Surfing and crashing in the Indonesian oil palm boom

Friday, March 28, 2008 12:35 PM
John McCarthy, Canberra Fri, 03/28/2008 1:38 AM Opinion. Jakarta Post

Surfing and crashing in the Indonesian oil palm boom

As boom towns flicker to life across rural Indonesia, the relentless pursuit of oil palm wealth poses social and environmental problems for Indonesian policy makers.

In India the rural poor ration every last drop of cooking oil. In Malaysia and Northern Australia factories built to convert vegetable oil to biofuel sit idle. Food riots have erupted in Guinea, Mexico and Uzbekistan, all linked to the price of vegetable oil and other basic foodstuffs. But it is perhaps in Indonesia where the commodity boom in vegetable oils is affecting rural communities most of all.

In the islands of Sumatra and Kalimantan, farmers, entrepreneurs, teachers, doctors, government officials and plantation companies are racing to convert every available corner of the lowlands into oil palm. Here oil palm companies are carving out large spaces between neat rectangular blocks of existing oil palm plantations.

With a new policy allocating 6.5 million hectares of land to investors interested in planting new crops to boast bio-fuel production, Indonesia is expecting to triple the area under oil palm to 20 million hectares. The reason is obvious: The price of crude palm oil has increased 88 percent from US$570 per metric ton at the beginning of 2007 to over $1,440 in early March 2008.

Oil palm fever is endemic to Sumatra and Kalimantan. The logic is clear. A two hectare smallholding of oil palm can produce fresh fruit bunches now worth Rp 5 million per harvest. As the oil palm tree is harvested every two weeks, this is around Rp 10 million a month. Some small time farmers earn this income -- considerably more than the salary of a university professor.

During the 1990s, Soeharto's government brought in poor migrants from Java, granting them small plots of oil palm in the forested frontiers of Kalimantan and Sumatra. Many of these migrants are now surfing the boom, earning enough to purchase a car, a motorbike, buy up new areas to grow oil palm, or make the pilgrimage to Mecca.

In the West Sumatran village of Koto Salak, Afrizal stands in front of his house, showing off oil palm seedlings he just bought. He acquired his first plot of oil palm 10 years ago when a large plantation company was cutting deals with local leaders as it expanded across West Sumatra.
At this time policy makers had recognized that oil palm is really a rich farmer's crop, requiring large investments in quality seedlings, large quantities of fertilizer, and careful husbandry. Under state supported development schemes plantations obtained forest land within village boundaries in exchange for developing small plots for villagers who joined a farmer's cooperative.

Afrizal used his first plot to trade upwards, selling it for a large profit, and then buying a second and a third plot, which he then sold on. Building up his capital along the way, eventually he opened his own acreage. Now he has 300 hectares under various stages of cultivation.

But not all farmers shifted upwards. When the plantations moved into the villages of eastern Jambi, Aris had never planted this crop. While some refused to take up plots of land in the new developments, Aris found that the area of oil palm he was granted was unproductive and that he had a large debt. When land speculators moved in, Aris sold on his plot for a low price.

Now, with the surge in oil palm prices, villagers are enthusiastic about oil palm. With spiraling land prices and large sums of money on offer, poor villagers can be induced to sell off their ancestral land. A family crisis can push a village family into a downward spiral: After they sell their land, they are forced into poorly-paid piece work on other people's oil palm land.

Meanwhile Siregar, a doctor working in a town on the East Coast of Sumatra, described how he had bought a hundred hectares to grow oil palm. "The village head helped me buy the land from villagers four years ago", he said. As the oil palm trees come into production, he plans to send his children overseas for their education. In this way the oil palm is generating a new rich -- and a new poor.

In the face of this oil palm boom, plantation expansion continues apace. With many villagers hoping to gain a foothold in the booming palm oil economy, oil palm companies readily find village partners willing to grant areas of customary land in exchange for productive oil palm smallholdings. But in the absence of a clear regulatory framework, disputes erupt as villagers are often unhappy about levels of compensation, unmet promises and unequal arrangements with the "step parent" plantation.

In West Sumatra, Afrizal expects poor farmers to fall behind. He now employs scores of people in his 300 hectare plantation, including members of his extensive clan.

From the largesse generated from his large holding he has accumulated enough funds and a following to support a campaign for public office. He now sits in the Regional Council. As a member of the assembly's economic commission, he travels to Jakarta to discuss agricultural policy with the ministry.

Meanwhile the boom towns across Sumatra and Kalimantan flicker to life. The city of Jambi has a new five star-hotel, flashy shopping malls and travel agencies. Sungai Rumbai, just a few years ago a sleepy village on the border of West Sumatra, boasts several mobile phone and car dealers and a new supermarket. The houses of the new oil palm kings dominate the village, two story monoliths with giant satellite dishes.

Oil palm is indeed a tree wrapped up in contradictions. On the one hand, who can begrudge the industrious farmers of Sumatra the chance to earn real money -- to school their children, buy a new car, renovate their house or even take the haj to Mecca. Yet the environmental and social consequences of the boom give space for pause. The lure of oil palm profits has many implications.

An official in a provincial forestry office in East Sumatra confides that many district forestry officials now have 100 hectares of oil palm. He unfolds a map and points out the expanding belt of plantations in logged over and degraded forest concessions now rezoned for agriculture.
Safrial, an environmental activist, notes that oil palm can be good for local farmers.

But the problems are many: Oil palm requires huge volumes of fertilizer which end up as chemicals in the water people drink. Few oil palm mills have effective pollution management, and the putrid effluent also finds its way into local rivers where the poor wash and fish.

Converting forest hillsides into oil palm also has consequences: Unlike the deep roots and tangled undergrowth of the forest, the water runs off the oil palm rapidly, flooding the lowlands. At the same time, carbon emissions from forest fires are associated with peat drainage and land clearance by plantation owners.

The writer, a lecturer at the Australian National University, is managing a research project on oil palm in Indonesia. His research involves a focus on both Sumatra and West Kalimantan in 2008, and he can be contacted at john.mccarthy*anu.edu.au.