Posts A + C: Making Palm Oil Great Again; Surmounting unsustainable cultivation.

Edgar Su – from Reuters article (Ananthalakshmi & Chow 2019)

“My father is a middleman of sorts in the Palm Oil Industry, they aren’t all corrupt swindlers as is commonly thought. Definitely the tobacco industry has it’s issues, as does the Palm Oil industry…”

How is it that a conversation with a sixteen year old Indonesian begins with a story recounting his peer, who at 15 years of age sadly passed away from preventable illness due to smoking, divulge into an informed perspective that details perhaps Indonesia’s most wicked problems in industries of cultivation dating back decades? The young man who will be referred to as ‘Nasa’ provides a unique outlook into the scarce regard for ethical industrial regulations that plague more than just the tobacco industry, thus suggests a more wicked set of problems that perpetuates the already controversial problem of tobacco and palm oil in Indonesia.

Nasa is very close with his father, (referred to as ‘Mr. Red’) who is an astounding figure within the Palm Oil Trade; his benevolent ethos goes against the problematic nature of palm oil cultivation, heavily criticised by western media for it’s history of deforestation (Ananthalakshmi & Chow 2019).

Having studied forestry in the late 90s, Mr. Red continued with his masters degree once Suharto’s presidential term came to an end in 1998, resulting in change of policy regarding forestry management from centralised to decentralised. As a consequence, regulations that existed or would be “implemented” in following years were often not enforced by private entities and smallholders (Indonesia – Freedom in the World 2007 2007), thus deforestation became a massive ecological issue that concerned Mr. Red. Following his masters, he was fortunate to be Invited to participate in MYRLIN, a training workshop hosted by Oxford University wherein forest yield regulation in naturally moist-tropical-forested-areas were discussed, and sustainable models were presented by Dr. Denis Adler (Adler, Baker & Wright 2002). Mr. Red would implement what he learnt from the MYRLYN workshop as a University lecturer and smallholder consultant in order to be a polarising force against his observations of corruption, negligence regarding foresting guidelines, and how this affected local communities; all of which were confirmed as a broad transnational issue in MYRLIN (ibid).

Participants of the MYRLIN training workshop (Adler, Baker & Wright 2002)

Both palm oil (Singh et al. 2013b, p. 5) and tobacco (Rondhi, Wardhono & Prakoso 2010, pp. 8-11) industries have arduous levels of processing from farm to factory: cultivation and processing segments reside largely between smallholders, middlemen and numerous processing factories (Tobacco) / mills (Crude Palm Oil); thus, similarities between both industries can begin to be observed. Mr. Red states that: 

Flow chart of palm oil production and bi-products (Singh et al. 2013b, p. 5)

“The palm oil industry relies largely on middlemen as a primary method of transaction and logistics between the large number of independent aforementioned smallholders and varying degrees of palm oil processing plants, this leaves open the possibility for inefficiency and mismanagement, as the sheer difficulty of enforcing mandated regulations opens up the opportunity for self interested entities to exploit”

This is what I can best explain metaphorically as an “anarcho-capitalist wild-west”. 

Following 1998, former President Suharto’s Industrial-Oligarchy was “decentralised”, however many industrial monopolies were prior given to his children and nepotist cronies (Freedom House, 2007). This allowed big players to remain big, often graft in their business dealings, resulting in controversial proceedings such as the case of Hutomo Putra (Tommy Suharto), who was sentenced for corruption charges, then went on the run, and ordered the assignation of the very judge who convicted him (Agloinby 2007). The ongoing result of decentralisation is corporate governance, this has both negative and positive outcomes. Mr. Red explains that “large companies and foreign corporations hold the power to dictate the value of [palm oil precursor] – FFB (Fresh Fruit Bunch)” exported by smallholders and larger plantations, similar to what was seen in Tommy Suharto’s clove monopoly dealings (ibid). This is also made worse due to the numerous processes within the chain of production of FFB into Crude Palm Oil (CPO) for commercial goods. Prices for FFB from smallholder communities are often re-negotiated by the manufacturing facilities, down to processing plants, through middlemen, and finally back to the smallholder. 

“There are millions of independent smallholders, thousands of CPO mills, hundreds of refineries, and dozens of manufacturing plants. This chain of supply relegates the smallholders to the smallest cut of the profit. Independents need to be supported in the developing world, that’s where I come in.”

In 2005, MR. Red decided to start his own business delegating between smallholders and CPO mills, which later in 2007, the company would have the majority of its shares purchased by Tommy Suharto. MR. Red remained company director thereon, the refined business model saw a three way profit split: 30% to local community smallholders; 30% returned to investors; and 40% profit remained as fluid capitol within the business. This sustained the community and kept investors as well as company profit split fairly, sustaining all stages of the industry. 

MR. Red with Tommy Suharto

Mr. Red suggests that Palm Oil can be sustainable, and help in further developing Indonesia’s economy, suggestible as an alternative crop to tobacco, as renewable bi-prodicts can be utilised from palm oil processing: Palm fibre can be used as fertiliser; palm shell can be used as a substitute for coal (Singh et al. 2013a). He also states that with proper management of where the palm is cultivated, and by using less fertilisers which corrupt the soil, negative ecological effects can be spared in future sustainable cultivation (Darras et al. 2019). Lastly, Mr. Red claims that a system based on MYRLIN that can track FFB output through the processes of CPO production would greatly increase yield regulation and sustainability, this is where Mr Red’s company, along with benevolent corporate governance can save Palm Oil from scrutiny, and can bring it forward into sustainability. It is reported that the Palm Oil companies fear the fate of tobacco industries, and that perhaps it should act in similar methods to maintain an ethical yield to quell the wicked problem of tobacco (Ananthalakshmi & Chow 2019).

Mr. Red with farmers

Currently, Mr Red manages a new business after resigning from the company owned by Mr. Suharto, his new company is a continuation of his sustainability ethos, acting as a benevolent middleman for a sustainable future for all aspects of the palm oil industry.

Thank you to “Nasa” and “Mr. Red” for sharing your valuable insights with me.

Me and “Nasa”

References

Adler, D., Baker, N. & Wright, H. 2002, Report of a Training Workshop on Methods of Yield Regulation in Moist Tropical Forest with minimal data, Oxford Forrestry Institute, Oxford, United Kingdom.

Agloinby, J. 2007, Suharto’s son named in corruption case, Finnancial Review, <https://www.ft.com/content/23a7804e-3611-11dc-ad42-0000779fd2ac&gt;.

Ananthalakshmi, A. & Chow, E. 2019, Fearing tobacco’s fate, palm oil industry fights back, Reuters, <https://www.reuters.com/article/us-malaysia-palmoil-strategy-insight/fearing-tobaccos-fate-palm-oil-industry-fights-back-idUSKCN1VB0CH&gt;.

Darras, K.F.A., Corre, M.D., Formaglio, G., Tjoa, A., Potapov, A., Brambach, F., Sibhatu, K.T., Grass, I., Rubiano, A.A., Buchori, D., Drescher, J., Fardiansah, R., Hölscher, D., Irawan, B., Kneib, T., Krashevska, V., Krause, A., Kreft, H., Li, K., Maraun, M., Polle, A., Ryadin, A.R., Rembold, K., Stiegler, C., Scheu, S., Tarigan, S., Valdés-Uribe, A., Yadi, S., Tscharntke, T. & Veldkamp, E. 2019, ‘Reducing Fertilizer and Avoiding Herbicides in Oil Palm Plantations—Ecological and Economic Valuations’, Frontiers in Forests and Global Change, vol. 2, no. 65.

Indonesia – Freedom in the World 2007 2007, Freedom House, <https://freedomhouse.org/report/freedom-world/2007/indonesia&gt;.

Rondhi, M., Wardhono, A. & Prakoso, B. 2010, ‘Instituional Arrangement of Indonesian Tobacco Farming’, paper presented to the 2010 International Conference on Institutional Economics, Shandong University, Jinan, China, <https://www.researchgate.net/publication/291355596_INSTUTUTIONAL_ARRANGEMENT_OF_INDONESIAN_TOBACCO_FARMING_An_Approach_to_Farming_Post-Harvest_Processing_and_Trading&gt;.

Singh, P., Sulaiman, O., Hashin, R., Peng, L.C. & Singh, R. 2013, ‘Using biomass residues from oil palm industry as a raw material for pulp and paper industry: potential benefits and threat to the environment’, Environmental Decelopment and Sustainability, vol. 15, pp. 367-83.

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