Oil palm not a golden crop for some.

Oil palm not a golden crop for some.

August 22 2007 New Straits Times, Malaysia

LANGKAT: Palm oil prices might be going through the roof and making investors and businessmen rich, but the soaring prices have not improved the lot of pickers and locals working on the fringes of the palm oil industry.

On the island of Sumatra, one of the main oil palm growing islands in Indonesia, the world's second-largest producer after Malaysia, 52-year-old Minah salvages unspoilt fruit from partly rotten palm branch that have fallen to the ground.

The Indonesian mother of eight ekes out a living on a state-run palm oil plantation near her house by picking through fallen branches to extract fruit which she sells for 600 rupiah per kg (100 rupiah = RM0.04) to a middleman.

"The plantation doesn't mind as long as I don't touch bunches still on trees," said Minah, as flies and other insects perch on her hands, stained by the sticky brown juice that oozes from the fruit. The sales net her around US$1 to US$2 per day. "And people say palm oil is expensive," she remarks.

Almost half of Indonesia's 220 million people still live on less than US$2 (US$1 = RM3.50) a day, according to the World Bank. Poverty levels remain high despite a pledge by President Susilo Bambang Yudhoyono to tackle widespread poverty made worse by chronic unemployment and underemployment.

In Langkat, about 50 km west of North Sumatra's provincial capital of Medan, hundreds of people rely on palm oil - the world's second most popular edible oil after soy oil. They work as illegal fruit collectors like Minah, small holders, drivers, middlemen and labourers for palm oil refiners.

In nearby Malaysia, palm oil futures trading on the Bursa Malaysia Derivatives Exchange in Kuala Lumpur - the benchmark for global prices - hit a historic high of RM2,764 a tonne in early June.

The price has since dropped but is still within sight of the highs, helped by soaring demand for palm oil in manufactured foods as well as for new greener biodiesel made from palm oil. Obtained by crushing oil palm fruit, the reddish-brown oil is also used in cookies, toothpaste and ice cream.

Indonesia is set to overtake Malaysia as the world's top producer this year with output seen at 17.4 million tonnes, up from 15.9 million tonnes in 2006. But back in Sumatra, many farmers struggle to make ends meet while revenue at big plantation companies such as PT Astra Agro Lestari tbk has doubled on sky-high palm oil prices. The plantation companies are enjoying a boom in commodity prices driven by strong demand from countries such as India and China and demand from the biofuel sector.

The biodiesel frenzy has also sparked mergers and takeovers across the plantation sectors in Asia. Big firms with their financial muscle are able to expand their plantations and hire people to work for them while small holders are left behind.

With little support from the government, some palm oil farmers have to cope with high prices of fertilisers and a lack of funds to maintain their plantations and boost output by replacing old, unproductive trees.

Jakarta's recent decision to raise the export tax on crude palm oil to 6.5 per cent from 1.5 per cent is another blow to farmers as it has caused prices to drop to around 1,000 rupiah a kilogram from 1,200 rupiah.

"I can't rely on palm oil alone to survive, especially because the price of fertiliser is very high," said Juanda Peranginanginthe, a 25-year-old farmer who cultivates 70 palm oil trees inherited from his father.

Farmers bear the brunt of the increased excise tax because refiners now refuse to buy fresh fruit bunches without a discount, said Asmar Arsjad, head of the Indonesian Palm Oil Farmers Association, which represents five million smallholders.

Indonesia has 6.07 million hectares of land planted with oil palm, of which 45 per cent is owned by private firms. Smallholders own 43 per cent of the country's oil palm plantations while state plantation firms own the rest. Indonesia raised the export tax for crude palm oil and its by-products to stabilise domestic cooking oil prices which surged due to global palm oil price hikes and dealt a blow to millions of poor Indonesians who rely on the oil as a staple food.

Rusman Sihombing, a driver who has been working for a palm oil collector for five years, said he has to transport 5,000 kilograms of the fruit to break even due to the paltry fees he receives for hauling the crops to refiners. "I am not sure if the increase in (palm oil) prices actually has an impact on people here," he said. - Reuters