Palm oil: The myth of corporate plantation efficiency is failing Indonesians and furthering inequality
Retrieved on:
Thursday, July 27, 2023
Around 50 per cent of the world’s supply is grown in Indonesia, mostly on massive plantations.
Key Points:
- Around 50 per cent of the world’s supply is grown in Indonesia, mostly on massive plantations.
- Indonesia’s governments have consistently supported plantation corporations at the expense of smallholder farms (defined as farms with less than 25 hectares).
Plantations out-competed
- Globally, crops such as cacao, coffee, tea and rubber previously grown on plantations are now grown mainly by smallholders because they can produce similar yields with lower costs.
- They note that average yields are higher on plantations than smallholdings, but averages mask significant variations.
- Read more:
Growing palm oil on former farmland cuts deforestation, CO₂ and biodiversity lossA key reason that some smallholders have low yields is their lack of access to the high quality seeds used on plantations — seeds that yield up to 66 per cent more tons of fruit.
Efficiency in land use
- Much concession land is steep, peaty and ecologically fragile.
- Nevertheless, managers pressed to meet corporate targets often plant palms on unsuitable land.
- Yet they are barred from making any use of the land plantation corporations hold in their concessions, much of it unplanted, and many go hungry.
Saving on labour costs
- The difference is that plantations also need managers, accountants, overseers and guards, incurring high costs.
- Yet plantation labour “efficiencies” come with a price: in the plantations we studied, inconsistent labour supply led to poor maintenance and unharvested fruit.
The challenge of transportation and milling
- Transportation and milling loom large in industry narratives about the superior efficiency of the plantation format, as palm fruit must reach the mill within 48 hours before it spoils.
- However in Kalimantan where 86 per cent of the palms are grown on giant plantations, giant inefficient mills are the norm.
Principals and agents
- Plantations also suffer from what economists call the “principal-agent problem”: the principals (corporations and their shareholders) must rely on agents (managers and workers) to carry out production, but their interests are often distinct.
- Managers and workers seek to capture some of the money that circulates through and around plantations before it flows away.
- While not perfect, moral codes supplied forms of social control that were lacking in relations between principals and agents on nearby plantations.
If Indonesia’s plantations are not efficient, why do they survive?
- In the 1930s, the Dutch colonial government protected struggling rubber plantations by suppressing competition from smallholders.
- Today’s oil palm smallholders are suppressed indirectly by government policies that favour corporations.
- Making corporate plantations more efficient would not address this fundamental unfairness.