The experiences of one large palm oil producer in Indonesia show the difference that applying RSPO principles can make. “With our first development, the land issues were a pure living hell,” sighs President Director Pak Agus*. “The first thing that happens is that the land brokers come in.” This is a common phenomenon in Indonesia: when word gets out that a company is planning a large land acquisition, well-connected dealers arrive offering cash to local smallholders to buy their land rights. Contracts are exchanged – but often the money fails to materialize.
When his company embarked on a 30,000-hectare oil palm development, they found multiple layers of brokers, and a lot of local people understandably aggrieved to find they had no legal title to land that was traditionally theirs. The situation was a mess. In many cases, the company had to purchase the same land three or four times because of the different parties claiming ownership.
Between delays, legal fees, staff time and periodic shutdowns, Pak Agus estimates that the situation cost the company US$10-15 million over the course of a decade in direct costs and lost business. Now the company is planning a new 15,000-hectare annex to the original estate – and in an area with a higher population density. “This time,” he says, “we want to prevent these problems from the start.”
Understanding aspirationsNow an RSPO member, the company stepped up its investment in community engagement. Before beginning the acquisition, they set up offices in each village around the proposed estate. They spent six months talking to villagers – not only to establish exactly who owns what land but to get a full understanding of the social landscape and the communities’ hopes and aspirations.
“We want to find the win-win for the company and the community,” says Pak Agus. “We expect that there will be few to no social disruptions – in fact, we’re all looking forward to working together.” The company’s commitment has encouraged Indonesian banks to lend to smallholder cooperatives in the area to help them develop their plots.
The community engagement has cost around US$30,000 – a business risk, given the possibility that the purchase might not go ahead. But preventing even a single day’s shutdown at the company’s mill would repay the investment several times over. Avoiding the sort of disruption they experienced before will save millions.
Wider benefits“Responsible production does not generate a net cost,” agrees Chandran. “In fact, it is quite the opposite. RSPO-compliant operations are simply more profitable.”
The company’s experience is an example of how the business benefits of producing palm oil sustainably go far beyond any premium they may receive from certification. Relations with government and regulators, buyers and landholders at new sites have improved. Similarly, RSPO membership has improved morale and relationships both internally and externally.
“Before RSPO, customers were asking for ‘sustainability’, but they had no idea what that meant,” says Pak Agus. “They didn’t know what to ask for. RSPO certification has provided a clear framework.”
“Skills that a company develops through RSPO are the same skills that are necessary to get good at productivity, and people productivity,” he adds. “It’s about being a good, high-performing, people-friendly company.”
More examples of how transforming markets can make a difference can be found here.
* Names have been changed or omitted to protect commercially sensitive information
Better Production for a Living Planet Series
“RSPO principles require companies to respect the rights of local people, and to have open and transparent methods for communication and consultation. Applying these principles helps companies and communities maintain good relations, to the benefit of both.”
Palm oil is an important driver of deforestation in Southeast
Asia leading to biodiversity loss and greenhouse gas emissions.
It also causes social problems (land disputes, child labour,
riots, loss of local economic opportunities)
- Most productive source of vegetable oil per hectare;
- As a tree crop (lifespan 25-28 years) there is low impact from annual cultivation and the need for fertilizer, pesticides and water are reduced. Oil palm plantations can sequester carbon;
- Can improve livelhoods - palm oil production represents 4.5% of Indonesian gross domestic product, with 40% of Indonesian production coming from smallholders.
- Many variety of downstream products/derivates
- Can improve social relationships between companies and communities