The Global Land Grab

Beyond the Hype

Annelies Zoomers, Mayke Kaag

• Publisher: Zed Books
• Year: 2014
• Print ISBN:
  9781780328959
• Edition: 1
• eBook ISBN:
  9781780328973
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

The last two years have seen a huge amount of academic, policy-making and media interest in the increasingly contentious issue of land grabbing - the large-scale acquisition of land in the global South. It is a phenomenon against which locals seem defenceless, and one about which multilateral organizations, such as the World Bank, as well as civil-society organizations and action NGOs have become increasingly vocal.

This in-depth and empirically diverse volume - taking in case studies from across Africa, Asia and Latin America - takes a step back from the hype to explore a number of key questions: Does the 'global land grab' actually exist? If so, what is new about it? And what, beyond the immediately visible dynamics and practices, are the real problems?

A comprehensive and much-needed intervention on one of the most hotly contested but little-understood issues facing countries of the South today.

Asia

7 | Land governance and oil palm development: examples from Riau Province, Indonesia

Ari Susanti and Suseno Budidarsono

Introduction

In the growing global debate on transnational land deals for agriculture, investments in oil palm plantations play a significant role. A wide body of literature shows that these investments have caused widespread processes of land use change, often involving forest and agricultural land conversion. However, little research has been undertaken on understanding the underlying factors that are likely to enable these land use conversion processes. This chapter aims to analyse the most crucial land governance issues related to oil palm expansion in Indonesia. We show that not only large-scale oil palm investments cause widespread land use change; increasingly smallholders from all over Indonesia are involved in converting land into oil palm plantations. Besides the lucrative financial benefit from oil palm, the incompatible regulations related to land rights are the main reasons for this rapid expansion. This is aggravated by the absence of sound regional planning (such as in Riau Province, where palm oil production has become an important economic activity), which provides opportunities to convert lands into oil palm plantations relatively easily.

The land matrix report (Anseeuw et al. 2012) on transnational land deals for agriculture in the global South revealed that Indonesia is one of the targeted countries in Asia. Twenty-three land deals were identified, covering about 5.2 million hectares of land. Oil palm shares are by far the largest, up to 54 per cent of the land deals or covering around 2.8 million hectares. Other commodities involved in these deals are jatropha, corn, sugar cane, rubber and fruits. Foreign investments involved in these deals originate from Asian ‘emerging’ countries such as China, India, Malaysia and Singapore, from the Gulf states (Qatar), and from developed countries such as the USA, the UK and Australia. However, many investments in oil palm plantations come from domestic sources, including government-funded projects (ibid.).

Oil palm has become the most rapidly expanding tropical perennial crop in the last two decades, not only in Indonesia but also, for example, in Malaysia (Fitzherbert et al. 2008). This is mainly due to increasing global demand for palm oil for the food processing industry and biofuels. In the last fifty years in Indonesia, oil palm has expanded tremendously. While it occupied only 120,000 hectares in the 1960s, by 2010 approximately 8.4 million hectares were harvested, producing around 19.8 million metric tons of palm oil (Ministry of Agriculture 2012). Palm oil has become the largest export product after oil and natural gas and is widely perceived as an important commodity that serves national and regional incomes (Fischer 2010) as well as providing employment for the rural population (World Growth 2011). For these reasons the government of Indonesia plans to expand oil palm plantations further, up to approximately 20 million hectares by 2020, mainly in Sumatra, Kalimantan, Sulawesi and West Papua (Colchester et al. 2006).

It is alarming, however, that the land required to accommodate this expansion often becomes available through forest conversion and other agricultural land use conversion processes, including the conversion of rice fields (Burgers and Susanti 2011). Susanti and Burgers (forthcoming) show that these kinds of land use change processes are increasingly putting pressure on land. The process has been well documented in a number of studies related to oil palm expansion (IEA 2006; Edwards et al. 2010; FAO 2010a, 2011a; Koh and Ghazoul 2010). In many cases, these studies focus on the fact that oil palm expansion has triggered large-scale forest conversion. However, it is striking that little research has been undertaken on the underlying factors that enable such a rapid pace of forest conversion in a country where approximately 70 per cent of the land is under the control of and managed by the Indonesian Forestry Ministry (Ministry of Forestry 2011). The high rate of forest conversion into palm oil plantations should be rooted in developments which go beyond the control of the Ministry of Forestry, with its mandate in forest protection and sustainable use of forest resources and areas. Hence, a thorough understanding of land governance issues is a crucial factor in explaining this situation in Indonesia and is the main focus of this chapter.

The chapter is based on fieldwork, as well as on a review of existing literature, technical documents and regulations related to land administration issues, regulation and management. Statistical data from government sources both at national and regional level are added to provide a larger picture of the land debate. In order to understand how land governance issues impact the situation at field level, evidence is provided from our work in Riau Province.

Oil palm expansion in Indonesia

While oil palm (Elaeis guineensis) is originally from West Africa, it was first introduced to Indonesia in 1911 by the Dutch administration with the establishment of the first commercial plantation in the east coast of Sumatra.¹ Palm oil production grew rapidly, from 181 tons in 1919 to 190,627 tons of crude palm oil and 39,630 tons of kernel oil in 1937, owing particularly to the increasing uses of palm oil products for lubricants, soap production, candles and medicinal ointments, mostly for export. However, this development stopped during the Second World War. It took until the 1970s before the Indonesian government began to stimulate oil palm expansion again. Initially, this was done in the form of plantations coupled with transmigration programmes, aimed at stimulating development in the outer islands (Budidarsono et al. 2013). Through these programmes, oil palm emerged as one of Indonesia’s most important crops. However, production really took off in the 1990s, with an average 10 per cent annual growth in oil palm plantations (Ministry of Agriculture 2012), partly as a result of a growing global demand for healthier fats and partly as a result of expanded Indonesian trade, economic liberalization and policy deregulation to attract investment (Basiron 2002). Recently, the demand has further increased since palm oil has come to be considered as a biofuel (Susanti and Burgers 2012).

The changing regulations: from large-scale monopoly to smallholders’ involvement In the earlier stage of its development, oil palm was introduced and supported by government programmes in mainly large-scale plantation development schemes, and it had become a large estates’ monopoly owing to the fact that its establishment requires substantial capital. More recently, smallholders’ participation in palm oil production activities has been stimulated. A number of regulations related to palm oil production have enabled this. In 1977 the Nucleus Estate Smallholder (NES) programme was introduced by the Indonesian government funded by the government and also supported by the World Bank. Beginning in 1986, the nucleus companies had to take responsibility for financing the establishment of smallholder plantations through regular bank loan schemes (Jelsma et al. 2009). The nucleus companies (private and state-owned) were obliged to establish palm oil processing facilities as an integrated part of an oil palm estate.

Following the deregulation policies and liberalization of crude palm oil export in 1994, individual smallholder oil palm producers were no longer restricted by regulations that stipulated that they should be associated with nucleus companies. In 1995 Government Regulation No. 13/1995 allowed investors to establish processing facilities without managing oil palm plantations. With this regulation, many palm oil mills were established without being associated with specific oil palm plantations as their raw material suppliers. This created a new market for individual smallholders, who in the same year could also independently establish small-scale plantations (less than 25 hectares). Under the same regulation, individual small-scale producers could sell their produce to any palm oil processing mills. In addition, smallholders with a plantation size of less than 25 hectares are not required to apply for a plantation licence; only registration at the local estate crop agency is necessary (Ministerial Decree No. 357/KPTS/HK.350/5/2002 as by No. 26/Permentan/OT.140/2/2007). These further triggered the increase in the number of independent smallholders. And since then, middlemen acting as informal investors and buyers have been playing an increasingly crucial role in the rapid expansion of oil palm on smallholder land. The middlemen not only provide financial support for smallholders; they are also an important link between the palm oil mills and small-scale producers, as often the latter cannot deliver their products directly to the processing mill given transport constraints. Usually, a smallholder can receive funds from these middlemen to develop a small-scale plantation. In exchange, smallholders will sell to the middlemen in sharecropping deals, as a way to repay the loan.

To further accommodate this rapid expansion and the increasing importance of estate crops, Law No. 18/2004 on estate crops was enacted. Following the implementation of this law, the regulations on palm oil industry and plantation licensing were also revised. Ministerial Decree No. 357/Kpts/HK.350/5/2005 mandated oil palm processing mills to manage oil palm plantations in order to have a regular supply of their raw material. This obligation was strengthened by Ministerial Decree No. 26/Permentan/OT.140/2/2007, which stipulates that 20 per cent of the raw material of oil palm processing industries has to be produced from their own plantation.

The same regulation categorized oil palm plantations into smallholder (maximum 25 hectares) and large estates (maximum 100,000 hectares), with the exception of Papua, where the ceiling limit for the area is twice as large as in other locations. The limitation on area is not applicable to companies whose share is mainly held by a cooperative, by central and regional governments, or by communities which are in the process of going public. Foreigners or foreign legal entities which are willing to apply for these licences must collaborate with Indonesian citizens or legal Indonesian entities. This is in line with the Basic Agrarian Law (BAL), which stipulates that foreigners and foreign legal entities can have only secondary rights to lands, while Indonesian citizens and Indonesian legal entities can hold primary rights to lands. This helps to explain the high interest of domestic investors, including smallholders, in participating in land investments. So far, domestic investors are responsible for approximately 60 per cent of the total investment in oil palm plantations in Indonesia, strengthened by the fact that they can collaborate with foreign entities, which in many cases provide the required investment funds (Neraca.co.id 2012).

The oil palm boom All these supporting regulations contributed to Indonesia being the world’s largest palm oil producer in 2006. Together with Malaysia, it controls around 85 per cent of the palm oil trade in the world (FAO 2010b). In 2010, Indonesia had around 8.4 million ha of oil palm being harvested, producing around 19.8 million metric tons of palm oil (Ministry of Agriculture 2012). In 2010, Indonesia exported around 16.9 million metric tons of crude palm oil, which was valued around 1.036 billion US$ (FAO 2010b). In the marketing year 2012/13, the total production of palm oil was 28.5 million metric tons, with 20.1 million metric tons exported. The total domestic consumption was around 7.82 million metric tons, including 2.97 million metric tons for biofuels and the oleo-chemical industry (USDA Foreign Agriculture Service 2013). In the recently developed master plan for acceleration and expansion of Indonesian economic development (2011–25), palm oil has been selected as one of the key economic activities in so-called economic corridors. These oil palm corridors are to be developed mainly on Sumatra, Kalimantan and Papua-Maluku island. Sumatra island hosts the most oil palm plantations, particularly in North Sumatra and Riau Province (see Box 7.1). The investment required for this oil palm development is estimated at around 92 trillion Indonesian rupiahs (IDR) or around US$9.6 billion (Coordinating Ministry for Economic Affairs 2011).

Box 7.1 The economics of Riau Province

Riau Province covers approximately 8.9 million hectares, of which 8.6 million hectares are state forest areas, including extensive and deep contiguous peat swamp forests (Badan Pusat Statistik Propinsi Riau 2011). These extensive forest areas are the focus of land use conversion into oil palm. In 2011, Riau Province had the largest area of plantation and contributed around 24 per cent to the national total area of oil palm plantation. The majority of oil palm plantations were cultivated by smallholders (53 per cent), and large estates cu...

Table of contents

• Cover
• About the editors
• Title
• Copyright
• Contents
• Figures, tables and boxes
• Introduction: the global land grab hype – and why it is important to move beyond
• Africa
• Latin America
• Asia
• Notes
• About the contributors
• Bibliography
• Index