Essay Group Assignment 3 Aaron Leo Reuben NRE 601 Final Version

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Pages: 22

Assignment 4 – Group Assignment

Palm Oil Dilemma in Indonesia

Natural Resource Economics 601 – Lecturer: John Karasinski
Word Count – 2,016 (not including Tables and Figures)

Aaron Smith: 1662 4483
Leonardo Molinari: 1728 4820
Reuben Dias:1313 9900

Palm Oil Dilemma in Indonesia

Group Assignment 2

Executive Summary
Indonesia’s GDP is estimated at $US868 billion in 2013, which classifies it as a lower middle income country. GDP growth has averaged almost 6% over the last decade with a population growth averaging at 1.4%. Indonesia’s population is expected to grow at an annual growth rate of 0.57% to over 271 million by 2030. Indonesia’s industrial sector largely dominates production, contributing over 48% to aggregate economic activity (including oil and gas which accounts for 10% of GDP).
The palm oil industry has the potential to generate significant social and economic development in Indonesia. It is Indonesia’s largest agricultural export and provides income and economic development to the large proportion of rural poor Indonesia. In recent decades the global market for palm oil has seen exponential growth with current production estimated at over 45 million tons, with Indonesia being one of the world’s, largest producers and exporters, producing over 18 million tons of palm oil annually.
Although only contributing 8 % to GDP, the palm oil plantations provide for around two thirds of rural household incomes. Over 41% of plantations were owned by small land holders and produced 6.6 million tons of palm oil. Considering over half of Indonesia’s population live in rural areas of which 11.4% live below the poverty line, the palm oil industry is a vital component to poverty mitigation and perspective economic benefits for the country as a whole. Beyond the socio and economic benefits, the dilemma created by this industry in Indonesia presents high threat to tropical rainforests, climate change, livelihoods of local communities and increasing conflicts associated with land acquisition.
To address the Palm oil dilemma government intervention is required through:
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Regulation and policy change to curb undesirable activities (conversion of forests to plantations) Financial incentives to promote desirable activities (production of certified sustainable palm oil)
Financial disincentives to curb undesirable behaviour (tariffs on uncertified palm oil)
Promotion of alternative economically diverse industries (shale gas, horticulture and fisheries) Remove fuel subsidies (maximum 10% increase in fuel price each quarter until 100% of subsidy is removed)

There is no one single approach to dealing with the Palm Oil dilemma in Indonesia but a mixture of regulations, incentives, disincentives and economic diversification at all sectors within the industry is necessary to alleviate the problem in the short term and long term.

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Palm Oil Dilemma in Indonesia

Group Assignment 2

TABLE OF CONTENTS
Executive Summary

2

1.0 Introduction

4

2.0 The Indonesian Economy

5

2.1 Overview

5

2.1.1 GDP

6

2.1.2 Population

6

2.1.3 Monetary Policy

7

2.1.4 Currency

7

2.1.5 Sovereign Credit Ratings

8

2.2 Vision and Mission

9

3.0 Economic Analysis

11

3.1 Fuel Price Increases

13

3.2 Palm Oil Industry

14

4.0 Palm Oil Industry – Indonesia

17

4.1 Palm Oil Overview

17

4.2 Deforestation

18

4.3 Ecological Issues

19

4.4 Downstream

20

5.0 Recommendations

22

5.1 Policy Reform and Development Implementation Plan

25

Conclusion

26

References

27

Appendix

29

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Palm Oil Dilemma in Indonesia

Group Assignment 2

1.0 Introduction
This report outlines the natural resource dilemma of the regulated Palm Oil industry in
Indonesia for consideration of;
 Ir. H. Suswono - Minister of Agriculture of Indonesia
 Dr. Darwin Zahedy Saleh – Minister of Energy and Mineral Resources of Indonesia
This report addresses the Indonesian economy, analysis of issues facing aspects of the economy, the palm oil dilemma and recommendations going…