South Korea’s finance of ‘green’ palm oil drives destruction in Indonesia

Main photo: young oil palms await planting on land deforested by South Korea’s Korindo in the Indonesian province of Papua (Image: Mighty Earth)

In 2019, South Korea imported 745,000 metric tonnes of palm oil, up from 194,000 metric tonnes in 2005. It is one of the fastest-growing markets for the commodity in the world, driven by government policies to boost palm oil as a lucrative green industry and to secure food and energy supplies from overseas.

Most of this palm oil comes from Indonesia and Malaysia and until recently was used in processed food, such as instant noodles. But under the country’s “Green New Deal” introduced earlier this year, palm oil is being promoted as a source of renewable energy, as biofuel for transport and power generation.

(Graphic: James Round / China Dialogue)

But palm oil’s green credentials are hotly debated. While the US and Europe are taking steps to restrict use because of links to widespread deforestation and high carbon emissions, South Korean public institutions have given millions of dollars in subsidies to companies developing plantations in Indonesia in the name of “green” development.

Environmental activists and lawyers in South Korea have become increasingly vocal about the industry’s links with human rights violations and deforestation in Indonesia, and are demanding the government stop financing destructive practices.

Demand soars

South Korea relies on overseas imports for 97% of its energy and 75% of its food resources. After the 2008 global food crisis, the government set out to secure both edible and industrial palm oil, launching an “Overseas Agro-resources Development” programme in 2009. That public loan scheme covered 70% of the business costs of private South Korean companies to produce and distribute wheat, soybean, corn and crude palm oil.

Palm oil is designated a strategic commodity under South Korean law. The Overseas Agriculture & Forest Resources Development and Cooperation Act, and the Overseas Resources Development Business Act are used as legal grounds to subsidise Korean palm oil companies overseas. The Korea Forest Service and various finance institutions classify oil palm development as “bioenergy afforestation” projects. This is a perverse use of the word afforestation, which generally means planting trees for environmental and climate benefits, not clearing tropical forest for monoculture plantations.

“I find these acts very imperialistic. The government is helping companies to take resources from other countries because we are resource-poor,” said Chung Shin-young, a lawyer with Advocates for Public Interest Law (APIL), who has been investigating South Korea’s palm oil industry and leading the campaign to stop public finance of the industry.

(Graphic: James Round / China Dialogue)

Public and private investment in the palm oil industry has also been driven by the use of palm oil as a transport fuel since the mid 2000s. Since 2015, South Korean companies importing or exporting petroleum fuel products have had to ensure their oil products are at least 2.5% biodiesel. The proportion was later increased to 3%. As of 2017, palm oil and its by-products accounted for 88% of South Korea’s biodiesel imports.

Public money funds deforestation and human rights abuses

South Korean palm oil producers found themselves in the international spotlight in 2016 when environmental advocacy group Mighty Earth, in partnership with the Korean Federation for Environmental Movements (KFEM), exposed massive forest clearance in the palm oil concessions of Korindo and Posco International in Indonesian-administered Papua. Satellite data and drone images showed that Korindo had cleared 30,000 hectares of rainforest in the previous two years while Posco International had cleared 19,000 hectares in the previous four.

Korindo established its first oil palm plantation in Papua in 1998. Recent years have seen a marked expansion of its activities in the province, with 30,000 hectares of forest cleared between 2013 and 2016. (Image: Mighty Earth)

“The Korean model of palm oil plantation deforestation harkens back to the old, dark days of the palm oil industry when forests, wildlife and indigenous lands were obliterated for the purpose of establishing giant expanses of monoculture plantations, the profits of which mainly go to foreign owners,” said Deborah Lapidus, senior campaign director at Mighty Earth.

The problem is these two companies have been operating their palm oil business with public money from the Korea Forestry Service and the Export-Import Bank of Korea (Korea Exim Bank), said Chung.

“If you look at the detailed statement of the government loan to Posco International, you will learn that they rarely run a business on their own money. But it’s not only Posco International. LG International, Daesang, and JC Chemical before them got a loan from the Korea Forestry Service,” said Chung. Her team was one of the first local groups to investigate South Korean palm oil companies’ links to rights violations and massive deforestation in Indonesia since 2016, together with the Korean Federation of Environmental Movements (KFEM). 

“The agency’s very first public loan to the palm oil industry was to an oil palm afforestation company, Daesang Holdings, in 2008. In total, 3.8 billion-won (around US$3.2 million) was financed for a bioenergy afforestation project in Indonesia,” explained Shin Gun-seop, an administrative officer at Korea Forest Service’s Overseas Resources Development Office.

Between 2010 and 2019, Korea Forest Service provided 40.1 billion won (around US$33 million) to plant oil palms in around 24,000 hectares, mostly in Indonesia, according to Shin. Daesang Holdings, LG International Corp., Kodeco, and JC Chemical were some of the recipients of these public loans.

Livelihoods destroyed

The expansion of South Korean palm oil companies has put indigenous communities’ livelihoods at risk, many of whom had been displaced from their forest land in the past.

“My concern is that the presence of Korindo and Posco International in Papua will further widen gaps and deepen injustices in Papua where big business take everything and the local community is left with empty hands. For most indigenous Papuans, forests are their supermarkets, banks, hospitals and sacred places. Massive forest conversion means they lose their livelihoods,” said Angky Samperante from the Papuan rights group Yayasan Pusaka. His team has been struggling to protect the rights of indigenous peoples and the environment of Papua against Korean palm oil companies since 2010.

A family from the Kowin Marind tribe whose land has been affected by deforestation to make way for a Korindo plantation in Papua (Image: Mighty Earth)

The Forest Stewardship Council (FSC) has been closely monitoring Korindo’s operations since complaints against its destructive practices and human rights violations were first made by Mighty Earth in 2017, but has stopped short of stripping it of its sustainability certification. Korindo Group published a statement on its website in July 2019 saying it rejected complaints that it was involved in illegal forest fires but agreed to work with FSC to improve its standards.

The Korean palm oil industry has been linked with the suffering of indigenous communities in Indonesia from the start. Korindo Group started the first “Korean” palm oil business in Merauke, Papua province, in 1995. There the Marind and Mandobo peoples had already been forced from their customary forest by the central government’s development plan in the early 1970s. PT. Tunas Sawa Erma, the palm oil company of Korindo Group, acquired a palm oil business permit in 1997 and by December 2001 had planted palms over 7,800 hectares of land. This set the scene for the next set of large-scale Korean palm oil ventures in Indonesia from 2007.

The major players

Apart from Korindo, six other big South Korean companies have become major players in the palm oil industry, financed by public money. Almost US$200 million worth of public funding has been given to these companies to develop over 65,000 hectares of palm oil plantations in Indonesia. These estimates are based on publicly available and verified data from the Korea Forest Service, Export-Import Bank of Korea and the South Korean parliament. And according to an independent investigation by APIL (Advocates for Public Interest Law), almost all of these companies have ongoing land and rights violation conflicts with local communities.

(Graphic: James Round / China Dialogue)

Local advocacy groups have been running a campaign to stop government loans to the palm oil companies in Indonesia since APIL and KFEM (Korean Federation for Environmental Movements) published a report based on their investigation in 2019.

“It’s our tax money going into the industry that is complicit in land grabbing, indigenous people’s rights and labour rights violations. We are pushing Korean export credit agencies to have their own human rights standards to follow when providing a public finance loan to overseas projects like the palm oil industry. It is the government offices’ constitutional responsibility to avoid any human rights violations,” said Chung.

Carbon emissions

Local scientists are also raising their concerns about the government’s growing “carbon debt” given its support for the palm oil industry.

“South Korea has been using a by-product of crude palm oil called Palm Fatty Acid Distillate (PFAD) as a main source of bioenergy. Due to its high carbon intensity and environmental cost, PFAD would not be permitted as a main source of biodiesel in countries like the US and UK,” said Shin Jung-Yull from Korea Energy Agency’s audit division.

According to Shin’s 2018 PhD dissertation, PFAD accounted for 47% of Korea’s biodiesel feedstock in 2015, and emits 5.7 times more greenhouse gases than alternative oils. The European Union plans to phase out palm oil-based transport fuels by 2030, because of the deforestation and higher emissions they cause.

Mounting pressure

Since 2015, South Korean lawmakers have also been questioning the relevant ministries over the effectiveness and sustainability of public financing in the overseas palm oil industry through parliamentary inspections and research service reports.

Under public pressure, Korea Forest Service excluded Korindo from receiving overseas public financing and seized additional loan support for oil palm afforestation projects in 2019. This was after the agency introduced new evaluation criteria requiring companies to provide evidence, such as satellite images, to prove that they are not responsible for “conversion of forest”. However, companies receiving loans before 2019 are not bound by the stricter criteria.

Membership of the Roundtable of Sustainable Palm Oil (RSPO) – the global certification organisation set up to promote ethical palm oil – is not included in public financing criteria, and neither is a commitment to No Deforestation, No Peat, No Exploitation (NDPE) policies.

Despite this, there has been huge public pressure on companies to take action. Posco International voluntarily joined RSPO membership and introduced a zero-deforestation policy for its palm oil plantation in Indonesia’s Papua province in March this year.

When asked to respond to the international outcry over their activities in Indonesia, Joyce Eun Jeong Seo of Posco International’s Sustainable Management Department told China Dialogue: “In carrying out the palm oil business in Indonesia, Posco International and its subsidiary PT Bio Inti Agrindo recognised and complied with indigenous customary laws as a top priority and strives to fulfil the level of social responsibility required by international norms as a responsible global company.”

Posco International was the first South Korean business to introduce a NDPE (no deforestation, no peat, no exploitation) policy earlier this year. But between 2012 and 2017, its subsidiary in Papua cleared 26,500 hectares of mostly primary forest to establish a plantation. (Image: Google Earth, Landsat / Copernicus)

But Korean citizens have only just started to demand more transparency about the palm oil supply chain and the problems around this ubiquitous commodity. 

“We all know that our country has to rely heavily on overseas resources for our food and energy. But the government cannot blind its citizens by using ‘national interest and security’ logic to justify human rights violation, deforestation and carbon emissions,” said Kang Myung-hwa, a 34-year-old citizen from Seoul.