Palm oil exports hit by contamination

Down to Earth No. 44, February 2000

A crisis in the oil palm industry is making a mockery of predictions that exports of the crop will help haul Indonesia out of its economic woes.

Export orders for Indonesian palm oil products fell sharply when the first shipment of palm oil, contaminated with diesel oil, was rejected by buyers in the Netherlands in October last year. Since then European buyers have rejected other shipments of polluted oil, totalling 85,000 tonnes in all. They have also in effect placed a ban on further shipments with some demanding that the source of the contamination is identified, those responsible identified and punished and better testing facilities are installed. The contamination has been traced to storage tanks in the north Sumatran port of Belawan operated by the state-owned plantation company, PTPN III, but there has only been speculation as to how it happened.

Palm oil is one of the so-called "prima donna" export industries that Indonesia is relying on to boost foreign exchange earnings. The International Monetary Fund (IMF), which heads the grouping of Indonesia's main creditor agencies, has encouraged this growth and regards the sector as an integral part of its economic recovery programme for Indonesia.

This has brought the IMF into dispute with NGOs and rural communities whose lands are appropriated for new plantations. The customary resource and land rights of indigenous peoples are being swept aside as companies rush to invest in the crop. The normal practice for companies is to offer minimal compensation (if at all) and work on the plantations. The government-sponsored transmigration programme has also been used to provide cheap labour.

Environmental organisations have pointed out to the IMF that boosting the palm oil industry will wipe out still more of Indonesia's already heavily depleted rainforests. In the past few years land clearing for plantations development has been one of the main causes of forest fires (see DTE 35 for a list of companies).

Vast tracts of lands classed as state forest land - around 330,000 hectares a year are expected to be converted to oil palm plantations, adding to the 2.4 million hectares of forest lands already under the crop (1998 figures). The government wants to promote oil palm development in eastern Indonesia (West Papua and Sulawesi particularly). The aim is to take Malaysia's place as the world's biggest palm oil producer by the year 2012.

Indonesian companies are teaming up with investors from Malaysia, Singapore and other countries to develop plantations covering tens of thousands of hectares. They are securing funds from international investors including Rabobank (Netherlands); CDC (UK government); Lazard Asia Investment (Hong-Kong); UBS (Switzerland) and the IFC (the World Bank's private investment arm).

(Source: Reuters 17/Jan/2000, Jakarta Post 14/Dec/99; Inside Indonesia April-June 1999)

The human cost

The impact of the oil palm rush is becoming painfully evident as more communities are evicted from their lands and deprived of their traditional livelihoods. Disputes documented by Indonesian NGOs over the past few months include cases in:

Jambi: (Sumatra) eight farmers from Empang Benao village were shot by troops in September in a land dispute with plantation company PT Krisna Duta Agrindo. The conflict started in 1996 when the company took over 1,800 hectares belonging to the farmers. After they complained to the local authorities the company offered to return 270 hectares, which the farmers refused. According to one eyewitness, the shootings happened when a group of farmers were called in to meet with the company, but were apprehended by a group of police and troops who fired once over their heads then started firing directly at them. (LBH Palembang via WALHI, 20/Sep/99)

Jambi: police said they had formed a special team to capture 'provocateurs' and rioters who ran amok in January at a palm oil plantation, owned by PT Jamika Raya, destroying factories and other buildings. Reports say some workers felt they were being exploited and underpaid. Bungo Tebo Police Chief, Colonel Ngusman Fu'ady, told reporters the rioters had destroyed at least 68 buildings and would be hunted down. (Indonesian Observer, 26/Jan/2000)

East Kalimantan: hundreds of people from seven villages in Paser district blocked roads leading to a 'nucleus' plantation run by state-owned company, PTPN XIII. The villagers' rattan gardens were cleared for oil palm plantations, but they received no compensation. They are demanding that the company make good promises to take them on as oil palm smallholders. (Suara Kaltim 30/Dec/99)

The nucleus estate/smallholder system (PIR) is one which is applied throughout Indonesia and has been criticised for turning independent farmers into wage-labourers and dependent small-holders tied into company credit obligations. Formerly growing a variety of market crops, the farmers become reliant on one export crop and become more vulnerable to price fluctuations on international commodity markets.

Central Kalimantan: local people destroyed a bridge linking a palm oil plantation run by PT Agro Indomas in Kotawaringin Timur district. The bridge was disrupting the flow of local water traffic. The local branch of the environmental organisation, WALHI, says the 10,000 hectare project has taken over land used for rattan gardens, fruit trees and rubber plantations. CDC, the British government-owned agency which finances private enterprises in developing countries, recently invested US$14.4 million in Agro Indomas. When CDC announced its investment last year it said the plantation area was "derelict grassland" (see also DTE 42:12).

WALHI says CDC must press Indomas to halt operations and should review its investment in the company. (WALHI Kalteng 5/Dec/99 & 24/Dec/99; )

South Sumatra: on November 11, local people set fire to the base camp and equipment belonging to PT Multrada Maju in Lahat district, South Sumatra. Days before, ten villagers had been arrested for stealing oil palm fruit from the company location. (WALHI, 15/Nov/99)

(See also DTE 42:11 for more on oil palm)