{"id":95567,"date":"2023-01-20T15:38:44","date_gmt":"2023-01-20T15:38:44","guid":{"rendered":"https:\/\/chinadialogue.net\/?p=95567"},"modified":"2023-01-31T17:30:50","modified_gmt":"2023-01-31T17:30:50","slug":"china-palm-oil-business-in-indonesia-challenges","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/business\/china-palm-oil-business-in-indonesia-challenges\/","title":{"rendered":"China\u2019s palm oil business in Indonesia: Socio-environmental challenges"},"content":{"rendered":"\n

On 8 March 2022, dozens<\/a> of Indonesian contract farmers gathered in front of the local parliament building at Sintang, West Kalimantan, to protest against three palm oil companies. These contract farmers, also known as \u201cplasma smallholders<\/a>\u201d, work under a scheme with a company that sends field workers to plant on the farmers\u2019 land in return for part of the harvest.<\/p>\n\n\n\n

Along with two Indonesian companies, the Chinese company PT Julong Group Indonesia was accused of disbursing a concession fee that the contract farmers claimed to be too low<\/a> and not reflective of the rising price of palm fruit. Julong was also accused of land grabbing<\/a> \u2013 taking over local land illegally for palm oil cultivation.<\/p>\n\n\n\n

In response, the leader of the local parliament visited<\/a> the land under dispute, along with hundreds of contract farmers, but Julong was absent. To press for a response, the protesters besieged<\/a> the company\u2019s office, which further escalated to blocking the road to the company\u2019s complex. The conflict lasted for 12 days and ended only after the local parliamentarians held closed-door mediation<\/a>.<\/p>\n\n\n\n

This series of events form the largest protests against Julong in recent years. Despite the company\u2019s presence in Indonesia for more than a decade, Julong often still struggles with community discord over its sustainability practices. This is in sharp contrast to how Julong is presented by Chinese sources as a role model<\/a> among China\u2019s \u201cgoing-out\u201d enterprises (companies which invest in foreign nations).<\/p>\n\n\n\n

Drawing on our ongoing study of Julong and other evidence, we consider both the context for China\u2019s presence in Indonesia\u2019s palm oil sector and different stakeholder views on Julong\u2019s sustainability practices. In doing so, we aim to reflect on the particular challenges associated with China\u2019s palm oil business in Indonesia, for both China\u2019s \u201cgoing-out\u201d enterprises and Indonesia\u2019s palm oil sector.<\/p>\n\n\n\n

China\u2019s presence in Indonesia\u2019s palm oil production<\/h2>\n\n\n\n

Palm oil is an edible vegetable oil with many different properties and functions. According to WWF-UK, it is present in close to 50%<\/a> of packaged products in supermarkets, ranging from food including pizza, doughnuts and chocolate, to personal care items such as deodorant, shampoo, toothpaste and lipstick. Indonesia is the world\u2019s largest supplier of palm oil: in 2017, the country alone produced almost 50%<\/a> of global supply. Around two-thirds<\/a> of the Indonesia-produced palm oil is exported, with major international buyers including India, China, and Europe.<\/p>\n\n\n\n

Despite its economic significance, or perhaps because of it, Indonesia\u2019s palm oil sector has been highly contentious given its profound adverse environmental and social impacts in some circumstances. The production of palm oil has resulted in major deforestation of Indonesia\u2019s peat swamp forests<\/a> \u2013 the native habitats of endangered species such as orangutans and also one of the world\u2019s most important ecosystems. Conversion of these forests to palm oil plantations frequently causes forest fires<\/a> and massive greenhouse gas emission<\/a>s from the carbon rich peatlands, contributing to climate change. Socially, land-related conflicts with local and indigenous communities<\/a> have been pervasive. There are also issues related to the exploitation of workers, including children.<\/p>\n\n\n\n

\"Orangutan<\/div>
An orangutan in Central Kalimantan (Image \u00a9 Ulet Ifansasti \/ Greenpeace)<\/div><\/div><\/div><\/div>\n\n\n\n

China is the world\u2019s second largest<\/a> importer of palm oil after India. Given various serious constraints<\/a> on producing palm oil domestically, China has been entirely dependent<\/a> on imports. Establishing palm oil operations overseas has thus been a way to directly control production, which has been driven by a national imperative to secure food supply and gain more leverage<\/a> over international pricing.<\/p>\n\n\n\n

On the Indonesian side, China\u2019s demand for palm oil is welcome, especially due to dwindling demand from Europe. In 2018, the European Union introduced a ban<\/a> on palm oil biofuels (effective from 2021). Soon after, during a visit to Indonesia by China\u2019s Premier Li Keqiang in 2018, Indonesia\u2019s President Joko Widodo (Jokowi) and Li specifically discussed and agreed to increase<\/a> China\u2019s palm oil imports from Indonesia.<\/p>\n\n\n\n

Julong as China\u2019s ‘exemplar’<\/h2>\n\n\n\n

Established in 1993 in Tianjin, Julong is a privately-owned enterprise that started as a small grain oil shop and then focused on palm oil related businesses. It is now the largest palm oil player<\/a> in China, contributing to 22% of total trade volume. In 2006,<\/a> following the Chinese government\u2019s call for \u201cgoing out\u201d, Julong officially launched its first foreign investment in Indonesia\u2019s palm oil plantation.<\/p>\n\n\n\n

Today, the Julong Group owns 11 palm oil plantations<\/a> in Indonesia (mainly in Kalimantan), with a total area of nearly 200,000 hectares. Julong has also expanded to palm oil processing and logistics businesses<\/a> in multiple sites in Indonesia, and owns three crushing mills, two river port logistics warehousing bases, and several other plants under construction.<\/p>\n\n\n\n

Julong\u2019s presence in Indonesia has received high-level government recognition<\/a> from the China side. In particular, the China-Indonesia Julong Agricultural Industry Cooperation Zone \u2013 a project led by Julong in collaboration with its partners \u2013 was among the Belt and Road projects signed by presidents from both sides<\/a> during a visit by China\u2019s President Xi Jinping to Indonesia in 2013 and also during Jokowi\u2019s visit to China in 2015.<\/p>\n\n\n\n

Within China, Julong has been promoted as an exemplar among the \u201cgoing out\u201d enterprises. The Group has received extensive media coverage (eg Xinhua<\/a>, CCTV<\/a>) on its sustainability practices; and it was listed as a successful case study in the 2017 Sustainable Development Report on Chinese Overseas Enterprises<\/a>, jointly published by China\u2019s Ministry of Commerce, State Council, and the China Office of the UN Development Programme. Julong was also ranked first among 99 of China\u2019s Belt and Road Initiative industrial parks, according to a 2020 study<\/a> by China\u2019s Energy Foundation and the China Energy Research Society.<\/p>\n\n\n\n

These appraisals have emphasised Julong\u2019s work creating employment<\/a>, sharing profits with smallholder farmers through the plasma scheme (termed as a \u201ccooperative planting\u201d<\/a> model in Chinese), increasing local people\u2019s income<\/a>, and improving local infrastructure<\/a>.<\/p>\n\n\n\n

\"Deforestation<\/div>
Deforestation in Central Kalimantan (Image \u00a9 Ulet Ifansasti \/ Greenpeace)<\/div><\/div><\/div><\/div>\n\n\n\n

Poor performance in the eyes of NGOs<\/h2>\n\n\n\n

These overwhelmingly positive reports on Julong in China sit in stark contrast with its low ranking among local Indonesian and international NGOs. In 2017, Julong\u2019s membership of the Roundtable on Sustainable Palm Oil<\/a> \u2013 the international organisation promoting the growth and use of sustainable palm oil \u2013 was terminated<\/a> after the company failed to submit its Annual Communications of Progress for three consecutive years.<\/p>\n\n\n\n

Julong is also poorly rated by Greenpeace in terms of forest protection and fire control. In Greenpeace\u2019s 2021 report<\/a> on illegal palm oil in Indonesia\u2019s forests, Julong was listed as one of the top 25 producer groups with the largest palm area inside forests. In a 2019 report<\/a> on Indonesia\u2019s fires, Julong was identified by Greenpeace as one of the groups with the highest number of fire alerts\/\u201chotspots\u201d (as derived from satellite sensors), responsible for burning 6,800 hectares of land between 2015 and 2018.<\/p>\n\n\n\n

Another major criticism of Julong relates to its lack of transparency. On an online platform called SPOTT, developed by the international conservation charity Zoological Society of London, Julong is ranked as one of the lowest on their Palm Oil Environmental, Social, and Governance policy transparency assessments: it had a total score of 1.1 out of 100, and ranked 93rd out of 100 selected companies in the 2021 annual review<\/a>.<\/p>\n\n\n\n

Ambivalent local attitudes about Julong<\/h2>\n\n\n\n

During the conflict described earlier, the plasma-smallholder protestors raised 17 demands, mostly calling for Julong to share more of their business revenues\/profits with them. This included not only increasing the concession fee, but also involving plasma smallholders in Julong\u2019s business operations (as opposed to keeping to a transaction-based relationship only) and hiring more local people (instead of foreigners and\/or Indonesians from other parts of Indonesia) as either field workers or managers.<\/p>\n\n\n\n

In addition, a key issue raised during the conflict was Julong\u2019s corporate social responsibility (CSR). Commenting on the protests, local parliamentarians suggest that the problem<\/a> is that Julong has failed to deliver CSR programs that bring positive, substantial impacts to the local society. In elaborating on their expectations, one stated<\/a>:<\/p>\n\n\n\n

\u201cCSR is mandated by law and thus must be delivered. Companies [including Julong] must be sensitive to what the community needs and try to help them, such as by repairing roads, helping with worship facilities, providing educational assistance and other social assistance.\u201d<\/p>\n\n\n\n

Local dissatisfaction with Julong was also manifested in a conflict at Sintang in 2019. Similar to the more recent episode, a number of villagers barricaded the access road to one of Julong\u2019s estates, accusing<\/a> the company of delaying the conversion of their plots for planting, which was agreed in 2007. The long delay made Julong the sole beneficiary of the plots and prevented the plasma smallholders from sharing any benefit. Again, the villagers attributed their discontent to the absence of CSR programs from Julong. As one village head complained<\/a>: \u201cThey [Julong] take all the harvest from plasma smallholders but has never delivered any CSR.\u201d<\/p>\n\n\n\n

The complaints against Julong are not uncommon in Indonesian\u2019s palm oil sector. Such grievances or protests may also target Indonesian or other foreign companies, and frequently, the overarching goal is to press for a redistribution of wealth \u201cso that the companies extracted less and gave more<\/a>\u201d. To contextualise the local discontent, various local stakeholders during our fieldwork share the view that, within Indonesian rural communities, those members with considerable wealth \u2013 especially a large company like Julong \u2013 are expected to contribute to the well-being of local people and share their revenues\/profits broadly. This is particularly true in less developed areas such as Sintang as local governments tend to struggle to deliver even basic public services. The locals may thus turn to the perceived wealth of Julong to take up social responsibilities ranging from building roads and providing scholarships, to initiating other schemes to benefit the local people.<\/p>\n\n\n\n

\"overhead<\/div>
A worker handles palm fruit to be processed into oil at a cooperative in East Kalimantan, Indonesia. (Image:\u00a0Ricky Martin<\/a>\u00a0\/\u00a0CIFOR<\/a>,\u00a0CC BY NC ND<\/a>)<\/div><\/div><\/div><\/div>\n\n\n\n

The legal protections around these expectations are generally weak<\/a>. Indonesia\u2019s Plantation Law<\/a> only vaguely requires state-owned and private companies to provide benefits to the local population, and the Investment Law<\/a>, while including a provision on CSR, does not include specific regulations or standards on what corporations must accomplish. These ambiguities thus open a vast space for interpretation and negotiation between a company and various local stakeholders.<\/p>\n\n\n\n

Indeed, our fieldwork indicates that the demands raised in the recent demonstration are controversial on the ground. In fact, Julong only has a dozen employees with a Chinese background among more than a thousand of its staff members in Sintang. The overwhelming majority of Julong employees are non-locals from other areas of Indonesia but this appears to be more driven by a general lack of attractiveness of palm oil field worker jobs. These offer relatively low income but require longer work hours when compared to rubber planting, which remains the most popular option among locals in Sintang.<\/p>\n\n\n\n

<\/div>
Recommended<\/span><\/span><\/div><\/a>\n\n\n\n

Also, while Julong has been repeatedly accused in media reports of \u201cfailing\u201d to deliver CSR, it was presented with a CSR Award<\/a> by the Sintang government in 2021 to recognise the company\u2019s efforts to help with two major disasters. In December 2020, Julong donated<\/a> Covid-19 PCR (Polymerase Chain Reaction) test kits to the government. Following a heavy flood in November 2021, Julong provided<\/a> 300 food packages for affected locals. The company also funded<\/a> a road upgrade project in a small but vital piece of road, making it flood-resistant, thereby facilitating inter-village connectivity. Clearly, however, while these efforts seemed applaudable to Julong and the Sintang government, many in the local community considered them insubstantial<\/a> in terms of contributing to local livelihoods.<\/p>\n\n\n\n

Challenges for ‘going-out’ enterprises and the palm oil sector<\/h2>\n\n\n\n

At the macro level, despite the socio-environmental concerns around Indonesia\u2019s palm oil industry, China\u2019s presence has been strategic and welcomed by both sides. In this context, Julong\u2019s entry to Indonesia has received high-level government recognition and the company has been portrayed as particularly laudable among China\u2019s \u201cgoing out\u201d enterprises, especially for providing employment<\/a> <\/em>and improving infrastructure<\/a>.The greatest criticism of Julong has come from international NGOs, targeting the company\u2019s poor performance in forest protection<\/a> and fire control<\/a>, and lack of transparency<\/a>. <\/em>At a local level, Julong\u2019s profit sharing with plasma smallholders and CSR efforts have been the focus point of disputes in Sintang. While plasma smallholders and some local parliamentarians have voiced concern about what they see as a lack of CSR<\/a>, there are loose legal requirements on companies such as Julong in terms of CSR, despite the high needs and expectations of locals. On the other hand, Julong\u2019s CSR efforts have received recognition from the local government, particularly for helping out in disasters<\/a>.<\/p>\n\n\n\n

The contrasting viewpoints on Julong\u2019s operations in Indonesia are rooted in vastly different priorities and interpretations across stakeholders. The socio-environmental challenges are thus deeply political. That is, whose view is important?<\/p>\n\n\n\n

While the pressure from NGOs and various local groups (including plasma smallholders and parliamentarians) is also faced by Indonesian or other foreign companies, a particular challenge for a Chinese company relates to the differences between operating in China and outside it. As Julong\u2019s PR executive officer explained<\/a>:<\/p>\n\n\n\n

\u201cIn case of land acquisition, there is a very large gap between the local [Indonesian] customs and those in China. After the [Indonesian] local government sells the land to you, they will wash their hands off the matter, leaving all the rest things to be handled by yourself, including the compensation and communication with villagers [while the government in China would be directly involved in negotiating with villagers]\u2026conflicts were common, the roads were frequently blocked, and some even took the gun and machetes to come to our location.\u201d<\/p>\n\n\n\n

The critical challenge for Julong has been to learn how to directly <\/em>interact with the various stakeholders in a foreign context with limited experience, since the Chinese government assumes a very assertive role. The company has clearly recognised<\/a> this challenge and in response has established an \u201cenvironment division<\/a>\u201c, a public relations department responsible for communicating with various stakeholders. However, from the recent conflict and Julong\u2019s rather passive response at the Sintang site, it seems there is still a long way to go for the company to effectively negotiate with various local stakeholders, not only the government.<\/p>\n\n\n\n

<\/div>
Recommended<\/span><\/span><\/div><\/a>\n\n\n\n

From the Indonesian perspective, dealing with Julong and other Chinese palm oil players more generally also comes with its own issues. Most notably, as companies like Julong primarily serve the Chinese market, there is significantly less market<\/a> and home country pressure on the company to uphold NGO and Western sustainability standards (especially when compared to a counterpart serving a Western market). Another key factor is a countering discourse created within China, where companies like Julong may already be considered leaders in terms of sustainability practices, based on a different set of priorities and criteria. These critical contexts provide important explanation as to why Julong can almost ignore its poor rankings among NGOs.<\/p>\n\n\n\n

However, this doesn\u2019t mean that Chinese companies can freely practice sustainability the Chinese way. As the conflict at Sintang shows, local players may demonstrate their agency through powerful means<\/a> including protesting and appealing to local parliamentarians, directly interrupting Julong\u2019s operations, and amplifying their voices through local media. This makes it almost impossible for Julong to completely neglect local demands, especially given the company\u2019s heavy reliance on local resources including land and labour. From this perspective, the sustainability practices of Chinese companies are not determined by the Chinese side alone, but co-evolve<\/a> in contexts within their host society. As such, the challenges introduced by China\u2019s influence in Indonesia\u2019s palm oil sector are also not one-sided and constant but are shaped by shared understandings of appropriateness and evolve over time.<\/p>\n\n\n\n

This article was originally published by <\/em>Melbourne Asia Review<\/em><\/a>.<\/em><\/p>\n\n\n\n

This article is part of our ongoing series on palm oil. Explore the series to date here.<\/em><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Indonesia has welcomed investments by Chinese companies in its palm oil industry, but local communities have accused them of neglecting local needs<\/p>\n","protected":false},"author":1072,"featured_media":95629,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[758],"tags":[555,559,576],"hashtags":[],"country":[50040717],"class_list":["post-95567","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-indigenous-peoples","tag-land-rights","tag-palm-oil","country-indonesia"],"acf":[],"yoast_head":"\nChina\u2019s palm oil business in Indonesia: Socio-environmental challenges<\/title>\n<meta name=\"description\" content=\"Indonesia has welcomed investments by Chinese companies in its palm oil industry, but local communities have accused them of neglecting local needs\" \/>\n<meta name=\"robots\" content=\"index, follow, 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