Deconstructing the Palm Oil Industry Narrative in Indonesia: Evidence from Riau Province.

• Author: Tyson, Adam
• Position: Report

Indonesia is the leading global producer of crude palm oil. Mass production of palm oil requires large-scale land conversion, resulting in Indonesia having the world's highest rate of annual primary forest loss. (1) In 2017, palm oil production required approximately 12 million hectares of land (an area the size of North Korea) to produce 38 million tons of palm oil. In 2016, Indonesia exported 22.8 million tons of palm oil valued at US$14.4 billion. (2) Given the contentious nature and scale of palm oil production, this article examines the ways in which discourse coalitions seek to legitimate the agronomy of rural development in Indonesia. The authors consider whether Indonesia represents a variant of the developmental patrimonialism model that is often used in reference to African countries. Developmental patrimonialism in the context of Indonesia suggests that state power--expressed through various discourse and policy coalitions--tends to favour palm oil companies, enriching clients and cronies while seeking legitimation through broad claims about national economic benefits. (3) Specifically, this developmental model is legitimized by claims of absolute poverty reduction, employment and tax revenue. However, these gains are often offset by the reproduction of inequality, resource dependencies and environmental degradation. Evidence from Riau province suggests a mismatch between the national narrative of palm oil as a force for good and the persistence of local underdevelopment, notably underinvestment in public services and infrastructure, which undermines the legitimacy of some palm oil industry claims.

It is generally understood that agriculture can be a positive developmental force when sound policies and managerial approaches are pursued. In the case of Indonesia, Rob Cramb and John McCarthy find that specific combinations of inexpensive land, cheap labour and accessible capital explain patterns of palm oil production since the late 1970s. (4) With the exception of 2015, growth rates have been robust since 1998, the year Indonesia transitioned to democracy and announced IMF-mandated decentralization policies. It is logical to assume that communities that convert more land for palm oil will experience greater poverty reduction. (5) The positive effect on local livelihoods and national fiscal revenues is the most compelling argument that can be made in favour of palm oil cultivation. But the argument can only hold up to scrutiny if the complexity of local experiences are taken into account, along with the negative externalities, risks and environmental uncertainties caused by increased production. Our evidence and observations from Riau --the centre of palm oil production in Indonesia--suggests that references to the success of rural development is a misnomer, or at least misleadingly simplistic, in a province that has mixed experiences with, and ambivalent attitudes towards, the ongoing spread of cash crops.

There is no public survey data about attitudes towards palm oil in Indonesia. A 2014 Pew Global Attitudes survey concerning the "greatest threat to the world" showed that only 13 per cent of Indonesians believed this threat to be "pollution and environment" (ranked bottom of a list of five threats), compared to 26 per cent who chose religious and ethnic hatred. (6) According to a 2016 Ipsos Global Trends Survey, 56 per cent of Indonesian respondents agreed that "even scientists don't really know what they are talking about on environmental issues". (7) In this trust and data vacuum there exists an opportunity for palm oil companies and their support coalitions to claim the moral high ground by asserting that the industry serves the national interest. The Indonesian government's prioritization of rapid economic growth, and ambition to rank among the world's top 10 economies by 2025, favours the expansion of agribusiness, while casting doubt on international pledges to cut emissions and reduce deforestation. (8) Companies lobby elected leaders in places such as Riau province to issue plantation permits and licenses because local leaders see this as an opportunity to generate income and employment in their constituencies. (9) Our case studies reveal a complex picture of uneven rural development in Riau, with a variety of experiences of, and encounters with, palm oil expansion at the village level. The authors draw on data from Riau gathered during scoping exercises and fieldwork in August 2015, May 2018 and July 2018.

Palm Oil and the Corporate-State Nexus

Palm oil plantations gradually replaced rubber plantations during President Suharto's New Order (1966-98), a centralized, bureaucratic authoritarian regime that claimed legitimacy based on economic, educational and public welfare achievements. (10) The Asian Development Bank (ADB), the World Bank and other donors promoted a growth model that engaged smallholders in production, for instance through a nucleus estate scheme that contractually obligated farmers to sell their palm oil harvests (at low or fixed prices) to plantation estate mills. (11) Most palm oil estates in the 1970s were owned or supervised by the government, giving rise to powerful state-owned plantation companies managed by the Ministry of Finance and advised by the Ministry of Agriculture. (12) In crafting a bifurcated developmental model, President Suharto placed strategic emphasis on the agricultural sector, believing that a focus on rural livelihoods would appease the politically restless countryside and stifle demands for land reform. (13) The result of such "high-modernist" developmental schemes was the proliferation of large-scale plantations and transmigration villages, which fundamentally realigned "relations between people and space", the consequences of which are clearly observable in provinces such as Riau, Sumatra. (14)

In the 1980s, a nucleus estate-transmigration programme called Perkebunan Inti Rakyat-Transmigrasi (PIR-Trans) shifted palm oil production from public to private estates and smallholder production, which resulted in the rise of large-scale conglomerates controlled by Suharto's political, military and corporate allies. (15) In the words of Nathan Porath, transmigration was used to encourage discourses of national development that included the compulsion to "wake the nation from a pre-modern state of cultural slumber". (16) PIR-Trans reproduced cultural myths of Javanese superiority, contrasting between the agricultural ecologies of the inner and outer islands of Indonesia in order to rationalize and sustain the power of central government. (17) The spread of palm oil was driven by strong demand, relatively fast yields and high prices, which led to land sales in Indonesian villages that excluded many indigenous groups by transferring the "ownership of agricultural assets" to successful transmigrants, local elites and those who had access to the "requisite capital and technology". (18)

After the fall of the New Order, the question of palm oil production as a driver of rural development became further complicated by the nature of multi-scalar governance in Indonesia's decentralized, fragmented democratic system. (19) The policy of decentralization created complex power interplays and fiscal incentives for local governments to allow for the expansion of palm oil plantations. (20) The national tax system is largely responsible for unsustainable expansionist land use practices, as local governments are interested in collecting more land and raising taxes and thus have an incentive to issue licenses for palm oil. (21) The industry enjoys relatively low levels of tax, however, and there are low levels of redistribution of revenues to local governments, rendering Indonesia a problematic example of developmental patrimonialism. Local state agencies control access to land and concession licences, and districts [kabupaten] compete to attract agribusiness investment. It is found that local state-based actors' decisions to issue licences and permits are influenced by informal transactions, where these actors personally receive "shares or land in agribusiness developments within their districts". (22)

Some local communities in coastal Riau accuse members of the government, military and police of being complicit in land-grabbing activities and speculative investments that occur throughout the province. (23) Activists in the provincial capital Pekanbaru add that the owners of capital responsible for the expansion of plantations include a variety of financiers and "bosses" [cukong] from the military, police and bureaucracy. (24) Reflecting on these challenges, a deputy working for the President's Executive Office acknowledged that palm oil is "probably the country's most controversial commodity", and while the government is committed to the principle of sustainability, it lacks a comprehensive strategy for managing the palm oil industry in a sustainable way. (25)

The problems of revenue sharing, tax compliance, environmental impact and corruption in palm oil provinces such as Riau are well documented. (26) In response, public-private discourse coalitions involving Indonesian ministries (foreign, trade, agriculture), agribusinesses and trade associations have used information campaigns, public diplomacy and commodity branding activities to portray the industry as an exemplar of national economic progress. The key proponents of palm oil production include the Indonesian Palm Oil Association (Gabungan Pengusaha Kelapa Sawit Indonesia, GAPKI) and the Council of Palm Oil Producing Countries (CPOPC) which was established in 2015 and is led by Indonesia and Malaysia.

GAPKI was established in 1981 by H. Abdul Manap Nasution, a Batak businessman from North Sumatra who co-founded the rubber and palm oil company PT Paya Pinang in 1962. Manap Nasution got his start in agribusiness just prior to the purge of the Indonesian Communist Party (Partai Komunis Indonesia, PKI)...