Amid the fastest rural transformation Malaysia and Indonesia have ever seen, big business is pushing back against efforts to overhaul the palm oil industry
In April, two very different public figures made declarations that reignited fevered discussion of Indonesia’s oil palm issue. First, fresh from accepting an Oscar for best actor, Leonardo DiCaprio posted a blog panning the management of Sumatra’s forests. Shortly afterwards, the country’s president, Joko Widodo, revealed plans for a moratorium on new oil palm concessions.
This comes after an estimated one million hectares of Indonesia’s peatlands went up in flames last year. This was partly due to the clearance of peatland and forests for oil palm plantations, and produced acrid smoke, a surge in carbon emissions and cost Indonesia more than the 2004 tsunami.
To understand the drivers of this issue, we need to grasp the long-term rise of a booming global commodity: palm oil. In response to growing global demand, over the past 20 years Indonesia and Malaysia converted nearly 12m hectares of land to oil palm. This is the biggest and fastest rural transformation either country has seen. And nearly half of this expansion involved some form of forest destruction. This rapid landscape change also had untold effects on remote rural hamlets across the region.
Indonesia and Malaysia have emerged as the world’s top producers of palm oil, sharing 84% of global production. The boom has witnessed the rapid rise in the wealth and the power of large state-owned and private agribusiness corporations.
In 1961, US President Dwight Eisenhower pointed to “the total influence” of a vast arms industry, which he famously called the military-industrial complex. He argued that the complex had undue influence on US policy. Making use of, for the most part, Indonesian land and labour, Indonesian and Malaysian companies have created a comparable transnational oil palm ‘complex’ that puts profits well ahead of people or planet. In the shadow of this complex, we can identify three major trends.
First, oil palm companies have lobbied the governments of Indonesia and Malaysia to ensure a ready supply of low-wage migrant labour and to make available vast swathes of low-cost land. Investors have opened up new lands for plantations, often overriding the interests of customary rights holders, making land conflicts common.
Both countries have shifted toward a corporate model of plantation agriculture. In Malaysia, the Federal Land Development Authority, originally established to settle landless farmers, now operates as one of the world’s largest plantation companies. It is indistinguishable from other global giants such as Sime Darby, and both are closely linked to the ruling party.
Indonesian policy previously mandated nucleus estate schemes that left 70% of the land in the hands of smallholders, who received inputs and advice from the central plantation. Policy now favours ‘partnership’ schemes, which leave landholders with a paltry and insecure 20% shareholding in the plantation and often no role other than as plantation workers.
If carried out in an inclusive and transparent way, oil palm development can alleviate poverty and provide gainful employment. However, in both countries, local residents and internal migrants often receive limited benefits from development or lose their land entirely. The plantation model can also lead to vulnerability among poorly paid workers. In Malaysia, about two-thirds of workers are migrants, many with illegal or uncertain residential status.
Second, we see a resurgence of smallholder interest in the crop. The number of smallholders has grown at double-digit rates in the past decade but, given the preferences of the powerful government-agribusiness alliance for plantations, policies are more focused on returns on capital than on farmer livelihoods. Smallholders are not opposed to oil palm but seek inclusion in its economy on positive terms. This means government recognition of their land rights and support in obtaining technical advice, high-quality seedlings and fertilisers.
There are successful formulas around the world, linked to both plantations and independent growers, for helping smallholders cultivate oil palm in sustainable and rewarding ways. President Widodo has called for the provision of high-yielding seedlings and lessening land conversions by intensifying production. Malaysia does actively assist smallholders in increasing their productivity, but 80% of the plantation workforce in that country is made up of poorly paid Indonesian migrant labourers.
Third, activism and global campaigns have exposed the environmental and social costs of the industry. Such pressures could be slowly transforming palm oil into a more environmentally friendly and socially sensitive commodity. In response to market pressures for reform, major international producers, buyers and end users of palm oil have committed to private regulatory initiatives.
The Roundtable on Sustainable Palm Oil, a nonprofit organisation that brings together key industry stakeholders, seeks to curtail expansion into high-carbon-stock and high-conservation-value forests and requires the free and informed consent of landowners prior to development. Local state institutions must support these initiatives and compel smaller, local companies to comply. These companies, after all, have the least interest in sustainability certification.
The oil palm complex is changing. While pressure for major reforms increases, governments and their domestic agribusiness allies are pushing back. Change will require a fundamental shift in accountability and enforcement within the two countries, driven by market pressure, support from reform-minded officials and advocacy from civil society. It is no exaggeration to say that the political and economic processes at work in the oil palm complex will ultimately shape the outcomes for sustainable development in the region.
John F. McCarthy and Rob Cramb are the authors of the recently published book The Oil Palm Complex: Smallholders, Agribusiness and the State in Indonesia and Malaysia (NUS Press).