"The Bitter Fruit of Oil Palm"

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The case of Ecuador: Paradise in Seven Years?
by Ricardo Buitrón

In Ecuador, oil palm -locally called African palm- was introduced commercially in 1953-1954, when small plantations were established in Santo Domingo de los Colorados, in the province of Pichincha, and in Quinindé, in the province of Esmeraldas. These initial plantations were expanded to cover an area of 1,020 hectares in 1967 (Carrión in Nuñez 1998).

In 1995, the area planted and registered in the censuses of the National Association of African Palm Cultivators (ANCUPA) included 97,000 hectares, distributed over the three natural regions of the country: Coast, Mountain and the Amazon basin (Nuñez 1998). But these are conservative estimates. Many plantations not registered with the palm cultivators' associations have been set up in the last few years in the North of Esmeraldas. In total, oil palm plantations probably cover some 150,000 hectares. According to oil palm planters, this area will increase by 50,000 hectares in the next five years (Hoy 18/11/98).

In the Amazon region oil palm plantations have expanded in the provinces of Orellana and Sucumbíos (Loreto, Shushufindi and Coca) and to a lesser extent in the province of Pastaza. These include both large scale monocultures and plantations belonging to medium and small producers (including indigenous peoples). In the Mountain region plantations are located mainly in Santo Domingo de los Colorados, Imbabura and Cotopaxi and in the Coastal region in the provinces of Los Ríos, Guayas, Manabí, El Oro and Esmeraldas.

By the end of 1999, plantations in the district of San Lorenzo in the province of Esmeraldas had expanded by more than 15,000 ha. The Ministry of Environment reports that 8,000 ha of forest has been destroyed in this area by palm plantations, and anticipates that in the following years over 30,000 ha more will fall to the plantations. This projection only takes into account those hectares registered by ANCUPA or the Ministry of Environment. The Office of the Deputy Secretary of the Ministry of Environment has proposed setting aside around 30,000 hectares for the cultivation of the crop.

The area dedicated to African palm monoculture in the North of Esmeraldas is variously reported by former authorities of the area as being 60,000 to 100,000 hectares (El Comercio 30/03/99).

The main African palm varieties planted in Ecuador are the National (Iniap), HSD (Costa Rica), IRHO (Africa), Chenara (El Comercio 11/03/2000).

Between 1990 and 1995, African palm production supplied raw material for an average of 152,473 tonnes of oil annually for the national edible fats and soap industry. Oil exports reached 22,908 tonnes in 1996, earning the country US$ 11 million in foreign exchange (Nuñez 1998). Destinations included Mexico (80 per cent) and Europe (20 per cent). In 1999, exports increased to $22,802,093 (El Comercio 11/03/2000).

The following box shows the planted area of oil palm per region and per province.

Source: National Census ANCUPA 1995 in Nuñez (1998).
Ministry of Environment, 1999.

These figures are official and are underestimates. ANCUPA projects oil exports for the year 2000 of 70,000 tonnes, earning around US$ 30 million (Hoy 18/11/98). As the president of ANCUPA recently declared, "plans are that between 80,000 and 100,000 tonnes of oil will be exported [yearly] before 2007, which would correspond to the generation of around $30 million and the creation of 20,000 new direct and permanent jobs" (El Universo 11/03/2000). However, it is important to highlight the background to the job figures mentioned: most of the jobs are temporary, through contractors, with very poor work conditions and low payment rates in violation of labour legislation. It is also important to consider the jobs lost due to the displacement of people.

In San Lorenzo, in the North of the province of Esmeraldas, an unprecedented amount of land has changed hands over the past several years. Land is bought by dealers at absurdly low prices and then sold to palm cultivation companies at a higher price. In other cases, especially in the area of Recaurte in the same province, these companies buy land directly from farmers at even lower prices than those paid by land dealers.

Through these mechanisms, the companies have been able to take over peasants’ land at the same time they occupy over 60,000 hectares of state-owned forest areas. Some of this land is now in the hands of the brother of former president Jamil Mahuad Witt and the president of the National Congress, Juan José Pons Arízaga (La Hora 16/03/2000).

In February 1999, members of the Board of Directors of the Union for the Defence of Peasant Farmers of San Lorenzo, together with another 150 peasants from the districts of San Lorenzo and Eloy Alfaro, denounced the clearcutting of primary and secondary forests by palm companies planning to plant 60,000 hectares of oil palm monoculture. This process was started in 1998, and 8,000 hectares of forest have already been cleared, according to the Ministry of Environment. Non governmental organizations and the Agency for the People's Defence have filed legal claims to stop the establishment of oil palm plantations in San Lorenzo (Luna 1999).

It is important to highlight that the forests in this region integrate the ecosystem of Chocó and that their levels of species diversity and endemism are high. In fact, the area is considered one of the "hot spots" which boast the world’s highest biodiversity. There are, in this region, around 6,300 species of higher plants, 1,200 of which are endemic. There are also over 800 species of birds, 40 of which are endemic. In addition, the area has over 142 species of mammals, 15 of which are endemic. There are also many other endemic vertebrate species, including chiroptera and amphibian. This is the area with the largest number of endangered species in the country. Such forests once covered 80,000 square kilometres of lowland in the West, but less than six per cent of the original tree cover remains today, which makes this the most devastated region of Ecuador (Luna, 1999).

The main actors in the oil palm industry in Ecuador can be grouped as follows:

• First, transnational producers in alliance with national capital. Local firms are heavily involved in national politics, and use their prominence in public positions to benefit their commercial groups:

INDUPALMA (Industria Agraria La Palma). Financed largely by Colombian capital, this group includes firms dealing in oil palm production, edible oil extraction and marketing. It includes Aceitera Industrial Danec (Danec S.A. of Panama) and Agropalma. In 1975, Palmeras de los Andes was formed, with participation of INDUPALMA, Panameñas Tatiana S.A, Oleaginosas Centroamericanas and the Colombian enterpreneur Salomón Gutt (former Director of the Popular Bank, charged with fraudulent claims of bankruptcy). Compañía Palmeras de Ecuador is also part of this group.

Morisaenz group. Mario Ribadeneira is the main shareholder of this group. He was Ecuador's Ambassador to the United States in the Febres Cordero Administration (1984-1988) and Minister of Finance in the cabinet of former President Durán Ballén (1992-1996). Also in this group are Marcelo Pallares, another former Director of the Popular Bank; Ernesto Ribadeneira and the group COFIEC (La Internacional and Diario Hoy). This group has interests in Palmaoriente S.A.

Granda group. This group was established by Antonio Granda, founder and president for life of the National Association of African Palm Cultivators (Asociación Nacional de Cultivadores de Palma Africana - ANCUPA) (Fierro 1992). At present, the group is managed by his heirs.

In 1986 three industrial groups controlled the use of crude palm oil: Aceites La Favorita (Noboa Bejarano group), Industrias Ales (Alvarez group, the Church and others) and OLEICA and CEDOSA (OLJACE group). Together, these groups shared over 83 percent of the total sales. Danec and Agropalma of the INDUPALMA group and Skineer Comercial Co. (Granda group) should also be mentioned. The President of the National Congress, Juan José Pons, shareholder of Ales (La Hora 16/03/2000), was once linked to OLJACE; in his position of Minister of Industry in the Borja Administration (1988-1992) he authorized a two-fold increase in the official prices of all sorts of edible oils (Fierro 1992).

The following companies are vertically integrated with the main national and international corporate groups involved in growing, processing and trading oil palm products:

Palmeras del Ecuador of the INDUPALMA group. Other national firms also have a stake in this company, including Industrias Ales and El Comercio, the main newspaper of the country, which belongs to the Mantilla group. Palmeras del Ecuador owns 20,000 hectares in Santo Domingo in the province of Pichincha and nearly 14,000 hectares in Shushufindi, in the Ecuadorian Amazon.

Palmeras de los Andes. This firm operates on the right side of the San Lorenzo-Ibarra-Guaysa railway and in Chanul, near the streams Najurungo and Panadero in the province of Esmeraldas. It has been in business in Quinindé, province of Esmeraldas and Shushufindi (in the Amazonian region) for 30 years. It is responsible for the destruction of around 800 hectares of forest in the province of Esmeraldas during the last few years and plans the deforestation of a total of 4,600 ha (Marín 1999).

Palmoriente S.A. This company operates in the area of the Huashito river in the Amazonian province of Orellana. It was created in 1979. It is tied to capital from various origins: Belgium’s Socfin Consultant Service (SOCFINCO), Britain’s Commonwealth Development Corporation and Germany’s Deutsche Entwicklungesellshaft (DEG), as well as other firms in the Morisaenz group (Oleaginosas S.A., Servicios Agrícolas S.A.C., United Chemicals Ltd Inv. Extranjera) and Ecuador’s Granda Centeno and Noboa Bejarano groups, Corporación Financiera Nacional, La Favorita, and Ribadeneira Saenz. This last group is associated with Nicolás Landes, a former manager of the Popular Bank, who is wanted by the Department of Justice for fraudulent claims of bankruptcy. They own over 10,000 hectares in Coca (Carrión 1992).

Agrícola San Lorenzo. This firm plants in Ricaurte (on the road from San Lorenzo to Ibarra) in the province of Esmeraldas. It has been operating for 56 years in the area of Santo Domingo de los Colorados. It is responsible for clearing 850 hectares of forest and plans to deforest in total an area of 5,000 ha to make way for oil palm plantations (Marín 1999).

AIQUISA (Agroindustrial Quinindé). This company operates in the Boca and has already cut 650 hectares of forest in San Lorenzo in the province of Esmeraldas. Its project covers a total of 2000 hectares (Marín 1999). It has been in the business of palm cultivation for 20 years in Quinindé.

ALES. This firm is responsible for the deforestation of 400 hectares in the Province of Esmeraldas in the last two years (Marín 1999). No information is available about its future plans.

• Second, independent producers handling plantations of 250 to 1000 hectares in size, settled in the provinces of Esmeraldas and Pichincha. These producers plan to expand operations in the near future:

Hacienda Teobrama. This firm operates in Ricaurte, Mataje, and is responsible for the deforestation of 250 hectares; its future plans include clearing an additional 850 hectares of forest for palm plantations (Marín 1999).

PALESEMA. This company plants in the area of Campanita-Mataje, Robalino, on the road from San Lorenzo to Ibarra in the province of Esmeraldas. It has already destroyed 600 hectares and has plans to deforest a total of 750 hectares (Marín 1999).

La Fabril (Palmera del Pacífico). This corporation operates in Carondelet, San Francisco and Santa Rita up to Boca, in the province of Esmeraldas. It is responsible for the deforestation of 600 hectares and expects its palm monocultures to cover a total surface of 947 hectares (Marín 1999).

Ecuafincas. This firm operates on the road Mataje up to Stream Molinita, in the Province of Esmeraldas. It has been operating for seven years in Concordia and Puerto Quito (northwest of the province of Pichincha) and is responsible for the destruction of 250 hectares of forest. It expects to deforest a total of 1,180 hectares (Marín 1999).

• Third, small agricultural producers cultivating less than 150 hectares, who are subject to the prices imposed on their products by the big firms. This sector only receives what is left over after the monopolistic groups have taken what they can get.

Oil palm companies in Ecuador have historically developed three strategies and applied them simultaneously in different regions of the country:

1) Acquiring concessions from the state in the Ecuadorian Amazon and loans from the Inter-American Development Bank.

2) Purchasing land, either directly or through intermediaries.

3) Purchasing ancestral common lands, which, according to Ecuador's constitution, cannot be sold, and thereby provoking internal conflicts in communities.

In the area of San Lorenzo in Esmeraldas, oil palm companies have established themselves in the State Forest Heritage, where, in theory, they are not allowed to carry out any activity other than sustainable exploitation of natural resources. The firms have also apparently bought land in the buffer zone and inside the Cayapas-Mataje Mangrove Ecological Reserve, which is forbidden (El Comercio 30/03/99).

None of these companies has permits to clear forest. Yet they cut timber and non-timber species indiscriminately to make way for palm plantations, under the eye of forest authorities. In addition, these firms operate without environmental management plans, violating the collective rights of local communities acknowledged in the Constitution of Ecuador and in Convention 169 of the International Labour Organization, of which Ecuador is a signatory. These rights include the right to be consulted when activities are being planned which can affect them.

One strategy used by palm growers is to attempt to curry favour with local people by offering them infrastructural projects such as roads, schools or electric lighting or offering to provide schools with teachers. These promises are often never fulfilled.

Oil palm companies have also recently moved into the northern area of Esmeraldas. This migration to the north of Ecuador's coastal region has been caused by a decreased yield in oil palm plantations in the areas of Santo Domingo and Quinindé. According to ANCUPA representatives, due to "environmental causes and poor nutritional management", yields have fallen by 25 percent and plantations are in such bad shape in the areas of Quinindé, Quevedo and Santo Domingo, that recovery is not possible (El Comercio 11/03/99). New lands are thus needed for oil palm monoculture. An additional impetus for moving to this new area is that land prices are low in the north of Esmeraldas and there are no controls on environmental degradation or land transfer, all of which makes land acquisition easy.

When oil palm companies begin to establish themselves in a specific region, they promise employment, welfare and wealth, and may gain the confidence of the local people. But as time goes by, they do not fulfil their promises and the negative impacts of their activities become evident. These impacts include:

• Concentration of land in the hands of palm companies. In the Amazon, this entails appropriation of indigenous peoples' lands. In the Coastal Region, it means appropriation of Afro-Ecuadorian ancestral lands.

• Displacement of farmers from the region. After farmers have sold their land to oil palm companies -often through deception or under pressure- they move to nearby villages, large cities, or other forest areas, where they start cutting trees to meet their primary needs. Sometimes they settle in the territories of Afro-Ecuadorian or Awá and Chachi indigenous villages in the province of Esmeraldas, or in the territory of the Quichuas in the Amazon Provinces, provoking social conflicts.

• Destruction of social structures and traditions of indigenous and Afro-Ecuadorian populations, with subsequent cultural impoverishment.

• Declining availability of material for building houses, canoes, and utensils due to forest clearance, and the disappearance of fruit collection and hunting, traditional medicine and traditional agriculture. The end of self-subsistence brings with it undernourishment and poor nutrition (Cedis 1985).

• Rise in the price of land; market dependence; increasing need of money, especially for small producers, farmers, indigenous and Afro-Ecuadorian people; dependence on capital and new technology; dependence on commercial monopolies; indebtedness (Cedis 1985).

• Agro-chemical contamination affecting workers and families living near plantations, either directly through contact with the chemicals or indirectly through ingestion or use of contaminated water. Some 58 per cent of agricultural workers in oil palm plantations show symptoms of contamination to varying degrees due to carbamate and organophosphate pesticides (F. Natura in Nuñez 1998).

• Liver and skin diseases caused by contact with or ingestion of water contaminated by the pesticides used in palm plantations, which degrade only slowly (F. Natura en Nuñez 1998). Such diseases affect users of water from the Cocola river in Independencia and the Cucaracha river in Concordia (near Santo Domingo de los Colorados in the province of Pichincha).

• Domination of the agricultural labour force by the contractors who are in charge of hiring and paying palm cultivation workers. Oil palm companies have eliminated direct hiring, favour continuous payroll change, and avoiding legal labour obligations, such as payment of social security and other compensations, provision of vacations and overtime pay, etc.

• Reduced labour requirements and dangerous work. Oil palm companies tend to provide only temporary jobs, mainly in the harvest season. The more high-tech the operations and the greater the size of a plantation, the fewer the agricultural workers are hired. Workers do not have the protection required to handle the agro-chemicals they are made to apply. The commonest cases of poisoning cases are those due to the use of carbamate, organophosphate and organochlorinated insecticides.

• Irreversible destruction of large expanses of tropical rainforest and loss of biodiversity in the Amazon region and the north-western forests of Ecuador.

• Disappearance of species in Esmeraldas, including the following valuable timber species: guayacán (Tabebuya guayacan), chanul (Humiria spp.), tillo (Brosimun alicastrum), sande (Brosimun utile ovatifolium), mascarey (Hyeronima alchorneoides), guión (Pseudolmedia laevis), chalviande (Virola sebifera), laguno (Vochysia ferruginea), maría (Calophyllum brasiliense), matapalo (Ficus insipida), anime (Dacryodes olivifera), cedro (Cedrela odorata), cedrillo (Tapirira guianensis), balsa (Ochroma spp.) and guarumo (Cecropia spp). Among non-timber species the following can be mentioned: tagua (Phytelephas aecuatorialis), chapil (Jessenia bataua), guadua cane (Guadua angustifolia), pambil (Iriartea deltoidea).

• Occupation of and pressure on protected areas, particularly the Cayapas-Mataje Ecological Reserve in Esmeraldas. Oil palm monoculture has had a serious impact on local communities, the Reserve and mangrove ecosystems near the area, as well as on socio-economic activities, such as seafood collection, fishery and others (Luna 1999).

• Heavy use of insecticides, fungicides and herbicides. Those most widely used are: endosulfan (organochlorinated) and carbofuran (carbamate, forbidden in the United States and Canada), malathion (organophosphate); the most widely used herbicide is glyphosate; while carboxin is the most common fungicide (Nuñez 1998). These insecticides used have been classified as highly and moderately dangerous by the World Health Organization. These companies also use chemical fertilizers. All this has led to water contamination. Water sampling in palm-growing zones in Pichincha near Santo Domingo show that chemical concentrations exceed the limits recommended for human or livestock consumption. They are also too high for irrigation and the support of aquatic life (Nuñez 1998). In addition to affecting the health of agricultural workers and people who live near plantations, agro-chemical contamination has brought about:

(1) Contamination and destruction of river life. The use of river and stream water to prepare and wash the equipment for applying chemicals periodically kills fish and other aquatic life. Waste from palm extraction factories containing high-fat residues meanwhile alters the oxygen concentration of the water.

(2) Deterioration of the health of domestic animals and wildlife near the plantations. The inhabitants of Santo Domingo de los Colorados report the disappearance of fish species, such as guañas (Chaetostoma aequinoctialis), barbudos (Rhamdia wagneri), and others.

• Exposure of soils to solar radiation and rainfall, leading to soil erosion, compactation and impoverishment.

• Exacerbation of climate change through forest destruction and associated carbon releases into the atmosphere which, by causing global warming, may further accelerate deforestation.

• Hydrologic changes due both to deforestation and to the channelling and draining of streams.

• Air and water pollution from the fumes and gases expelled by oil extraction factories and inappropriate disposal of wastes (Alerta Verde 1996).

In the province of Esmeraldas the hope is that in seven years, when current plans for oil palm plantations have been completely implemented, the local population will benefit through increased employment, welfare and prosperity. However, the bitter experience of palm monoculture in the Ecuadorian Amazon suggests that a different future is in store.

Oil palm monoculture, like other export-oriented agro-industrial activities, responds to the production logic of a model that privileges environmental destruction, over-exploitation of natural resources, and the cultural destruction of indigenous and Afro-Ecuadorian populations. Official deforestation figures do not show the full destructiveness of the crop, since inspections to plantations are few, access to cultivation areas is difficult, armed guards and barriers prevent the gathering of information, and there is insufficient political will to monitor the expansion of oil palm.

Various governments have provided incentives, loans and subsidies for this activity to companies with a record of having caused severe social and environmental impacts in the past.

There are no regulations or control over the violent expansion of the plantations, and thus it is necessary to support communities and organizations that resist the implementation of oil palm monoculture. This support can include disseminating information on the social and environmental impacts of oil palm, putting pressure on the government and multilateral finance agencies to change their policies, and fighting for adequate measures to protect tropical rainforests.

The Case of Indonesia: Under Soeharto's Shadow
by Mia Siscawati

The first seedlings of oil palm were planted in Bogor Botanical Garden in West Java, Indonesia, in the nineteenth century. Those first seedlings later became the mother trees for the first oil palm plantations in Indonesia and Malaysia. The state-owned oil palm estates were originally established by the Dutch colonial government between 1870 and 1930. This was made possible by the 1870 Agrarian Law, which declared all land not under permanent cultivation to be "wasteland". Dutch investors in oil palm development received lands on 75-year renewable leases at nominal rent. The first oil palm plantations in Indonesia were set up in North Sumatra in 1911 -during the Dutch period- by SOCFIN (Société Financière des Caoutchoucs), a Franco-Belgian corporation. In 1938 the combined export from North Sumatra and Aceh were the highest in the world as a result of an injection of Dutch capital which had led to rapid expansion in the area of plantations and production. The plantation system stagnated after Indonesian independence in 1945, as Dutch plantation owners no longer had the backing of the colonial government. Another reason for the stagnation was that the first Indonesian president Sukarno promoted an isolationist policy during the period of Guided Democracy (1950-1955) which opposed foreign capital and foreign loans.

The plantation system started to grow from 1967 -the beginning of New Order period under second President Soeharto- when the government of Indonesia (with World Bank assistance) made direct investments through state-owned companies. From 1967 to 1977, the expansion of oil palm plantation was still slow, but from 1978 onwards, growth averaged 21.7 per cent per annum for industrial private plantations and 2.9 per cent for state-owned plantations.

In 1980/1981 the government implemented a World Bank-funded project on Nucleus Estate and Smallholders (NES), combined with a transmigration scheme for the crop plantation sub-sector. In 1984, the Ministry of Agriculture launched a regulation to develop oil palm plantations under an NES approach. In 1986, Presidential Decree No. 1/1986 stated that the development of NES schemes should be integrated with transmigration programmes. Government-sponsored migrant farmers were mainly used to open up forest areas and as a cheap source of labour for industrial plantation companies. From 1986 onwards, the Indonesian private oil palm plantation sector experienced rapid growth.

In 1985, oil palm plantations covered 600,000 hectares in Indonesia. By 1996 they extended over some 2.2 million hectares. More recent figures suggest that there are now 2.4 million hectares of oil palm, of which state-run companies possess 443,000 hectares of older productive plantings, smallholders have 824,000 hectares, and private companies the rest, primarily new, immature plantations (Potter and Lee 1998). Besides existing plantations, some 6.8 million hectares of land has been recently released for future plantations (Suara Pembaruan 10 October 1997). This figure does not include applications to develop new plantations, which had reached nine million hectares by June 1998 (Suara Pembaruan 26 July 1998).

What with increasing international demand for palm oil products and to Indonesia's low production costs -assisted by the government's subsidization of land and capital- the Indonesian government maintains its ambition to become a major player in the international export market. As a result, the area covered by oil palm plantations is likely to continue growing dramatically.

Between 1991 and 1996, Indonesia's exports of palm oil products increased 32 per cent, reaching US$ 1 billion in value. The government set a production target of 7.2 million tons of crude palm oil by the year 2000, hoping to increase the plantation area to three million hectares. The Ministry of Agriculture then announced in 1998 that an additional 1.5 million hectares would be added as part of a new policy to address Indonesia’s economic crisis.

In the context of the crisis, the palm oil business seemed attractive: investment and operational costs are in rupiah, while export sales return investment in dollars. Accordingly, the government lifted its export ban on palm oil on April 22, 1998. In May, Rahardi Ramelan, the Minister of Industry and Trade, and Muslimin Nasution, the Minister of Forestry and Plantations, confirmed that they would concentrate on boosting foreign exchange earnings from exports, Muslimin mentioning the palm oil sub-sector as a specific priority (Jakarta Post 5/5/98, 27/5/98). The integration of Forestry and Plantations into one Ministry in 1998, which made it easier to convert forest land legally into plantations, can be seen as further evidence of the government's ambitious plans for plantations. In 1999, the Minister of Forestry and Plantations even suggested to the Minister of Industry and Trade, that the government should reduce the export tax on oil palm from 10 per cent to nil (Bisnis July 28/7/99). Clearly, the Indonesian government is predisposed to try to export its way out of the crisis and is bent on achieving this goal by returning to its comparative advantage in agriculture and agro-industry. Minimizing disincentives for investment in oil palm is a key part of this vision. However, the policy of integrating timber and tree crop plantation development within production forest areas and permitting a single company to obtain concession rights for logging, timber plantation, and tree crop plantation contradicts another government policy. This is the policy which prohibits "clearcutting in production forest areas". Under the first policy, timber and oil palm plantation companies are allowed to clearcut production forest areas to give way to timber or oil palm plantations. This is illegal according to the second policy.

The 50-point package pushed on Indonesia by the International Monetary Fund and the World Bank in the context of the economic crisis meanwhile calls specifically for the liberalization of the oil palm plantation sector. That means reopening the sector to foreign investment: point 39 of the package requires Indonesia to remove "all formal and informal barriers to investment in palm oil plantation". This requirement is clearly detrimental to environmental concerns, since it will greatly increase pressures to convert forest land to plantations. Although point 50 requires the government to "reduce land conversion targets to environmentally sustainable levels by the end of 1998", this requirement obviously contradicts point 39.

In August 1999, the government promulgated a new regulation which allows plantation companies to establish tree crops in "non-productive production forests" (containing less than 20 m3 of timber per hectare) previously allocated to logging companies. Forty percent of these areas can be allocated for estate crops (including oil palm) and the rest can be allocated for timber plantations. This regulation makes it attractive for companies to carry out illegal activities in order to reduce timber densities to a level below 20 m3 per hectare, or even simply to manipulate the findings of inventories, and then apply for permits to establish oil palm or softwood plantations. A similar (and similarly controversial) previous regulation has encouraged development of monoculture timber plantations, and has been identified as one of causes of deforestation in Indonesia.

In the near future, a greater proportion of Indonesian oil palm plantations are likely to be foreign-owned. Foreign entrepreneurs are likely to challenge the current dominance of private domestic firms -which themselves overturned the dominance of state-run companies during the 1980s and early 1990s (Potter and Lee 1998). By 1997, prior to a freeze on foreign investment in oil palm plantations, private foreign companies had already been awarded plantation permits for 93 projects covering over 2.1 million hectares of land, representing a total value of US $ 3.3 billion. These projects were among a total of 612 such projects covering a total area of 8.7 million hectares and representing a total value of US$ 23.55 billion. Some 71 per cent of the foreign investors were Malaysian companies who had signed joint venture agreements to establish plantations on 1.5 million hectares of land. The particular interest of Malaysian companies in Indonesia can be explained by the fact that Malaysia's own plantations are over-aged and their productivity is declining, as well as by the fact that in Indonesia land can be cleared more easily: controls are lacking and Indonesian partners are happy to remove native trees (Bobsien and Hoffmann 1998).

In June 1998, after the freeze on foreign ownership had been lifted, the Directorate General of Plantations stated that 50 foreign investors (of which 40 were Malaysian) were in the process of developing oil palm plantations covering 926,650 hectares in Sumatra and Kalimantan (Jakarta Post 12/6/98). Other major foreign investors come from the British Virgin Islands, England, Belgium, the Netherlands, Hong Kong, South Korea and Singapore.

The Basic Forestry Law of 1967 and the revised Forestry Law of 1999 claim state ownership over all forests in Indonesia without consideration of customary rights and local traditions. This and many other policies deny the existence of forest dwellers, composed of Indigenous Peoples and local communities. Following the Basic Forestry Law, the 1970 Forest Land Use Policy categorized the forests into: 1) production forest (64.3 million hectares); 2) protection forest (30.7 million hectares); 3) conservation and preservation forest (18.8 million hectares); and 4) conversion forest (26.6 million hectares). Forested areas allocated for conversion to oil palm plantations fall into the category of conversion forest. Indigenous Peoples and local communities occupying land under that category have to move, thereby losing access and control over their own land and resources.

In the early 1980s, the World Bank introduced the system of "Nucleus Estate and Smallholders" (NES), which features small-scale plantations surrounding a large one. Farmers operating under the NES system have become completely dependent on one commodity and on the plantation owner -the oil palm company- and have no significant bargaining power. Those not participating in the NES have become landless and tend to be pushed into poverty.

According to the Indonesian Legal Aid Foundation (YLBHI), during 1998 some 827,351 hectares of land in 14 provinces was transferred from the ordinary citizens to private investors. This transfer of ownership and tenurial rights resulted in 214,356 households losing their source of income. If it is assumed that one household contains five persons, then some 1.1 million people face uncertainty about their future ability to meet their basic needs as a result of this process. All of the 81 oil palm companies currently operating in South Sumatra are embroiled in land conflicts with Indigenous Peoples and local communities. While official reports claim that the areas of conflict comprise only 11 per cent of the total oil palm plantation area in South Sumatra, it is widely known that in fact the area of conflict is much larger.

In most cases of land conflict, pressures on Indigenous Peoples and local communities can be categorized as: 1) physical violence with or without arms; 2) intimidation and terror; 3) destruction of people's belongings -homes and gardens- with heavy machinery; 4) stigmatization through accusations of membership in the illegal Communist Party; and 5) denial of civil rights.

All cases of land conflict involve military intervention. To take only one example, thirty armed military personnel attacked Dayak Benuaq people (one of the Indigenous Peoples in East Kalimantan), when they held a traditional ceremony called nalitn tautn at the base camp of the firm PT London Sumatra. The ceremony had been aimed at negotiating with the company and carried the message that if the company could not solve the land conflict, then it should return the land to the customary usage of the Dayak Benuaq people. As a result of the military intervention, seven community leaders were arrested and some other people went missing.

Farmers who get involved in oil palm plantation development under the NES system often see their basic rights to work, to free choice of employment, and to subsistence denied. Fifty Indigenous Peoples' leaders who attended a workshop on oil palm plantations on March 16 1999, prior to the Congress of the Indigenous Peoples of the Archipelago, stated that they had been forcibly involved in oil palm plantation activities, in many cases through military intimidation. Most of the leaders had been arrested and imprisoned when they opposed the project. They noted that they and their peoples had become indebted for the first time in their lives after joining the NES system of oil palm plantation.

The violation of the land rights of Indigenous Peoples and local communities has resulted in loss of income previously provided by their land. A study carried out by the Institute of Dayakology Research and Development (IDRD) concluded that the incomes from two hectares of jungle rubber managed by Indigenous People under a traditional complex agroforestry system in West Kalimantan were at least double those obtained from the same area planted with oil palm. This does not include incomes from fruits, non-timber products and vegetables which can be harvested from the jungle rubber area (KaIimantan Review May 1998).

The development of oil palm plantations under the NES system has meant that oil palm companies play a dominant role in allocating land for farmers, in providing production facilities, in buying and processing the farmers' production and in setting the price for the products. Since the main interest of the companies is to make the highest possible profit, they tend to repress their farmer "partners". A wide economic gap divides the two sides. For instance, a farmer participating in a NES-transmigration system in Pasir District, East Kalimantan, has testified that he has run up a debt of US$ 2,413 to be paid over 13.5 years. This puts him in an extremely difficult situation, since he only receives $200 per year for two hectares of plantation. In the same district, 3,000 households lost a total of $5 million because 800 tonnes of fresh fruit of oil palm were destroyed by the company in order to maintain the price at the level it wanted (Wirasapoetra 1999).

As stated above, in 1970 the Forest Land Use Policy divided forests into production forest, protection forest, conservation and preservation forest, and conversion forest. A 1997 official report stated that the area of conversion forest had decreased from 26.6 million to only 8.4 million hectares. Remaining conversion forests are located in West Papua (31.73 per cent), Maluku (27.38 per cent), Sumatra (20.04 per cent), Kalimantan (9.49 per cent), Sulawesi (9.21 per cent), Bali and Nusa Tenggara (2.15 per cent). Comparing the planned area for oil palm plantation with the available areas of conversion forest, Sumatra and Kalimantan are showing deficits, while conversion forests in West Papua and Maluku are increasingly under pressure. With the decline in the area of conversion forest, the increased demand for land for oil palm development has put pressure on the remaining natural forest (under the category of production forest).

The policy of integrating timber and tree crop plantation development within the production forest areas, and allowing a single company to obtain concession rights for logging, timber plantation and tree crop plantation has encouraged many logging companies to apply for permission to establish new oil palm plantation areas. Moreover, this situation is encouraged by the Wood Utilization Permit (Ijin Pemanfaatan Kayu, or IPK), which allows logging companies to clearcut logged-over areas or forested areas designated by the Ministry of Forestry and Plantation for conversion. Timber from land-clearing thus becomes the main interest for many logging companies to apply for concession rights for oil palm plantations, since the IPK allows non-selective harvesting techniques, establishes minimal royalties and no restoration fee. In 1998, the Minister of Forestry and Plantations permitted five state-owned logging companies (Inhutani I to V) to establish new oil palm plantation areas with the expectation that this new business would increase the incomes of those companies within a short period of time (Neraca, 5 May 1998).

Primary undisturbed rainforests usually do not burn due to the high level of moisture which characterize them and there are no natural causes for forest fires such as lightning. Indigenous forest dwellers have sophisticated land-use and forest management skills, which are highly adapted to this sensitive environment. But when primary rainforests are greatly altered by activities such as logging, mining, conversion into large-scale agriculture (e.g. agro-industry land use), plantations, and settlement areas, these land-use changes modify many ecological characteristics. The ecological impact of logging alone is severe enough to result in a significant increase of fire risk, especially in times of periodically-occurring droughts. In 1982/83, some 3.5 million hectares of Indonesian forests burned, including some 378,000 hectares in East Kalimantan, an event that remained widely unreported by the media.

The role of the timber plantation and tree-crop plantation business as a major direct cause for the devastating 1997 forest fires was officially recognized by the Indonesian government. The Minister of Environment stated that about 80 per cent of the fires were started by plantation owners, industrial estates and transmigration land-clearing projects. The former Minister of Forestry, Djamaluddin, announced that 46 per cent of the hot spots appearing on satellite images on 28 September 1997 were in the lands granted for plantations (Jakarta Post, October 9 1997 in Schweithelm, J, 1999). Indonesia has, for the first time, publicly identified suspected culprits. So far, 176 plantation, timber and construction companies and transmigration projects have been named as possible users of fire to clear land, despite a ban on burning during the unusually long dry season. In Indonesia, large-scale plantation of tree crops resort to fire as a cheap way of clearing the land and the scale of burning is commensurate to the scale of the plantations themselves. Additionally, it is important to note that monoculture plantations dramatically increase the fire risk, because the changes they introduce result in a much drier environment than that of natural tropical moist forest.

Many oil palm plantations were identified as using fire for land-clearance in 1997. Fires were not only used as a means of clearing the land, but in some cases also to deliberately blur the boundary of concessions and to acquire more lands. Among the 176 companies identified as possible suspects for the 1997 fires of fire, 133 were oil palm plantation companies, 43 of which Malaysian.

The Indonesian oil palm industry is controlled by some of Indonesia's most influential business families. In 1997, the Indonesian private oil palm plantation sector was dominated by eight Indonesian conglomerates owned by several Indonesian entrepreneurs, most of them having very close links with the Soeharto Family: the Raja Garuda Mas Group, the Astra International Group, the Sinar Mas Group, the SIPEF Group, the Socfin Group, the Napan Group, the Bakrie Group and the Salim Group. Most of these groups are also involved in logging, in the pulp industry and in other sectors as well as in palm oil processing.

As mentioned above, most of the palm oil industry businesses have links with the Soeharto family. In the mid 1980s, a joint venture of the Salim and Sinar Mas Groups was established involving two sons of Soeharto (Sigit Harjojudanto and Tommy Soeharto), and Soeharto's cousin, Sudwikatmono. The Salim and Sinar Mas Group split their joint venture in late 1980s and each group developed their own division of crude palm oil. However, the Soeharto family interests were still represented in both groups. Sinar Mas then developed its division of edible oil in collaboration with the second son of Soeharto, Bambang Trihatmojo, who also has share in a plantation company belonging to another conglomerate, the Bakrie Group. Also involved in this collaboration is Bambang's younger sister Siti Hediyati. She and her brother-in-law, Hashim Djojohadikusumo, established a joint venture with a Sino-Malaysian tycoon, Robert Kuok, to develop a 44,000 hectare oil palm plantation in South Sumatra in 1994. In that year, the third generation of Soeharto's family joined the business. Ari Harjo Wibowo, Sigit's eldest son, owned a company which received a special quota from the Indonesian Logistic Board to market 70,000 tonnes of crude palm oil a month, which is more than the joint quota for the Salim and Sinar Mas Groups. When Ari decided that he wanted to manage his own plantations, the Minister of Transmigration provided him a contract to establish an 80,000 hectare oil palm plantation in East Kalimantan, which used transmigrants as captive labour. In March 1996, using his First Family connections, Ari signed a memorandum of understanding with a Pakistani trading corporation to export US $ 1.24 billion worth of crude palm oil to Pakistan (Aditjondro, 1997).

After the freeze on foreign ownership had been lifted in 1998, the Directorate General of Plantations stated that 50 foreign investors (of which 40 were Malaysian), were in the process of developing oil palm plantations (Jakarta Post, June 12, 1998). In expanding their business, Malaysian companies are financially assisted by European Banks. Other major foreign investors came from the British Virgin Islands, England, Belgium, the Netherlands, Hong Kong, South Korea and Singapore.

One of the most profitable oil palm companies is PT. London Sumatra (LonSum), which was set up by the British group Harrisons and Crosfield in 1906, but then was sold to an Indonesian company. At the end of 1997 LonSum was managing 19 plantations comprising a total of 54,477 hectares, half of which planted with oil palm. In July 1996, LonSum offered 38.8 million new shares to the public through an Initial Public Offering (IPO) on the Jakarta Stock Exchange and the Surabaya Stock Exchange. LonSum used the proceeds of the IPO to repay debts, to finance a new plantation, and to strengthen its working capital. Since then, it has developed further plantation area expansion plans. LonSum plans to develop an additional 75,000 hectares in Sumatra (70 per cent will be planted with oil palm) and 15,000 hectares in Kalimantan (100 per cent oil palm). However, the land area will be much larger, given that LonSum will establish nucleus plantations, which will give the company access to a total area of 220,000 hectares. With support from the HSBC Investment Bank in Singapore, LonSum has obtained a US$ 210 million loan from 29 banks from 10 different countries including Japan's Sumitomo Bank in Singapore, the Bank of Taiwan and Rabobank Indonesia.

International financial institutions have also shown their interest to support plantation expansion. The World Bank has offered to provide the Indonesian government with supporting investments for infrastructure, land titling and risk assessment to further develop the oil palm sector (Larson, 1996).

In November 2000, Guthrie Bhd's successful bid in acquiring 24 oil palm plantations in Indonesia at US$ 350 million is a boost to some investors. This is especially so for Malaysians who have put their investment through the unit trust operated by the Permodalan Nasional Bhd (PNB), the government's biggest investment arm that controls Guthrie.

The corporate giant might not face any obstacle from being shortlisted and eventually picked as the buyer of the properties that had come under the state-owned Indonesian Bank Restructuring Agency (IBRA/BPPN=Badan Penyehatan Perbankan Nasional).

The assets, totalling more than 260,000 hectares in Sumatra, Kalimantan and Sulawesi, owned by an Indonesian giant, Salim Group, had been transferred to IBRA as part of an arrangement to repay its debt to the government. Salim Group owner, Liem Soe Liong, once Indonesia's top Forbes list and a close associate of former President Soeharto, had to give up several of his assets to IBRA in a debt swap arrangement after falling victim to the financial crisis.

Development of oil palm plantation in Indonesia has clearly shown that it contributes to socio-cultural destruction, including human rights violations of Indigenous Peoples and local communities. It has also clearly shown that it significantly contributes to the process of deforestation and biodiversity loss in Indonesia and to other environmental impacts including forest fires and water scarcity.

Ambitious expansion plans of oil palm plantation in Indonesia, promoted and subsidized by government policies and opened to foreign investment, will contribute to increase the process of socio-cultural and environmental destruction.

The views of Indigenous Peoples directly impacted by the oil palm business need to be taken into account and are summarized in the following conclusions arrived at during a workshop held in Nusantara on March 13 1999:

1. To return Indigenous Peoples' rights to natural resources which have been taken over, robbed and bought by oil palm plantation companies under armed pressure

2. To stop the expansion and development of large scale oil palm plantations in the Indigenous Peoples' territories

3. To stop any kind of foreign debt related to the expansion and development of large scale oil palm plantations

4. To call for the recognition, respect and protection of Indigenous Peoples' rights

5. To develop a network of Indigenous Peoples all over Indonesia, especially those who have become victims of oil palm plantations

6. To call on the government to revoke all regulations which have marginalized Indigenous Peoples

7. To call for law enforcement of harmful activities faced by workers of oil palm plantations, such as immoral behaviour and sexual harrassment

8. To call on the military to revoke its dual functions (defence function and socio-political function).