Government Versus Private Palm Oil Sector

Government Versus Private Palm Oil Sector

Photo by : Sigit Prasetyo / Sawitfest 2021

Palmoilmagazine, JAKARTA – The very big mistake of the government when deciding to get palm oil plantings was that there is no control for the private sectors and the people to have wide plantations, particularly for the government itself (Enterprises). The private companies dominate wide palm oil plantations up to 7,7 million hectares or 54% of the total palm oil plantations in Indonesia.

Data from General Directorate of Annual Plants and Plantation Ministry of Agriculture in 2018 revealed that the total palm oil plantations laid about 14,3 million hectares. The people’s plantations laid about 5,8 million hectares or 41% of the total ones. The government through Enterprises had 715 thousand hectares or 5%. If seen from the production, the private sectors’ production reached 26,5 million tons or about 51%. The people’s production reached 14 million tons or 33%, while the government’s production reached 6% or 2,5 million tons of crude palm oil (CPO).

Of 7,7 million hectares, based on the latest report from independent organization - Transformasi untuk Keadilan Indonesia (Tuk Indonesia) in 2019, most of the plantations were mastered by 25 richest people that laid about 5,8 million hectares. The total width of 25 business groups laid about 5,8 million hectares and 3,4 million hectares of planted areas and 2,4 million hectares of un-planted ones.

There has been capital accumulation that caused massive land mastery. The companies are Jardine Matheson Group DSN Group, Tanjung Lingga Group, Samoerna Group, Rajawali Group, Sungai Budi Group, Austindo Group, Sinar Mas Group, Wilmar Group, Salim Group, Harita Group, Surya Dumai Group, Kencana Agri Group,  IOI Group, Genting Group, Boon Siew Group, Batu Kawal Group, Anglo-Eastern Group,   Musim Mas Group, Royal Goldea Eagle Group, Darmex Agro Group, and Triputra Group.

In legal formal, the policies delivered legal chances for private corporates to get new planting. The policies were Regulation Number 01/1967 about Foreign Investment; The Regulation Number 06/1968 about Domestic Investment; The Regulation Number 12/1970 about the Substitution and Addition on Regulation Number 06/1968; The Regulation Number 25/2007 about Investment; and The Regulation Number 11/2020 about Cipta Kerja.

The government got profits from palm oil plantations that the private cultivated because they are obliged to pay taxes when getting forest release to be Business Rights. The taxes are non-tax revenue of forest release; property tax; non-tax revenue from palm oil plantations to publish Business Rights; crude palm oil (CPO) exports, and so on.

Palm oil industries hired about 16,2 million men. From the statistics of economy, palm oil contributed 3.5 percent of the gross domestic product (GDP), decreased inflation up to 1,75 percent, and the country’s spending up to 1,74 percent.

Palm oil also made positive trade balance and became the biggest export product from non-oil and gas. In 2021 palm oil export could be more than 20 billion US dollar or increased 155 percent compared to the previous year.

For Indonesia palm oil delivered exchange up to 27,3 billion US dollar in January - October 2021. Palm oil exports to Europe kept increasing though some vegetable oil producer countries wanted to vanish palm oil from their products. CPO as the mainstay from Indonesia is increasing. The trade balance – surplus in 2021 was from five main commodities, they were, coal, CPO (and its derivatives), iron and steel, automotive and spare parts, and the last electronic tools. The interesting one is that of five mainstay commodities is palm oil and its derivative exports. This is the mainstay of exchange for the country until now.

Besides the taxes, the government through Palm Oil Plantation Fund Management Agency (PFMA) got export taxes that should be used to many programs, such as, smallholders’ replanting program, research and development, infrastructures, promotion and partnership, human resource development, and biodiesel. PFMA successfully got total income up to Rp 51 billion in 2015 - 2019. The numbers derived from export citation up to Rp 47,28 billion and fund management up to Rp 3,7 billion.

The issue is that the government’s capital mastery in palm oil is so minimal. The Enterprises mastered 5 %, while the private sectors master 95 %. It means, the government cannot fully order or control CPO production in Indonesia as long as the corporates and the people do not break the regulation. Though the private is not banned to palm oil land mastery, at least, if the government regulated from the start – between the Enterprises, on one side, and the private/people, on the other side – in balance and proportional (let us say, fifty – fifty), the government would be able to control and order CPO production through direct policy to the Enterprises.

The question remains, how would the government balance palm oil plantation land mastery that the people and private sectors mastered and dominated?

One thing to do is to encourage the Enterprises to get wider palm oil plantations in two ways, they are, the first, hand over land mastery and cultivation on illegal plantations which are categorized in forest regions which cannot be processed to be legal ones after getting fines and administrative sanction according to the Government’s Regulation Number 23 / 2021.

Of 14,3 million hectares, 3,1 million hectares were planted in forest regions which have no forest permit release. Of 3,1 million hectares, about 576.983 hectares are in process to get forest region release. The rests or about 1,2 – 1,7 million hectares are indicated to be personal smallholders’ plantation which cannot be released for there is not strong legal documents. The last numbers should be handed over to the Enterprises to be cultivated and developed to be sustainable plantations.

The second, if the intension to expand palm oil plantations in extensification way by releasing the new forest production that could be conversed, the main priority is for the Enterprises; the private sectors should no more because their plantations are more than enough.

In “The State of Indonesia’s Forest (SOFO) 2020” which was published in December 2020, of 12,8 million hectares of forest production that can be conversed, 6,5 million hectares had not forest coverage which Ministry of Environment and Forestry prepared to non-forest development through forest release mechanism, and including to multiply palm oil plantations by extensification program. (*)


By: Pramono Dwi Susetyo

Once worked at Ministry of Environment and Forestry


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