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Palm Oil - Summary
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Clearing land for plantations is a major cause of forest fires: of the 176 concession holders accused by the government of starting fires in October 1997, 133 were plantations.
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The oil palm plantation sector is one of the few profiting from the fires. Stocks in plantation firms such as London Sumatra and Bakrie Plantations are rising.
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Since 1990 the area of Indonesian land under oil palm cultivation has more than doubled to 2.4 million hectares. Under the government's current five-year plan the area will be doubled again to 5.5 million hectares by the year 2000. To achieve this figure, between 750 000 and one million hectares will have to be converted every year. Indonesian production has increased by 57% since 1993.
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Global demand for palm oil is growing by an average of 7% every year. Production is forecast to reach 17.5 million tonnes in 1998.
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Europe, India, Pakistan and China are the major markets, although imports into the USA are rising rapidly.
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Both the IMF and the World Bank are encouraging foreign investment and further privatisation of the sector. Western financial institutions and private banks are investors.
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Closely related to transmigration projects, vast areas of Kalimantan and Irian Jaya are scheduled for conversion to oil palm estates.
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The spread of plantations has negative effects on both local people and natural forests.
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The industry is dominated by a coterie of business conglomerates with close links to the ruling elite - including Astra International, Sinar Mas, Salim Group and Bakrie Brothers. Three generations of ex-President Suharto's family are involved in the sector through plantations, palm oil processing and marketing.
Uncontrolled expansion has led the Centre for International Forestry Research (CIFOR) to state that palm oil is now the commodity with the most important impact on forest cover in Indonesia.
The global palm oil sector has undergone staggering growth over the last decade. From small beginnings it is now used in a host of products and applications, from drilling in the oil industry to coffee whitener and hand creams. Such demand has resulted in the creation of vast areas of monoculture oil palm plantations where formerly natural forests existed. The conversion of forest land to plantations has been a major cause of the recent fires, destroying natural forests, small-scale sustainable farms and eliminating wildlife.
The expansion of this burgeoning commodity has been largely confined to just two neighbouring countries - Malaysia and Indonesia - which now account for over 80% of the world's production. In the struggle to dominate the industry Indonesia is committed to toppling Malaysia as the biggest producer. It has vowed to double the area of its lands under oil palm cultivation - to 5.5 million hectares - by the turn of the century, prompting a massive land clearance, fuelling further indiscriminate burning across huge tracts of Sumatra and Kalimantan. It comes as no surprise that of the 176 concession holders publicly named for starting fires on their lands, 75% were plantation companies.
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