Palm oil politics impede sustainability in Southeast Asia

Indonesia and Malaysia are at the centre of the world’s decades-long palm oil boom. Between them the two countries have planted more than 15 million hectares of oil palm, employ about 4 million workers, and produce 84% of the world’s palm oil. It is the biggest and fastest rural transformation the countries have seen.

Palm oil, a vegetable oil used in many foods and other products, has come under fire for its role in deforestation, biodiversity loss and massive forest fires, as well as major social and economic conflicts.

This has led to a rise in consumer activism and campaigns against unsustainable oil palm production, with many brands committing to purchase palm oil from sustainable sources only.

While governments, civil society groups and industry roundtables are trying to address these many problems, the industry continues to create conflict as it moves into frontier zones with apparent impunity. Why is this?

The oil palm complex

We have studied oil palm expansion in Indonesia and Malaysia, to understand how the industry operates across the region.

Most obviously, the Malaysian industry is dependent on the migration of Indonesian workers, who account for about 80% of the plantation workforce in that country.

At the same time, Indonesia has facilitated the inflow of Malaysian capital and technology. Malaysian companies control 25% of oil palm plantations in Indonesia.

This “oil palm complex” is managed by a powerful cross-country coalition of political and agribusiness interests. Despite the industry rhetoric, this coalition puts “profits” well ahead of “people” or “planet”.

Three important but contradictory trends have emerged in the past two decades.

Domination of big plantations

Oil palm companies have converged on the plantation model of production, originally developed for crops like rubber in the colonial era. This involves large, centrally managed estates producing a single crop through the mobilisation of an impoverished labour force tied to the estate.

Smallholders eventually came to dominate the production of rubber and other tree crops. But oil palm companies have been able to lobby the governments of Indonesia and Malaysia to ensure a ready supply of low-wage migrant labour, mainly from the poorest provinces of Indonesia. Governments have also made vast swathes of forested land available for plantations at low cost. This includes land claimed by traditional owners.

Both private and public companies have come to favour the plantation model.

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.

Indonesian policy previously mandated nucleus estate schemes that left 70% of the land in the hands of local or resettled smallholders who received inputs and advice support from the central plantation. Policy now favours “partnership” schemes. These leave landholders with a paltry 20% shareholding in the plantation and often no role other than as plantation workers.

Rise of smallholders

Alongside the dominance of plantations, there has been a resurgence of independent smallholders in the established plantation zones. In both Indonesia and Malaysia the number of independent smallholders has grown at double-digit rates in the past decade.

Smallholders now account for over 40% of the oil palm area in Indonesia. This trend has occurred with little government support or even outright opposition from the powerful government-agribusiness alliance.

The resurgence mirrors the historical experience with crops such as rubber, demonstrating that the smallholder family farm is still an efficient mode of agricultural production – once industry infrastructure (roads, mills) is in place.

Smallholder opposition to oil palm has generally not been about preventing oil palm development, as some non-governmental organisations claim. Rather, they are mostly seeking inclusion in the oil palm economy on clear and positive terms. This means recognition of their land rights and support to obtain better crops and fertilisers.

Is private regulation working?

A third trend arises from the widespread failure of governments to regulate the excesses of the oil palm industry. Civil society groups and some large corporations have sought to bring about change though private regulation.

In the past two years, transnational activism has achieved important shifts in the policies of major producers, buyers and end users of palm oil. Leading firms such as Cargill and Unilever have made commitments to cut their links to deforestation, peatland development and exploitation in the palm oil they procure.

Thus there are some signs that the balance of power within the oil palm complex may have shifted in favour of more inclusive and sustainable outcomes.

However, these commitments will have limited impact without major changes in accountability and enforcement within the two countries. This especially applies at state and district levels where the key land and profit-sharing deals take place.

Moreover, the launching by Indonesia and Malaysia in 2015 of the Council of Palm Oil Producing Countries suggests that these governments and their domestic agribusiness allies are pushing back against the pressure from international NGOs and global corporations.

They are emphasising their “right to develop” and capitalising on the acquiescence of their biggest markets – China and India – which have higher priorities than safeguarding Southeast Asian forests and livelihoods.