Professional Documents
Culture Documents
Edited by
Rob Cramb and John F. McCarthy
1/11
NUS PRESS
SINGAPORE
xvi PREFACE
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BOX J.1 - ECONOMIC .ISSUI;S . ""d
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The ~co nomic issues t.owhichthe oll palrn t;Joom givesrise inCtude .
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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
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and commercial farming, between commod[ty specialisation a'nd
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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
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
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
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