The Non-Ecological Impacts of Palm Oil Development in Indonesia

Despite the prominence of Indonesian palm oil’s environmental and ecological implications in academic research, its negative impacts on social and economic risk factors, particularly for those millions of Indonesians, are rarely discussed. This article aims to provide a comprehensive perspective on the complex growth of the industry and its resultant disparate social and economic consequences.

Globally, production and consumption of palm oils has steadily increased at an average annual rate of 23% between 2005 and 2015, largely through demand from the food sector and extensive application in oleochemical products such as shampoos, soaps and cleaning products. Similarly influential was the influx of investment in the biofuels sector by Western nations, in particular the US, in the mid 2000s. Since 2007, palm oil has become the most widely-consumed vegetable oil, constituting 35% of global vegetable oil demand, with industrial consumption in 2018 reaching 19.7 million tons. Despite the oil palm tree’s origin in West Africa, Indonesia is by far the largest global producer of palm oil, generating roughly 58% of the world’s output in 2020, of which more than 85% is exported to over 80 countries. The industry directly employs between 2-3 million people, constituting 1.5% of national GDP. Between 1990 and 2019, palm oil production rose from 2.4 million metric tons to over 45.5, increasing monoculture lands tenfold from roughly 1.1 million hectares to over 11 million. By 2018, 43% of land designated for agricultural production in Indonesia was used exclusively for palm oil.

Biofuels currently comprise the most inviting growth in demand for palm oil companies worldwide, with consumption growing from 1.1 million kilolitres in 2001 to 35.2 million kilolitres in 2016. The use of vegetable oil-based biofuels, in particular, has skyrocketed, and palm oils progressively have become the main ingredient, as of 2017 accounting for 31% of aggregated biofuel feedstock. Increasingly, they represent an indispensable facet of Indonesia’s development imperative. Imports of Indonesian biofuels to Europe nearly doubled to 65% between 2008 and 2018, overtaking quantities for food and oleochemical products in 2014. As of early 2018, 40% of Indonesian palm oil exported to Europe was converted to biodiesel. While the EU’s 2017 increased sustainability standards for imported palm oil biofuels declared a phasing out of all palm oils products by 2030, Indonesia, opportunely, had already begun the process of becoming its own largest consumer. In 2016, the government established a mandated minimum 20% blend of palm oil in produced biofuels (B20), initially for domestic fuels but extended to transportation and power generation. Later that year, it was made compulsory for Indonesians to buy and use biodiesel. In 2020, the highest targeted blending mandate for biofuels in the world was set at 30% (B30). Today, Indonesia is the largest consumer of palm oil biofuels, exhausting nearly 13 million tons in 2019, an 160% increase from 2018. With 9.6 million kilolitres of palm oil in widely-consumed B30 fuels already in 2020, trials have started for B40 to be disseminated by January 2021, and B50 soon after. With current growth rates, it seems inevitable that biofuels will soon become the primary driver of Indonesia’s continued deforestation and plantation construction.

A Remedy For Poverty?

The growth of the palm oil industry, and increasing foreign interest in importing palm oil products, is largely the result of its highly productive yield and low production costs. Oil palm is the world’s highest yielding oil crop, and is at least ten times more productive than sunflower, soybean or rapeseed. In terms of production cost, palm oil also requires the lowest input of fuel, fertilisers and pesticides per ton of production, and obligates no annual sowing. Due to its high EROI (energy return on investment), palm oil provides considerable profits for those involved in production.

As such, palm oil development is commonly praised for its role in alleviating rural poverty, an achievement frequently appraised to the politically and economically decentralised nature of Indonesia. In 1999, Indonesia passed a reform which shifted authority over structural and economic development to the imperative of local governments. Through fiscal incentives to districts, and partial localisation of land rights distribution authority, local palm oil development has increased exponentially. Initially, growth targeted the outer islands of Sumatra and Kalimantan, both of which in the early 2000s were amongst the least developed districts in the country. In 2014, the central government passed the ‘Village Law’, outsourcing economic development to nearly 300 semi-autonomous districts. As a result of the entrenchment of decentralisation, local private landowners have rapidly grown in proportional plantation ownership, reducing rural poverty by securing access to profitable land and elevating overall employment in the industry. The industry provides income at all levels of the production chain, with average incomes for palm oil farmers seven times higher than that of subsistence farmers. In theory, too, palm oil contributes to local infrastructural development, including construction of houses, roads, schools and hospitals.

Despite the theoretical benefits of decentralisation, however, witnessed is a story of uneven development and economic insecurity for local communities. Problems have arisen throughout Indonesia in land rights conflicts due to an absence of transparent land tenure, resulting from structural disorganisation and misinformed decision-making. Local governments issue concession permits to companies or smallholders with unassigned economic implications, absent communication with central government, allowing companies and landowners to independently negotiate compensation, debt, and division of land. They have instilled no formal tracking system for palm oil concession conflicts and land rights developments. Consequently, it is not uncommon that district government, the central government and corporate or smallholder concession holders simultaneously claim control over a single area of land. Disorganisation and miscommunication have created a structural framework whereby private businesses, using a combination of intense lobbying, bribery and strong-arming, are able to acquire a majority of land rights. To obtain concessions, companies allege extraordinary benefits for local development, with very little validation of claims provided by governmental officials, and rare provision of compensation. They also frequently purchase large areas of land but develop plantations only over a number of years, an act of investment risk mitigation which ensures wide monopolies by an individual company, generating up-front capital.

In this equation, ‘plasma smallholder schemes’ have arisen. These agreements, commonly referred to as a “70/30 model” (variations include 60/40 or 80/20), see landowners surrender a portion of their land to palm oil companies, creating ‘nucleus estates’, with the remaining land planted and managed by smallholders but with produce delivered to company stores. The terms of these deals typically prove favourable to stakeholders in oil companies, and unfavourable to traditional landowners and smallholder farmers, who often experience rising land prices and unprofitability, leaving many impoverished and unpaid. Landowners might sign onto plasma schemes due to assurances of immediate income, their own unfamiliarity with palm oil as a crop, or a lack of either logistic wherewithal or resources to efficiently organise a palm oil operation. As such, promises of stable profitability without whole responsibility for management is understandably enticing. Landowners might also carry inadequate local authority or financial capabilities to compete with interests of large companies in legal cases. Indeed, policies are rarely in place to assist local communities in legal understanding or accessing markets, or providing resources to develop independent plantations. By 2016, according to the KPK (Indonesia’s Anti-Corruption Commission), companies controlled 68% of plantations, while smallholders, despite being more numerous, operated just 28% absent scheme agreements.

Beyond their inaction, the conduct of local governments, and their disorderly relationships with the central government, have severely imbalanced industrial growth. Local governments’ license assignments are entirely inconsistent, and officials frequently fail to conduct obligatory yearly ‘Plantation Enterprise Evaluations’. A critical lack of enforcement cripples punishment of neglect of local or state law. For example, developing plantations immediately following concession acquisition, compulsory under central government law, is often ignored by local officials to allow companies to build large plantations in their region. McCarthy and Zen suggested in 2010 that this results from a scourge of corrupt officials who receive paycheques from palm oil companies, though they also cite absences of financial resources and the complicated nature of the laws themselves. The imperatives of district and personal revenue also promote collaboration with corporate promises. Similarly, local governments commonly interpret that their regulations can automatically overrule those of the Ministry of Agriculture. Whereas ministerial law does not appear in the official legal hierarchy of Indonesia, it is largely ignored that ministerial decree only requires authorisation by higher level laws, which most frequently occurs by governmental or presidential decree. Unfortunately, the central government does not assess performance by local governments, a result, largely, of their own lack of authority. As a result, local governments’ concession assignments have rapidly accelerated since early 21st century, many of which operate absent suitable licenses and under harmful plasma smallholder agreements, and are especially susceptible to encroaching on designated forest lands.

Employing companies, however, are critical in the formulation of uneven development. While wages are, on average, higher in the palm oil industry than other agricultural sectors, many labourers are still paid unethically low wages by companies, and reports of child labour exploitation are gradually gathering. Companies often show little regard for the wellbeing of indigenous populations, as evidenced in Sumatra, where entire indigenous villages have been bulldozed, and their residents made homeless, to accommodate plantation development. To cope with increasing labour requirements, plantations are also increasingly reliant on migrant labourers who are typically more familiar with plantations. As of 2016, an estimated two-thirds of palm oil workers in Indonesia were internal or international migrants, and this proportion continues to grow. Problematically, ethnic conflicts have arisen between migrants and indigenous groups, and just enforcement rarely occurs due to migrant workers’ lack of legal protection on labour rights issues.

In the process of plantation construction, too, little consideration is payed to cultural dependancies on primary forests. Many rural inhabitants, especially indigenous populations, foster deep-seated reliances upon forests for a wide range of goods and services. An ethnographic case study of palm oil conflict in Kalimantan displays that inhabitants value multiple functions of the forest, including income, food security, autonomy, identity, flexibility in agricultural production and spiritual significance. Plantations are often perceived by local communities as destroying ancestral identities as autonomous, self-subsistent farmers. Pre-palm oil development, property holders in forest areas were rewarded by share-cropping and funded forest conservation initiatives, yet after forests are felled, most lose access to the land as only landowners are permitted to obtain concessions or sign plasma smallholder contracts. Consequentially, communities forfeit extraction and trade of a variety of goods, including timber, natural rubber, rattan and natural medicines, and are forced to rely on a monoculture cash crop suited only to those dedicated to profitability. Communities are scarcely compensated by labour opportunities, and they often do not experience promised development, as critical infrastructure, including internet, electricity and safe tap water is frequently lacking in remote palm oil districts. Monoculture dependance removes valuable socioeconomic safety nets, causing anxiety for increasingly palm oil-dependent communities in the potential event of plantation production decline or sustainability laws halting development,

The Developmentalist Narrative

Palm oil’s profitability has fostered a national narrative creation process which emboldens claims of its social and economic benefits, and quietens criticisms of negative economic, social and environmental impacts. In this formula, socioeconomic development is idealised as the fundamental objective towards which all Indonesians should strive. An analysis of Indonesian media representations of plantations over the last 20 years finds that the most consistent rhetoric used is that of extractive economic value of the land, even in discussions of proposed conservation efforts, implying that mainstream discourse in Indonesia is tightly restricted to a neoliberal, market-centred sphere. Palm oil companies are dominant agents in this process, turning to an international campaign of media publicity, lobbying and diplomacy to promote Indonesia’s recent growth and alleviation of rural poverty as of critical benefit to the Indonesian populace, while writing off criticisms as “black campaigns” or manifestations of foreign concerns. In response to unfavourable market impacts, such as major brands dropping their contracts, companies disavow scientific studies, discharging accusations of double standards, and call for more legal protection, while simultaneously organising controlled initiatives such as funded publications and workshops for students and journalists.

These tactics are employed in what palm oil companies term “trade wars”, fought against NGOs, researchers or journalists who concentrate on palm oil’s negative environmental aspects. Companies view NGOs as primarily seeking their own interests, or those of competing vegetable-oil producing countries. The Chairman of GAPKI, the largest palm oil company conglomerate, argued that “this is not an environmental issue. Behind this black campaign are interests of vegetable oil-producing countries”. This reasoning is not without some merit, as the US have singled out palm oil as unsustainable whilst promoting US-produced soybean use for years, and the EU have similarly advocated European sunflower and rapeseed oil while condemning palm oil, though this scarcely invalidates accusations of the industry’s negative impacts. The intensity of the “war” has escalated in recent years towards anti and pro-environmental violence; as of 2018, Global Witness had alleged at least eight assassinations of Indonesian environmentalists fighting palm oil.

The government plays its part, too. In their ambition to rank among the world’s top economies, the rapid development of the industry is prioritised, and sustainability pledges are suppressed. In the 2000s, governmental reaction toward anti-palm oil campaigns typically resembled unconcerned dismissals absent meaningful debate or engagement. It was only when markets were disrupted in the early 2010s that the political landscape re-centred its focus on palm oils. Indeed, every year since 2010, Indonesia has placed palm oil as ‘high priority’ in foreign policy, and Indonesian delegations have since been diplomatically active in meeting palm oil stakeholders, governments and journalists worldwide. In 2014, President Yudhoyono stated his central goal to eradicate any obstacle limiting trade of Indonesian products, with an unspoken focus, no doubt, on palm oils. While Yudyohono promised reduction in illegal deforestation by establishing and subsequently extending Indonesia’s Moratorium on permit allocation in 2011 and 2014 respectively (the former act contributing to his “Valuing Nature Award” in New York), deforestation rates and plantation development accelerated throughout this period. The subsequent president, Widodo, in response to EU’s heightened sustainability standards in 2017, demanded that they “stop discrimination against palm oil”, declaring “any discriminatory measures arising from the resolution will not only be seen as unfair practices to trade but will also affect the livelihood of millions of palm smallholders in Indonesia”. Rhetorical techniques, too, are converging with those of palm oil companies, as government officials increasingly label industry criticisms as “black campaigns”.

The successful inception of palm oil as a priority in Indonesia’s foreign relations, then, is undoubtedly, and progressively, conjoined to discursive efforts of palm oil companies. According to a 2014 survey, only 13% of Indonesians believed “the environment” represented the greatest global threat. The remaining concerned voices on the ground, especially in palm oil developing districts, are marginalised and drowned out by the desire for growth. The ongoing effort by the beneficiaries of palm oil’s growth to advertise the sector as entirely profitable to Indonesia’s national interests, by all accounts, is likely to proliferate further as criticisms of the industry pile up, and as the rapid growth of the biofuel sector promises to accelerate deforestation and plantation establishment, hastening the necessity for urgent sustainability imperatives.

What Can Be Done?

Palm oil development, whether certified or not, cannot entirely avoid environmental harm, or be wholly beneficial to all parties involved. Nevertheless, Indonesia’s decentralised nature has complicated the effective administration of the industry at local and national level, weakening governmental authority and enforcement, and creating political disorganisation and communicative breakdowns through which palm oil companies have exploited local communities and influenced national narrative creation. At the same time, both companies and government officials emphasise narratives of the critical importance of expanding industrial production for the advancement of local and national economic development, ignoring criticisms of environmental and ecological damage. In all, uneven development, land rights conflicts, infrastructural underinvestment, indigenous discrimination, soil degradation and ecological destruction represent a uniquely Indonesian mix of complicated problems which find no simple resolution.

To limit negative impacts, the need for new, more serious damage limitation strategies, including stronger national and international regulation and enforcement, is urgent. Consistent and widespread enforcement of existing regulations, improved monitoring and labour practices and streamlined land rights allocation and transparency could first be implemented. Plantation development on non-forest and non-peat land, potentially on low-carbon degraded land, could also be adopted; though forested land is more attractive to developing companies due to extra revenue through timber, centrally-produced financial incentives can influence redirection of development. The use of internal economic incentives to address even and sustainable development, beyond the as yet unsuccessful external market incentives imposed by regulating bodies such as RSPO (Roundtable on Sustainable Palm Oil), has gone entirely unexplored both by Indonesia’s central and local governments. A final route is centralisation of administration and enforcement, which would resolve issues of disorganisation and loophole creation, yet would leave the future of palm oils exposed to an even smaller group of government officials.