Bringing a new level of transparency to Indonesia's pulp exports

Pulp is a large and growing sector in Indonesia

Indonesia’s wood pulp industry plays a significant role in the country’s economy. In 2018, its pulp and paper producers exported over US$7 billion in goods, representing 4% of all exports (UN COMTRADE). The pulp and paper industry reports employing 260,000 workers directly and 1.1 million workers indirectly. The sector is also an important contributor to the global wood pulp market, producing 9.1 million tonnes of pulp in 2019 and contributing almost 16% of global wood pulp exports.

With the gigantic OKI mill starting to operate in South Sumatra at the end of 2016, Indonesian pulp production capacity grew by 2.8 million tonnes, or 38%, over the five-year period 2015-2019. Importantly, the sector is diversifying – expanding from a focus on bleached hardwood kraft pulp (BHKP) to make paper, packaging and tissue towards the production of higher-value dissolving pulp that is used in the textile market.

Falling deforestation set against continuing concerns over peatland impacts

In recent decades, Indonesian pulp production has been associated with extensive social and environmental problems, including clearing vast tracts of rainforest, draining carbon-rich peatlands and marginalising indigenous and local communities.

Following the adoption of zero-deforestation commitments by leading producers starting in 2013, the sector has achieved an 85% reduction in the rate of deforestation since peaking in 2011, demonstrating its marked improvement.

Nevertheless, today’s Indonesian pulp exports include a great deal of wood fibre grown on plantations established during the boom of pulp-driven deforestation in 2004-2012. In addition, as of 2019, over 1 million hectares (41%) of Indonesia’s wood fibre plantations are located on peatlands, causing significant greenhouse gas emissions and increasing the risk of fires and consequent air pollution.

Indonesia’s pulp sector is dominated by two corporate groups

Indonesia’s six active pulp mills are controlled by three corporate groups – Sinar Mas and its primary subsidiary Asia Pulp & Paper (APP), Royal Golden Eagle and its primary subsidiary Asia Pacific Resources International Ltd (APRIL), and Marubeni. The sector is highly concentrated – Sinar Mas and Royal Golden Eagle accounted for 95% of Indonesia’s pulp exports in the period 2015 to 2019. These companies are some of the largest pulp producers in the world, having integrated operations in China, Brazil and other countries.

42% of Indonesian wood pulp is processed domestically, a portion of which is eventually exported as paper, packaging, tissue and, increasingly, viscose staple fibre (VSF) and textiles. China, which imported 41% of Indonesian pulp production in 2019, is by far the largest international destination for pulp.

Trase offers unprecedented transparency

The Indonesian pulp sector represents Trase’s most precise assessment of the spatial sourcing patterns for a commodity to date. The Indonesian government requires detailed reporting on the wood supply for each of Indonesia’s pulp mills, enabling Trase to track sourcing of Indonesian pulp exports back to the specific concessions that contributed most of the underlying pulpwood. As a result, environmental conditions such as deforestation or peat fires within specific concessions can be directly associated with downstream flows of pulp. This unprecedented level of transparency provides a tool for improved management of Indonesia’s pulp sector in the future, including by identifying the supply chains most connected to deforestation hotspots.

Hotspots of risk

During 2015-2019, 170,000 ha of natural forests were lost either by land-clearing or by fires within concession areas that supply wood fibre to Indonesia’s pulp producers. Around 60% of the sector’s recent deforestation (2015-2019) occurred within eight concessions (Fig. 4). These concessions are largely located in Riau, Jambi, South Sumatra, and North and East Kalimantan.

Much of the pulpwood sourced from industrial-scale tree plantations was grown in locations that had been cleared for pulpwood planting prior to 2015. To quantify this deforestation legacy, Trase calculates the “deforestation for wood pulp,” a conservative estimate of the average annual area of deforestation that occurred on pulpwood plantation areas (a subset of the gross concession area) over a ten-year allocation period ranging 6-16 years prior to a pulpwood harvest.

In 2019, Royal Golden Eagle sold pulp with the highest intensity of deforestation for wood pulp (12.45 hectares per 1000 tonnes of pulp produced), followed by Sinar Mas (5.75 hectares / 1000 tonnes) and Marubeni (1.92 hectares / 1000 tonnes). This measure accounts for historical deforestation linked to current pulpwood harvests and pulp production, but does not include the most recent five years of deforestation.

In addition, a third of the pulp sector’s wood supply is sourced from plantations on drained peatlands, some of which experienced catastrophic fires in 2015 and 2019, resulting in 464,000 ha of burned concession areas, according to the Government of Indonesia’s data (Fig. 5). The eastern coast of Sumatra, with its high concentration of peatlands, represents an important source of greenhouse gas emissions: 41% of all pulpwood plantations – over a million hectares – are on peatlands, mostly within the provinces of Riau, Jambi and South Sumatra.

Zero-deforestation commitments yield results yet concerns remain for meeting growing demand

All three corporate groups that control Indonesia’s pulp sector have made public commitments to end deforestation in their supply chains. As a result, Indonesia’s pulp sector is the only commodity assessed by Trase to date in which 100% of exports are covered by zero-deforestation commitments.

The adoption of these commitments has been accompanied by a marked reduction in deforestation rates in pulp plantations in recent years. Nevertheless, deforestation continues within specific concessions associated with each of the major producers. Significant concerns exist about how the expanding pulp sector will meet its growing demand for pulpwood (wood consumption is up 32% between 2015 and 2019), while simultaneously phasing out peatland plantations and avoiding new deforestation or conflicts with more local communities.

Opportunities for progress

Indonesia’s pulp sector faces multiple challenges as it seeks to balance continued growth against its commitments to end deforestation, reduce its dependence upon peatlands, and avoid conflict with local communities. As the Indonesian government continues to allocate new plantation concessions in Kalimantan and Papua, the sector’s major producers need to demonstrate their commitment to sustainability, including by strengthening the credibility of protections for High Conservation Value and High Carbon Stock Forests, and phasing out plantations on peatlands. Expanded transparency of wood sourcing, including public releases of future wood supply plans, will help ensure the continued improvement of this sector.