PALM OIL BUSINESS IN INDONESIA: BARONS, CORRUPTION, SHADY PRACTICES

PALM OIL INDUSTRY IN INDONESIA

Indonesia is the world's largest producer of palm oil and has developed a large industry centered mainly on the islands of Sumatra and Borneo, with expansion increasingly moving eastward into Papua. Palm oil is extracted from the fruit and seeds of oil palms and is used in food products, cosmetics, detergents and cooking oil. It has also become an important feedstock for biodiesel, increasing demand for Indonesian production. Palm oil is one of Indonesia's major export commodities. [Sources: Reuters, September 16, 2021; Environmental Investigation Agency, December 12, 2013; Ellen Nakashima, Washington Post, November 2, 2005; Greenpeace, November 7, 2007; Nick Meo, The Times, February 3, 2006; Environmental Investigation Agency, December 12, 2013]

The industry has expanded rapidly because oil palm is a productive commercial crop that provides income for plantation companies, small farmers and workers. Large plantations require roads, mills, transportation networks and processing facilities, creating employment and economic activity in rural areas. Indonesian governments have also promoted palm oil as a source of export revenue, rural development and domestic energy. Plans for expanding palm oil and other biofuel crops have included millions of hectares of additional agricultural land.

Much of the expansion has taken place in areas that were previously covered by tropical forest. In Ketapang, West Kalimantan, oil-palm planting was directly responsible for about 27 percent of deforestation in 2007–08, according to research cited by Nature. Plantation development has also affected large areas of Sumatra and Borneo, where forests have been logged, cleared and sometimes burned before planting. By the late 2010s, Indonesia had more than 16 million hectares of land devoted to oil-palm plantations.

Palm oil has therefore become both an important part of Indonesia's economy and a major land-use issue. The industry provides livelihoods and supplies a globally important commodity, but its expansion has competed with forests, peatlands and other land uses. The environmental consequences are particularly serious where plantations replace carbon-rich forests or peatlands. The industry has also generated disputes involving Indigenous communities, land rights, plantation companies and local governments.

Indonesians use palm oil. Their cooking oil is derived mainly from palm oil. In April 2022, Indonesia effectively banned palm oil exports to control soaring domestic prices.

History of Palm Oil in Indonesia

Oil palms on the edge of the Tanah Merah project

Oil palm is native to West Africa and was introduced to Indonesia during the Dutch colonial period in the late 19th century. Commercial cultivation expanded during the colonial era as plantations were developed to produce export crops. The crop eventually became established as an important plantation commodity in Sumatra and other parts of the Indonesian archipelago. Its development laid the foundation for the large-scale industry that emerged later. [Sources: Reuters, September 16, 2021; Environmental Investigation Agency, December 12, 2013; Ellen Nakashima, Washington Post, November 2, 2005; Greenpeace, November 7, 2007; Nick Meo, The Times, February 3, 2006; Environmental Investigation Agency, December 12, 2013]

After independence, the Indonesian government continued to develop plantation agriculture as a source of employment, exports and economic growth. During the Suharto era, the state promoted large-scale agricultural and resource development, including the expansion of oil-palm plantations. Forest areas were increasingly converted to commercial agriculture, while logging roads opened previously remote regions. By 1999, at least 70 percent of Indonesia's oil-palm plantations had reportedly been established on land that had previously been forest.

The industry expanded particularly rapidly in Sumatra and Kalimantan after the 1980s. Government programs encouraged plantation companies and smallholders to establish oil palms, while improved transportation and processing infrastructure made large-scale production more practical. After the fall of Suharto in 1998, political decentralization gave provincial and local governments greater authority over land and development permits. This contributed to further plantation expansion but also created new opportunities for disputes over land ownership and government concessions.

Global demand accelerated the industry's growth in the 21st century. Palm oil became a major ingredient in processed foods and consumer products and later an increasingly important biofuel feedstock. Indonesia also promoted biodiesel as a way to reduce petroleum consumption and support domestic palm-oil producers. As demand increased, the agricultural frontier moved into remaining forests and peatlands, including areas of Borneo, Sumatra and eventually Papua.

Palm Oil Barons and Kingpins

Abdul Rasyid

The Indonesian palm-oil industry has attracted major conglomerates and wealthy business families that control large plantations, processing companies and trading networks. Some companies developed from earlier businesses in timber, mining and other natural resources. Their financial resources have allowed them to acquire large areas of land and participate in domestic and international markets. The concentration of land and capital has sometimes placed rural communities at a disadvantage when negotiating with plantation companies.

One example was Abdul Rasyid, a businessman in Central Kalimantan who founded Sawit Sumbermas Sarana. Before becoming involved in palm oil, Rasyid was associated with the timber industry. The Environmental Investigation Agency reported that the Indonesian government identified him in 2000 as one of the country's major illegal logging bosses and documented links between companies associated with him and timber taken from Tanjung Puting National Park. His palm-oil company subsequently accumulated a large land bank and sought additional investment for plantation expansion.

An independent assessment cited by the Environmental Investigation Agency found that companies associated with Sawit Sumbermas Sarana had cleared 10,784 hectares of forest between 2003 and 2012, much of it allegedly without the required central-government authorization. The assessment also found that about 44 percent of the company's land bank overlapped areas classified as high-conservation-value forest and potential orangutan habitat. The case illustrated how earlier timber interests could become connected to the expanding palm-oil economy. It also raised concerns among investors about environmental liabilities and corporate governance.

Other large business groups also became important participants in the industry. Companies such as Wilmar expanded into plantation ownership, processing and international distribution, while Indonesian conglomerates such as the Salim Group invested in palm-oil development. In some regions, politically connected businessmen worked closely with local officials to obtain land and permits. The combination of large financial resources, political connections and control over land helped make palm oil one of Indonesia's most powerful agricultural industries.

Palm Oil Corruption

The rapid expansion of palm oil created opportunities for corruption because plantation development depends heavily on government decisions about land, concessions and permits. Indonesia's decentralization policies gave local governments greater authority over natural-resource development, including the ability to approve or influence plantation projects. In some cases, companies and political figures developed close relationships around the allocation of land. These relationships could make it difficult to distinguish legitimate investment from conflicts of interest.

Palm oil industry infographic

Cases reported in the 2010s linked corruption investigations to palm-oil land deals. In 2014, Indonesia's highest judge and several associates were convicted in a major bribery case that journalists linked to land transactions in Borneo. In another case, a Kalimantan governor was accused of granting palm concessions to family members who subsequently transferred the interests to companies that had supported his election. Such cases demonstrated the financial value of plantation concessions and the political incentives surrounding them.

Corruption also affected local communities. Villagers negotiating with plantation companies could have limited information about the value of their land, the terms of contracts and the distribution of profits. Critics reported that some village officials received payments or gifts while negotiating agreements on behalf of communities. Disputes over land ownership and promised compensation were especially difficult in areas where customary land rights were not formally documented.

Environmental campaigners and journalists investigating the industry have also faced intimidation. The New York Times reported that environmental activist Suhadi temporarily went into hiding after receiving threats, while one of his colleagues was killed in 2015 in circumstances that news reports speculated could have been connected to environmental work. Global Witness has documented killings of Indonesian environmental defenders involved in conflicts over palm oil. These cases illustrate how disputes surrounding land, money and plantation expansion have sometimes extended beyond administrative corruption into threats against people opposing development.

How Big Palm Oil Moved Into Borneo in a Big Way

In 2007, Wilmar, a Singapore-based conglomerate that controlled a large share of the global palm-oil trade, announced plans to quadruple its biodiesel production. In Indonesia, government officials directed state-owned and regional banks to provide more than $8 billion in loans for palm-oil development projects. The government also set a target of producing 5.9 billion gallons of biofuel within five years and announced plans to convert more than 13 million acres of additional forest to industrial palm-oil plantations. [Source: Abrahm Lustgarten, New York Times Magazine, November 20, 2018]

Much of the expansion was planned for Borneo, where many villages had existed before modern national borders and formal land deeds. To establish a legal framework for plantation development, the Indonesian government introduced a commercial land-share system in the 1980s. In theory, villages could transfer development rights to companies in exchange for a share of the profits. In practice, villagers reported that companies sometimes obtained permits through lobbying, bribery or pressure. Agreements were frequently followed by disputes over promised payments and benefits.

Villages were often negotiating with companies that had far greater financial and political resources. By 2007, Wilmar operated in 23 countries on four continents and employed more than 60,000 people. Its decision to acquire more than 200,000 acres in areas surrounding Gusti Gelambong's village encouraged other companies to expand. The Salim Group, one of Indonesia's largest conglomerates and the owner of Indofood, announced plans to pay $13 million for 200,000 acres in East and Central Kalimantan. Its chief executive, Anthoni Salim, had longstanding ties to former President Suharto. Although the fall of Suharto's government in 1998 disrupted many of the Salim family's business holdings, the company rebuilt much of its business empire within several years.

Huge Palm Oil Plantation in Kalimantan

Abrahm Lustgarten wrote in the New York Times magazine: “The dirt road was ruler straight, but deep holes and errant boulders tossed our tiny Toyota back and forth. Trucks coughed out black smoke, their beds brimming over with seven-ton loads of palm fruit rocking back and forth on tires as tall as people. Clear-cut expanses soon gave way to a uniform crop of oil-palm groves: orderly trees, a sign that we had crossed into an industrial palm plantation. [Source: Abrahm Lustgarten, New York Times magazine, November 20, 2018]

Oil-palm trees look like the coconut-palm trees you see on postcards from Florida — they grow to more than 60 feet tall and flourish on the peaty wetland soil common in lowland tropics. But they are significantly more valuable. Every two weeks or so, each tree produces a 50-pound bunch of walnut-size fruit, bursting with a red, viscous oil that is more versatile than almost any other plant-based oil of its kind.

“Finally we emerged, and as we crested a hill, the plantations fell into an endless repetition of tidy bunches stretching for miles, looking almost like the rag of a Berber carpet. Occasionally, a shard of an old ironwood tree shot into the air, a remnant of the primordial canopy of dense rain forest that dominated the land until very recently. Most of the plantations around us were new.

Impact of Palm Oil on Locals in Kalimantan

Before the palm-oil boom, Gusti Gelambong saw economic opportunities in the expanding industry and decided to work in it. As timber and palm-oil companies expanded across Kalimantan, they built roads and other infrastructure, increased the availability of goods, and created jobs. By the end of 2007, Gelambong had spent about two years working for an informal palm-oil operation, overseeing the planting of millions of seedlings [Source: Abrahm Lustgarten, New York Times Magazine, November 20, 2018].

The expansion initially appeared to offer benefits to rural communities. Companies promised to share profits with smallholders who surrendered land for plantations and offered schools, jobs and incomes higher than those available from harvesting local fruit and timber. Gelambong believed the post-Suharto expansion was different from the earlier exploitation of natural resources because it was driven by private companies operating in a more open market.

Gelambong worked for Bumitama, a midsize palm-oil company whose owners had built their wealth through mining and timber in eastern Borneo. Bumitama's plantations supplied palm oil to mills operated by Wilmar and had access to markets in the United States and Europe. As the plantations expanded, Gelambong became a liaison between Bumitama's local operations and surrounding communities, partly because his family had influence among local residents.

Through this work, Gelambong said he became aware of disputes over land payments and profit-sharing agreements. He reported finding company documents showing contracts in which village elders had agreed to increasingly smaller shares of plantation profits. He believed that some elders had accepted gifts from companies without adequately representing other landowners. Low literacy rates also made it difficult for many villagers to understand contracts or challenge agreements.

The expansion also depended on relationships between companies and local authorities. Indonesia's post-Suharto decentralization gave local governments greater authority over land-use and plantation permits. Gelambong said companies often provided payments or gifts to local officials, political organizations, police, military personnel and village leaders to facilitate development. Bumitama stated that Gelambong's official responsibilities involved documents and licensing and said the company complied with anti-bribery laws.

Palm-oil development expanded rapidly across Kalimantan. Between 2007 and 2014, the area covered by palm-oil concessions more than tripled. Bumitama was planting about 37,000 acres of oil palm annually, while forests across Indonesia were being cleared at an estimated rate of about 3 acres per minute to make way for plantations. Palm-oil plantations subsequently spread outward from Kotawaringin across large areas of Kalimantan.

How Palm Oil Companies Used a Shady Scheme to Get Villagers Land

Abrahm Lustgarten wrote in the New York Times magazine: After leaving Bumitama in 2011, Gelambong’ he had become the head of his village’s microfinance group, which gave him access to records that helped explain how his former employer had been able to so thoroughly take over the village and its land in the early years of the oil-palm boom. Bumitama, it appeared from the documents, had used the microfinance group as a kind of front to justify putting up land owned by residents as collateral for a $26 million bank loan, effectively mortgaging it to the industry’s financial backers. [Source: Abrahm Lustgarten, New York Times magazine, November 20, 2018]

“Sifting through the files, he retrieved copies of three contracts the company presented to its banks. Each contained a list of signatures — purportedly those of hundreds of villagers, consenting to let the microfinance corporation control their land and represent their views to the bank. Gelambong pointed to the long rows of names. Dozens of these people, he said, couldn’t read or write. When he asked some of them about their names in the document, they told him that they had never seen the paper before and that the signature on it wasn’t theirs. At least six of the signatures were from people who had died before the oil-palm companies arrived.

“The Roundtable on Sustainable Palm Oil, a voluntary global governance organization for the industry, is formally investigating Gelambong’s claims. Bumitama officials said that nothing about their deal in Kotawaringin was improper; the company had the consent of village representatives, and it had undergone due diligence from the banks. A spokesman for Wilmar said that it abides by its sustainability commitments and was watching the Bumitama land inquiry closely but that the company’s internal monitoring program had not yet triggered any alerts about Bumitama’s subsidiary outside Tanjung Puting National Park.

Image Sources: Wikimedia Commons

Text Sources: “Encyclopedia of World Cultures Volume 5: East/Southeast Asia:” edited by Paul Hockings, 1993; “Culture and Customs of Indonesia” by Jill Forshee, Greenwood Press, 2006; National Geographic, New York Times, Washington Post, Los Angeles Times, Smithsonian magazine, Encyclopedia.com, Library of Congress, Indonesia Tourism website (indonesia.travel), Indonesia government websites, Live Science, The Conversation, The New Yorker, Time, BBC, CNN, Reuters, Associated Press, AFP, Lonely Planet Guides, Google AI, Wikipedia, The Guardian and various websites, books and other publications.

Last updated August 2026