Communities force Wilmar to address bad practices

Down to Earth No.76-77 May 2008

Communities in West Kalimantan, supported by national and international NGOs, have taken the unprecedented step of challenging the environmentally and socially damaging impacts of the world's largest palm oil company, using the World Bank Group's official complaints procedure. Wilmar International and the International Finance Corporation (IFC) have withdrawn their claims of 'sustainable palm oil' production.

The Wilmar Group is a large conglomerate, set up by Malaysian and Indonesian businessmen Kuok Khoon Hong and Martua Sitorus in 1991. It started by refining palm oil and quickly expanded into buying and trading palm oil on the international market. The parent company, Wilmar Holdings, listed a number of subsidiaries on the Singapore Stock Exchange which became Wilmar International in 2006. Last year, Wilmar Holdings merged its edible oils, grains and related businesses with the Malaysian Kuok Group and the Asian edible oil businesses of American agricultural trading company ADM.

The Wilmar Group is now the largest trader of palm oil, palm oil refiner and agrofuel manufacturer in the world (see box). It had an annual turnover of US$5.3bn in 2006 and is expected roughly to double its 2007 profits of US$580 million this year.

Wilmar International controls nearly 500,000 hectares of oil palm plantations in Indonesia plus around 80,000ha in Malaysia of which it claimed to have planted some 200,000ha by late 2007. A report by Friends of the Earth Netherlands (Milieudefensie) stated that, by mid 2007, less than one third of the Wilmar Group's land holdings had been cleared and planted. Even so, Wilmar is reported to have ambitious plans to increase further its role in the international agrofuel market, to expand its plantation areas to 1 million hectares in Indonesia and to buy up and develop plantations in Africa and Central Asia. Despite substantial land holdings, over 75% of palm oil traded by Wilmar currently comes from other plantations.

Wilmar sells palm oil to companies in China, India, USA and Europe. Among its customers are Unilever, one of the world's food processing, detergent and cosmetics giants and a leading member of the Roundtable on Sustainable Palm Oil (RSPO). According to Greenpeace, well-known products such as Walls ice cream, Dove soaps and Flora margarine are likely to contain palm oil which has been produced at the expense of the rainforest and local communities' rights and to have passed through Wilmar's hands. British-based bank Standard Chartered is Wilmar's most important external shareholder. The Dutch Rabobank has also made and brokered a number of significant loans to Wilmar in the last five years.

Community grievances

A report by Milieudefensie and Indonesian partners in July 2007 provided evidence that three Wilmar plantations in Sambas, West Kalimantan, had been involved in land rights conflicts, encroachment on villagers' lands, converting peat swamps to plantations, forest destruction and illegal burning*. They were also operating without statutory environmental impact assessments.

Practices by PT Wilmar Sambas Plantation (WSP), Buluh Cawang Plantation (BCP) and Agro Nusa Investama (ANI) violated Wilmar's own corporate social responsibility policy, Indonesian law and the Principles and Criteria of the RSPO, to which Wilmar has belonged since 2005. Local communities affected by Wilmar's plantations demanded that the company halt operations on the ground while proper and thorough EIAs were conducted and that there should be a transparent consultation process to gain the communities' consent for land acquisition.

The IFC has its own operating standards and is also a member of the RSPO. In spite of concerns raised by NGOs about Wilmar's operations, the IFC made three investments to the group and helped it to get funds through the Global Environmental Facility. In so doing, it did not carry out proper due diligence and disregarded IFC Performance Standards while wrongly claiming that Wilmar met RSPO standards.

The environment ministry had issued instructions in April 2007 to PT WSP and BCP to stop all operations until the EIA had been completed and approved, but these were ignored. PT ANI continued to operate a processing mill and to expand its plantation without an EIA for these.

Action against Wilmar

The NGOs used the report to launch a three-pronged approach: to the Compliance, Advisory and Ombudsman Office (CAO) of the IFC; to the RSPO, through its newly established grievance panel; and to palm oil buyers and financiers of Wilmar. After protracted correspondence and several meetings, the IFC eventually agreed to set up a mediation process and to send its ombudsman to Sambas.

As a result, by February 2008, Wilmar publicly admitted its shortcomings in the three cases in Sambas. To address the problems, Wilmar says it has set up a committee, regional sustainability departments and audit- and monitoring procedures to make sure that RSPO principles and criteria on 'sustainable palm oil' will be adhered to. Special measures will be taken to protect biodiversity and high conservation value forests and no plantation development will take place without free, prior and informed consent of local communities. The CAO has also engaged in mediation between and local communities over contested boundaries between concessions and customary lands. However, Wilmar has not acknowledged its role in illegal logging.

Civil society groups will be monitoring carefully to ensure that Wilmar sticks to its word. One problem throughout negotiations is the complexity of Wilmar's holdings which include front and shell companies. A related issue is that although Wilmar eventually stopped operations at the three plantations pending inspection, it also bought palm oil from Duta Palma which is reported to have damaged communities and forests in the province. Also, the Ganda Group, which holds plantations covering much of the Sejenuh sub-district of Sambas, is owned by the brother of Martua Sitorus and is reportedly a supplier to Wilmar in other provinces. The three cases in Sambas are not Wilmar's only controversial concessions. These include the 30,000 ha PT Asiatic Persada plantation in Jambi, Sumatra, formerly owned by CDC (see DTE 67). Cases are also coming to light in West Sumatra, South Sumatra and Central Kalimantan.

Meanwhile, civil society groups are pressing the CAO to address the issues raised about IFC procedure for funding approval through an official, independent audit. The overall aim is to ensure that IFC's policies, procedures and investment practices are strengthened to respect fully the rights of communities and the promotion of sustainable land use options. However, the CAO, possibly anxious about setting a precedent, appears to be dragging its feet. The RSPO Grievance panel is now considering the complaints against Wilmar but, as this newsletter went to print, has not publicly released any information about progress.

*Policy, Practice, Pride and Prejudice, A Review of legal, environmental and social practices of oil palm plantation companies of the Wilmar Group in Sambas District, West Kalimantan, July 2007, a joint publication of Milieudefensie, Lembaga Gemawan and Kontak Rakyat Borneo is available in English at http://www.milieudefensie.nl/english/forests
The IFC's Compliance Advisory Ombudsman's Preliminary Assessment, Nov 2007, is available at http://www.cao-ombudsman.org/html-english/documents/WilmarassessmentAI13Nov07.pdf with a 27/Mar/08 update at http://www.cao-ombudsman.org/html-english/Wilmar_compliance.htm

Other sources: Formal complaint to the IFC, July 2007, http://www.forestpeoples.org/documents/ifi_igo/ifc_wilmar_fpp_let_jul07_eng.pdf
Buyers and Financiers of the Wilmar Group, Profundo, July 2007; Making Waves, Greenpeace weblog, 17/Nov/07; Reuters 13/May/2008 http://www.businessspectator.com.au/bs.nsf/Article/UPDATE-3-Wilmar-profit-soars-sees-prices-staying-f-ELPW3?OpenDocument,http://www.rspo.org/Complaint_against_Wilmar_International_Ltd.aspx.