber was still needed for the walls. Rubber prices soared. Rubber or oil palm? Planters were in a dilemma, but not for long.

The motor car that spurred the demand for rubber is a big contributor to the global warming scare, the next big driver in the plantation game. Palm oil is not only an edible oil with a myriad of uses, it is now also seen as a feedstock for the production of alternative biofuels, the next new big business. After that brief dilemma, most reckon oil palm oil has the ascendancy over rubber again. At the moment.

Many of Indonesia's islands are moist, fertile and warm, perfect conditions for tropical agriculture, notably seen in the 1890s Le Figaro cartoon, Au fertilite du Sumatre, of the planter's walking stick sprouting leaves while he leans on it for a rest. Foreigners have been flocking here for centuries to seek the fruits of this fertility, but what they have sought has changed from cloves and cinnamon for the tables of European nobles to feedstock for biofuels to halt the progress of global warming. So what's next?

Undoubtedly the major influence on Indonesia's plantation sector over the next decade or so will be the demand for biofuels; irrespective of the price of crude oil, governments and interest groups around the world will continue to push the concept of sustainability.

So what are biofuels and why are they sustainable?

Biofuels fall into two categories: those categorized as biodiesel and those produced by fermentation such as bioethanol. Biodiesel is a modification of a vegetable oil which enables it to be used alone or mixed with petroleum diesel, for engines where ignition occurs by compression. Interestingly I know planters in Sumatra who have been mixing crude palm oil with regular diesel for years and they say it works just fine.

To produce bioethanol, carbohydrates need to go through a fermentation process, much the same as producing alcoholic drinks. Ethanol, by the way, is the same as the ethyl alcohol we find in our scotch, wine or beer. Bioethanol may be the rage now but it is volatile and cannot be mixed more than 10 percent with regular petrol.

These biofuels are deemed to be sustainable because, unlike fossil fuels, they are grown by plants which fix the carbon from the atmosphere. When they are burnt they return the same carbon to the atmosphere that was used in growing them. That's the theory, but such a balance does not take account of the equipment and transport used to produce them.

So it takes a vegetable oil to make biodiesel but virtually any old carbohydrate can be used to make bioethanol.

Let's look at a biodiesel plant producing, say, 250,000 tons of biodiesel a year. In petroleum terms that is about 1.75 million barrels. To produce the palm oil feedstock for a plant with that capacity would require oil palm plantations of about 60,000 hectares, about the same size as Singapore.

The 1.75 million barrels of crude, on the other hand, could be produced by a field of about "fifty donkeys" pumps covering an area of 70-odd hectares. So can the benefits of the sustainability be traded against the loss of a huge area of what used to be rain forest and now turned to monoculture? This is an issue the green lobby has yet to address. Sure it may be sustainable, but is it a sword in the side of biodiversity?

So what are the alternatives? Biodiesel can be produced from many vegetable oils. Not just the traditional ones like palm, soya and canola but also from others, less well known oils, such as jatropha and castor. Jatropha can be grown in poor soils with low rainfall, such as is found in the Moluccas and East Nusa Tenggara. These biodiesel crops could help revitalize the economies of some of Indonesia's poorest regions, and do so by utilizing land that does not have the same biovalues as rain forest.

Bioethanol can be produced from a variety of crops; ubi kayu (cassava), potatoes, sugar cane and even, they say, from rice straw. There is a lot of land in Indonesia that could produce simple carbohydrate, and we could see, for instance, large scale production of cassava for biofuels on otherwise unproductive land.

Regional autonomy, has the potential to create a sea change in the countryside. As President Susilo Bambang Yudhoyono has said many times, "Don't talk to me, talk to the Bupati (regent)". A result is that the land rights of the masyarakat, the people, are now inalienable and protected and we will surely see a massive increase in production from small land holders rather than from the large scale corporate planters.

Fear not, this has been the case elsewhere in the world for centuries. For instance, a big-sized farm in most parts of England is 100 hectares and national agricultural production has not suffered as a result of it. What it will mean though is that the primary producer will no longer also be the primary processor, because small producers cannot justify owning processing plants like palm oil mills.

Once implemented in its purest form the Kyoto Protocol mandates the global trading of carbon credits. This will be critically important for Indonesia with its forests and agriculture, and could be worth untold billions to the nation.

The writer is a Technical Advisor with Deloitte in Jakarta. He is involved in providing financial advice to companies in the Indonesian plantation sector. He can be contacted at jchill@deloitte.com.