Social Costs and Externalities of Indonesian Palm Oil Production
Summary: Indonesia is the leading producer and exporter of palm oil across the globe. Oil palm is of high economic status throughout Indonesia, Africa, and most of the East because of its abundance in the region, richness of nutritional and mineral components, and high yields of edible and technical oils. The extensive development of oil palm industries in many tropical countries is due to its extremely high potential productivity. The steady demand of the oil has existed for integration into processed foods, personal care products, and home-cooked meals. Correspondingly, with increased interest in substitution of fossil fuels, palm oil is being demanded for biofuel energy production. The issues with palm oil extraction are many; One including that the high demand from developed nations has lead to the push of cultivation into the rainforests, destroying habitat. Additionally, the production and extracting gives opportunities for small land-holders to participate in the cash economy, but often time big banks and companies acquire their land without notification or compensation. Migrant workers and imported laborers are said to legally conflict with extraction processes. Regardless, a large majority of the rural-poor, working class of Indonesia relies on income from palm oil production. With that, the entire population could be lifted out of poverty.
The central obligation Indonesia holds is to lift their unemployed and impoverished majority from those circumstances and boost sustainable economic growth. Since the economy of the country is heavily dependent primarily of the agriculture, forestry and mining sectors, the opening up of forests and further extraction of their natural resources are the most reliable sources toward reaching their financial goals. In relation, externalities and social costs must be taken into account because local production, global markets, and climate change are ever connected in the race to seize reproductive function of renewable resources.
With that in mind, Indonesia is the third largest emitter of greenhouse gases in the world as a result of their deforestation, peat land degradation, and forest fires for their expanding industry of palm oil extraction (Business Watch Indonesia, 2007). Meanwhile, Indonesia is a low-lying coastal area and is vulnerable to the climate effects that they, in fact, are contributing their greenhouse gases to. Additionally, with Indonesia’s longitudinal positioning on the equator, it is most susceptible to the sink of heat and monsoon circulation from Indian and Pacific oceans, which are key dynamics resulting from climate change. However, because there is an influx of demand for palm oil for food and industrial consumption, Indonesia has jumped onto the opportunity to expand their already leading production to meet demand and bring rise to each worker’s GDP. Indonesia holds close to 50 percent of share-hold global production on palm oil and to keep up with their plans on extending the countries production from 22 million tons to 40 million tons by 2020, they are using this opportunity to establish programs for promotion of biofuels (Buschmann, The Case of Indonesian Palm Oil, 2011). While rich countries put forth effort to specialize in environmentally friendly production and are implementing boundaries of sustainability in their own economies, they are attracted to productions that are environmentally harmful in developing regions. This shifts the environmental costs from importer to exporter and ultimately leads to unequal ecological exchange from attempting to make the shift to renewable energy and meet the standards of the Kyoto and Montreal Protocols within their own boundaries. Wealthy nations are continuously working to cut emissions with increased awareness of global climate change. However, the Kyoto Protocol fails to commit those high producing developing nations...
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