158
7 Bioeconomy in the Oil Palm Republic of Indonesia
Table 7.3 Rationales for biofuel policies in Indonesia
Rationale
Specific interests
National energy security
Increasing domestic energy production to reduce reliance on
foreign oil and expenditures on fossil fuel subsidies, eventually
becoming a biofuel exporter a
Rural development
Rural employment in feedstock cultivation, particularly oil palm b
Climate change mitigation
Reduction of GHG emissions through fossil fuel substitution in
transportation c
a Government of Indonesia (2006), Legowo et al. (2007), Hadiwidjoyo (2009), Caroko et al.
(2011), b Legowo et al. (2007), Hadiwidjoyo (2009); c Legowo et al. (2007), and State Ministry
of Environment (2007)
from 0.29 in the early 1990s to 0.39 by 2018 (Asian Development Bank 2012;
World Bank 2020). The Asian Development Bank (2012) notes that market-oriented
development policies and greater integration in the global economy have been the
leading cause. The outcomes have been notably different from the more equitable
growth experienced by Asia’s newly industrialized economies (Japan, South Korea,
Singapore, Taiwan) in the 1960s and 1970s. The Bank further argues that two factors
are crucial: (i) large economic reliance on physical capital, including exhaustible
natural resources, disproportionately benefitting those who own or control it, and
(ii) regional disparities, such as the urban-rural divide. In Indonesia’s case, there
are also significant inequalities among the islands, with Java and Bali being the
most urbanized, industrialized and densely populated ones, followed by Sumatra
and Borneo, while Papua and the other eastern islands are on the other extreme
(Asian Development Bank 2012).
Palm oil production systems have arguably contributed to such an inequitable
development. First, they reallocate control over land and freshwater resources from
rural communities to mostly private agroindustries, making the former utterly dependent on the latter for their income and food security. Second, even though such
systems incorporate local communities as palm-fruit suppliers or plantation workers,
the industry retains control of cultivation. Contracted smallholders must purchase
expensive chemical inputs from the company; they are susceptible to its uneven
bargaining power, as the company is frequently the only buyer in the area (monopsony). Moreover, according to some farmers, they occasionally are also subject to
abuses from company staff, who allegedly are not always honest when determining
the palm fruit quality and, thus, its price (Personal interviews).
Third, smallholders are limited to the role of raw-material suppliers without any
prospects of climbing up in the value chain. In contrast, the industry benefits both
from governmental subsidies and increasingly profitable markets—not only from
palm oil and its derivates but also from co-products such as palm kernel oil. As such,
in relative terms, the companies benefit much more. They keep the most advantageous roles, most income, control over technology and production, and simply use
rural communities as hired labor. Still, this labor is ridden with health risks and
exploitation cases (Gottwald 2018; Suwastoyo 2019). The incorporation of locals
7 Bioeconomy in the Oil Palm Republic of Indonesia
Table 7.3 Rationales for biofuel policies in Indonesia
Rationale
Specific interests
National energy security
Increasing domestic energy production to reduce reliance on
foreign oil and expenditures on fossil fuel subsidies, eventually
becoming a biofuel exporter a
Rural development
Rural employment in feedstock cultivation, particularly oil palm b
Climate change mitigation
Reduction of GHG emissions through fossil fuel substitution in
transportation c
a Government of Indonesia (2006), Legowo et al. (2007), Hadiwidjoyo (2009), Caroko et al.
(2011), b Legowo et al. (2007), Hadiwidjoyo (2009); c Legowo et al. (2007), and State Ministry
of Environment (2007)
from 0.29 in the early 1990s to 0.39 by 2018 (Asian Development Bank 2012;
World Bank 2020). The Asian Development Bank (2012) notes that market-oriented
development policies and greater integration in the global economy have been the
leading cause. The outcomes have been notably different from the more equitable
growth experienced by Asia’s newly industrialized economies (Japan, South Korea,
Singapore, Taiwan) in the 1960s and 1970s. The Bank further argues that two factors
are crucial: (i) large economic reliance on physical capital, including exhaustible
natural resources, disproportionately benefitting those who own or control it, and
(ii) regional disparities, such as the urban-rural divide. In Indonesia’s case, there
are also significant inequalities among the islands, with Java and Bali being the
most urbanized, industrialized and densely populated ones, followed by Sumatra
and Borneo, while Papua and the other eastern islands are on the other extreme
(Asian Development Bank 2012).
Palm oil production systems have arguably contributed to such an inequitable
development. First, they reallocate control over land and freshwater resources from
rural communities to mostly private agroindustries, making the former utterly dependent on the latter for their income and food security. Second, even though such
systems incorporate local communities as palm-fruit suppliers or plantation workers,
the industry retains control of cultivation. Contracted smallholders must purchase
expensive chemical inputs from the company; they are susceptible to its uneven
bargaining power, as the company is frequently the only buyer in the area (monopsony). Moreover, according to some farmers, they occasionally are also subject to
abuses from company staff, who allegedly are not always honest when determining
the palm fruit quality and, thus, its price (Personal interviews).
Third, smallholders are limited to the role of raw-material suppliers without any
prospects of climbing up in the value chain. In contrast, the industry benefits both
from governmental subsidies and increasingly profitable markets—not only from
palm oil and its derivates but also from co-products such as palm kernel oil. As such,
in relative terms, the companies benefit much more. They keep the most advantageous roles, most income, control over technology and production, and simply use
rural communities as hired labor. Still, this labor is ridden with health risks and
exploitation cases (Gottwald 2018; Suwastoyo 2019). The incorporation of locals