The haze caused mostly by Indonesian forest and plantation fires in June 2013 has triggered a blame game, which does not help to solve any problem let alone cast the spotlight on who really is responsible for the environmental havoc. Mallika Naguran offers some clues based on a resource trade cycle analysis (RETRAC) model, which helps readers navigate through these hazy issues.

Singapore, 21 July 2013. A month later, the haze that smothered Singapore and Malaysia in June this year has cleared due to shifting winds and reduced fire incidences. Still, a few hazy issues remain smoking. It is clear, though, that the incident has triggered a blame game – who caused the fires and who should be punished? It is also clear that Indonesia, where the most number of hotspots of fire were detected, was the first to point finger at foreign companies in order to avoid being blamed for the fires from occurring in the first place in spite of its own environmental laws. This, Singapore and Malaysia reckon Indonesia could have been done if it had ratified the ASEAN Transboundary Haze Agreement that was enacted more than a decade ago. All ASEAN members with the exception of Indonesia have ratified the Agreement in 2002.

In the meantime, the blame game plays on. Indonesian local authorities blame small landholders and farmers for using fire as part of their swidden agriculture or method of clearance. This has been a time immemorial practice in many parts of the world - an agricultural method of clearing land using fire to make way for a new planting season while making the soil more fertile.

Other blame and shame occurrences: international non-governmental organisations (INGOs) and local non-government organisations (NGOs) call on the authorities to take oil palm plantation owners and companies to task. Palm oil companies declare their innocence and instead blame small landowners for starting the fire, claiming that the sparks had spread to their property, fanned by the winds. Indonesian land concession maps are being demanded by Singapore's Minister for the Environment and Water Resources, Dr Vivian Balakrishnan. These, he says, should be made public to help the authorities and NGOs pinpoint the culprits.

Residents of Singapore and Malaysia berate their leaders for ineffectual dealings with the Indonesian authorities. Singapore and Malaysia leaders question (not lambast) Indonesian leaders, then accept compromises. Activists blame consumers for buying products containing palm oil ingredients. The blame game goes on and on. And this year isn’t the first. The haze has been a yearly occurrence in Southeast Asia for nearly two decades, in particular Singapore, Malaysia, Indonesia and sometimes Thailand and the Philippines too. We should not forget that this year, as in previous years, fires raged in Malaysia, Thailand and the Philippines as well, not just in Indonesia. What escalated the issue this year was the coincidence of rather warm temperatures with the burning of peatland that store rich carbon sources. These when burnt emit toxic gases, far worse than carbon gases released from forest fires.

Allow me to lift the shroud surrounding the haze issue. First it must be acknowledged that a large part of the fires took place in oil palm plantations and forests converted to make way for agricultural use that include oil palms. Palm oil has numerous uses in industry and commercial products, apart from cooking. Oil palm plantations have high quotas as well for the extraction of oil palm for the production of biofuels. This “clean and renewable” oil is mostly exported, primarily to Europe to fulfill biofuel mandates within the EU Renewable Energy Directive that requires a cleaner energy mix.

Fueling this trade flow is a series of actors that act behind the scenes. They are investors, often private or government-backed entities, that put millions of dollars into securing land for the purpose of producing palm oil products that may include biofuels. Certain state governments created development corporation to specifically boost oil palm trade. An example - Johore State Economic Development Corporation that invested in Kulim oil palm corporation (majority owned by the government).

Land grabs and unethical land use change are often consequences of such deals, which take place with the government's endorsement. The short-term economy agenda over-rides long-term forest benefits and values. Banks and financial institutions are important players in the palm oil trade as well; their loans grease deals, enable liquidity, capital flows and mobilise operations. As plantation producers depend on banks for short or long term loans, banks become an unequivocal link in this smokey trade chain. To illustrate the interlinkages of different entities and parties in a palm oil trade chain as well as the cause and effects of such interlinkages, I present my version of a RETRAC model. 

A resource trade cycle analysis (RETRAC) model was first developed by Foundation Aidenvironment to study linkages between consumption and production of natural resource-based products and commodities, such as timber, soy bean and palm oil.  The analytic framework helps us identify specific segments in the trade cycle relating to palm oil that contribute towards environmental degradation. It also demonstrates how trade and investment cause impacts at ground level, and more importantly, to address misleading consumer information.

The RETRAC model is an effective reference tool. In 1999, Greenpeace in Netherlands presented a RETRAC study, which revealed that many plantation company clients of Dutch commercial banks (including Rabobank) were involved in social and enviromental issues and degradation in Indonesia. The study also showed that financiers were able to influence their clients’ environmental policies but lacked internal policies to do so. Under NGO pressure in 2002, all Dutch banks signed a simple statement of intent to declare that no financial services would be made available to errant plantation companies that are involved in “illegal activities, deforestation, open burning, or social conflicts”.

A WWF study thereafter revealed that the Netherlands (through loans issued by commercial banks) was the second-largest foreign investor in Indonesia (after Malaysia) amounting to some US$500 million. A 2006 Friends of the Earth Netherlands study found that the Dutch banks performed poorly in implementing the policies according to the statement of intent. Commercial banks then contributed towards the formation of a new NGO called BankTrack, which focuses on the banks’ compliance with the Equator Principles.

Studying the RETRAC figure offers some clues in Southeast Asia oil palm hazy affairs. First, the circulation of money from savers (like you and I) through commercial banks fund the operation of palm oil plantation companies. In saving with banks, savers tend not to question how their money is being used or where it is being invested. Perhaps this should no longer be the case. Savers can choose ethical banks that not only have a responsible code of conduct, but also offer loans only to responsible companies and producers that comply with the Equator Principles or equivalent.

Second, the oil palm product demand that comes from the EU has to be shaped by current and localised socio-environmental requirements and regulations. Critics of the EU Renewable Energy Directive have pointed out gaping loopholes that encourage environmental degradation elsewhere. The EU has to step up to the task of tightening its regulations should it wish to continue importing oil palm products from Malaysia and Indonesia.

Third, INGOs and NGOs should continue to pressure the heavyweights in the palm oil trade – financial institutions, councils, Roundtable on Sustainable Palm Oil (RSPO) and governments. The role of INGOs and NGOs should not just stop there but move down the trade chain to product distributors and brands such as Nestle and Unilever as well as major supermarket chains. These may pretty much lie at the bottom of the oil palm trade chain, but nevertheless can assume greater supplier responsibility. These will put the pressure on oil palm companies to transform their ways towards cleaner, greener and more ethical practices.

Bottom line is, even if the Indonesian government ratifies the Agreement, it will still have to grapple with market-led oil palm production practices that can be irresponsible and unethical. Law enforcement on the ground is another issue, and it has always been a tough hurdle for Indonesian authorities to cross. Ratifying a multinational Agreement does not ensure that enforcement will get any better, unless Indonesia revamps its internal monitoring and enforcement procedures.

So who’s to blame for the haze this year, and next? The RETRAC model offers clues. Go figure.

The author first wrote about the RETRAC model in her MSc (Envirnmental Science) dissertation for The National University of Singapore in January 2013 entitled "The Environmental Impacts and Strategies of Biofuel Production in Southeast Asia". Mallika Naguran is the founder of Gaia Discovery and is often a commentator in journals and newspapers. She currently works with the Centre for Sustainable Asian Cities in Singapore as an associate researcher. The author wrote this article in her personal capacity and welcomes comments.

Figure Source: AIDEnvironment as taken from Eric Wakker “Leveraging product and capital flows to promote sustainability in the palm oil industry”, The Palm Oil Controversy in Southeast Asia: A Transnational Perspective.

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