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Most Indonesian palm oil firms not sharing land with small farmers as required: audit

A worker in an oil palm plantation.

A worker in an oil palm plantation. Image for representation purpose only. Image by Cooke Vieira/CIFOR via Flickr (CC BY-NC-ND 2.0).

  • Only 21% of Indonesian oil palm plantation companies have fulfilled their legal obligations to allocate land for smallholder farmers under a scheme called plasma, a new government audit shows.
  • To address the lack of compliance by companies, the government has established a task force.
  • The task force will also address other issues in the plantation industry, such as tax avoidance.

JAKARTA — Only a fifth of Indonesian palm oil companies are compliant with a requirement to allocate part of their land to smallholder farmers, according to official data.

The government’s audit agency, the BPKP, found that only 21% of 2,864 plantation firms in the country had allocated the mandatory 20% of their concessions to communities under the sharing scheme known as “plasma.”

That scheme dates back to the 1980s, when the palm oil industry began to grow in earnest in Indonesia. In 2007, the government made the plasma scheme mandatory, which means that companies that hold plantation licenses are legally obligated to give a fifth of any new plantation to smallholder farmers.

The scheme is aimed at ensuring rural communities benefit 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.

When done properly, the plasma scheme can empower local communities and contribute to the local and national economy, according to Linda Rosalina, executive director of TuK Indonesia, an NGO that advocates for social justice in the agribusiness sector.

“[The benefits are] tremendous,” she told Mongabay.

However, various media and NGO reports have found the implementation of the scheme to be lacking.

An investigation by Mongabay, the BBC and The Gecko Project in 2022 found that companies had failed to provide potentially hundreds of thousands of hectares of legally required plasma land to communities. In one province alone, rural Indonesians are estimated to be losing out on more than $90 million in potential annual income because of this.

Until recently, it was unclear how widespread the problem was. This is because government data on oil palm plantations is highly fragmented and inconsistent, with the number of companies, size of plantations and scale of plasma compliance differing from one agency to the next, the BPKP found in a 2019 audit.

As a result, evaluating companies’ compliance with plasma obligations wasn’t possible, the BPKP audit concluded at the time.

In 2022, the BPKP conducted another audit, this one prompted by acute shortages of cooking oil in Indonesia that lasted for several months in early 2022. This latest audit tried to address the problem of data inconsistency.

“We started from matching [the data on] land because we have to know exactly how much land there is, how many companies own the land, and how much is managed by the locals,” BPKP chief Muhammad Yusuf Ateh said at a press conference in Jakarta on June 23. “This data didn’t exist.”

The audit concluded that only 581 plantation companies had fulfilled their plasma obligations.

“This number is still very small,” Ateh said.

Yuliana and Singapue, workers in an oil palm plantation
Yuliana and Singapue, workers in an oil palm plantation in Kalimantan. Image by Cooke Vieira/CIFOR via Flickr (CC BY-NC-ND 2.0).

2022 data from the Ministry of Agriculture also indicate widespread lack of compliance, with only 635,000 hectares (1.6 million acres) of plasma land established by companies with plantation licenses issued after 2007. This represents just 8% of the 8 million hectares (20 million acres) of the total oil palm estate planted by private companies as of 2021, according to the ministry’s official publications.

If the companies were all compliant, then by that last count there should be 1.6 million hectares (4 million acres) of plasma plantations in Indonesia.

That means there’s a shortfall of approximately 965,000 hectares (2.4 million acres), an area six times the size of London.

Large palm oil groups fare better in terms of plasma compliance, with 21% of the planted areas of the 25 largest plantation groups in Indonesia already allocated for smallholders, according to a 2019 report by TuK Indonesia.

The report found that the 25 groups had planted 3.4 million hectares (8.4 million acres) of oil palm plantations, and 711,603 hectares (1.76 million acres) of them had been given to communities as of the end of 2017.

Nevertheless, the government still has to make sure these plasma plantations truly exist and aren’t just claims reported by the companies, said Linda of TuK Indonesia.

In Jambi province on the island of Sumatra, TuK Indonesia found the size of plasma plantations recorded by the provincial government was larger than what the NGO could identify in the field. In Central Sulawesi province, on the island of Sulawesi, a plantation company claimed areas that had been earmarked for plasma as plasma plantations even though they hadn’t been planted yet, Linda added.

The BPKP audit also found other problems, such as failure to pay tax by the holders of 9 million hectares (22 million acres) of concessions — an area three times the size of Belgium.

In April, President Joko Widodo established a task force to follow up on the findings of the audit. The task force’s members represent various government agencies, including the BPKP.

“This [plasma] issue is among the aspects the task force will fix,” Ateh said. “So the task force will improve the management of palm oil from upstream to downstream, including plasma.”


Banner image: A worker in an oil palm plantation. Image by Cooke Vieira/CIFOR via Flickr (CC BY-NC-ND 2.0).

Read about our multiple award-winning collaborative investigation of plasma here:

A hidden crisis in Indonesia’s palm oil sector: 6 takeaways from our investigation

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