The Oil Palm Governance Policy in Indonesia: History
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Subjects: Law
Contributor:
Arya Hadi Dharmawan
,
Eka Putri

Nowadays, Indonesian palm oil faces agrarian, environmental, and social issues and has been subject to sharp criticism from the international community for many years. To answer this problem, the Indonesian government implemented a strategy through certification which ensured the achievement of sustainability standards, especially on the upstream side of the palm oil supply chain. The implementation of Indonesian Sustainable Palm Oil (ISPO) was an ultimate instrument that applied in particular to smallholders oriented towards managing land legal issues, plantation business licenses, plant seeds, and environmental management and to farmer organizations at the local level. However, this process faced quite complex challenges in the form of structural barriers that are very constraining. 

  • governance
  • ISPO
  • certification
  • sustainability policy
  • smallholders

1. Introduction

The increasing environmental consciousness of European consumers that leads them to consume according to green principles [1][2] has provided a strong impetus for food-exporting countries to implement strong sustainable policy on [3] and governance of the commodities they export. In view of the palm oil production, Indonesia responded to environmentally sensible consumers [4] by releasing a palm oil sustainability governance system, the so-called Indonesian Sustainable Palm Oil (ISPO). ISPO is a governance instrument, as well as a sustainability policy to fulfill the sustainable development principles of palm oil, which was formally enacted by the Presidential Regulation of the Republic of Indonesia Number 44 of 2020.
The ISPO policy was a sustainability initiative to address the socio-ecological related problems attached to the palm oil of Indonesia. As is widely known, Indonesian palm oil has long been under very sharp criticism due to the socio-ecological impacts of its operation on ecological changes, deforestation, and massive land cover changes [5][6]. Issues of biodiversity loss and land encroachment, as well as the social problems related to territorial–agrarian conflicts between the companies and the indigenous peoples, are part of the agrarian [7][8] and environmental problems of oil palm plantations in Indonesia [9][10][11]. In the implementation, ISPO faced several complexities, particularly at the level of the local and regional public authorities [12].
ISPO is targeted towards promoting products with a high level of credibility in the agricultural international markets [13]. At the local level, oil palm governance was not easy to follow due to structural problems and compliance barriers [14]. Quite a substantial number of the smallholders’ lands under oil palm plantation were found to overlap with forest areas, which triggered deforestation issues and social–agrarian conflict against state authority. Most of the smallholders had not officially registered their plantations with business permits. In most cases, the smallholders used uncertified seedlings; this interwove with the problem of the lack of an agri-environmental management system [15]. Financial constraints were also a serious challenge [16]. The absence of an effective farmers’ organization was also an urgent issue [17].
In the implementation, ISPO provided several benefits and risks. For consumers, ISPO would be valuable for ensuring the safety of the environment. For producers, ISPO would be effective to raise the market credibility. However, ISPO runs the risk of being financially expensive for smallholders [18]. Meanwhile, for the local and regional governments, ISPO not only establishes regulations but also facilitates the process of socialization, training and assistance, or other technical support that would be costly [19].
The readiness of the Indonesian government to organize the ISPO certification process faced multi-level obstacles [20]. Glasbergen stated that there is a problem related to the interpretation of the meaning of sustainable palm oil certification which is not integrated between the various governance levels. Decentralization policy has caused multiple interpretations among government authorities of different hierarchies [21].
The structure of the Indonesian government is generally known to split into five levels of administration: central government, provincial government, district (kota and kabupaten) level government, subdistricts (kecamatan), and village (desa) government [22]. Subnational governments refer to the regional governments at the provincial and district levels, which, due to the decentralization policy, are relatively independent and have the authority to regulate their own territory. Village governments and/or local governments are usually used interchangeably and refer to the locally governed territorials where the smallholders normally live. The implementation of regulations governing sustainable palm oil certification often stops only at the central government level. Its implementation cannot continue until it has reached the lowest level of local government due to diverse barriers.
As a result, no substantial changes occur in the performance of palm oil sustainability at a local or regional level despite the dynamics of the regulating and policy making of the palm oil processes at the central government level [23]. Multiple arenas and hierarchies of functional authorities have caused miscoordination across the scale of governance or inter-organizational functions, especially at the sub-national level [24]. In the meantime, despite having far-reaching autonomy and more power to take decisions and implement policies after the enactment of Village Law, local governments remain weak [25] oil palm implementing and governing units. At the local livelihood level, the situation has stayed unfavorable. A lack of human resources and a limited capacity in terms of technical, physical, and financial capital have left smallholders with little opportunity to meet the sustainable palm oil governance requirements [26]. This situation is conceptualized as a low-functioning governance phenomenon, the detail of which is to be provided in the next sub chapters.

2. The Oil Palm Governance in Indonesia

2.1. The Absence of Some Regulations to Support ISPO Policy

The concept of “the hollowing out governance” could possibly be taking place when the control and authority of the government is scaled up, down, or sideways through the relocation of power and authority from the national control that brings about the weakening of the state of governance [27]. The hollowed-out ISPO policy occurred in the form of the empty space of governance due to poor regulation and policies, financial shortage, or the limited capacity of the supporting systems on the ground [28]. At the national level, it can be overcome via strengthening the organization, coordination, and steering of the authority institutions [29]. At sub-national level, the provincial, district, and village governments need to be given more space to play more roles in constructing adapted regulations and policies at the regional/local levels. A multi-stakeholder approach needs to be operationalized to guarantee inclusive ISPO policy in the region [13].

2.2. The Power of ISPO Policy as Institutional Driving Force

The 5-year target of certification from the Presidential Regulation number 44 of 2020 has been responded to with various reactions and actions at the district/city/provincial government levels. The East Kalimantan Provincial Government issued the Regional Regulation number 7 of 2018 on “sustainable plantation development” and established a sustainable oil palm forum in the region. This was a positive support for the ISPO policy from provincial government. One of the plantation officials stated below:
This ISPO certification has become the main key performance indicator of the Plantation Office of East Kalimantan Province especially for environmental indicators. The major economic role of oil palm in providing income and employment opportunities has put the sector particularly important for East Kalimantan Province economy. The provincial government had been therefore concerned to increase the number of ISPO-certified companies, yearly. There had been IUP (Plantation Business Permit) of 2,525,839 hectares of the total allocation of 3,269,561 hectares in spatial planning allocated for oil palm plantation area. Providing better regulations for ISPO implementation will be of importance. (Mr. UR, Head of the Plantation Office of East Kalimantan Province) (Statement conveyed in Focus Group Discussion (FGD): East Kalimantan Sustainable Oil Palm Dynamics in Indonesia ISPO Certification to Challenges in the European Market, 1 October 2020)
On the other hand, the power of ISPO policy has turned out to be a burden for district governments due to various problems regarding lack of equipment and human resources, as well as financial support. Seven out of ten district areas of East Kalimantan Province were oil palm plantation centers. In most regions, the ISPO policy implementations were seriously constrained. The PUP assessment had not yet been carried out due to low human resource capabilities. Nearly half a million smallholder plantations had not been processed for STDB. Other institutional issues occurred as there were no representative offices for oil palm administration in the District of Kutai Kertanegara, the District of Berau, and the District of East Kutai, while the offices in other regions had merged into one office, resulting in problems involving human resources, authorities, and funding allocations.
The frenzy of responding to and realizing the ISPO certification policy also occurred in Jambi Province. The local government, the large-scale companies, and the farmers’ groups who had been working hard needed to fulfill ISPO certification even though some already had RSPO certificates. However, there also existed different responses to ISPO policy, especially regarding the benefits obtained. However, it was obvious that ISPO policy might encourage all regional institutions to keep moving forward even though there were many obstacles and hindrances to overcome. The officials of the Regional Development Planning Agency (Bappeda) in Jambi Provinces said:
“In general, there is a complexity in ISPO certification implementation processes. In the case of legality issue, the government strongly urges land legality, because any non-legalized plantations bring no socio-economic benefits to the government and environment. For plantations that have not been properly legalized, of course, certification processes will burden the state budgetary if the certification program should be borne by the government. In the context of financial efficiency, I agree that the issue of sustainability must be referred to the company. This is because the government will be burdened much by the expenditure of bearing the certification costs to administer these non-legalized oil-palm-related business units. However, putting the burden on the companies makes the government to feel unpleasant. This is because, the researchers let the certification to run imperfectly. (Mr. DI, Head of Regional Development Planning Office of Jambi Province, 2021) (Idem)”.
The statements and responses of the various stakeholders above showed that the implementation of the ISPO certification policy in Indonesia is felt as a pressure and a burden from the center to the regions because of the pressure from ISPO. This pressure has led to many frictions at the local and regional levels of government. The frustration of the sub-national level governments regarding the ISPO policy processes was related to the few communicative and participation action steps crossing the different authorities and governing bodies of the regional governments.

2.3. The Effect of ISPO Policy on Local Territory

There was a diverse response to the ISPO policy implementation from the local and regional governments. There were responsive regions forcing themselves to enact regional regulations related to the ISPO policy. However, there were also regions that were less responsive. The implementation of the ISPO policy has brought about diverse territorialization effects, i.e., the splitting up of regions into at least two classifications. The first type was the regions that were more responsive to the ISPO policy, and the second type was the regions that were less responsive to the ISPO certification. Despite its complexity, there was a strong response from the Jambi smallholders. They appreciated the Provincial Government of Jambi, which was supportive of the ISPO policy, as told by Mr. SLK (Farmers’ Association of Tanjung Sehati):
“I really appreciate the Jambi Provincial Government, and the District Government of Merangin, for providing all facilities to ISPO certification process. The Jambi government really helped the implementation of palm oil certification. For example, in processing STDB and SPPL, the researchers collaborated with the government offices. The office was amazingly fast in processing documents. The service had been designed users (smallholders) friendly. the researchers often met with friends from other regions outside Jambi complaining complexity of the process to follow. The thing that was found in Jambi Provincial Government offices was quite different from the services provided by other regional governments” (Mr. SLK, Famer Association of Tanjung Sehati, Jambi) (Statement conveyed in Focus Group Discussion (FGD) with the stakeholders of Jambi Province Sustainable Oil Palm Dynamics in Indonesia ISPO Certification to Challenges in the European Market, October 2020)
The statement above reflected the ongoing process of several things: (1) there was a dynamic effect in the territories where service-delivering agencies were working either at the provincial or district government levels; (2) there was the immediate formation of certified and uncertified farmers’ groups as the locals responded to the ISPO policy very dynamically.
In one case, farming households warmly welcomed the ISPO certification policy. However, in the other cases, some independent smallholders who had been struggling with illegal claims (land, seeds, business permits, and others) seemed to react unhappily. The requirements for arranging the possible ISPO certification—regarding the management of the land certificate, the STDB, the SPPL, and others—were not for free amid limited capital and finance. Some of the independent smallholders confirmed that in 2020 the cost for the first-time ISPO audit certification processes was quite burdensome for them. It amounted to ca. IDR 150 million (or ca. USD 10,400) for one unit of farmer association. This was not a small amount of money for independent smallholders to fulfill, with a large funding burden as well as heavy technical and management constraints. Even the non-governmental organizations who assist the farmers were also questioning the cost of the ISPO certification, as stated by Mr. BZ (NGO Setara):
“The non-governmental organization SETARA bears the initial financing for ISPO certification processes. They prepare to give financial assistance but what about the financial support for surveillance audit in the 2nd year, 3rd year or 4th year? Who will bear the cost of surveillance? Is it possible to encourage large oil palm companies, where independent smallholders supplied their fruits, to participate bearing these costs? But the most likely to do is to encourage the involvement of the Palm Oil Plantation Fund Management Agency (Badan Pengelola Dana Perkebunan Kelapa Sawit or BPDPKS) belonging to the government of Indonesia to participate. The BPDPKS could allocate funds to help financial support for ISPO certification processes of independent smallholders in Indonesia”.
Basically, the territorialization process that took place because of the ISPO certification presents several interesting things. First, the implementation of ISPO has not only led to the complexity and dynamics of certification implementation at the sub-national levels but has also pushed regional governments and NGOs to create new initiatives to support the ISPO certification. Otherwise, there will again be an empty space of action and disconnection of governance, making ISPO less implementable.

2.4. Imbalance of Multi-Level Authorities of ISPO Policy

There existed the phenomenon of a decoupling relationship between the policy and practice experienced in the oil palm governance operation. There was a vertical disconnection between the national and sub-national policies as the policy-making authorities at the regional level did not produce any regulation supporting the national ISPO policy. On the contrary, it seemed to happen that the central government was paying less attention to what happened at the local or regional government level. Local and regional governments experienced stuttering in the implementation of the ISPO policy.
“Supporting STDB (and other licenses administration) facilitation is not easy task for district government institutions. Several obstacles immediately appeared. The facts show that the central government delegates the facilitation of STDB management to district government authority in the regions. The administration STDB included mapping out the planted area of each single smallholder. However, this delegation of authority is not accompanied by supportive budget or financial support. Everyone knows, the location of oil palm plantations belonging to smallholders is spatially spread in the sub-district and cross-village areas. Meanwhile, the number and qualifications of human resources to do the job are limited at district government. In addition, the availability of supporting equipment (for mapping out the planted area) is limited as well. With these various limitations, it is impossible for us to optimally support the ISPO certification process. Still, the researchers witness sheer number of agrarian problems relating to plantation in the forest area (that need to be better managed). All of these jobs are beyond ability to handle”. (Mr. ABS—Plantation Office of Kutai Kartanegara District of East Kalimantan Province).
Regarding the horizontal problems of the sub-national level, many plantation offices of the district governments were unable to issue STDB licenses due to the vacuum of authorities and service-delivering bodies, as well as the absence of sufficient resources. It was obvious that the coordination and steering of the institutional orchestration between the regional administrative units, especially those administering plantations, land and spatial planning, agrarian administration, forestry administration, and environmental management at the district government level, were not yet effective.

2.5. On the Theory of Low-Functioning Governance

The decoupling that occurred between the policies and practices in the implementation of ISPO took place due to persistent structural challenges that were hard to overcome, in the form of gaps in ideas and technical capabilities, as well as in management and finance and the absence of orchestration between the institution and organization of central and regional governments. There existed not only gaps but often conflicts of actors and regulations or antagonism in the rule’s implementation [30] that made the oil palm governance processes not work properly. As a result, the achievement of palm oil sustainability is less possible on the ground.
In view of seeking the answer as to why palm oil sustainability was so hard to realize in Indonesia, here proposed a concept of low-functioning governance. Low-functioning governance occurred when the rules and regulations were in a vacuum or collision, especially at the regional and local level. In the absence of regulations or in the crashing of existing regulations, institutional power did not work effectively to support sustainable certification processes. All the governance processes that involved the organizations, institutions, and actors [31] of all the sub-national government authorities were to some extent not mutually enforcing and were not in compliance with the central government’s direction.
Hence, low-functioning governance is conceptualized as “the inability of a governance arrangement to work consistency in a concise way of achieving policy-objectives and goals at a certain level of government authority, organizations and institutions’ power”. Even with a great help from external forces, the possibility of the system functioning properly remained insignificant. However, low-functioning governance did not mean that the government’s ability to steer, direct, or shape governance completely failed to work [32]. Low-functioning governance might be described with the following characteristics:
  • There was serious absence of co-ordination as well as mutual support, mutual understanding, and communication that brought about the institutional or functional disconnection among those related to the palm oil certification mission. This situation gave rise to the absence of a coherent, integrated, and mutual enforcement among the authorities, as well as the governing institutions of the regional and local governing bodies.
  • There were resource weaknesses at each level of the policy-making processes and arenas along the hierarchy of the palm oil government administration. They were especially weak in terms of the technical and management capability, financial capacity, and human capital that was involved in the formulation of policy and regulation. It needs strong external assistance if the palm oil governance is to be improved.
  • There was a widespread misinterpretation of the idea of sustainability and palm oil certification due to poor communication and interaction among the stakeholders that were involved in the policy-making processes and the people of the governing bodies, as well as the oil palm business actors in local/regional government.
  • The stakeholders of the local/regional governance level had very little knowledge on why the oil palm plantations should follow the legality standards and sustainability procedures so strictly. On the contrary, they failed to understand how better production opportunities may result in beneficial outcomes after the ISPO certification had been made.
With low functioning governance at the local and regional level, the palm oil sector responded to the sustainability issue relatively slowly. The readiness of government institutions and organizations as governing bodies to regulate the ISPO certification was consequently constrained as well. Due to this situation, viewing the ISPO certification process as a normal governance process, as if it was without any problems, would be an absolutely incorrect view. The local and regional governing bodies, as well as the policy-making authorities, need to be strengthened and well-orchestrated in accomplishing their portfolio.
External assistance needs to be incorporated, especially to support the four important aspects of oil palm governance at the local/regional level, i.e., the actors who own authorities that are involved in the policy-making processes, the institutions that provide a better basis for policy implementation and practices, the organizations that orchestrate the actors and resources, and the supporting resources (see Figure 1) for the shake of the implementation of the ISPO certification at the local and regional levels. Without that help, the oil palm governance could not optimally work to address the structural social and environmental challenges of sustainability on the ground.
/media/item_content/202203/62201491ae477sustainability-14-01820-g004.png
Figure 1. The areas of improvement of the oil palm governance system in Indonesia.
Finally, the central government needs to understand the processes whereby the general rules, directions, instructions, or guidelines should be well communicated, shaped, and tailored to fit into regional/local contexts and enacted within local practices, otherwise the decoupling between policy and practice will recurrently happen. Oil palm governance in Indonesia should take regional and local institutions, organizations, and actors deeper into account. The pattern of governance processes needs to be directed towards more dispersed governance, where the local and regional policy-making authorities participate more intensively, rather than concentrated governance where everything is pooled in the central government [33]. This is the governance transformation that needs to be made, otherwise Indonesian palm oil will remain less recognized and less accepted in the countries of the European Union region.

2.6. Mitigation Measures: The Way Forward

The central government, which is pressured by external requests, in this case from the European Union consumers regarding green consumption, must understand that the fundamental condition of the institutional administration ensuring governance processes at the local/regional or sub-national level is not as sufficiently strong as expected. With this understanding, strengthening the local and regional governance capacity is necessary. The effort is eventually to ensure the achievement of sustainability standards in oil palm plantations and production as an important agenda of the overall oil palm governance.
The central government needs to arrange well the relationship between the ISPO certification and the efforts to handle conflicts due to overlapping land in forest areas; the need for the legality of the farmers’ land; the need for the legality of business permits; the importance of the legality of oil palm seeds; and the other legal aspects associated with the ideals of oil palm sustainability. What matters is not only that which is considered as a legal issue but also the challenges of governance on the ground. The policy of the ISPO certification can accordingly not be understood independently from the context of governance.
Strengthening the capacity of the agencies, organizations, and institutions in the entire constellation of oil palm governance must be emphasized in the efforts to overcome not only the crisis in the ecosystem (ecosystem crisis) that threatens sustainability but also the crisis of the institutional capacity (institutional crisis). The strengthening action should be addressed by the various institutional government barriers at every scale of the problem [34] and at the shortages of support in the implementation of the ISPO certification. Low-functioning governance was a big hindrance to achieving oil palm sustainability. With this understanding, the world needs to understand that the homework that is to be handled is not only about implementing the ISPO certification but about getting the governance system moving effectively.

This entry is adapted from the peer-reviewed paper 10.3390/su14031820

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