Indonesia: Oil Palm, The Malaysia Connection


Lesley Potter

Indonesia's Yudhoyono government, like its predecessors, encourages expansion in oil palm, aimed partly at replacing Malaysia as world leader in output and export of palm oil. Indonesia has moved from 65 per cent of Malaysia's output in 2000 to over 80 per cent in 2004. This growth has been achieved largely by increases in area (5.9 million hectares against Malaysia's 3.8 million in 2004). Although Indonesian domestic demand is higher than Malaysia's, exports also rose by more than one third between 2003 and 2004. The reasons for lower Indonesian productivity include slow replacement of unproductive trees and inadequate supplies of certified seed. Smallholder poverty is also blamed, leading poor farmers to purchase cheap, low quality seedlings and minimal amounts of expensive fertiliser. An imbalance between area planted and available processing facilities has resulted in crop wastage in new districts.

Some of the reported increase in area comes from re-locating Malaysian companies seeking cheaper land and labour. These firms, used to strong government controls, are shocked by the politicisation of Indonesian villagers. The oil palm industry has been one of the most highly contested, with plantations suffering demonstrations, land invasions and theft of fruit. Recent moves towards certifying producers of 'Sustainable Palm Oil', an NGO and supply chain initiative, is especially directed at plantations in Malaysia and Indonesia, expecting them to adhere to environmental and social guidelines, often breached in the past.

Despite official efforts to extend the crop beyond its traditional Sumatran base, 77 per cent of the planted area has remained there. The lack of developed infrastructure outside Sumatra is blamed for this conservatism. Furthermore, in forested districts of East Kalimantan companies use planting permits solely to access timber. Plans for a million hectares of oil palm brought 3.4 million hectares of land under permit, but only 160,000 hectares of crop.

Indonesians work as labourers on oil palm plantations in Malaysia, but in Indonesia the emphasis has shifted towards smallholders, either independent growers or holders of private plots within the plantation enterprise. In the latter case, locals give up land to the plantation and process their fruit in its mill. The differences in modern development levels between wealthier Malaysia and its poorer, but resource-rich, neighbour have transformed the border region between Sarawak/Sabah and Kalimantan into a zone specialising in timber smuggling and illegal migration. A government plan to construct a new road and a belt of oil palm along the border is intended specifically to combat smuggling and encourage smallholders to stay within Indonesia.

WATCHPOINT: When will Indonesia finally displace Malaysia as world leader in oil palm output? Lower prices in 2005 have slowed the rate of investment in new planting, but the possibility of using palm oil as bio-diesel to partly replace gasoline may reverse this. Meanwhile, Malaysia continues to employ the best scientific methods to increase the yields from its plantations.


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