- The Indonesian government has ordered palm oil company PT Hardaya Inti Plantations (HIP) to pay 1 billion rupiah ($61,000) in fines for violating Indonesian law by failing to pay farmers for harvests reaped from their land.
- In 2008, the farmers struck a deal with HIP in which the villagers would receive a cut of the company’s profits from palm fruit on the villagers’ land; this arrangement, known as plasma, is mandatory under Indonesian law.
- The farmer cooperative involved has accrued 8.8 billion rupiah ($543,000) in debt to state-owned lender Bank Mandiri.
JAKARTA — The Indonesian government has ordered a palm oil company to pay 1 billion rupiah ($61,000) in fines for shortchanging villagers by not sufficiently paying them according to a profit-sharing agreement.
The company in question, PT Hardaya Inti Plantations (HIP), has been embroiled in conflicts with villagers in its concession on the Indonesian island of Sulawesi for years.
The villagers in Buol district, grouped under a farmer cooperative called Amanah, said they hadn’t been paid for harvests the company reaped from their land going back to 2018, or even earlier in some cases.
This, despite HIP having struck a deal with the villagers in 2008, in which the company would do the work of cultivating the oil palms and harvesting the fruit on the villagers’ land, effectively expanding the company’s total planted area, while the villagers, in return, would receive a cut of the profits from the palm fruit from their land. This arrangement is known as plasma, which is mandatory under Indonesian law.
The conflicts recently intensified, and in May, clashes erupted between the villagers and HIP workers who tried to harvest palm oil fruits from the plasma land. At least nine villagers and one HIP worker were injured in two separate clashes.
Indonesia’s business competition regulator, the KPPU, has been investigating alleged violations of the plasma scheme since 2019, and in the process, it found HIP to be violating the scheme.
For one, HIP fails to be transparent in its management of the plasma plantation, as it’s not clear how the company calculates the cost of developing the plantation.
HIP also fails to disclose its financial details, while at the same time buying oil palm fresh fruit bunches (FBB) from the plasma land at prices that don’t match the fixed prices set by the government to protect farmers.
As a result, the farmer cooperative has accrued 8.8 billion rupiah ($543,000) in debt to state-owned lender Bank Mandiri, and HIP can’t explain how the villagers end up with such massive amounts of debt, according to the KPPU.
HIP also did not put a clause that obligates the firm to submit a report on how it manages the plasma plantation to the villagers in the agreement, allowing the company to continue operating the plasma plantation without transparency, the KPPU said.
The KPPU also found HIP to one-sidedly shifted the debt from Bank Mandiri to the company without consent from the farmer cooperative.
Based on these findings, the KPPU sent three warning letters to the company in 2023, demanding it resolve the issue.
Since HIP ignored the letters, the KPPU in 2024 took the case to its court, which decides whether or not a company is guilty of violating Indonesian laws related to fair and just business practices.
On July 9, the KPPU ruled HIP guilty of violating the 2008 law on micro, small and medium enterprises by assuming control of the farmer cooperative through the lopsided plasma arrangement.
In the ruling, the KPPU ordered HIP to pay fines amounting to 1 billion rupiah within 30 days of the ruling.
The KPPU also ordered HIP to make some changes in its agreement with the farmer cooperative.
For one, HIP needs to increase the size of the plasma land to 1,123 hectares (2,775 acres) in the agreement. It also needs to add a clause that obligates the company to routinely submit reports on the management of the plasma plantation to the farmer cooperative.
HIP is also required to give the villagers’ land certificates back to them.
It also needs to audit the farmer cooperative’s finances from 2008-23.
The KPPU also requires HIP to update data on the villagers who are members of the farmer cooperative and submit that data to the Buol district government as well as the KPPU.
The Alliance for Agrarian Reform Movement (AGRA), an NGO that helps Buol villagers in bringing the case to the KPPU, recognized the commission for delivering the guilty verdict.
This, AGRA head Mohammad Ali said, shows that the villagers had indeed been cheated out of their share of profits in the plasma scheme by HIP.
“I hope all parties, especially HIP, immediately implement a partnership arrangement that is mutually beneficial,” he told Mongabay. “I also implore [HIP] to stop all attempts to criminalize farmers and women who fight for their rights.”
However, the verdict is far from ideal in delivering remedies to the villagers, Ali said.
One of the demands from the villagers is for HIP to properly compensate them as they have been denied share of their profits for 16 years, he said.
The plasma plantation should’ve made profits because there are times when HIP bought FBB from the plantation at prices lower than government prices, Ali said.
But the KPPU found no foul play in HIP’s part, as its investigators couldn’t prove there were leftover profits obtained from the plasma plantation, arguing that there were also times when HIP bought FBB from the plasma land at higher prices than the government, he said.
“Buying [FBB] at lower price is still a violation, and buying them at higher price doesn’t pardon the violation,” Ali said.
The KPPU also ruled that HIP has adequately provided job opportunities and training to the villagers.
However, Ali pointed out that only 46 villagers are employed by HIP to work in the plasma plantation, whereas there are 1,230 villagers who have become members of the farmer cooperative.
This, he said, is far from enough, as the idea of the training is to empower the villagers to the point that they no longer have to depend on HIP for their livelihoods.
Nevertheless, the KPPU ruling still helps the villagers in receiving their rights, Ali said.
“Even though I’m disappointed with the ruling, but we still respect it, and at least it states that HIP is guilty,” he said.
Banner image: A palm oil smallholder farmer in Riau, Indonesia. Image by Hans Nicholas Jong/Mongabay.
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