Six Steps to Overcome Problems
The palm oil industry in Indonesia has grown rapidly since the 1980s, when the government developed a scheme that aims to ensure that the community benefits. Benefit sharing is regulated through a 'plasma' system as stipulated in the plantation regulations , whereby companies will distribute one-fifth (20 per cent) of their concession area to be managed with local communities.
However, based on investigations conducted by Mongabay, the BBC and The Gecko Project, we found many companies that failed to provide plasma to the public. In just one province, we estimate that local people can lose more than USD 90 million of palm oil potential annually.
We also found that when the company provided plasma, the villagers in the vicinity never received the promised benefits, instead they were trapped in huge debts. A decade or more have passed since communities surrendered their lands, yet the communities we visited are still repaying loans worth tens of millions of rupiah.
Our investigations then revealed that there was a systemic problem: Many oil palm companies failed to provide plasma, or share in the profits from plasma, for thousands of people across Indonesia.
This article intends to find a formula that can overcome this problem. In compiling it we discussed with activists, researchers, community groups, and based on our own analysis.
Increase Transparency in Plasma Areas
This data is very important to find out more about whether the company is complying with the law.
It should be noted, -even though we have repeatedly tried to find it, in this study we have encountered many dead ends. This is because some government agencies do not collect and examine this data systematically, and also because many companies never publish it.
However, there are also palm oil companies publicizing plasma areas in their plantation land banks , often claiming they provide a total of 20 percent or more.
In our investigation, we asked 18 of Indonesia's largest palm oil producers for details on the plasma they provided, but only two shared their data. All the others refused, -with various reasons including not being able to provide the information because it was categorized as confidential, "sensitive" or impossible to share because it was without the consent of the smallholders.
Furthermore, to determine whether a plantation company will comply with the law by going through three data points: the date the plantation obtained a plantation business license (IUP), the area of plasma that has been planted, and the year the plasma plantation was planted.
The first data point indicates whether plantation companies are legally obligated to develop plasma. The second and third indicate whether the company has planted plasma for the community at the same time as opening its own plantation, as required by regulation.
If this data is available, then the government, buyers and local people still need to check and ensure that the data reflects the facts. Publicizing it publicly would be an important first step towards accountability.
If palm oil producers choose not to disclose this information, then the choice of pressure from commodity buyers through the Roundtable on Sustainable Palm Oil (RSPO) can be a catalyst to encourage companies to increase the transparency of their activities.
On the other hand, the Indonesian government can ask companies to publish this information. Ensuring the disclosure of basic data related to plasma will be a step towards complying with operations in oil palm concession areas.
Ensuring that the Public can Access Plasma Income and Cost Data
Since the mid-2000s, plasma has been implemented through a "partnership" model. Where the company manages the entire plantation and pays profits to the community from their share of the land.
The industry claims this arrangement will generate large and regular profits for society. However, in the 10 partnership schemes we investigated, they stated that their income was, on average, even six times lower than that of smallholders cultivating their own land.
Despite company claims that they act transparently, many of the villagers we discussed with had no idea why their profits were so low. In general, residents do not have access to basic information, namely how much the company has deducted, and how much their debt is.
This is even the case among members of the RSPO, which requires companies to act fairly and transparently with smallholders.
The investment experts we met said that giving the public access to data on the income and costs of partnership schemes would prevent companies from manipulating plantation finances, to their advantage.
A research result from a government agency, the community is often disadvantaged because companies have greater legal expertise and technical knowledge of plantation management than the community.
The experts we spoke to said that beyond access to data, communities still need training on how to use that data effectively. As mentioned by Peter Batt, an agribusiness consultant at FAO.
Issuance of Contracts Between Companies and Communities
Our investigations show that contracts governing the terms of the partnership scheme are often impossible to obtain, even for registered plasma partners. None of the 18 companies we contacted shared examples of these contracts, even their most standard forms. We only obtained copies of contracts in the three partnership schemes we investigated.
Another researcher, Piers Gillespie, said contracts 'must be widely available public documents to be effective plantation control tools.'
Various guidelines on best practice in investment, are in accordance with the UN Principles for Responsible Contracts ( UN Principles for Responsible Contracts ). The terms of the contract serve as a guideline that will increase accountability, while reducing the risk of conflict between the community and the company. Issuing contracts can also help communities ensure companies fulfill the agreements they sign.
In one case in West Kalimantan that we investigated, five villagers successfully sued a palm oil company, arguing that the company failed to fulfill the terms of their contract.
In other cases, the contract itself may be illegal, violating a 2008 law that prohibits large businesses from 'controlling' smaller partners.
The Business Competition Supervisory Commission (KPPU), in the last four years has been encouraging companies to reform this practice . Establishing a public contract will enable a variety of violations to be quickly identified and dealt with.
Investigation of Exploitative Plasma Schemes
KPPU has been investigating mismanaged plasma issues since 2019, by examining cases where companies allegedly failed to provide legally required plasma schemes or partnership schemes. KPPU then issued a written warning encouraging the company to fix the problem.
If a company does not respond to the warning and the KPPU's board of commissioners decides that the company violated the law , KPPU can issue a fine of up to IDR 10 billion, or order other government agencies to revoke its license.
However, KPPU said to us that they lack the resources to investigate this plasma issue comprehensively. Guntur Saragih, Deputy Chairperson of KPPU said it would need to double the current budget to do so.
Our investigative findings show that problems between plantation companies and smallholdings are widespread. With more resources to investigate the allegations that have arisen, KPPU can solve this problem.Documentation of plasma cases and issuance of a detailed report on the findings of the KPPU's investigation will be used by buyers of palm products to analyze evidence if exploitative schemes are found in line with the law.
In a case in August 2021, five people from Teluk Bakung Village, West Kalimantan, managed to win at the Indonesian Supreme Court. In their lawsuit, they stated that the palm oil company, PT Palmdale Agrosia Lestari Makmur, had defaulted on its contract, because it did not pay profits after the farmers surrendered their land for plasma.
The court then decided that the contract was null and void. Market Pressure to Solve the Plasma Problem
The market has played a key role in changing the way palm oil is produced. Nearly every major palm oil producer has committed to a No Deforestation, No Peat, and No Exploitation (NDPE) policy. This has been instrumental in significantly reducing deforestation due to the expansion of oil palm plantations in recent years.
However, social problems must still be a fundamental problem that needs to be resolved. Dispute resolution between the company and the plasma must be the key. Our investigation found evidence that there is evidence that major buyers of palm oil are encouraging producers to address the systemic problems we identified.
However, some said they intend to do so. In response to our findings, three of the buyers named in our investigation said they were taking steps to identify and address issues across their farm operations.