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Indonesia moves to end smallholder guarantee meant to empower palm oil farmers

Palm oil fruit harvest in Malaysia. Photo by Craig Morey/Flickr.

  • Palm oil companies in Indonesia will no longer have to allocate 20% of their land for smallholder farmers, under a deregulation bill being deliberated by parliament.
  • The requirement is meant to ensure the country’s palm oil boom benefits rural communities, but the government now sees it as a hindrance to investment.
  • Activists and officials in regions where palm oil is a big part of the economy have slammed the proposed scrapping, saying big companies will no longer have any reason to support and empower smallholders.
  • The palm oil lobby says its companies are struggling to find land for the smallholder program amid conflicting regulations and an effective ban on plantation expansion.

JAKARTA — Palm oil companies will no longer be required to allocate a fifth of their land for smallholder farmers under a new bill, a move activists and officials call harmful to the livelihoods of these farmers.

These so-called plasma farms were made mandatory in 2007 to ensure rural communities benefited from the large plantations near them, including through training, supplies of seedlings and fertilizer, guaranteed buyers for their oil palm fruit, and eventual title to the land.

But a deregulation bill now making its way through parliament calls for ending the requirement, characterizing it as a hindrance to investment. That, activists say, will leave large palm oil companies with little justification to continue empowering local communities.

“If the 20% minimum requirement is gone, then allocating a single hectare of area for plasma farms can be deemed enough,” Syahrul Fitra, a legal researcher at the environmental NGO Auriga Nusantara, told Mongabay. “What’s needed is to ensure the plasma scheme is carried out, not weakened. If it’s removed, then local people will be further pushed aside.”

Norman Jiwan, a consultant with TuK Indonesia, an NGO that advocates for social justice in the agribusiness sector, said scrapping the requirement would throw small farmers into legal limbo and deprive them of the training and other assistance they currently get from the companies.

“For farmers who aren’t in the plasma scheme yet, they will never get plasma farms,” he told Mongabay. “For those who are in the scheme, they will no longer be seen as partners by the companies. If the 20% requirement is gone, then the partnership is gone as well.”

Jarot Winarno, the head of Sintang district in the Bornean province of West Kalimantan, where palm oil is a major driver of the economy, said the plasma scheme is crucial to empowering small farmers.

“Partnership is a must. Why bother having palm oil plantations if they’re not increasing the welfare [of the people]?” he said. “The lands [planted by companies] are the lands of our ancestors. So if there’s a bill that doesn’t give room for partnership, sustainability and environmental services, then we’ll just fight it.”

Abetnego Tarigan, an environmental adviser in the office of the president’s chief of staff, said the government had “not received enough information” about the plan to scrap the plasma requirement — even though it was the government that drafted the deregulation bill proposing the move.

An oil palm plantation in Indonesia. Photo by Rhett A. Butler.

Jobs and land titles at stake

A 2018 study by Auriga shows that a typical palm oil conglomerate controls an average of 502,000 hectares (1.2 million acres) of land — four times the size of Los Angeles — while the average smallholder farmer has 2.2 hectares (5.4 acres), or about six football fields.

While the current plasma scheme isn’t perfect, with flaws related to transparency and fairness, it’s still a crucial part of the effort to reduce the gap in land ownership between big companies and farmers, TuK’s Norman said.

“If there’s no partnership [between farmers and companies], then how do you want to talk about sustainability and justice?” he said. “It’s an entry point to solve inequality, and the other problems [related to inequality] can only be solved if there’s a partnership that can create a relationship of mutual benefit and respect.”

Norman also questioned the rationale behind the scrapping of the minimum requirement for plasma farms, given that the deregulation bill that proposes it is formally called the “job creation bill.”

“How do you want to create job opportunities if the partnership scheme which is the basic requirement [for companies] is scrapped?” he said.

Beyond jobs and an income, the plasma scheme is often the best path to land title for many rural Indonesians. This, too, would be undermined if the requirement is scrapped, said Totok Dwi Diantoro, an environmental law expert at Gadjah Mada University (UGM).

Under the agrarian reform program, known as TORA, the government aims to issue titles for more than 9 million hectares (22 million acres) of land to small farmers, many of whom are enrolled in the plasma program.

“If the [20%] stipulation is gone, then the chance for plasma farmers to get land certificates under the TORA program also disappears,” Totok said.

Newly planted oil palm plantation in Aceh, Sumatra, Indonesia. Image by Rhett A. Butler / Mongabay.

Failing to meet the requirement

Most plantation companies already fall short of their plasma requirements.

There are 7.7 million hectares (19 million acres) of oil palm plantations owned by companies across Indonesia, according to Ministry of Agriculture data. But there are only 617,000 hectares (1.5 million acres) of plasma farms, or about 8% of corporate plantations.

The central government blames this lack of compliance on the provincial and district administrations that issue more than 90% of plantation permits, while the palm oil lobby attributes it to conflicting regulations, including from the central government.

GAPKI, the national association of palm oil businesses, says it’s difficult to find land to allocate for the plasma scheme for various reasons, including illegal occupation by people who don’t all want to farm oil palms. GAPKI chairman Joko Supriyono also said a government ban on issuing new permits for plantations in old-growth forests and peatlands, in effect since 2011, makes it even more difficult.

“The development of new plasma farms can only be done if there are new permits,” he said. “So the government needs to provide lands for the development of new plasma gardens.”

Mansuetus Darto, the secretary-general of the Oil Palm Smallholders Union (SPKS), says the companies’ notion that the land for plasma farms should come from outside their plantations is dangerous because it could lead to more deforestation.

“If that’s the case,” he said, “then village forests, lands owned by locals, and rubber plantations will have to be converted into oil palm plantations.”

In that regard, Mansuetus added, scrapping the 20% requirement might not be such a bad idea.

“If there’s a 20% additional land for plasma farms, then it means that we agree with palm oil expansion,” he said. “What I see is that independent smallholders [who already have land] don’t have partners. So there’s no need to develop the 20% plasma gardens — it’s enough for the companies to just partner with independent smallholders.”

Indonesia’s Corruption Eradication Commission (KPK), which in recent years has paid special attention to graft in the palm oil sector, said companies should be allocating areas for plasma farms from within their own concessions.

A palm plantation in North Sumatra. Image by Ayat S. Karokaro/Mongabay-Indonesia.

Overlapping regulations

The lack of clarity over where the land is supposed to be allocated from is due to overlapping regulations on the matter, said Teguh Surya, the executive director of the environmental NGO Madani.

“So three ministries — agriculture, environment and land — have three different regulations and three different interpretations,” he told Mongabay.

Fadhil Hasan, the director of corporate affairs at major palm oil trader Asian Agri Group, which partners with 30,000 plasma smallholders who manage a combined 60,000 hectares (148,000 acres) of plantations, said this problem needed to be addressed.

“Which regulation should we follow? Because the stipulations are different [in each regulation],” he said. “These need to be harmonized [to determine] which one of them should be implemented.”

Teguh said the government had agreed late last year to resolve the overlapping regulations by issuing a presidential regulation on the matter that would clear up how to implement the plasma scheme and meet the 20% requirement.

“And this is very good, because it’s clear and it’s going to be stipulated in a presidential regulation,” Teguh said. “But this all will disappear if the deregulation bill is passed. There’ll be no more plasma obligation.”

Abetnego, the presidential adviser, said there hasn’t been any update on the planned presidential regulation.


Banner image: Palm oil fruit harvest in Malaysia. Photo by Craig Morey/Flickr.


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