The politics of palm oilBy Asia Sentinel Sep 23, 2013 11:16AM UTC
Global demand drives FDI in Indonesian plantations and rapid land clearing, writes Asia Sentinel’s Pavin Chachavalpongpun
Oil palm plantations and processing have become a strategic industry for Indonesia. Palm oil is the country’s third largest export earner, contributing substantial foreign exchange earnings and providing opportunities for small-scale farmers to partake in this vibrant agro-business, thus developing the rural economy and spurring local employment.
In Southeast Asia, palm oil is a traditional commodity dating back to the colonial period. But by the 1980s, increasingly high global demands for palm oil – for food products, cosmetics and even biofuels – led to industrial-scale plantations, particularly on Indonesia’s Sumatra and Kalimantan islands with their favorable climate and fertile, loamy soil conditions.
In 2008, Indonesia replaced Malaysia as the world’s top exporter of palm oil as a result of a series of state-led programs designed to boost production, such as privatization of previously state-run estates. Today, Indonesia has 6 million hectares of oil palm plantations. It produces up to 25 million tonnes annually, half of the world’s total production, delivering around 5 percent of the country’s annual gross domestic product.
(READ MORE: Time for another palm oil rant)
This success is also due to the industry opening to foreign investment. Malaysia and Singapore happen to represent the majority of foreign investors, outnumbering those from outside the region. Through single investments and joint ventures with local companies, the two countries control more than two thirds of the total production of Indonesia’s palm oil.
This context provides an inexorable correlation between investments from Malaysia and Singapore and the forest fires caused by the habitual slash-and-burn method used by farmers as a cheap and convenient way to clear the land for rapid turnaround of cultivation. This year in particular, the smoke haze from Sumatra has caused an even greater impact on Malaysia and Singapore, in terms of economic loss and potential health hazards.
The polluting haze reached dangerous levels in the two neighboring countries; Malaysia even declared a state of emergency in Muar and Ledang districts in the southern Johor state.
So when the governments of Malaysia and Singapore condemned Indonesian farmers, they seemed to overlook the fact that private firms from their own countries play a major part. A crisis of good governance is responsible for this transnational problem. Indonesia does have laws prohibiting slash and burn methods. For example, Article 78 of the 1999 Forestry Law stipulates that anyone found guilty of burning forests is subject to up to 15 years in prison and a maximum fine of Rp 5 billion (US$525,000).
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