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Pepsi cuts off Indonesian palm oil supplier over labor, sustainability concerns

Clusters of fruit from oil palm trees are cut from trees and collected in an ox-drawn cart. Photo by Bram Ebus for Mongabay.

  • PepsiCo has announced the suspension since January 2017 of its business ties with IndoAgri, one of Indonesia’s biggest palm oil producers, citing concerns over the company’s labor rights and sustainability practices.
  • IndoAgri has been criticized for alleged abuses of workers’ rights in some of its plantations in North Sumatra province.
  • PepsiCo has demanded that IndoAgri resolve these outstanding issues before its considers resuming their business partnership.

JAKARTA — PepsiCo has suspended its business with Indofood Agri Resources (IndoAgri), one of the largest palm oil companies in Indonesia, citing sustainability and labor rights concerns.

PepsiCo, the U.S.-based company behind brands like Pepsi, Frito-Lay and Tropicana, primarily sources its palm oil from Indonesia, the world’s biggest producer of the commodity, where huge swaths of tropical forests and carbon-rich peatlands are being cleared to make way for palm plantations.

It has a joint venture with the parent company of IndoAgri, Indofood, to produce some products, such as Lays-branded snacks, in the Southeast Asian nation.

While IndoAgri is not a direct supplier to PepsiCo, it supplies palm oil to international traders which then sell to PepsiCo.

“PepsiCo is very concerned about the allegations that our policies and commitments on palm oil, forestry stewardship and human rights are not being met,” PepsiCo said in a statement.

It revealed that it had therefore decided to suspend procuring palm oil from IndoAgri for its joint venture with Indofood since January 2017.

IndoAgri has been subjected to various environmental and social concerns, particularly over alleged labor rights abuse in some of its plantations.

In 2016, the Rainforest Action Network (RAN), an international NGO; OPPUK, an Indonesian labor rights advocacy organization; and the International Labor Rights Forum (ILRF) published a report on alleged labor rights abuses on IndoAgri’s plantations in Indonesia’s North Sumatra province.

The report documents how workers in the plantations are routinely exposed to hazardous pesticides, paid less than the minimum wage, illegally kept in a temporary work status to fill core jobs, and deterred from forming independent labor unions, among other findings.

In 2017, a follow-up report was published, revealing that little progress has been made in addressing the labor rights issues, with IndoAgri only adopting cosmetic changes that fail to address the root causes of the abuse, such as putting up signs saying undocumented workers are banned, rather than formalizing these workers as employees or lowering harvest quotas.

IndoAgri has also been the subject of separate complaints relating to deforestation and social or land conflicts.

A 2017 report by Chain Reaction Research reveals that 42 percent of the land under Indofood Agri’s concessions is in dispute; some areas are the subject of community conflicts and labor controversies, some contain undeveloped peat and/or forest areas, some overlap with mining concessions, and others have no maps.

Furthermore, at least 36 percent of the crude palm oil (CPO) processed in Indofood Agri’s refineries comes from undisclosed sources, according to the report.

Robin Averbeck, the agribusiness campaign director at RAN, said that with the announcement, PepsiCo had admitted that its palm oil supply chain was tainted with high risks.

“After years of denial, PepsiCo has admitted to the high risks associated with its palm oil supply chain and business partner,” she said in a statement. “Its partnership with Indofood is marred by years of labor violations and other practices that have produced nothing but Conflict Palm Oil for PepsiCo-branded snack foods.”

Responding to the announcement and media coverage of it, IndoAgri confirmed that it had not been a supplier to PepsiCo since early 2017. The company also said it had complied with Indonesian labor laws and regulations.

“We do not have any dispute or outstanding issue with any of our Labor Unions (we have a total of 10 Labor Unions) or the Indonesian Ministry of Labor,” IndoAgri CEO and executive director Mark Wakeford said in a statement. “We have also recently received a good compliment and zero accident award from the Indonesian Ministry of Labor.”

The suspension, however, might be a temporary one; PepsiCo has left open the possibility of resuming its business relationship with IndoAgri if the palm oil firm can prove its commitment to sustainability.

Last year, IndoAgri announced a new sustainability policy to address the labor rights issues and environmental concerns, with the company promising to not develop on peatland for any new development and to protect the rights of its workers, among other things.

However, some green groups have identified weaknesses and loopholes in the new sustainability policy, especially those pertaining to labor issues.

Eric Gottwald, the senior legal and policy director at the ILRF, said IndoAgri had failed to adopt a credible mechanism, in line with international standards set out in the U.N. Guiding Principle on Business and Human Rights, to address concerns from workers, communities and civil society organizations.

“Instead, IndoAgri has made only a vague commitment that will allow it to pick and choose [which] grievances it will address,” Gottwald said in a statement.

Chain Reaction Research, meanwhile, pointed out that IndoAgri had not adopted sector-specific labor standards. As such, improving its internal grievance mechanism with respect to management of human rights and environmental risks and impacts is among the issues that PepsiCo is demanding IndoAgri resolve.

PepsiCo has also called on IndoAgri to provide more public information on the steps it has taken to address grievances; to take further necessary action to fully resolve the issues; and to join other stakeholders in discussing the systemic issues that exist in some oil palm plantations in Indonesia.

“These steps are necessary for the potential re-establishment of palm oil supply from IndoAgri to the joint venture,” PepsiCo said. “We will also continue over the course of 2018 to review on a quarterly basis IndoAgri’s progress against the requested actions outlined above, and in that context we will continue the dialogue with our direct suppliers around IndoAgri-sourced palm oil in our supply chain, including the possibility of change of source.”


Banner image: Clusters of fruit from oil palm trees are cut from trees and collected in an ox-drawn cart. Photo by Bram Ebus for Mongabay.

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