Farmer and civil society organizations and even Indonesia’s antitrust body, the Business Competition Supervisory Commission, have been strengthening their demand for the government to enforce laws that require plantation companies to help develop smallholder estates through commercially viable partnerships.
They especially point to the widening inequality in income and wealth in the oil palm plantation sector, one of the tree crops that have grown astronomically over the past two decades to make Indonesia the largest producer of palm oil in the world.
While the European Union has accused the oil palm sector of being environmentally unsustainable in the long run, domestic detractors have warned the government and the business community that the industry would not be socially sustainable if smallholders were not empowered with the best farm practices and financing assistance.
Although smallholdings account for about 40 percent of the estimated 12 million hectares of total oil palm plantations, their productivity is far below that of big plantation firms, while the government’s budget to replant smallholder estates is severely limited.
But the shortage of public-sector funding could have been solved if the government fully enforced the provisions of the 2014 Plantation Law that require plantation firms to empower smallholders living around their estate through viable commercial partnership agreements covering at least 20 percent of their total acreage. Such partnerships would give smallholders greater access to technical, marketing and financial assistance.
The problem, however, is that the government has never fully enforced the law due to what companies claim to be the absence of clear-cut regulations, arguing that without comprehensive rules on technical details, there has been legal uncertainty as to the identification of smallholders, the standard contract and other issues related to the land titles of smallholders and permits from local administrations.
But smallholder associations and the antitrust body rejected such arguments, calling them groundless because the country has been using a business model called the nucleus estate-smallholder (NES) partnership since the mid-1970s — when the World Bank was still active in lending to the plantation sector.
Given the mounting risks of social conflicts arising from widening inequality, it has become more urgent for the Agriculture Ministry, Agrarian and Spatial Planning Ministry and regional administrations to coordinate the enforcement of compulsory business partnerships between smallholders and plantation companies. We see the three-year moratorium on oil palm estate expansions as more than adequate for the government to review the whole licensing process of big plantations and formulate a strong regulatory framework for NES programs.
If the government appears incompetent in enforcing the law on NES programs, which are vital for maintaining the long-term, socially sustainable development of the oil palm sector, how could we convince the EU to review its plan to ban palm oil-based biofuel from its renewable energy program out of environmental concerns?
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