Tom Spender

[Workers weigh oil palm fruit in Indonesia. Image source: Sawit Watch]

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It’s well known that Indonesia’s palm oil boom is alarming environmentalists, who say forest cover needed to sequester carbon and thus help stave off global warming.

But Indonesia also risks bungling the positive social impact that a well-run palm oil industry could have, local NGOs say. Instead of empowering millions of rural smallholders, the Indonesian authorities are cutting them out of the profits by (unsurprisingly) favouring big state-run palm oil production firms and using cheap labour sourced from the hordes of unemployed urban Javanese, a continuation of the Transmigrasi population relocation programme.

BOGOR, WEST JAVA// Southeast Asian palm oil production is booming, so much so that the cheap oil – which can be used for cooking or in biofuels – has led to alarming deforestation amid a scramble for profits.

Yet Indonesia, the world’s biggest palm oil producer, is not only bungling the industry’s environmental impact, it is also making a hash of its effect on Indonesian society by denying millions of small farmers a share of the spoils, local NGOs say.

Indonesia is regarded as important in the fight to slow climate change because its 94 million hectares of tropical forests and carbon-rich peatlands trap huge quantities of carbon dioxide, which causes global warming.

Current global palm oil production is estimated at about 46.6 million tons annually, but just 6.4 per cent of this production is certified as sustainable by the Malaysia-based Roundtable on Sustainable Palm Oil (RSPO), up from 3.2 per cent a year ago.

“We are not against palm oil as a commodity but we are against the current system,” said Abetnego Tarigan, executive director of the Bogor-based NGO Sawit Watch. Sawit means oil palm in Indonesian. “There is awareness of issues such as deforestation and climate change here but the social issues aren’t understood in the same way.”

About two million smallholders across Indonesia find themselves impoverished and in conflict with big palm oil companies, which don’t want to buy produce from independent farmers, said Tarigan

Circumstances are stacked against smallholders because companies prefer to employ labourers whose contracts can be cut at any time and the authorities prefer to deal with a handful of company executives rather than thousands of smallholders, Tarigan said.

Meanwhile, big companies feel smallholders are already getting a good deal because local authorities sometimes try to get the companies to build basic infrastructure such as roads and electricity supplies, he added.

“The Indonesian government believes smallholders live in good conditions but we found a huge number are still very poor,” said Tarigan. “They don’t have money to replenish their smallholdings. The government is more focused on expansion of palm oil production and its programme for smallholders has failed.”

Smallholder Albertus Darius, a 39-year-old father-of-three in Sukagarundi Province, West Kalimantan Province, said he didn’t have enough money to replant his palm trees, which are approaching the end of their 25-year lifespan.

The company that he sells most of his fresh fruit baskets (FFB) to has offered him and his fellow smallholders a loan, but he says the loan is too big and the interest rates attached to it are financially crippling.

Most of his fellow smallholders in the village have also refused to take the loans and now face a struggle to survive, he said in a telephone interview earlier this year.

“I don’t know if the trees can make fruit anymore so I don’t know how we can live,” he said. “If the company does not come up with a better offer I will sell the land. Some of us will go to the forest and build a field, some will go back to our villages and get a small piece of land from relatives,” he said.

Meanwhile, a few of the smallholders have accepted the company’s offer to work under its “One roof management system” and are now paid tiny sums of money – between 500,000 and 700,000 rupiah (US$57-80) – to do nothing while the company works the land.

“Right now it’s a very difficult situation for smallholders. In the past they could maintain their own plantation but now plantations are maintained under the one-roof system. In many cases this makes many problems,” said Mansutus Darto, president of the Oil Palm Farmers Union (SPKS), which has 6,000 members in five provinces.

“At the moment they are just thinking about how to get food, not how to build a future,” he added.

Under government regulations, banks are only allowed to lend money to companies, Darto said, who then lend it on to smallholders at much higher interest rates.

Conflict between companies and individual farmers has led to increased demonstrations, arrests and in some cases violence. Indonesia’s 2004 Plantation Act has made it a criminal act to disrupt plantation operation, effectively criminalising demonstrations, Tarigan said.

“The 2004 plantation act is in conflict with the constitution, which gives the right of free expression,” said Tarigan. “Indonesia has set up regulations by sector, so they don’t see the crosscutting issues.”

At root is a belief on the part of the authorities that companies are better suited to managing plantations than individuals, Darto said, but he added that yields have not risen as a result, with Indonesia producing about 25 tons of FFB per hectare per year. In Malaysia the average is about 34 tons.

Sawit Watch says Indonesia now has an opportunity to improve productivity thanks to a two-year ban on further forest clearance that comes into force next year.

“In the short term, the moratorium will be bad for plantation firms as plans to grow landbank will be limited, and firms with small landbanks will find it especially hard to expand,” Kenny Suyatman, fund manager at PT Mandiri Manejemen Investasi, told Reuters.

The moratorium will also temporarily ease pressure on indigenous people, who don’t have land ownership documentation and can do little about companies clearing forest that they live in.

In a bid to further assuage environmental concerns, the Indonesian government last November unveiled a plan to set up its own palm oil certifying body as a rival to the RSPO.

“The Indonesian Sustainable Palm Oil scheme is designed to make palm oil production sustainable in compliance with Indonesian laws and regulations,” Agriculture Minister Suswono said in a written address at the opening of the eighth annual RSPO conference, according to the Jakarta Post newspaper.

But Sawit Watch says Indonesian laws and regulations are inadequate for sustainable palm oil management.

Sawit Watch and SPKS say it is necessary to boost smallholders’ capacity before they enter into partnerships with companies. Smallholders also need better access to fertiliser and money, they add.

“Palm oil production is not heavy industry. The community can do it so why not let them do it? The social impact is good,” said Tarigan. “There’s huge opportunity for the companies downstream in derivative products.”

His view is echoed by the Center for International Forestry Research (CIFOR), also based in Bogor, whose researchers have suggested that smallholders would ideally work in partnership with companies that are responsible only for palm oil processing.

“Such a scheme would provide smallholders with a greater portion of the overall revenue from palm oil production and would limit the amount of land farmers must turn over to palm oil companies,” CIFOR said on its website.

“Through such partnerships, farmers would still benefit from the proximity of the refinery and the technical expertise of the company. This scheme has already proved successful in both the coffee and natural rubber industries.”

Indonesia series links

Manado Revisited
So dari dulu – traditional Manado song
Religious tension rising in Indonesia
Q&A with Martin van Bruinessen
Q&A with the NU’s Endang Turmudi
Q&A with MUI chairman Dr Amidhan Shaberah
Q&A with Pastor Gilbert Lumoindong
Jakarta’s Pak Ogah “traffic hustlers”