Green Gold

The European Union is one of the main markets for Indonesian palm oil. While the region’s export value is smaller than that of China and India, it offers a higher value for the crop, making it an essential market for the Indonesian economy. The relationship goes both ways: palm oil is also integral to the production of key European goods, from soaps, to cars, and its expanding biofuel market. 

This longstanding relationship has recently come under strain thanks to the European Union Deforestation Regulation (EUDR)—a policy to curb deforestation and forest degradation caused by the EU’s consumption (and production) of specific, contentious commodities. The new policy aims for traceability to ensure that palm oil used in the EU market is produced ethically with low carbon emission and zero deforestation. It is one of many international regulations attempting to curb the social and environmental effects of Indonesia’s palm oil plantations by mandating traceability and deforestation-free cash crop production. Failure to comply with these regulations will limit Indonesia’s access to the valuable EU market and hit the country’s Gross Domestic Product (GDP), as palm oil is Indonesia’s main crop export.¹

Indonesia’s former Coordinating Minister for Economic Affairs, Airlangga Hartarto, dismissed the policy as a form of “regulatory imperialism.” Even in the face of existential economic threats, the Indonesian government appears steadfast in its commitment to palm oil production. Indeed, even in the aftermath of the government’s Palm Oil Moratorium between 2018–2021, plantations have continued to expand. From 16 million hectares in 2018, Indonesia now has almost 20 million hectares, and experts predict that Indonesia will expand its oil palm plantations to 30 million hectares by 2030. Indonesia is the world’s largest palm oil producer, accounting for 60 percent of the global market. However, even beyond environmental concerns, this “plantation economy” is widely recognized as a developmental dead end.²

Within Indonesia, discussions surrounding palm oil are stuck at superficial technological and financial fixes: endless sustainability certifications, carbon credits, and blockchain for traceability. What explains the country’s unwavering reliance on this “green gold”? Indonesia’s palm oil industry is deeply interwoven with a history of imperialism and unequal exchange, but not one Mr. Hartarto would tell. The core-periphery relation entangled in colonial legacies is integral to the country’s palm oil production. But equally responsible are the country’s governing elites, who evaded opportunities to industrialize during the wave of privatization that followed the 1965 Genocide. Instead, Indonesia’s business, military, and political class has progressively consolidated around its agricultural sector. The position that palm oil occupies—in Indonesia and around the world—is a historically forged tale of empire and the rise of an agribusiness class. 

Shallow roots, deeper thorns

Palm oil production began more slowly than tobacco or rubber—formerly colonial Indonesia’s primadonna cash crops. Oil palm is not a native plant to Indonesia and was thought to be unsuitable for the country’s climate when Dutch botanists brought it over as a decorative plant in 1848. It wasn’t until 1910, when Belgian planter and philanthropist Adrian Hallet used oil palm trees in Deli (present-day North Sumatra) to produce better and more oil kernels, that Indonesia’s palm oil production took off. The year prior, Hallet had founded Socfin—a giant agribusiness company that continues to be a leader of Indonesia’s palm oil sector today. The historian Jonathan Robins has demonstrated that, like many cash crops in Southeast Asia, oil palm was not born out of mere spirit of entrepreneurship and discovery, but was integrated into the region’s hyper-exploitative colonial cash crop economy. 

The expansion of palm oil—and monoculture generally—in colonial Indonesia was enabled by the introduction of Staastblad No. 55 1870, commonly called Agrarische Wet (Agrarian Law). The law stipulated draconian state control over the land known as domein verklaring (domain of the state), meaning that the state owned and controlled land unless proven otherwise. Despite state control, this law relaxed land rent for private foreign companies struggling with the limited lease period. Agrarische Wet prolonged land rent from twenty to seventy-five years and introduced Erfpachtrecht (leasehold right) for plantation owners, granting them property rights equal to regular landowners.³ Following this new policy, the Dutch East Indies (Indonesia’s colonial name) witnessed cash crop booms and an uptick in labor migration coming to the plantation areas. Through this policy, monoculture expansion also tackled two core problems facing the colonial administration: the rising numbers of landless peasants and farm workers in Java that could trigger uprisings, and the major sultanates in Sumatra that could impede the administration’s statebuilding projects.

Palm oil fueled the Dutch Empire’s colonial market and the needs of the metropole. The establishment of palm oil plantations would beget palm oil mills. Indonesia’s first palm oil mill was established in 1911, less than a year after the first large-scale palm oil plantation in 1910. At least until 2008, any plantations with concessions of more than 6,000 hectares were obligated to have their own mills. In the colonial period, palm oil plantations were operated by the government or private estates and did not involve regional farmers or smallholdings. Farmers would only become the key player in Indonesia’s palm oil production in the 1980s, fundamentally altering the industry’s supply chain governance.

The palm’s new order

With these colonial origins, Indonesian palm oil production exploded in the 1980s. The total area of palm oil plantations jumped from 250,000 hectares in 1978 to one million hectares in 1990.⁴ Formerly dominated by state-owned companies, by 1986 domestic private companies accounted for 60 percent of the total concessions. 

The privatization of the industry was directly linked to the 1965 Anti-Communist Genocide, which decimated the progressive factions in the country’s political spheres, which were dominated by workers and farmers. Backed by the Indonesian Military Force, the Central Intelligence of America, and the British Foreign Office, the genocide is widely regarded as one of the “worst mass murders in the twentieth century.” Before the massacre, the Indonesian rural population had been the main drive for progressive, nationalist, and anti-colonial movements. Many landless peasants and farm laborers organized and became affiliated with the Indonesian Communist Party (PKI). The party and its rural bases supported the 1955 Nationalization Act that nationalized foreign companies and imposed state ownership in plantations (in practice, however, less than 30 percent of foreign plantations were nationalized). They also managed to foreground the populist and anti-colonial Basic Agrarian Law of 1960 that prohibited foreign land ownership and limited the land size rented by corporations.⁵

Economically, the 1965 mass murder reversed the state’s total and direct control of land concessions for plantations, which had been the country’s primary financial resources after independence in 1945. Indonesia was flooded with international and national capitalist interests. In 1967, the Mineral Law and Foreign Capital Investment Act ushered in permits and concessions for mines and plantations that would transform Indonesian forests and rivers. The laws allowed foreign capital to enter and obtain business permits in Indonesian landed resources (forestry, mineral), practically canceling the 1955 Nationalization Act. 

With the Basic Agrarian Law still in place, however, foreign capital was kept away from land concessions. Palm oil plantations thus continue to be owned and operated by domestic capital. In the aftermath of the genocide, the decision to preserve the law was not born out of anticolonial instinct, but out of a need to secure political stability. In order to open the way for foreign capital, the government needed to secure the support of agribusiness elites. Collusion between state elites and foreign capital enabled Indonesia’s palm oil plantations to persist and expand. 

Expanding the plantations came at the expense of an earlier strategy for industrialization. This plan, proposed by a group of economists trained in Berkeley and sponsored by the Ford Foundation, was rather simple: incomes from oil and crop booms had to be redirected to boost manufacturing so Indonesia could gradually depend less on its capital-intensive extractive economies. However, following the oil boom of 1973, the authoritarian government of General Suharto halted its industrialization plan and focused on expanding palm oil plantations. There are many possible explanations for the setbacks: political scientist Richard Robison notes the underwhelming gain from manufacturing despite its initial promise. Another political reason, however, might correlate to the militarization of agriculture; after independence, the military became heavily involved in revitalizing colonial plantations and expanding new ones. Given Suharto’s military ties, military personnel were favored to become heavily involved in palm oil plantations and were placed as heads of companies. Alongside domestic private capital, the military’s heavy involvement further ensured Suharto’s political stability.⁶ After the political turmoil of the 1960s, these patron-client relationships harnessed the power of private capital to advance the state’s developmental goals.  

1967 would also be the year in which the state’s financial and political elites established a consortium that pooled funds from foreign countries—primarily the US, Western European countries, and Japan—to service the country’s outstanding debt. Alongside the International Bank for Reconstruction and Development, the Inter-Governmental Group for Indonesia was meant to facilitate financial recovery. Yet the decline of oil prices in the 1980s weakened the state’s control over private and international capital, now that the government had to succumb to international funders and aid to make up for the decreased income. The disappointing revenues from manufacturing exports and domestic non-oil revenues deepened Indonesia’s increased reliance on the Bank’s loans for rural development projects, which at that time heavily emphasized producing crash crop smallholders—mainly palm oil.

Global efforts for smallholders

International financiers and development agencies had supported the expansion of monoculture and the extraction of Indonesian landed resources throughout the authoritarian regime (1967–1998). The World Bank was the primary funder for the expansion of palm oil plantations through a land resettlement policy called transmigration (transmigrasi), arguably the longest-running policy of its kind since its colonial origin in 1911. As part of a population distribution program, transmigration moves households from populated areas to the countryside to become farmers. While the program cultivated many crops, including rubber, rice, and aquaculture, oil palm was the primary commodity. This program helped produce more concessions and skyrocketed the number of smallholders—a farming household with less than 50 hectares—who have since contributed 40 percent of Indonesia’s palm oil production. The Bank loaned approximately half a billion dollars by the end of the program in 1995. 

Transmigration operated under a system called Nucleus-Estate Plantations, which established shared concessions between farmers and plantation companies. In the context of the pre-1997 Asian Financial Crisis, transmigration stipulated that palm oil plantation companies had to share 70–80 percent of their land concessions with transmigrant smallholders. For example, if a plantation company obtained rights to the cultivation of 10,000 hectares, it would have to share at least 7,000 hectares with the transmigrants. The share was not free; smallholders would be in debt for approximately seven to ten years, depending on their harvests and production values, before they could fully own their palm oil plots and housing. In this sense, transmigration and palm oil plantations legally served as a land redistribution program. 

Transmigration atomized the palm oil supply chain by breaking down and externalizing much of the labor necessary for production. After paying off their debts, smallholders could technically sell their fresh fruit bunch (FFB, the crop processed for crude palm oil) to other brokers or mills directly. However, many smallholders’ harvests remain below the national production standard, so not all mills accept their products. Smallholders also often pay for their own distribution, including a transport service and FFB storage, before it can be processed in the mills. Hence, it is easier for smallholders to partner with plantation companies with more capital and resources to process their harvests. While the program claimed to undermine the hold of plantation companies, it ultimately strengthened them. 

During the program’s peak, Indonesia also received more credits, loans, and in-kinds through bilateral and other international partnerships and agreements—all with so-called developed countries from the global North.⁷ Many United Nations organ bodies, such as the UNDP, WFP, ILO, and FAO, were also involved either as evaluators or consultants. The program’s scope was so big that no less than seven ministries—including the Ministry of Defense, the Ministry of Foreign Affairs, and the Indonesian National Armed Forces—were involved between 1978 and 1995. Hence, since its beginning and development, palm oil plantations have never been solely a domestic issue; they were a hub for many global interests in cash crop flows. The program connected the amalgamation of domestic and foreign interests in Indonesia’s land market and cash crop. 

The financial pipeline for transmigration and oil palm has enabled rural credits and integrated rural livelihoods into the global circuit of cash crop production. State officials of the transmigration program and corporate representatives for palm oil plantation companies often describe how important Indonesia’s palm oil production is to the world and how modern and advanced it has been made by the flow of money from foreign institutions. Even after palm oil plantations no longer receive such aid, the new financial schemes for a green economy that incentivize smallholders’ sustainability or worker’s standard certifications keep them in the global commodity supply chains. With the enforcement of EUDR, for example, many companies have teamed up with international development organizations to help smallholders certify and map their concessions. Smallholders remain the primary certification target for the Roundtable Sustainable Palm Oil. In every annual meeting, the roundtable and other palm oil business platforms alike hold awards for the most sustainable smallholders and their collectives. Smallholders thus become a key player in Indonesia’s palm oil production and transnational efforts to curb the effect of oil palms. 

However, the complex financial instruments and agreements introduced by transmigration and transnational standardization bodies have furthered the depoliticization of Indonesian farmers and workers and created a political and class rift between them. Most palm oil smallholders agree to join various palm oil partnership schemes and certifications because these instruments have differentiated them from stereotypically poor farmers; they call themselves “farmers with suites and ties” or “farmers with a savings bank [account].” Hence, the financialization of palm oil plantations has formed and sharpened class differentiation between farmers, workers, and the affected indigenous or local communities. Smallholders are not a monolithic category either, while most successful smallholders are transmigrants who received credit support during the peak of the program in the 1980s and the 1990s, others used to be large landowners who reallocated their agricultural capital to palm oil plantations. They are also mostly migrants—many local and indigenous smallholders are not as lucky; they are often hesitant to join the transmigration or palm oil partnership program because that means losing their village or customary forests. The situation is also exacerbated by how state and corporate officials perpetuate the myth of lazy natives on the plantation.

After the transmigration funding ran out and its budget swelled, the government of Indonesia switched the concession share to 80 percent for plantation companies and the rest for their smallholding share in 2005—this agreement is called the “Partnership” model (Kemitraan). In other words, the new model reversed the previous Nucleus-Estate concession share. The government thus still aims to produce smallholders, but this time, it is the company that will bear the cost. However, smallholders are trapped in indebtedness to start and cultivate their plots. These debts are mostly unjust, too, as plantation companies manipulate the accounting and bookkeeping to force smallholders to pay for the former’s debt instead. After all, palm oil plantations are not the easiest and cheapest business, especially as climate change now frequently interferes with their production. 

Smallholders’ dependence and political division from other plantation inhabitants complicate the heroic portrayal of small farmers as frontline fighters against climate change. Since smallholders are close to companies and state institutions, the latter often use smallholders’ welfare as a pretext to fight against or disregard many sustainability initiatives. The same goes for workers, although it involves more coercion and fear of retaliation. When standardization auditors came to the plantations, many workers—perpetually casual and precariously temporary—confessed that their managers threatened them and forced them not to share anything that could damage the company’s reputation, or else they would be sanctioned or fired. Due to the spatial isolation of palm oil plantations, organizing and mobilization efforts have proven difficult for advocates and activists, and workers often only hear one-sided stories from the management. In my own fieldwork, I had many workers ask if EUDR is “a black campaign against palm oil.” Any efforts to create sustainability or environmental justice from below in palm oil plantations thus face an enormous problem both from the perpetrators of environmental destruction and their victims.

Green enough

Conflicts within Indonesian palm oil plantations have only increased in the last two decades since introducing the “Partnership” model. The Indonesia Consortium for Agrarian Development found that expanding monoculture is the main reason for land conflicts, with palm oil plantations being the primary culprit. The conflicts ranged from land grabbing, outstanding smallholders’ debt, environmental contamination, to labor rights violations; they frequently and progressively took human tolls. On October 5th of last year, an indigenous man named Gijik was gunned down by anti-riot police hired by a palm oil plantation company, HMBP Ltd., during the smallholders’ and workers’ strike and blockade in Central Kalimantan. As more smallholders and workers have been criminalized for organizing debt strikes and protests, palm oil plantations refuse to admit that their production relies on the labor and production of precarious workers and smallholders. Despite the tensions brewing in plantations, the Government of Indonesia continues issuing palm oil plantation permits, even for those who have been found unproductive or illegally encroaching on protected forests.

The government of Indonesia has redirected many international “green” funds and initiatives to correct the wrongs in palm oil plantations. However, these funds are mostly distributed to companies rather than to smallholders. The initiatives usually cover mapping (geocoding), sustainability certification (particularly the no-deforestation pledge), and streamlining the supply chain, especially with the pressure of EUDR, with which the Indonesian government and private plantation companies begrudgingly comply. Recently, the WTO affirmed the validity of EUDR while demanding some adjustments that are “inconsistent” with WTO rules, thus partially upholding Indonesia and Malaysia’s complaints. Still, early in 2025, the EU officially delayed the implementation of the EUDR, citing complaints from its main trading partners (Brazil, Indonesia, and the USA) as one of the reasons. The fiasco surrounding the sustainability certifications and the recent EUDR development has illuminated a series of legal manipulations, the lack of accountability, and the permissiveness of violations. 

Beyond failing to achieve their own stated goals, sustainability initiatives obscure the power dynamics contained in the palm oil supply chain by overemphasizing consumer rights and turning a blind eye to the deeply intertwined histories that generated the world’s most sought-after commodities. Indonesia provides cheap labor and commodities to fund sophisticated and expensive sustainable technologies such as biofuel and electric vehicles. Most farmers have to pay for third parties mapping their concessions, and most workers have to pay for their own personal protective equipment to support the plantation companies’ sustainability goals. By pulling financial resources that are mostly available in core countries, the standards consolidate hegemonic interests in maintaining the global division of labor in cash crops and legitimize this new venue of extraction through “sustainable” stamps. The rise of sustainability initiatives in palm oil plantations runs together with the deepening use of cheap and disposable workers. 

Any new framework aiming to challenge the existing palm oil sustainability must recognize the historical evolution of palm oil production as a relationship between imperial expansion and domestic exploitation. Climate catastrophes are not born simply because struggling postcolonial nations refuse to join decarbonization; rather, they are the result of a predatory coalition between the imperial interest in maintaining cash crop production and the national state-business elites profiting off the $67.3 billion palm oil market. Workers and farmers have demanded a new agreement in palm oil governance that does not abandon them in mitigation and biodiversity efforts. For too long, these workers have paid the price for palm oil’s production.