Down to Earth No. 63, November 2004

Sustainable palm oil: mission impossible?

Palm oil industry representatives, conservation organisations and NGOs met to discuss `sustainable palm oil' in Jakarta in October. The Roundtable on Sustainable Palm Oil, an industry-dominated voluntary body, was set up by the palm oil industry and World Wide Fund for Nature (WWF) partly in response to NGO charges than oil palm plantations destroy forests and impoverish local communities.
The following is an edited version of Down to Earth's paper prepared for the Roundtable.

It is fitting that the Second Roundtable Meeting on Sustainable Palm Oil is held in Indonesia - the world's second largest palm oil producer, the third most extensive area of tropical forest and one of the richest centres of biodiversity. With Indonesia's forests disappearing at 3.8 million hectares per year, the area converted to oil palm plantations has doubled during the past decade to nearly 5 million ha.

The first Roundtable Meeting in 2003 (RT1) saw the key issue as the need for a definition of 'sustainable palm oil' and a major purpose of this year's meeting is to work towards one. RT1 and subsequent developments represent a partnership between business players and WWF. The overall aim is 'solution-focused initiatives' for the palm oil industry, not to consider the many problems associated with the rapid expansion of oil palm cultivation.

The fundamental question for local communities and the environment - not addressed at the inaugural meeting or by the Roundtable on Sustainable Palm Oil (RSPO) - is whether large-scale oil palm plantations are compatible with sustainable development. To state that "The best companies and smallholders within the palm oil sector are models of sustainability" is too easy. It increases the vulnerability of the industry to charges of greenwash. Best management practice in plantations is a worthwhile aim, but is not synonymous with sustainability.

The most significant issues associated with large-scale plantations and sustainability are not only social or environmental, but also economic and political. These must be taken more seriously if examples of good practice are to have a wider impact and be taken up across the industry in more than one country. Practical initiatives on sustainable palm oil must be grounded in the broader principles of sustainability. Discussions about criteria for sustainable palm oil need to consider:

These principles are more easily illustrated in the context of one particular country - Indonesia - but many of the same issues apply elsewhere.

Governance in Indonesia is weak. The difficult transition from decades of Suharto's dictatorship to an effective democracy has been made more painful by a prolonged economic crisis. Indonesia ranks as one of the most corrupt countries in the world on Transparency International's index. The allocation of permits for logging and plantations depends on patronage rather than performance. One consequence is that companies that have caused forest destruction through overlogging have been rewarded with land use permits for plantations run by sister companies. Government agencies have not got the budgets, staff or power to monitor or control business practices. Law enforcement agencies, including the police and judiciary, are weak and corrupt. Witness the small number of successful prosecutions against palm oil companies where fires have been used illegally to clear forested land.

Safeguards already exist on the recognition of customary land rights and people's rights to a free choice of employment, an adequate standard of living and a healthy environment, through international legal instruments drawn up through the United Nations and International Labour Organisation. These standards should form the basis of any criteria for the definition of sustainable palm oil. However, Indonesia has not signed up to the International Covenant on Economic, Social and Cultural Rights. Nor has it ratified ILO Convention 169 on Indigenous and Tribal Peoples' rights; ILO Convention 110 on Plantations or ILO Recommendation 132 on Tenants & Sharecroppers. Neither has Malaysia, which has substantial investments in oil palm plantations in Indonesia and employs thousands of Indonesian migrant workers in plantations in its own country. Even where Indonesia has signed ILO Conventions, it has not always submitted regular reports on compliance and the Committee of Experts has commented on a number of violations.

Implementing international standards in a country which sets lower standards though national laws is highly problematic. This has been seen in the certification of timber from Indonesian logging concessions under the Forest Stewardship Council Scheme. FSC Principles 2 & 3 require the recognition of communities' land tenure and resource use rights as well as the rights of indigenous peoples. Principle 1 states that national laws must be respected. But, under current Indonesian law, full legal recognition of communities' land rights inside forest concessions is not possible. Even outside 'state forests', there is no formal means of acknowledging and protecting collective land rights. So how are oil palm companies to recognise local/customary land rights when the licences for their forest lands deny such rights?

Even national legislation may not be properly implemented. Indonesia's highest legislative body passed framework legislation in 2001 (TAP MPR IX) to reform all sectoral laws affecting natural resources and land in a coherent way which afforded some protection to 'people following customary law'. Instead, a new plantation law was passed in July 2004. Its primary aim of stimulating investment in the plantation sector is hard to square with its objectives to promote sustainability and environmental protection. Different sections of civil society attacked the legislation at draft stage for its failure to protect the interests of small-scale farmers and indigenous communities and for giving big business too much power. The plantation law can be used to criminalise peasant farmers and indigenous communities whose rights over land are not adequately recognised.

The term 'smallholders' in Indonesia deserves special attention. It can mean farmers who, seeing rising palm oil prices and hearing the government's hopes for a brighter future, decide to plant oil palms on their own small patches of land. In North Sumatra, many individual landowners have made a reasonable living from palm oil for several decades. Far more common are the 'smallholders' who, in effect, had no such choice. Transmigrants, forced to leave islands like Java, Madura and Bali, by poverty, eviction and landlessness, started new lives in the 1980s and 90s in Sumatra, Kalimantan and Sulawesi as labourers on nucleus-estate plantations (NES/PIR). They had to clear forests for the plantation company, in return for a simple house and 2ha of land. Other NES participants were local people displaced from their land by the plantation. Either way, they provided cheap labour, but their future was insecure and wholly dependent on the nucleus estate, the company and international markets. Some were successful; many more found themselves poorer than before. Without the fare to return home and with no other means of supporting themselves, they had to remain as plantation workers.

State-sponsored poverty

State-owned oil palm plantations in North Sumatra are keeping plantation workers in poverty, according to Indonesian press reports. The three big state-owned oil palm plantations in the province - PTP Nusantara IV in Simalungun regency, PTP Nusantara II in Tanjung Morawa regency and PTP Nusantara III in Langkat regency - employ over 100,000 workers, but most are not covered by the statutory basic insurance plan, Jamsostek. Ginting, Deputy Chair of North Sumatra's provincial assembly, who also chairs the Nusantara Plantation Labour Union Federation, said 31,000 of the plantation workers were underpaid and lived in inhumane company housing.

Another labour unionist claimed thousands of workers on PT Nusantara II oil palm plantation in Limau Mukur are paid a mere Rp315,000 (US$37) monthly, even though they may have worked for the company between 15 to 25 years. Some are paid on a daily basis, far below the provincial minimum wage. Requests for the statutory insurance have been rebuffed by the management several times. Local government says it has no powers to force state-owned companies to comply with the law.

(Source: Jakarta Post 2/Mar/04)

Debt trap
The debt trap is a serious obstacle to 'sustainable oil palm oil' in Indonesia. This is a characteristic feature of the more recent variant of Indonesian 'smallholder' schemes: KKPA. Typically, communities who have given up their land to plantation companies receive 2ha plots of oil palm and join a co-operative - usually set up by a local official or the company. The smallholders receive subsistence level support for the 4 years or so before the oil palms start bearing fruit. They must then repay this, plus the costs of land clearance, planting, fertilisers and other inputs - including co-operative administration - from the harvest. Where palm mills are scarce and owned by the plantation company, farmers have no bargaining power over the price for their crop. International CPO fluctuations and instability of the Indonesian rupiah mean that smallholders can remain in debt for decades without ever knowing when they will be free of this burden.

Migrant workers on Malaysian plantations are particularly vulnerable to exploitation and forced labour. Indonesians wishing to work abroad have to go through recruitment agencies, which charge them extortionate processing and training fees. They are thus severely indebted even before they start working abroad. They are required to sign contracts, sometimes in a language foreign to them, with little or no power to negotiate their terms. Many migrants end up accepting whatever they are offered, even if it is different from the work they were promised. Neither country has ratified international conventions intended to protect migrant worker rights.

Conflicts between local communities and oil palm companies are common. The government issues land use permits (HGU) to areas claimed by local communities or subject to communal use rights under customary law. As Indonesian law is, at best, only weak on acknowledging these rights, local people were never involved in land-use planning by local authorities. Companies have exploited poor governance at village level by negotiating with a few selected officials. Communities were not even consulted, let alone asked for their permission before the bulldozers cleared their land. Frustration over land rights violations and little or no compensation turns into protests. Companies pay their own security forces or the police to protect their interests. Intimidation, beatings and even deaths by shooting may result. The authorities send in a team to investigate, with few concrete results and the whole cycle of resentment slowly builds again until the community is too impoverished or dispirited to protest. They accept a company co-operative scheme or are forced to move to another area because they no longer have enough land to support their families.

Plantation workers and communities need more protection in Indonesia from the potentially harmful effects of agrochemicals. Statutory controls are weak and monitoring by government environmental agencies almost non-existent. There is no legislation covering the training of plantation workers in the safe use of pesticides. Sprayers may rinse out their equipment in small streams that supply communities with their main source of water for drinking and washing. In addition to the obvious risk of contamination through skin contact or inhalation, pesticides can also enter domestic water supplies in the run-off from plantations in areas of high rainfall unless preventative measures are taken. Legal requirements for monitoring workers' health and pollution are minimal. The government checklist for testing does not even include many of the agrochemicals most commonly used on plantations. Samples are taken at waste outlet pipes from palm mills, not watercourses which supply worker and local needs. As a result, companies do not even know whether they have such problems, let alone take responsibility for them.

Palm oil pollution

Hundreds of kilo-litres of crude palm oil poured into the sea at Belawan, North Sumatra. The spill was caused by a leak in a pipe connecting a storage facility with ships and tankers which transport the oil. Belawan is one of Indonesia's most important ports for crude palm shipments. Between 8,000 and 10,000 tons per day on average are exported.

(Source: Jakarta Post 3/Sept/04)

The concept of sustainability includes economic, as well as social and environmental aspects. As the world's most traded vegetable oil, palm oil is vulnerable to price fluctuations. Boom-bust cycles are encouraged because large international buyers for the processed food industry can - to some extent - switch between vegetable oils depending on the price. Palm oil is therefore a high risk development strategy for any country.

Indonesia is still expanding its plantations, not least to satisfy the demands of local governments who were given considerable power over land use decisions and income generation when regional autonomy was introduced in 2001. Large areas have already been allocated for oil palm - 1 million ha in Jambi; 1 million ha in East Kalimantan; 3 million hectares in West Kalimantan - with overall targets of over 9 million ha. Central and local governments are now looking to the plantation sector as the driving force for development and a major revenue earner for the economy. Ironically, this is needed to replace the wood-processing sector - relegated to a sunset industry as forests outside protected areas have been logged almost to the extent they are no longer commercially attractive.

The majority of Indonesia's palm oil plantations have been established on land that was forested only a short time before. Some companies have proclaimed their 'green credentials' by sparing what conservation organisations label High Conservation Value Forests, while clearing forests which - although less attractive - are hugely important to local communities. In too many cases, forest land left fallow as part of traditional rotational practices has been cleared as 'scrub'. The government and industry claim that oil palm plantations constitute development because they can be established on 'neglected' or 'critical' land. Officially, there has been a ban on 'conversion' of forests for agriculture since 2000. However, the private sector is not prepared to invest in the sustainable management of forests. It is more profitable to allow selectively logged forest to be illegally clear-felled or burned to make way for plantations. Furthermore, local authorities in the regions invoke regional autonomy as the reason to ignore edicts from Jakarta and issue yet more permits.

The RSPO is well-intentioned and may bring about an improvement in local people's welfare, increase company profits and secure a greater section of the international market for certain countries, but this is not sustainability. Without genuine political reform to bring about democracy and social justice, the production of sustainable palm oil is 'Mission Impossible'. It is much too early to be talking about 'sustainable practices' in countries like Indonesia where national legislation and entrenched corruption result in fundamental social inequalities for local people, smallholders and plantation workers.

Indonesia is among the world's lowest-cost producers. It owes its competitive advantage over Malaysia to low land and labour costs. The costs associated with establishing environmentally and socially sustainable practices are not compatible with creating a competitive plantation industry. In a free market, the result is a 'race to the bottom' in terms of sustainability standards. Better standards are needed, but these are not the same thing as environmental and social sustainability. They need to be legally enforceable, not voluntary codes.

What is happening in Indonesian oil palm sector is important for RSPO and the industry as a whole: Indonesia intends to become the largest producer in the world; and the issues illustrated here are relevant to sustainable resource use and development in other countries.

We therefore support the recommendations about the general principles for palm oil production made by Sawitwatch and Friends of the Earth/WALHI as a result of consultations with local communities, labour organisations, indigenous peoples' organisations and NGOs (see and

DTE also calls on:

For more information on the Roundtable - see For information about the industry's impact in Indonesia see, past issues of DTE at and for Friends of the Earth England, Wales and Nothern Ireland's 2004 report, Greasy palms, European buyers of Indonesian palm oil'.

The palm oil explosion - in figures

Indonesia: the world's second largest palm oil producer and rapidly growing.

Crude palm oil production (2003) 10.6 million tonnes [1]
Crude palm oil production (1998) 5.6 million tonnes [2]
Crude palm oil production (2005 - projection) 12 million tonnes [3]
Domestic consumption 2.3 million tonnes [4]
CPO exports (2003) 6.5 million tonnes [5]
Value of CPO exports (2003) US$2,454 million [6]
Value of CPO exports (2002) US$2,092 million [7]
Total planted area (2004) 5.3 million ha [8]
Owned by smallholders 1.8 million ha [9] (29.7%) [10]
Owned by state plantation companies 0.6 million ha [11] (13.2%) [12]
Owned by private companies 2.8 million ha [13] (57.1%) [14]
Average yield/ha (2003) 3.5 tonnes/ha [15]
Area of oil palm plantation has doubled in last 5 years [16]
Extra 500,000 tonnes production this year expected from new plantations created 1991-2000 [17]

Total area forests (official 2002)

90.9 million ha [18]
Deforestation rate 1997-2000 3.8 million ha/yr [19]
Area of damaged forests and critical land 50 million ha [20]
Forest rehabilitation 2003 300,000 ha [21]

[1-3] Agriculture minister Saragih, quoted in Kompas 27/Aug/04. Figures quoted below do not add up to this amount as they come from other sources. The split is still approx 1/3 total for domestic consumption and 2/3 for export.
[4] GAPKI quoted in Dow Jones 30/Jul/03
[5] GAPKI quoted in JP 16/Mar/04
[6] Agriculture minister Saragih, quoted in Asia Pulse/Antara 30/Aug/04
[7,8] Agriculture minister Saragih, quoted in Kompas 27/Aug/04
[9] Director of Cash Crops Purusuwarso, quoted in Antara 26/Mar/04
[10,12] Kompas 27/Aug/04
[11,13,14] Director of Cash Crops Purusuwarso, quoted in Antara 26/Mar/04
[15] GAPKI quoted in Dow Jones 30/Jul/03
[16] see [7]
[17] see [5]
[19] Baplan, Dec 2003
[20,21] DirGen Land Rehabilitation, quoted in Antara 18/Jun/04

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