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Study puts a figure to hidden cost of community-company conflict in palm oil industry

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Activist staging a protest against palm oil in Indonesia. Image by Rhett A. Butler/Mongabay.

  • Two studies have revealed the extraordinary costs of social conflicts between local communities and palm oil firms in Indonesia, the world’s biggest producer of the vegetable oil.
  • One study found that more than half of local household expenditure at present was going on things they would have obtained for free in the past, such as water and fruits, from the forests that were cleared to make way for palm plantations.
  • The other study highlighted the hidden burden of these same conflicts on the companies, amounting to millions of dollars in tangible and intangible costs, including reputational damage.

JAKARTA — It took Yando Zakaria, an Indonesian anthropologist, four hours to convince the embattled Suku Anak Dalam tribe to get involved in his study last year on the cost of social conflicts in the palm oil industry.

The study was commissioned by the Indonesia Business Council for Sustainable Development (IBCSD), and aimed to calculate the costs of social conflicts incurred by local communities as a result of the palm oil industry’s expansion.

The indigenous Suku Anak Dalam community would have provided a textbook example of this complex issue: it’s been fighting for its land rights in Jambi province against the palm oil company PT Asiatic Persada for more than three decades now. But it rejected Yando’s request at first, telling him to go home.

“I’ve been a researcher for 35 years, but that was the first time I was told to go home,” Yando said on the sidelines of a recent presentation of his study in Jakarta. “They told me that if my study didn’t help them, then it’s better for me to go home.”

The Suku Anak Dalam’s rejection, which they eventually reversed, made him realize how the tribe had suffered so much to the point that they became hostile toward outsiders.

The tribespeople have long been subjected to intimidation and discrimination to force them off their ancestral land, coveted for oil palm plantations. In 2014, a member of the tribe was killed and five others were injured during a clash with Asiatic Persada’s security forces.

Repeated mediation attempts, as well as a 1,000-kilometer (620-mile) march in 2016 from Jambi to the State Palace in Jakarta to demand the government take action, have not led to the tribe getting its rights recognized.

With no apparent resolution in sight, the Suku Anak Dalam tribe has grown restless.

“We’re done asking for our rights in a nice way,” Usman, a respected figure in the tribe, said as quoted in Yando’s study. “We could also fight with our own ways. But we don’t want to be careless, [we need to] stay patient. If we keep being ignored, then we have a customary law. Whoever wrongs us, [we] kill [them].”

Given the long history of conflict, Yando said he could understand the tribe’s initial hostility toward him.

“It means that their suffering from the conflict is tremendous,” Yando said. “They said the state wouldn’t be able to pay the costs [that they bear], so why bother calculating the costs at all?”

His experience with the tribe showed that the social conflicts arising from palm oil — and the precious land at the heart of the industry — bear a heavy price for the affected communities.

The Suku Anak Dalam tribe in Jambi, Indonesia, Photo courtesy of the Indonesian Ministry of State Secretariat.

Paying for what used to be free

There were nearly 9,500 land conflicts simmering across Indonesia as of 2010, according to the National Land Agency (BPN). In 2017 alone, the office of the president’s chief of staff received 268 reports of land conflicts.

Of the estimated 23,000 households caught up in these conflicts, some 17,000, or nearly three-quarters, are mired in conflicts over plantation areas.

Besides the Suku Anak Dalam tribe, Yando’s study also looked at the cost of conflicts between oil palm firms and two other communities: Muara Tae village in East Kalimantan province, and Trimulya village in West Kalimantan province.

What the study found was that the plantations had a profound impact on local communities, especially on the way they lived their lives.

In the past, many of these communities lived off the wealth of their natural surroundings, such as nearby forests, where everyone enjoyed equal access to the resources. Today, much of these same forests are off-limits as oil palm plantations, or else they have been polluted or destroyed, forcing the communities that once depended on them to now have to buy much of what they need.

The study found that 55 percent of the Suku Anak Dalam’s current monthly expenditure goes toward items that they previously obtained for free, including water and fruits. For the villagers of Trimulya, the shift has been harsher: 61 percent of what they currently spend is for items that would in the past have cost them nothing.

This monetizing of much of their basic needs has torn at the fabric of society, according to Rimawan Pradiptyo, an economist from Gadjah Mada University in Yogyakarta, who contributed to the study.

“In the past, if people came to your backyard to pick some fruits, that wasn’t a problem,” he said. “But now, people will get prosecuted because the resources have become limited. People can’t share their resources any more. So when a conflict erupts, often the impact is beyond our imagination.”

As a result of conflicts with oil palm firms, the communities involved in the study had to pay 3.48 million rupiah ($250) in additional costs per month per household — a massive amount of money in a country where the average household monthly income is just 5.05 million rupiah ($362).

To cover those additional costs, each household would have to work an extra 35 days per month, the researchers calculated.

When they came out with the figures, Rimawan was surprised to see the extent of the economic impact that oil palm plantations had on local livelihoods. He said the burden was three times worse than during the 1998 Asian financial crisis, which resulted in a 15 percent decline in Indonesia’s GDP.

“Do you remember the uproar in the cities during the monetary crisis?” he said. “Now imagine the people in these villages who are powerless and have no voice. And the monetary crisis only lasted for three years, while the studied conflicts last [much longer]. So when they [Suku Anak Dalam] kicked Yando out of their village, it’s understandable.”

Arkani, a Dayak man whose community is involved in a conflict with an oil palm company in Borneo. Image by Leo Plunkett for The Gecko Project.

Revenue and reputational loss

Another study commissioned by the sustainable business council, and conducted by Daemeter Consulting, showed the cost of conflict to oil palm firms was also significant and often undervalued, reaching into the millions of dollars.

“This issue needs special attention because companies suffer from quite a huge loss [from social conflicts], something which they might have not been aware of yet because there’s no detailed figures,” Godwin Limberg, the regional manager at Daemeter Consulting, said during a recent presentation of the study’s findings in Jakarta.

The study analyzed data from conflicts in five plantations in Sumatra and Kalimantan, the Indonesian portion of the island of Borneo. The names of the plantations and companies were not identified in the study.

There are various reasons for social conflicts arising from oil palm operations, including disputed land claims, disagreements over contractual arrangements with small farmers, labor conditions, interference with local livelihoods due to environmental damage, and unfulfilled corporate commitments regarding community development.

In the case of the plantations analyzed in the study, the underlying cause of the conflicts related to land access and rights. These conflicts spawned a range of reactions, from peaceful protests and formal complaints, to destruction of public and private property.

The study found the tangible cost of social conflicts ranged from $70,000 to $2.6 million across the five cases, or between $500 and $15,000 per hectare for each conflict.

For the company at the higest end of that scale, the conflicts only lasted for a year, yet accounted for two-thirds of its operational costs. The largest single cost for that company, as well as the four other companies studied, was from lost revenue due to delays in plantation development, stoppage of plantation maintenance and production, and stoppage of mill operations.

The second-largest category of costs was the time allocated by company staff to the addressing conflicts, for which they were compelled to suspend their other duties.

Intangible costs were trickier to calculate because of the limited number of case studies, but the researchers were able to come up with numbers. The study defined intangible costs as those that were not expected at the onset of the conflicts and that were associated with the risks and unforeseeable consequences that the conflicts might produce, including reputational damage, risk of recurrence of social conflicts, and risk of violence to property and to people.

Reputational loss, for instance, could make it harder for companies to borrow from banks, thus forcing them to borrow at high interest rates. Product demand and share price could also be hit by reputational damage caused by social conflicts.

According to the study, intangible costs in the five cases ranged from $600,000 to $9 million, representing the largest potential costs for companies. The lower end of the range represents a low-intensity recurrence of conflict, while the high end of that spectrum represents the higher costs related to loss of reputation.

“If we look at the numbers, the resources needed to handle conflicts are indeed huge,” Limberg said.

Momonus chiefs the Dayak Iban indigenous group in West Kalimantan province. The group has been in conflict with a major palm company in Indonesia. Photo by Basten Gokkon/Mongabay.

‘Super’ agency called for

Abetnego Tarigan, a senior adviser on social and environmental issues at office of the president’s chief of staff, said the findings from the two studies were important for stakeholders to get a clearer picture of the true cost of conflict in the palm oil industry.

“These studies build our collective awareness about how much the cost is and what actions we have to take,” he said.

Rimawan said he hoped the studies would spur stakeholders into taking actions that would prevent future conflicts from arising. Activists and researchers have proposed the establishment of a government agency that would act as a “superbody” to resolve existing conflicts between local communities and oil palm firms. They contend that these conflicts cannot be resolved by the existing government institutions that issue the permits for oil palm companies, due to a conflict of interest.

“The current mechanism [to resolve conflicts] is fragmented,” Yando said. “The Ministry of Environment and Forestry won’t be able to solve conflicts effectively through its personnel because there will be a conflict of interest. So there needs to be a cross-sectoral institution.”

Abetnego acknowledged the idea, but said more discussion was needed on whether to have a separate agency to resolve the conflicts.

 

Banner image: Activist staging a protest against palm oil in Indonesia. Image by Rhett A. Butler/Mongabay.