Aceh's golden crop?

Down to Earth No.75, November 2007

Aceh's new government is promoting the expansion of oil palm plantations in the province as 'in the interests of the people', but it is by no means clear that local communities will be the main beneficiaries.

A report by the independent research organisation Eye on Aceh examines the growth of oil palm plantations in Aceh and the social, environmental and economic costs of this agribusiness. The Golden Crop? Palm Oil in Post-Tsunami Aceh1 points out that "as the province enjoys its new-found peace, and with it a flush of reconstruction and post-conflict related funding from donors and central government, growth of the plantation sector has become one of the government's priority drivers of economic development." However, it concludes that the local government and companies should learn from mistakes made in other parts of Indonesia and only develop plantations which "employ sustainable, equitable and environmentally sound practices".


Plantations during decades of conflict

The palm oil sector has developed more slowly in Aceh than in the rest of Indonesia, even though the high rainfall and fertile soils offer ideal growing conditions. According to official data, there were 214,847 hectares of oil palm plantations in 1999 but this had only expanded to 257,970 ha by 2006 in the province. Production is focused in the north and west in the coastal parts of North Aceh, East Aceh, Aceh Tamiang, Nagan Raya and Singkil districts. Nearly half the oil palm plantations are smallholder schemes (86,065 ha).

The Golden Crop describes how thirty years of bloody conflict discouraged investors and many companies and smallholders abandoned their plantations. However, oil palm plantations helped to finance both the Indonesian military and the separatist Free Aceh Movement. Control over these resources was also a source of conflict, for example, in East Aceh in November 2004 when the Indonesian army and paramilitary police (Brimob) engaged in a deadly feud. Downsizing the military is part of the peace process in Aceh, although the military is still involved in legal and illegal businesses there - including palm oil.


Aceh's new incentives

Aceh's governor Irwandi Yusuf, democratically elected in late 2006, has imposed a moratorium on commercial logging and is keen to support efforts to protect remaining forests under Avoided Deforestation initiatives (see DTE 74 and DTE 74). However, he and his colleagues are also keen to promote oil palm as part of official policy to alleviate rural poverty in Aceh. The booming global market in palm oil presents local governments with a lucrative opportunity to increase revenues.

Palm oil was high on the agenda when Irwandi headed an Acehnese delegation to Malaysia earlier this year to discuss the potential for increased trade links. The delegation met with the Federal Land Development Authority (FELDA), which has set up smallholder oil palm schemes covering hundreds of thousands of hectares for settlers in peninsular Malaysia since the 1960s. One outcome of the meeting is FELDA's assistance in creating the Aceh Plantation Development Authority (APDA). The Malaysians will provide technical advice on plantations and on running the new authority. FELDA advised on drafting the concept and the local legislation (qanun) currently going through the Aceh parliament. The Islamic Economy Development Foundation of Malaysia (YPEIM), a Malaysian federal government foundation, will help to oversee the APDA.

Details of exactly how the APDA will work are still unclear. The initial plans are to open up 185,000 ha of smallholder oil palm plantations in 17 districts. Over 11,000 orphans and 35,000 poor families will be given access to 4 hectares each. The scheme will cost US$540 million and there are plans to fund this through an Islamic Development Bank loan.

Malaysia badly wants to expand its palm oil industry, but the shortage of land - especially in peninsular Malaysia - is a serious limiting factor. Access to considerable areas of relatively cheap 'undeveloped land', plus the lower wage costs and lax controls on compliance with legislation on land and the environment in Indonesia make neighbouring Aceh a particularly attractive prospect to FELDA and other state and private sector palm oil producers in Malaysia. Malaysian companies including PT Ubertraco and the Guthrie group have been operating in Aceh for some time. Eye on Aceh also reports "several tentative discussions" between various districts and the provincial government in Aceh and the governments of Johor and Selangor states, in addition to the FELDA negotiations described above.

Eye on Aceh points out that, although the Malaysian palm oil industry is very successful at self-promotion, there have been some high environmental and social costs and warns the Acehnese authorities against being seduced by the Malaysian model of development. Farmers who sold their land for a quick profit without understanding the long-term implications have been left landless and poor. Flooding and landslides have increased due to deforestation. "Large companies, often linked to Malaysian elites, have been the prime beneficiaries while claims by the government that palm oil has helped alleviate poverty are only partially true." (The Golden Crop, p26)


Jakarta's plans

Central government is also keen to promote the palm oil sector in Aceh. The agriculture ministry stated in a 2005 document that 454,468 ha of land is available for new oil palm developments in Aceh. On the other hand, head of Aceh's plantations office Fakhruddin, told Eye on Aceh that "It would be unwise to use 400,000 ha of land in Aceh only for palm oil. There are many other commodities that must also be accommodated in our plans, such as cocoa, rubber and others. Moreover, there is land in Aceh that is just not suitable for palm oil." (p12).

The division of responsibility for plantation planning is far from clear since the devolution of power from Jakarta to Aceh. The Law on Governing Aceh (LOGA) was passed in July 2006, but the all-important government regulations required for its implementation are still drafts subject to discussion at central government level. The February 2007 draft is reported to state that Jakarta will be responsible for establishing policy and guidelines, while management of plantation land will be under the control of national, provincial and district level government.

The Directorate General of Plantations launched a five-year national 'Plantation Revitalisation' programme in late 2006, with Aceh included among the target provinces. Intended to boost production of cocoa and rubber, in addition to palm oil, this will be implemented in 12 of Aceh's 23 districts. The provincial plantations office intends to facilitate the development of 40,000 ha of new oil palm plantations and the rehabilitation of another 4,775 ha. Cheap credit is available to plantation companies involved in the programme.

This programme is intended to help smallholders, but relies heavily on the nucleus estate model. It also aims to attract skilled transmigrants who fled plantations during the conflict to return to Aceh. Companies will acquire land and allocate small plots to local communities, transmigrants and settlers from within Aceh to run as co-operatives with loans from Indonesian banks. 'The Golden Crop' report draws attention to the danger that appropriation of large tracts of land can destroy independent and sustainable livelihoods. "Limited choice of employment often leaves the workforce vulnerable to low-paid jobs and poor health and safety standards....Even those smallholders who own their land are left vulnerable, as most processing plants belong to large plantation companies"(p12).


Post-tsunami funding

The peace agreement and the massive influx of international funding over the past two years has revived the Palm Plantation Agri-Business Development Area policy for Aceh. This programme, intended to promote the expansion of smallholder schemes, was in place pre-tsunami but came to nothing due to lack of funds and the problems of operating during a civil war.

The Rehabilitation and Reconstruction Agency (BRR) had planned to develop 3,500 smallholder plantations in Nagan Raya, West Aceh, Aceh Jaya and Bireun in 2006, with funding from the ADB's Earthquake and Tsunami Support programme and central government. Problems with land procurement and weak local authorities were blamed for this project's lack of success. Nevertheless, in 2007, the BRR is supposed to be implementing a plantation development project worth Rp44.8 bn (US$4.9 million) in other districts, including another 4,000 ha of new oil palm plantations in tsunami-affected areas of Aceh. Meanwhile, the ADB is going ahead with a Rp12 bn (US$1.3 million) programme to reopen and establish new plantations in Nagan Raya, West Aceh and Aceh Raya this year.

Half the tsunami-affected plantations are reported now to be either back in full production or well on the way towards this.


Private sector

These plans are all in line with the interests of Indonesia's private sector. GAPKI (Indonesia's Palm Oil Producers' Association) envisages a booming future for palm oil in the province. The agri-business giant, PT Agro Indo Lestari, Indonesia's largest palm oil producer, is reported to be looking for 200,000 ha of land for oil palm plantations and processing plants in Aceh. PT Boswa Megalopolis has returned to 6,000 ha of plantations in Aceh Jaya. It has requested the local authorities for over 2,000 transmigrant families to develop its estates. PT Aceh Sawit Sejahtera has also requested 2,000 transmigrant families for its 7,000 ha estate in Peunaron in East Aceh. (Transmigration, the state programme to move families from overcrowded islands to develop less populated areas, caused enormous social and environmental problems in the past - see DTE's July 2001 report for background). More companies are looking for government assistance to come to Aceh through the Revitalisation programme. 


Soros interest

International financier George Soros is reported to be interested in investing in Aceh's oil palm and banking sectors. According to deputy governor Muhammad Nasir, Aceh could make 200,000 ha available to Soros. Soros is said to be interested in an initial 20,000 ha nucleus-smallholder development, although there is no indication of when the start up will be. He is sending a team to investigate potential areas2.


Forests, peatlands in danger

Aceh's deputy governor is reported as saying that "Almost all parts of Aceh are suitable for oil palm"3. This ignores the fact that extensive areas of Aceh are still covered with forest, including central highlands, and that mountainous areas are not suitable for oil palm. Also, many parts have poor roads which present real problems for transporting palm fruits for processing.

Even protected forests are not safe from oil palm companies. Police took action against Medan-owned PT Putri Hijau and PT Rapala in late 2006 for planting oil palm within the Gunung Leuser National Park. Around 300 ha of forest in the sub-district of Besitang had been illegally cleared4.

Aceh's peat swamps are also at risk from oil palm development. The three main areas - Tripa (on the borders of Nagan Raya and Aceh Barat Daya), Kluet (Aceh Selatan-Singkil) and Singkil swamps cover an area of 170,000 hectares on the coast at the margins of the Leuser Ecosystem. To date, 11 companies have officially been granted concessions covering 70,000 ha of peat swamp but large tracts have been abandoned during the decades of conflict.

Now the Swiss-based NGO Pan Eco, which has worked for 30 years on forest protection in northern Sumatra, is trying to protect some of the last of Aceh's peat swamp forests by relocating the oil palm concessions to areas designated 'fallow land'. It is working with the local authorities and has sought RSPO sponsorship for a pilot project5.


Problems and solutions

Eye on Aceh's fieldwork and interviews revealed a number of problems associated with the palm oil sector in Aceh. These include:

  • Land development without the community's consent - PT Bahari Lestari in Bandar Baru (Tamiang), PT Ubertraco (Singkil). Communities were afraid to protest before the peace agreement demanding compensation.
  • Low prices for independent growers. There are only 21 processing plants in Aceh, all attached to large estates. Smallholders' fruits are not collected and they are forced to accept whatever payment the mill offers.
  • Low wages. 8,000 workers at PT Parasawita's estate in Tamiang protested about non-compliance with Aceh's minimum wage. Nearly 300 workers at PT Delima Makmur (Singkil) filed an official complaint with the Department of Labour for underpaying staff.
  • Land clearance. A total of 265,995 ha of forest were cleared in Aceh between 1982 and 2001. It is not known how much of this was directly related to plans to establish oil palm plantations. Some companies, for example PT Mandum Paya Tamita (North Aceh), Simeulue District-Owned Company (PDKS) and Ubertraco (Singkil), are alleged to have been involved in illegal logging and burning forest land.
  • Use of hazardous chemicals is widespread on oil palm plantations, including Gramoxone and Roundup.
  • Flooding due to changes in land use to large-scale oil palm plantations - Tamiang December 2006.

The report concludes that "Aceh is at a critical crossroads - the wildlife, the people's way of life, the forest cover and the unique biodiversity found there could be destroyed by the palm oil industry." (p28). Eye on Aceh recommends that oil palm companies operating in Aceh, including new ventures, should become RSPO members and abide by the organisation's Principles and Criteria. Furthermore, all companies should respect customary rights and implement the practice of free prior and informed consent during land acquisition and plantation management. 


Aceh's Resources

Aceh has a total land area of 5.6 million ha. In the late 1980s, there were 3.9 million ha of forest in the province, of which 260,000 ha were peat swamp forest6. By 2000 (the last official statistics available), the total forest area in Aceh had been reduced to 3.3 million ha7.




1 The body of this article draws from The Golden Crop? September 2007, by Eye on Aceh, available at 
2 22/Sept/07, quoted on Roel's blog 
3 Media Indonesia 19/Sept/2007 
4 Kompas interaktip 24/Nov/06 
6 According to RePProT (1990) 

Thanks to Eye on Aceh and Sawit Watch for assistance with this article.