Indonesia's industry and government leaders have announced goals to expand palm oil production while avoiding forest loss and social conflict. Achieving those goals depends on establishing new plantations on suitable, non-forested land and respecting local rights. Land classification in Indonesia does not necessarily allow this, as many suitable areas are legally unavailable for development. This issue brief examines methods to change legal classification of land to support sustainable palm oil.

Executive Summary

Indonesia is the world’s leading producer and exporter of palm oil, with roughly 18 million metric tons of crude palm oil exports valued at US $21.6 billion in 2012. The commodity plays a crucial role in the country’s economy. However, palm oil production is also closely linked to deforestation, social conflicts, and other environmental impacts, as large areas of Indonesia’s forests and peatlands are cleared for conversion to oil palm plantations.

Palm oil industry and government leaders in Indonesia have announced goals to expand palm oil produc¬tion while avoiding forest loss and social conflicts. Achieving these goals largely depends on where new oil palm plantations are established and whether local rights and interests are respected during site selection processes. Site selection, in turn, depends on government spatial planning and permitting processes that determine where companies can legally establish plantations.

As of 2011, approximately 70 percent of Indonesia’s total land area was classified as “forest estate” (kawasan hutan) by the Ministry of Forestry.3 However, this and other classifica¬tions may not conform to the physi¬cal reality of the land cover: many forest estate lands are settled or degraded, and many nonforest estate lands host rich primary forests and extensive peatlands. A study by the World Resources Institute found that 5.3 million hectares of suitable land are part of the forest estate, and are therefore legally unavailable for agricultural development.

Based on a desktop legal review, this issue brief found multiple methods for changing legal land classifications in Indonesian law. Companies could use these methods to expand certi¬fied sustainable palm oil production in areas that were previously legally unavailable. The methods could also be used to facilitate the conservation of forested areas currently legally available for agricultural uses.

This study identifies three types of methods for legally reclassifying land:

  1. Single reclassifications: Procedures that change the land-use classification of a single area.
  2. Multiple reclassifications: Procedures that change (or “swap”) the land-use classifications of multiple areas simultaneously.
  3. Local/special designations: Procedures that change the allowable land uses in a designated local area, without changing the land use classifications.

In addition to the legal review, WRI carried out a land swap through a pilot project with Indonesian partner Sekala and PT Smart, one of the largest publicly listed palm oil companies. PT Smart, which has committed to the standards of the Round¬table on Sustainable Palm Oil,5 held a license for forested peatland that was classified as “nonforest estate” and was willing to seek an alternative site on degraded land. In 2009, WRI and Sekala identified nearby suitable degraded land, where the local community had a strong interest in palm oil development. However, despite this interest, the plan has not been approved by the national government, and has stalled because of the complexity and cost of the legal process.

Companies, project developers, and communities seeking to change legal classifications in a manner that is consistent with sustainability standards face substantial legal challenges, namely the length and costs of the processes, lack of legal clarity, and lack of consistency with goals to avoid forest loss and social conflicts. This study offers several recommendations for palm oil companies to help address these challenges, such as understanding the legal reclassification procedure options and sharing implementation experience, going beyond legal compliance to follow best practices, and engaging with initiatives such as the Roundtable on Sustainable Palm Oil and Indonesian Sustainable Palm Oil to sup-port land-use classification policies. Recommendations are also outlined for Indonesian policymakers, including clarifying the objectives and definitions associated with land swap policies, simplifying procedures, incorporating biophysical and social factors into legal classifications, and making data and procedures publicly available and easily accessible.

Addressing these challenges will help Indonesian companies, governments, and communities use land more efficiently, preserve valuable forests, and expand business prospects. With global demand for sustainable palm oil and other commodities on the rise, land swaps can help position Indonesia to meet market demands while using land sustainably.