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THE OIL PALM COMPLEX

Smallholders, Agribusiness and the


State in Indonesia and Malaysia

Edited by
Rob Cramb and John F. McCarthy

1/11
NUS PRESS
SINGAPORE
xvi PREFACE

University, for their support. The funding provided by the Australian


Research Council was essential to the completion of much of the
fieldwork on which the research is based.
Rob Cramb would like to thank the State Planning Unit and CHAPTER 1
the Ministry of Land Development in Sarawak for approving and
facilitating the research in that state, especially Tan Sri Datuk Amar
Dr James Jemut Masing, Minister for Land Development, Datu Jaul Introduction
Samion, Permanent Secretary, and Mr William Jitab, Special Adminis-
trative Officer in the Ministry of Land Development. Valuable assis- RoB CRAMB AND JOHN F. McCARTHY
tance and insights were provided by Joseph Blandoi, William Chang,
Jayl Langub, Lily Leong, Ose Murang, Dimbab Ngidang, Stephen
Sani, Vasco Sabat Singkang, Hatta Solhee, Patrick S Sujang, and
Simon W oon, among others. This, of course, does not necessarily
imply their endorsement of the analyses arising from that research.
John F. McCarthy is grateful to Zahari Zen, Zulkifli Lubis, Henri
Sitorius, and colleagues at the University of North Sumatra for their
Con1plex: Consisting of many different and connected parts ... Not
many insights and for sponsoring two workshops in Medan; the Indo-
easy to analyse or understand; complicated or intricate ... A group or
nesian State Ministry of Research and Technology; villagers, NGO
system of different things that are linked in a close or complicated
workers, company executives, government friends and officials in way; a network. 1
Jakarta, Medan, J ambi, West Kalimantan, and Riau for their warm
hospitality, candour, and assistance; the Roundtable on Sustainable THE RAPID EXPANSION OF OIL PALM in Malaysia and Indonesia over
Palm Oil; and the Forest Peoples Program in Indonesia. the past 30-40 years has transformed the rural landscape in complex
We are especially grateful for the support and forbearance of our and highly contentious ways, generating a plethora of economic,
wives, Jacky and Henny. We dedicate this book to the rising genera- social, and environmental issues that have been widely addressed in
tion, especially John's son Aedan and Rob's grandsons, Joshua and the literature (Boxes 1.1, 1.2, and 1.3). In this book, rather than focus
Nathan, who will have ever greater complexity to contend with in on a particular issue or dimension of the oil palm boom, we attempt
the decades to come, but we are confident they have the character, to follow Clifford Geertz's (1966) injunction to "seek complexity and
ingenuity, and commitment to make a positive contribution. order it." We contend that the oil palm industry in Indonesia and
Malaysia needs to be understood as a complex whole in which land,
Rob Cramb and John F. McCarthy labour, and capital, the various modes of production in which they
15 December 2015 are combined, and the value chains into which they are inserted are
closely interconnected across the region, giving rise to a discernible
pattern of economic, social, and environmental outcomes over time.
This is not a simple matter of multinational capitalist enterprises
imposing their profit-making plans on reluctant rural communities.
Rather, political, bureaucratic, and agribusiness actors at various levels,
village authorities, small and large landholders, migrant workers, con-
tractors, consultants, and civil society groups, each pursuing their
perceived individual and collective interests and ideals, have interacted
2 ROB CRAMB and JOHN F. MCCARTHY

in diverse ways, resulting in a complex array of production and supply ~


q
systems, with highly contingent consequences for rural livelihoods. 0
c:o:l
Nevertheless, as we first attempted to highlight in McCarthy and
Cramb (2009), there is a convergence across the region in the domi-
zq
.::::
nant policy narratives, business strategies, modes of land acquisition, ~
...,'"'
and labour processes associated with oil palm, giving rise to the charac- "';:j
teristic features and trajectories of the Indonesia-Malaysia oil palm -<
v)
complex that we now seek to describe and explain in this book, with >--<
c..?
the help of colleagues from a range of disciplines and perspectives. ...,0
Figure 1.1 shows the region as a whole and the states (Malaysia) and 'o:l"'
2
provinces (Indonesia) referred to in the chapters that follow. .'"r;.
v
Byerlee (2013) reminds us that extensive market-driven invest-
s;:j
0
ments in land development during commodity booms are nothing >
new. In particular, he reviews what he terms the "first era of globalisa- .:.a...,"'
tion" from the middle of the nineteenth century up to World War I. .s
"Then, as now, rapid industrialisation (at that time in Europe, North ...,0
""d
America, and a bit later, Japan) produced growing consumer incomes v
t:
and rising demand for food and industrial raw materials, in a context ~
v
of sharply reduced transport costs and liberalisation of trade, foreign '"'
"'
u
Q)

investment, and international migration" (Byerlee 2013: 21). The q


lessons Byerlee draw from this period are that farmland investments ">'0
have always been very cyclical; investments have been largest in the '0.."'
......
...,"'v
four or five classic plantation crops, including oil palm, where econo- ...,o:l
mies of scale in processing encourage (if not necessitate) investment "'v
in large-scale production entities; failure rates have often been high, -s bJ)
q
frequently resulting in subsequent rounds of corporate consolidation. -~
The potential of smallholders to engage in commercial agriculture 0
....c:::
has also been consistently underestimated by both governments and "'
.::::
q"'
investors. Q)

0
""d
q
>--<
BOX J.1 - ECONOMIC .ISSUI;S . ""d
q
o:l

The ~co nomic issues t.owhichthe oll palrn t;Joom givesrise inCtude .
<; o:l

""k.l
v
-~
one of the key questions addressed in this book:.C...specifying .... () ~
the conditions under Which oiL palm. can provide. the grea'test ::;s
contribution to sustainable r;ural. llvelih:ooas:. These con_:
ditions relatE;J to balancing the trade:.offs between. sUbsistence
-
<
"f:
Q
:<:
.-<
.-< ~
and commercial farming, between commod[ty specialisation a'nd
... "''v"'
11.1

6b 8
~~
4 ROB CRAMB and JOHN F. MCCARTHY
INTRODUCTION 5

diversification, between smallholder and. large-scale forms of place, including research, extension, land-tenure security, and finance,
production, and between private-,- and .Public-,s~ctor involvement
' ' ' ' I .
a vibrant smallholder sector has eventually emerged to dominate the
in supporting or managing oil palm development. The boom h9s industry. This has not only alleviated land conflicts, but also promoted
inclusive rural development" (Byerlee 2013: 39).
also created an unprecedented dernand for migrant plantation
However, in both the first and second eras of globalisation, planta-
labour, affecting the livelihoods of poor ruraL households
tion interests have attempted to block or minimise such smallholder-
throughout the Indonesian archipe[ago. There are also macro-
' ' ' I ' '
oriented development. This was the case with rubber in the colonial
economic issues, partly addressed in th~ book, relating to .con~
era (Barlow 1978) and has been even more evident during the current
sumer preferences for. sustainably produced commodities in
oil palm boom. Notwithstanding the ideology of market _liberalism
importing countries, especially in Europe; the alternative uses
that underpins the current globalisation agenda, the plantatiOn sector
of palm oll in the production of oleochemica[s, including for bio-
has successfully sought government intervention to facilitate and pro-
fuels; and the .exposure of whathave become highly specialised
tect its access to and control over cheap, unencumbered land and a
rural economies to instability in global vegetable oil and biofuet
low-wage, dependent labour force (just as during the colonial era). The
prices. (Barlow 1986;. Bartow et al. 2003; Casson 2000; Cramb
expansion of independent or state-supported smallholders i~ se_en by
and Sujang 2011, 2013; Dauvergne and Neville 201 0; IDEAL many in the plantation sector as undermining both these aspuatlons.
1999; IFC 2013; Li 2015; McCarthy 2010;Pye and Bhattacharya
2013; Rival and Levang 2014; Sayer et al. 2012; Zen et at 2005)
BOX 1 :2 - SOCIAL ISSUES
In the past three to four decades, a second period of globalisation Related to the economic concerns are pressing issues of social
has in many ways seen history repeated, with the oil palm boom a justice, raised by both national and international comm~ntators
major phenomenon. The resurgence of the corporate plantation has and activists, and which are also central themes of this book.
been the most significant way in which the second era has mirrored These include the allocation of vast areas of public land and
the first (Figure 1.2). The differences between the two eras identified forests for large-scale commercial development for the benefit
by Byerlee (2013) are that high social impacts of large-scale investment of a small number of agribusiness firms and their patrons in the
in crop production previously centred on the exploitation of plantation political and bureaucratic elite; the politico-Legal undermining
labour. Now, however, conflict over land rights has become a major and overriding of customary claims to land that has often ac-
concern (though as Li (2011) argues, labour issues remain important); companied this "land grab"; the. increasingly un_favourable te:ms
that in the second era, South-South investments in production opera- on which landholders and settlers have .been mcorporated mto
tions are much more important than the North-South investments of [arge:..scale development schemes; the potential for c~nflict
the colonial and immediate post-independence periods; and that there within unequal local communities, between local and migrant
is now considerable historical evidence for the dynamism and econo- .growers, and hence between different ethnic _groups; and :he
precarious working and living conditions of migrant plantation
mic success of smallholders, who have come to dominate industries
workers. (Borras et al. 2011; Casson 2000; Colchester et al.
such as rubber. It can be added that, compared to the first era, global
2006, 2007; Cramb,2011, 2011 b; Deininger 2011; Deininger an~
financial markets have expanded enormously and have come to exer-
Byerlee 2011; De Koninck et aL 2011; IDEAL 1999; IFC 2013; Li
cise an ever greater influence on the organisation of agricultural pro-
2015; McC9rthy 201 d; Majid Cooke 2002; Margo no et al. 2014;
duction (Bernstein 2010: 126, Fairbairn 2014). Byerlee concludes that
Obidzinski et at 2012; Pye and Bhattacharya 2013; Rist et al.
"historical experience has shown the importance of providing a level
201 0; Rival and Levang.2014)
playing field for smallholders. Where support services have been put in
6 ROB CRAMB and JOHN F. MCCARTHY INTRODUCTION 7

with rubber since the colonial era may indeed be reprised (Barlow
1986, Byerlee 2013).
Given the crucial but changing and often contradictory role of
the state in this expanding oil palm complex, it is necessary to under-
stand not only the technical and economic characteristics and merits
of small- and large-scale oil palm production and the functioning of
the palm oil value chain, but also how oil palm is inserted into parti-
cular political regimes at local, national, and regional levels and how
these regimes shape the outcomes of the oil palm boom in particular
ways. This political economy perspective leads us to ask: Who wins
and who loses from oil palm development? Under what conditions
can oil palm development provide a basis for inclusive and sustainable
rural development? What processes create new vulnerabilities for the
rural poor? Can the employment opportunities provided by oil palm
development help migrant workers and their families escape poverty?
What policies, schemes, and contractual arrangements are likely to
lead to better development outcomes? How do interventions emerge
Figure 1.2. The rapid growth of corporate plantations in Malaysia and
that support such beneficial outcomes? How successful are forms of
Indonesia has been a feature of the oil palm complex (Photo: Eky Studio/
Shutterstock) civic or private regulation in reducing the risks to livelihoods and the
environment associated with the oil palm boom? These are the key
This tension between the interests of plantations and smallholders questions addressed by the contributors to this volume and which we
has led to the promotion by governments and development agencies return to in the final chapter.
of intermediate production arrangements that are described and ana- To provide the political economy context for the individual
lysed in Chapter 2 and discussed throughout the book (e.g., managed studies presented in subsequent chapters, we first discuss the economic
smallholdings, nucleus estate and smallholder (NES) schemes, and parameters, political settlements, and growing regionalisation of the
various forms of joint venture between plantation companies and Indonesia-Malaysia oil palm complex.
smallholders). Nevertheless, as the current era of globalisation unfolds,
the ideology of "rolling back the state" combined with the shocks 13DX 1.3 -'ENVIRONMENTAL ISSUES
of the Asian (1997-98) and global (2007-08) financial crises have
The. e~vironmentaLissues arisihg from 6n <paLm development
prompted the disengagement of governments from agricultural devel-
opment. The most significant changes include the removal of subsidies
haye pethaps attracted t.he most Widespread gtobaf conc(3rn.
Partit;;ular controversy surrounds 'the extensive conversion of
and services that previously supported smallholders and the shift away
tropicalrainforests to oi.l palm monocuttures, entailingasigni:...
from settler, contract farming, and outgrower schemes for small-
ficant loss of biodjversity .and ecosystem functions and the
holders towards investor-managed, dividend schemes with minimal
endang(3tment of highly~valued endemicspecies su.ch as the
smallholder engagement. This has occurred alongside increased con-
or~ngDtan ih large regions of Sumatra, a0d BornecL Nearly half
centration in the ownership of agribusiness corporations and intensi-
the oiL palm pla,nted in Malaysia and Indonesia has Involve<)
fication of their control over commodity value chains (Weiss 2007,
some form of.forest destructlonand 70 per cent of Indonesia's
Bernstein 2010). Yet, amongst this dominant plantation sector, there
oil palm pla,ntations are on lana which previously formed part
is a resurgence of smallholder oil palm, suggesting that the experience
8
ROB CRAMB and JOHN F. MCCARTHY
INTRODUCTION 9

ofth~ r1~H~:nal~ft)rest e~t~te<(fi~2003; CAtJ.10og~j3).


The
. . ongbi~guse of.firein)and cfearipg,: ?st:re:QJatly1nlndo'nesia and .....
gespite. g<)vemm,ent . bans, regut?rlycauses .d~strJctive forest
. .flr-esa.nd.pf?r~istent air poltution, s.eriow~3fy .affettirrg'p6pu itti()ns.
. in the.r~gfon~fr1osfs!iJVereLy tn 2015 (FigUre 1~3). Th$:extension
of ta.no dearing fo.~ oifp~lm..qeveioprQent' on~9 st~:eper land.Jn . . .
the interior has E,~Qcentu?ted soil erosion abd poltotion.of water;
Ways;~hite.thfil. cLearing a[ld draining ofcoastal Reatiands.has
. resulted in spbsidence, the risk of long-t~rm inUndation, and
. th!iJ.loss of environn~entaJ services~ uptQ:;iB perc(3ntof bit palm.
in MalaYsia anaaro\1nd . 25 per.ceht of.6ilp$tmin.ln8oo~sia has
been established on p'eat (Wetlands lntern?:tionaC 2010). The
breakdown():f foresfbio.mass .and P(3atsoJls, whether accelerated
or .not bYbut:oing,. results in a flux ():fC02 intq the'atmosphere.
that is pnly partly offset bY the growth 0tthe<palm$ .or the
substJtuti()n ofbiofoer forpetrolellm; it has been estimated that
haLf a billionJonoes .of:carbon dioxide a year are emitted from Figure 1.3. Fighting fires in Sumatra unleashed by land dearing for oil palm
lndone~ia's peatlaqds (Hooijer . et at201.Q): In addition the mil- in 2015 (Photo: Associated Press).
ling of oil patrn fruitto produce cruge palm oil (CPCJ) ~enerates
larg19 amounts of wa,ste, which can lea.d to loQalis~d water and growth, but poverty remains overwhelmingly rural [and] growth in
air pollU~ion: Theseenvironmental iss\JeS <ire ttosely linked agriculture and the rural nonfarm economy is needed to reduce rural
to the economic and social isswes outlined above but we do poverty and narrow the urban-rural divide" (World Bank, 2007: 30).
not addre.ss them. in detaiL in. this. volum(3. (BEJrhes et aL 2014; The same report considers Malaysia to be now an "urbanised country"
Benne~etc1l. 19.96; Bryan etal. 2013; Butler etal.2009 Carlson in which around three-quarters of the population lives in urban areas,
et al. 2012; Uan. and Wilcove 2008; Hooijer etaJ 200,6, 201 o urban poverty now outweighs rural poverty, and agriculture contri-
McCa:th_Y 2Q12a: McCarthy and Zen 201 0; Pyeand Bhattachary~ butes only a small percentage to economic growth, though agribusiness
. 2013; .R1val and kevang 2014; Sayer et a[. 2012; Shiel et al. and the food industry still make up around 30 per cent of the eco-
2009; Tanaka et aL 2009; TisdeU and Nantha 2009; Vehter et at. nomy (World Bank 2007: 37).
2009; Wick.e et aLZ.obs; Varkkey 2012, 2013; Wettands rnterna" The economic indicators in Table 1.1 help to highlight this con-
tional201 0).
trast. Compared to Malaysia, Indonesia has six times the total land
area, seven times the area of agricultural land, and over eight times
the population, hence one-and-a-half times the population density. 2
ECONOMIC PARAMETERS Though Indonesia has slowed its rate of population growth more
The relative roles of Malaysia and Indonesia in the oil palm complex than Malaysia (currently 1.2 per cent compared with 1.7 per cent), in
correlate with the structural differences between the two economies. both countries the rate of growth of the rural population has become
negative. Yet almost half the Indonesian population remains rural,
The World Bank (2007) characterises Indonesia as having moved
from the status of an "agriculture-based country" to join the cluster compared with just over a quarter in Malaysia. Hence Indonesia's
of "transforming countries" in which "agriculture contributes less to rural population is 15 times Malaysia's. Although the ratio of rural
population to agricultural land varies considerably across Indonesia,
10 ROB CRAMB and JOHN F. MCCARTHY
INTRODUCTION 11

Table 1.1. Economic indicators for Indonesia and Malaysia, 2012 Malaysia. However, agriculture's share of employment in Indonesia
Indicator remains three times that of Malaysia-38 per cent compared with
Indonesia Malaysia
only 13 per cent. The productivity of agricultural labour in Malaysia
Area (sq. km)
1,922,570 329,847 (measured as agriculture value added per worker) is nearly ten times
Agricultural land (% of total)
30.1 24.0 that of Indonesia and rural wages are around three times higher.
Population (millions)
246.9 29.2
Population density (persons per sq. km) In sum, though both economies are undergoing the structural
128.4 87.9
Population growth (annual %) transformation associated with modern economic growth, Indonesia
1.2 1.7
Population aged 15-64 (% of total) has much more land and agricultural labour than Malaysia but much
65.6 68.2
Rural population (millions)
119.9 7.8 lower per capita income and a higher incidence of rural poverty. The
Rural population (% of total population)
48.6 26.6 connection between poverty and access to land remains intact in many
Rural population growth (annual %)
-0.3 -0.9 parts of Indonesia, particularly in more remote areas. Hence, Malaysia
Rural population per sq. km of agricultural land 207.2 98.5 has led the way in both private and public investment in oil palm de-
Population in cities of > 1 million (% of total population) 8.9 13.4
Age dependency ratio (% of working-age population) velopment, while Indonesia has an abundant, low-income rural labour
52.4 46.7
GDP (constant 2005 USD, millions)
427,483 force with the incentive to migrate to centres of oil palm expansion,
197,794
GDP growth (annual %) both within Indonesia and in Malaysia. As we will see, these comple-
6.2 5.6
GDP per capita (constant 2005 USD) mentarities have played a key role in the emergence and structure of
1,732 6,765
Agriculture, value added (% of GDP)
12.8 10.1 the oil palm complex.
Agriculture, value added (annual % growth)
3.4 0.8
Employment in agriculture (% of total employment)
38 13
Agriculture value added per worker (constant 2005 USD) 970 POLITICAL SETTLEMENTS
9,285
Minimum wage in 2012 (converted to USD per yr) 1,087 3,107
Recent work on the politics of development places the analysis of
Sources: World Bank, 2013. Economic indicators, http://data.worldbank.org/indicator political settlements at the centre of policy studies. This work draws
(accessed 13 Sept. 2013), Wikipedia, 2013. List of minimum wages by country, http://
attention to the role of long-lasting elite arrangements as well as short-
en.wikipedia.org/wiki/List_of_minimum_wages_by_country (accessed 11 Dec. 20 13).
term elite bargains in shaping dominant forms of public action. In
Note: As at 15 December 2015, USD 1 = MYR 4.32 = IDR 14,056
short, this suggests that we need to understand the politico-economic
dynamics that drive specific sets of politicians and state officials,
on average it is more than double that of its neighbour. Thus, in located in specific levels of the state system, to activate state capacities
much of Indonesia people remain highly dependent on rural, land-
in particular institutions and agencies for specific policy ends (Hickey
based, even subsistence-oriented livelihoods, hence the arrangements
2013). As we will see at various points in this book, the nature of
for incorporating them in (or excluding them from) oil palm develop-
elite alignments-or political settlements-around oil palm remain
ments are crucial to reducing rural poverty.
central to the oil palm complex. Indeed, the political settlements that
Following the Asian financial crisis of 1997-98, both economies have been negotiated in the two countries are just as important to an
have resumed moderately rapid growth of around 5-6 per cent (Table
understanding of the oil palm complex as are the structural economic
1.1). Given Indonesia's size, its GDP is more than double Malaysia's, differences between them.
but Malaysia's GDP per capita is almost four times Indonesia's. Malaysia is a federation in which state governments retain signi-
Hence, Indonesia is classified as a lower-middle income economy while
ficant powers. In particular, the Borneo states, Sabah and Sarawak,
Malaysia is an upper-middle income economy. The agrarian transition
entered the Malaysian Federation in 1963 with a high degree of auto-
underway in both economies means that the agricultural sector's share nomy, particularly with regard to control over land and forest re-
of GDP has declined to 13 per cent in Indonesia and 10 per cent in
sources. Case (1993) has characterised Malaysia as a "semi-democracy"
12
ROB CRAMB and JOHN F. MCCARTHY
INTRODUCTION 13

in which the allocation of resources and benefits at the federal level


both tightly controlled management of the projects and effe~tive poli-
has been tightly controlled for the past 50 years by the ruling National
tical control of the settler population (Barlow 1986; Halim Salleh
Front (Barisan Nasional, BN)-a political confederation that has
1991; Pletcher 1991; Drabble 2000: 219-24). The role of FELDA
grown to include 13 individual parties, most of them ethnically based
and FELCRA in oil palm development is discussed in Chapter 2.
and some confined to particular states. The United Malays National
O_rg~nisation (U~NO) has remained the dominant party, not only The political economy of the Borneo states (Sabah and Sarawak)
is quite different from that of Peninsular Malaysia (Leigh ~001). Here
Wlthm BN, but In the Malaysian parliament (Crouch 1996).3 Gomez
Malays, Chinese, and Dayaks make up similar proportiOns of the
and ]omo (1999) have documented the nature and extent of crony
capitalism that has developed under UMNO rule.4 population and shifting alliances of state-based political parties have
ruled for much of the past 50 years. Only in the past ten years has
Given UMNO's political power and its commitment to Malay
UMNO gained ascendancy in Sabah, while Sarawak's political an~
advancement, Malaysian Chinese business interests have become in-
business elite has resisted the entry of UMNO and its voracious busi-
creasingly beholden to the political elite, though arguably not to the
ness machine-instead, it has developed its own style of crony capi-
same degree as seen in Indonesia in past decades (Crouch 1985: 23).
talism (Chapter 6). The widespread presence in Sabah of p~ninsul~
In particular, the relationship between the ruling Malay elite and
based plantation companies, including FELDA, contrasts with their
Chinese business changed significantly with the inauguration of the
much smaller role in Sarawak, where local companies, many owned
New Economic Policy (NEP) in 1971, following sectarian violence
by local timber tycoons, predominate.
in Kuala Lumpur in 1969. The NEP was a 20-year affirmative action
One distinctive feature of Malaysia's political economy that has
program aimed at reducing Malay poverty and increasing the Malay
had a significant impact on oil palm development is the legacy of
share of the economy, at the expense of both foreign and Chinese
British legal institutions. Though the Malaysian judiciary has been
shares. Among its effects were a much greater degree of state involve-
plagued by allegations of politically motivated appointments, malp:ac-
me~t in . the economy and the creation of a new class of Malay
tice, and corruption (Ramakrishnan 2005), there has been suffiCie~t
busmess Interests, heavily dependent on state patronage. These dose
state-business relations are clearly evident in the oil palm industry. judicial independence in recent decades for common la~ argu:nents In
~s Pye (2_D?9: 88) has argued, "the palm oil industry is a key plank
favour of the rights of customary landholders to prevail agamst pro-
development government statutes and the sometimes excessive actions
In Malaysia s development strategy and the influence of the state has
of private plantation companies and government land development
surpassed the kind of corrupt nepotism found in Indonesia. The state
not. onl~ controls significant investment and some of the largest com-
agencies (Chapter 6). .
p~n~es d1re~tly; it has ~ls~ a~tively intervened to forge a kind of 'palm In contrast to Malaysia, Indonesia emerged from the coloma!
period and the upheavals and rebellions of the Sukarn~ e~a as a cen-
m_l mdustnal complex , lmkmg state and private corporations, minis-
tralised, unitary state, in which the military played a sigmficant role.
tnes, and palm oil sector organisations in the national interest" (see also
Chapter 13). One view of the New Order (1965-98), instituted by President
Suharto, characterizes it as a long period when authoritarian, cen-
The dependence of UMNO on rural Malay support meant that
tralised government accompanied a system of predato?' capitali~~,
costly rural development projects such as irrigation schemes for paddy
where "private wealth was accumulated through systematic and pnvi-
farmers . and oil palm settlement schemes for the rural poor were
leged access to, or control over, public resources and institutions"
unquestiOned priorities. The state had both the financial means and
(Hadiz 2012: 73). During this period, a small number of we~t~y,
the motivation to maintain large, well-resourced agencies-notably,
family-based conglomerates emerged with close links to the pohuc~l
the Federal Land Development Authority (FELDA) and the Federal
~and Consolidation c:' and Rehabilitation Authority (FELCRA)-to elite and the military. These conglomerates initially derived theH
wealth from privileged access to timber licenses and then came to
Implement managed smallholder schemes on a broad scale, ensuring
dominate oil palm development (analogous to the situation in Sarawak
14
ROB CRAMB and JOHN F. MCCARTHY
INTRODUCTION 15

described above). However, at the same time, the New Order had
largely intact (McCarthy 2012). This occurred even as, followin? the
many characteristics of a developmental state. During this period of
Asian economiC crisis, policymakers embraced more market-liberal
developmental planning, technocrats working with key donors also
policies, withdrawing state support from the type of rural development
sought to use oil palm production as an instrument of rural develop-
policies evidenced by the NES model.
ment. For instance, the state used its power to dictate the terms of
agribusiness investment, insisting that plantations include small farmers
in what was known as the NES scheme under what, in hindsight, REGIONALISATION
were comparatively generous conditions (Chapters 2 and 3).
One key shift has that has become increasin?ly app~rent in the pas~
The Indonesian legal system is a Dutch-derived system of civil
law based on the judicial interpretation and application of (sometimes 10 to 15 years is the regionalisation of the ml palm mdu~t:r. As Py
conflicting) statutes and regulations, as opposed to the use of prece- (2009: 89) writes, "the symbiosis of econom~c and polmcal . power
dents as in the common law system in Malaysia. Indonesia's legal 1ocat e d within the [Malaysian] palm oil industnal complex . has .1mpor-
system remains one "characterized by conceptual inconsistency and tant ramifications for the way in which palm oil expanswn 1s ~on-
conflicting rules" (Bedner et al. 2008: 190). For decades, the subser- ducted across the region. State and corporate interests are cor:nbmed
vience of the legal system to the predatory demands of the New Order in such a way that environmental or social concerns a~e SU~Jugated
regime (Crouch 2010) reduced the scope for advancing claims based beneath a general strategy of development and accumulatwn lmked to
on customary law (adat) relative to the somewhat greater scope in
a continuous growth of the sector " A key factor here is the. common.
Malaysia mentioned above. Recently, the country has made cautious cu1ture b etween Malaysia and Indonesia that facilitates the mtegrauon
. .
progress in this respect, especially after the National Assembly man- of business and policy elites. Apart from language a~d ethmc m1x
dated agrarian reform in 2004 and Indonesia's highest court ruled in (notably the importance of ethnic Chinese in the busm~ss sectors of
2012 that the government should recognise the customary land rights both countries), the countries share a political and ~~smess culture
of villages within the forest estate. (v kk 2012). Across the region, patterns of poht1cal patronage
ar ey h b 1" . all
Mter the fall of Suharto in 1998 (in large part precipitated by central to prevailing political settlements, w ere Y po ltlc Y
rema1n h 1
the Asian financial crisis, which had greater impact on Indonesia than connecte d " a d v1sers
" and "commissionaires" (sometimes w1t a m11-f
Malaysia), Indonesia emerged as a more decentralised democracy where tary background) are put on the company payroll or the board o
significant areas of authority were devolved to district governments directors to facilitate access to land and provide an easy path through
(Crouch 2010; Hill 2014). As a consequence, higher-level political the regulatory regime. . . . . h
and economic actors have increasingly reached down to involve them- For instance, in Indonesia, major od palm mterests mvest m t e
selves with district-level legal and institutional mechanisms, shaping political system by offering commissionaire positio~~ to key ~epart
agricultural and natural resource outcomes in complex ways (McCarthy mental officials (active and retired) and actively prov1dmg finanClal a~d
et al. 2012a). To a large degree, the oligarchic networks established other kinds of support to actors on influential parliamentary commit-
by political-business elites and their cronies continue to control the tees. In parallel, political parties and their leaders forge for~al rel~
natural resource sectors at the district level, albeit through a "distinctly tionships with wealthy donors and busines~ tyc~ons, ensunn? t~eu
money politics-fuelled kind of electoral democracy" (Hadiz 2012: 72). interests are represented in future policy d1scusswns and leg1sl~uo~
Thus, although there are signs of a consolidation of democratic pro-
(Warburton 2014). In some cases, key politicians th~mselves are sl~m
cesses and institutions since the end of the New Order in 1998 (Ford
ficant shareholders of major oil palm groups. For mstance, Ab~nzal
and Pepinsky 2014), in many respects the structure of property rights
Bakrie, a powerful politician (at various times minister ~nd c~a1r of
and the production systems underlying the political economy of
the major political party, Golkar, and a presidential aspuant) 1s also
natural resources inherited from the New Order period have remained
a wealthy businessman who manages his family conglomerate, the
16
ROB CRAMB and JOHN F. MCCARTHY
INTRODUCTION 17
Bakrie Group, which is reported to control around 125,000 ha of oil
palm (Varkkey 2012). Sumbawa, and Flores, are employed by oil palm estates and mills in
. Mter the Asian financial crisis, when many Indonesian corpora- Malaysia (Chapter 12). Hall remarks that "the Malaysian gove~nment
no~~ beca~e insolvent, the Malaysian state took the opportunity to has taken a contradictory stance toward migrants (and particularly
facilitate od palm investment in Indonesia by both "government- undocumented migrants). It relies on migrants and encourages them
linked companies" such as Sime Darby and Tabung Haji Plantations to come to the country, with state officials frequently calling for more
and politically well-connected private corporations such as Kuala foreign workers to enter the oil palm sector. It also, however, engages
L~mpur Kepong and IOI Corporation. 5 Government-linked compa- in a range of repressive policies toward them, including repeated expul-
nies account for up to 70 per cent of Malaysian capital invested in sion drives" (2011: 522). However, the insecurity that this engenders
Indonesian plantations (Varkkey 2013: 388). In 1999, the Malaysian can be seen as inherent in the political economy of the oil palm
government initiated the Jakarta-based lobby group, the Association complex because it provides plantation companies with "flexibility"
of _Pal~ Oil Plantation Investors of Malaysia in Indonesia (APIMI), in hiring and firing workers (Pye et al. 2012; Chapter 12).
whiCh Is chaired by Sime Darby and includes all 18 Malaysian com- A further aspect of the regionalisation of the industry has been
panies operating in Indonesia (Varkkey 2013: 389). APIMI has access the formation of the Roundtable on Sustainable Palm Oil (RSPO) in
to high-level meetings between the two governments. The Indonesia- 2004, with the objective of "promoting the growth and use of sustain-
Malaysia Oil Palm Group was established in 2010 to further facilitate able oil palm products through credible global standards and engage-
industry relations (Varkkey 2013: 390). ment of stakeholders" (RSPO 2012). The RSPO is based in Zurich,
Oil palm policy in Indonesia has long depended on "public- with its secretariat in Kuala Lumpur and an office in Jakarta, and
private . partnerships" (McCarthy et al. 20 12b). The regionalisation brings together a variety of actors within the global oil palm complex,
of the mdustry means that such partnerships have now extended in including oil palm producers (plantation companies and smallholders),
new ways. Indonesian and Malaysian state and corporate actors have palm oil processors or traders, consumer goods manufacturers, retailers,
mobilis_ed around a strategy that allows Indonesian companies to up- banks and investors, and both environmental and developmental non-
gra~e mto more productive systems through access to Malaysian government organisations (NGOs)._ The"RSPO, along with a _n~,mber
capital and technology, while allowing Malaysian companies access of other certification systems, provides norms of good practice and
t~ land and labour for upstream investment, as well as to crude palm a means of benchmarking each country's regulatory framework (Paoli
od (CPO) for their high-value downstream industries. As discussed et al. 2014). By March 2012, the RSPO claimed six million tonnes
further in Chapters 13 and 14, these cross-cutting political and busi- (in terms of annual production capacity) of Certified Sustainable
ness relations remain central to the oil palm complex. Palm Oil (CSPO), representing about 13 per cent of global palm oil
While state facilitation of the industry's regionalisation has allowed production (RSPO 2012). Moreover, it has provided leverage t~ non-
investment to flow from Malaysia into Indonesia, equally important government organisations (NGOs) and social movements, leadmg to
has bee_n the state policies allowing for the flow of migrant plantation on-ground improvements in particular cases (McCarthy 2012, Forest
labour m the opposite direction. Hall (20 11 b: 509) reviews the impact Peoples Programme and Sawit Watch 2012). Yet, overall, yrogress
of crop booms on various forms of internal and regional migration in remains difficult, as is to be expected of any attempt to achieve col-
~ourheast _Asia, including relocation to work as labourers for planta- lective action on this scale and across such diverse interests.
tiOns or ncher smallholders, observing with regard to the latter form Debate over the ability of the RSPO and other certification sys-
that "its most spectacular current manifestation is the hundreds of tems to change distributional and environmental outcomes in a more
thousands of (mostly) Indonesian foreign workers on Malaysian oil encompassing way continues. Questions remain concerning RSPO's
palm plantations." According to Pye et al. (2012), over one million ability to represents all "stakeholders" and the effectiveness of RSPO
migrant workers, mostly from Java, Sumatra, Sulawesi, Lombok, mechanisms to discipline plantation companies or otherwise address
grievances, safeguard local livelihoods, and protect the rights of
8
ROB CRAMB and JOHN F. MCCARTHY
INTRODUCTION 19

ndigenous people (McCarthy 2012, Larsen et al. 2013, Fortin and


find that outcomes associated with oil palm expansion are highly
Uchardson 2013). One view is that RSPO has to be understood
variable. Analysing processes driven by particular modes of agribusi-
rithin the context of the "transnational state apparatus" developed by
ness expansion and those linked to the independent expansion outside
1alaysia and Indonesia since the 1990s to advance and protect the
the ambit of estates, they examine how each shapes the participation
rivate interests of the large-scale oil palm sector. The RSPO "privi-
of smallholders in the oil palm boom in different ways, leading to
:ges business interests in general and export-oriented palm oil com-
characteristic distributional outcomes and trajectories of agrarian
anies and downstream industries along the value chain in particular,
change. In Chapter 5, Lesley M. Potter considers the situations of inde-
hereas smallholders, plantation workers, and indigenous peoples are
pendent and tied smallholders in Indonesia and looks for alternatives
targinalised through different structures and processes, contributing
that have greater potential to increase farmer welfare. Based on field-
> an actual depoliticisation of socioecological conflicts" (Pichler 2013:
work and literature regarding oil palm smallholders in Costa Rica,
70). While the degree to which corporate interests dominate RSPO's
Cameroon, and Ecuador, she considers three alternative pathways to
:stitutional arrangement remains open to discussion, the RSPO clearly
smallholder development in planned landscapes.
presents a compromise between the agendas of corporate actors and
Still in the second theme, but shifting the focus to Malaysia,
dal movements (McCarthy 2012). The contribution of RSPO to
Chapter 6 examines the political economy of large-scale oil palm ex-
e overall trajectory of the Indonesia-Malaysia oil palm complex is
pansion through a case study of Sarawak. The policy convergence on
sessed by Pye in Chapter 13, and its impact (or lack of impact) on
the estate mode of production at the expense of support for small-
ecific cases is evident in other chapters.
holders is clearly evident, but a counter-movement is also at work,
notably through the successful assertion of common-law or customary
VERVIEW rights to land. In Chapter 7, Rob Cramb and Patrick Sujang focus
on the more recent emergence of oil palm smallholders within the
Le chapters that follow are based on studies that apply to the oil
interstices of the plantation landscape in northern Sarawak, finding
lm complex as a whole as well as case studies in particular locales
that smallholders can do very well by incorporating oil palm into
thin each country. They can be grouped into five themes. The first
their livelihood portfolios, despite the overwhelming support given
mp comprises this introductory chapter and Chapter 2, where we
to private plantations.
uyse the elements of oil palm production in Malaysia and Indonesia
The next group of chapters explores the nature of the conflicts
provide a framework for the chapters that follow, including a sys-
arising from contested approaches to oil palm development. In Chap-
J.atic overview of the ways in which land, labour, and capital have
ter 8, Patrice Levang, Wahyu Riva, and Meri Orth argue that NGO
:n mobilised and combined in different modes of production.
and social movements tend to present oil palm as an evil crop. In
The second group explores the different modes of oil palm pro-
contrast to these accounts, this chapter sets out to gain a better under-
:tion in practice and the circumstances that give rise to different
standing of the reasons behind hundreds of violent conflicts associated
:lihood outcomes, both within and between given modes. In
with oil palm, showing that most conflicts are not due to a rejection
apter 3, Zahari Zen, Colin Barlow, and John F. McCarthy survey
of oil palm but stem from abuse by companies and dissatisfaction
.onesian government policy over three decades, considering how
about compensation levels. The authors argue that, rather than re-
state has used oil palm as a major tool of rural socio-economic
jecting the crop and its potential benefits, NGOs might better focus
>rovement. The chapter compares the economic and social perfor-
on assisting smallholders to negotiate better deals with plantation
Ke of various initiatives, appraising the variability in outcomes
companies. In Chapter 9, Piers Gillespie provides an in-depth analysis
ing the Suharto and post-Suharto periods. In Chapter 4, John F.
of the political processes and institutional arrangements affecting small-
Carthy and Zahari Zen analyse the processes shaping oil-palm-
holder participation in large-scale plantation development in West
ted agrarian change in different villages in Jambi, Sumatra. They
Kalimantan. He examines the strategic relationships shaping how
w ROB CRAMB and JOHN F. MCCARTHY
INTRODUCTION 21

Jarticular groups benefit from oil palm, arguing that participatory


NOTES
Jrocesses at the smallholder-plantation interface that fail to take into
Lecount the relevant power dynamics at play will inevitably lead to 1. Oxford Dictionaries, http:/ /www.oxforddictionaries.com/ definition/ english/
uture confrontation. In Chapter 10, Greg Acciaioli and Oetami Dewi complex.
:ompare smallholder reactions to oil palm in two locales of plantation 2. Of course, there is a great disparity between the population density in
levelopment, one in West Kalimantan and one in Central Kalimantan. Java (over 1,100 persons per square kilometre) and other islands such as
lbey explore the impact of oil palm plantations, considering the Sumatra (just under 100 persons per square kilometre), with significant
implications for the movement of labour within the oil palm complex, as
nodes of resistance oil palm has engendered among settlers and indi-
discussed below.
;enous peoples in these two sites. The chapter examines the relative
3. UMNO held almost half the seats in the Malaysian parliament in its own
ffectiveness of everyday resistance and the forms of modern and indi-
right until the 2008 election, when its share was reduced dramatically to
enous mobilisation utilized by farmers seeking inclusion in the oil 36 per cent. This was reversed in 2013 to 49 per cent.
~aim economy and compensation for lost land. 4. Malaysia ranks 3rd (after Russia and Hong Kong) and Indonesia 1Oth
While all the chapters are concerned with oil palm's impacts on (rising from 18th in 2007) on the Economist's 2014 index of crony
J.ral livelihoods, the next two chapters focus specifically on plantation capitalism. See "Planet plutocrat: The countries where politically con-
tbour rather than settlers or landholders. In Chapter 11, Tania Li nected businessmen are most likely to prosper," Economist, 15 Mar. 2014,
ICamines the deliberate creation of conditions of labour abundance http:/ /www.economist.com/ news/international/21599041-countries-where-
1ence vulnerability) in what she terms "Indonesia's oil palm labour politically-connected-businessmen-are-most-likely-prosper-planet.
:gime" through the dual strategy of enclosing land to dispossess local 5. Varkkey (2012, 2013) concludes that the shared business culture between
eople while also importing labour from other regions. In Chapter 12, the two countries and the patronage of the Malaysian state explain why
many of these Malaysian (and Singaporean) investors have been complicit
J.nny Sanderson puts a human face to the large number of Indone-
in proscribed practices in Indonesia such as the use of fire in land clearing,
an workers in Malaysia; the chapter is based on interviews with plan-
which harms the public in their own countries through transboundary air
tion workers on various schemes in western Sarawak. She places the
pollution or haze.
~cision to migrate for work in the context of household livelihood
rategies, and examines the experiences of individuals caught up in
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historical differences in policy emphasis and intent between the two
t, Z., Barlow, C., & Gondowarsito, R., 2005. Oil palm in Indonesian
countries, we find a convergence in the trajectories observed that give
socio-economic improvement: A review of options. Oil Palm Industry
clues to the underlying processes at work.
Economic journal 6 (1): 18-29.

AGRO-ECONOMIC FEATURES OF OIL PALM


PRODUCTION
Understanding the commodity-specific characteristics of oil palm is
a starting point in understanding the nature and evolution of the oil
palm complex. The oil palm (Elaeis guineensis), indigenous to West
Mrica, grows best in continuously wet, equatorial conditions within
10a of the equator and below an altitude of 600 m (Corley and
Tinker 2003, Shiel et al. 2009, Rival and Levang 2014; Figure 2.1).
Hence, within the Asia-Pacific region, it is grown primarily in a zone
from southern Thailand, the Malay peninsula, and Sumatra in the

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