Oil palm expands, farmers lose out

Down to Earth No. 36 February 1998

The rapid expansion of oil palm plantations is enriching the entrepreneurs but impoverishing farmers whose lands are taken over for development.

Oil palm estates were initially established in Indonesia by the Dutch in the early nineteenth century, but the extent of plantations is expanding as never before as politicians and private and foreign investors seeks to exploit the potential of palm oil. Oil palm covered 2,200 million hectares by 1997. Indonesian crude palm oil production was nearly 5 million tonnes in 1996 and is expected to reach 6.3 million tonnes in 1998, despite last year's forest fires.

The Indonesian government has been promoting the expansion and intensification of the Indonesian palm oil industry through nucleus estate and smallholder (PIR) schemes throughout the outer islands of the archipelago with support from the World Bank since 1980. It is part of the government's effort reduce Indonesia's economic dependence on natural gas and oil. Crude palm oil and palm kernel oil are important export commodities. Demand in the United States and Europe is high from manufacturers of soaps, detergents, margarine and processed foods (such as the multinationals Procter & Gamble and Unilever) – particularly since palm oil has a low cholesterol content - and the market in China is growing. National pride is also involved: Indonesia hopes to rival Malaysia as the chief producer of palm oil in Asia early next century.

Suharto's government is also determined to promote development on the outer islands and its plantation policy is a vehicle for this. Native to West Africa, oil palm grows well in wet, swampy soil conditions which are unsuitable for many other plantation crops. Large areas of Sumatra and West Kalimantan have already become oil palm plantations and attention is now focused on the more remote areas of East Kalimantan, Central Kalimantan (including the Mega-project peatlands – see DTE 33), Sulawesi and West Papua. The island of Siberut is also threatened (see DTE 29/30).


Debt and disadvantage for local people

It is hard to see how local communities benefit from such 'development'. Transmigrants are brought in to satisfy the need for plantation labour. The indigenous people are usually considered to lack the ability or inclination for the routine, semi-skilled work. Those who do join the nucleus estate schemes are promised a house, two hectares of palm oil plantation and a small garden plot in return for giving up their rights to their ancestral land, their traditional livelihoods and systems of managing natural resources. For local transmigrants, these provisions must be repaid in instalments from the income from their produce. In good years they may make a reasonable income but, in general, local smallholders face several decades of debt before they have paid off their original 'investment'.

Efforts to coerce villagers to plant oil palm can be crass: in the run-up to the 1997 elections local officials of the government GOLKAR party promised "free" oil palm seedlings. Villagers who refused to plant these on their own land were accused of being 'anti-government'. Those who accepted had the cost of the seedlings, fertilisers and pesticides deducted from the sale of produce to the local (state-owned) plantation company. (The local government has targeted half Pasir's 2 million hectares for oil palm plantation and estimates that 30,000 transmigrant families will be needed as workers.)

In neighbouring Malaysia oil palm development is being challenged by local communities. In Sarawak this has led to open conflict in recent months between indigenous Iban villagers and the police. Community members have been arrested, intimidated and shot at ending in the death of one villager in December last year.


Easy money for big business

According to Indonesian academic George Aditjondro, three generations of Suharto's family are involved in this lucrative business through the Salim, Sinar Mas and Bakrie conglomerates. Indonesian tycoons such as Eka Tjipta Widjaja (Sinar Mas Group), Liem Sioe Liong (Salim) and Bob Hasan (Pasopati) are attracted to the palm oil business not least because of their timber interests. Plantations are supposed to be established on degraded or logged over land, but given the remoteness of many locations, the inaccuracy of government maps and the lack of monitoring, there are plenty of opportunities to make money from clear-felling forested land. In addition, investors get government subsidies for setting up plantation estates and the products feed into their other companies. For example, Sinar Mas subsidiary PT SMART is setting up a 40,000 hectare plantation in Berau, East Kalimantan to supplement palm oil supplies from its 64,000 ha plantations in North Sumatra, Jambi and South Kalimantan for its cooking oil and margarine refineries.

Oil palm plantation companies are widely believed to have been a significant cause of Indonesia's disastrous fires in 1997 and featured prominently in the list of 176 companies named by the Minister of Forestry as carrying out illegal land clearance by burning. According to official figures, 90,000 of the 120,000 hectares burnt in the fires were plantations and most of these were oil palm. Malaysian companies have also invested in oil palm plantations in Indonesia, particularly in nearby Sumatra, which may be one explanation as to why Malaysian government protests about the 'haze' which affected its population were not more vehement.

On January 8th the Indonesian government banned the export of all palm oil commodities. It feared shortages of cooking oils for the domestic market after investors rushed to sell palm oil overseas for hard currencies as the rupiah went into free-fall. At current rates of expansion and given the boom-bust nature of most commodity cycles, the long-term profitability of palm oil is questionable but the short-term returns for the government and investors are obvious. The fate of the transmigrant workers, local farmers and indigenous communities whose traditional livelihoods disappear with the forest are not a priority.

(Sources: Indonesian Embassy, Ottawa-Canada 24/4/97; Jakarta Post 7/6/97, 25/9/97, 27/9/97, 23/12/97, 8/1/98; Australian Financial Review 13/10/97; Terompet 11/IV/1997and other sources.)