Indonesia: the rise of the politics of palm oil by Khor Yu Leng

Editor's note: I have been anticipating the rise of the politics of palm oil for Indonesia. I've been tracking the importance of smallholders to Malaysia's UMNO-BN in electoral politics for a few years now.

A few things are coming together for Indonesia:

a) The young BPDP/palm oil fund will become an increasingly contested area. There will be a political policy tussle on allocation of funds for independent smallholder replanting versus allocation for biodiesel subsidy. The latter goes directly to a handful of conglomerate quota holders, albeit for the purpose of supporting palm oil prices for all.

b) We have the coming of a more populist Presidential election in 2019 as the timing shift of the Presidential election to coincide with national legislative elections diminishes the previous system that let political party coalitions decide the Presidency. So we have Jokowi on big tours of Sumatra in 2017 and Kalimantan in 2018, to reach out to the rural voter-base.

c) Watch for the important smallholder associations like Apkasindo and plantation worker unions. While union leaders have tried to strike deals with politicians, these don't always work out such as recently on the minimum wage tussle.

Watch out for how this will affect the balance of political-economic power between the center and the periphery in Indonesia's decentralised political system. 

In the case of Thailand, the need to support domestic prices for oil palm smallholders has caused narrowing margins for millers, sometimes causing millers to shut down operations for a while.

On the allocation of BPDP funds:
  • https://www.cnnindonesia.com/ekonomi/20180126165425-85-271834/petani-sawit-kritik-subsidi-biodiesel-untuk-konglomerat
  • https://www.cnnindonesia.com/ekonomi/20180116202504-92-269411/lima-konglomerat-sawit-disuntik-subsidi-mega-rp75-triliun/ 
On supporting palm oil farmers with replanting, seeds, land titles:
  • http://www.tribunnews.com/bisnis/2017/10/13/dari-sumatra-presiden-jokowi-awali-peremajaan-sawit

Interview #2 Presidential race heats up, foreigners worry?

In the last two weeks, I've been in touch with six (6) people who represent large business interests in Indonesia including in palm oil (domestic and international owners) and three (3) Malaysians who work and/or are invested in Indonesia palm oil.
View of Indonesia invested MNC interests:
One observed that Indonesia ethnic Chinese businessmen were initially fearful of the Prabowo candidacy (relating to uncertainty over his exact role during the violation of social rights during the height of the Reformasi crisis). However, one close observer thought that they now seem to be quite accepting of him, especially with Santiago Uno playing a lead role in his economic team. Supporters say there is no firm evidence of his role during the troubles.

Some felt that Kalla seemed a tired face to put next to Jokowi; and other gripes about against Jokowi were that his role would be determined by Megawati with significant dissension reported in the family-controlled PDI-P. Moreoever, another source had recently visited at a more rural province – in talking to locals at warung, he heard that they liked Jokowi, but because the governor supports Prabowo, they thought they should vote with his recommendation. Hatta is from Palembang, and some hope that he will be good for plantations since as he would know about palm oil and rubber from his home town area; further he has been Coordinating Minister and is an in-law of SBY.

International investors are concerned with Prabowo’s rise in the polls and his economic policy ideas. He has a significant nationalistic, strong-man image and widely said to have a temper. Thus, they worry about downward pressure on the Indonesian currency and other Indonesia financial assets if he should come to win[1].
[1] What do foreign investors think? Nomura, 2 July 2014, “Asia Insights - Indonesia election: Pitting investor expectations vs views on the ground” reports: “Our global investor survey on Indonesia’s upcoming presidential elections show an overwhelming 90% of respondents expect a Jokowi win and by an average 8.5% margin of victory over Prabowo. This expected margin is high compared with the latest polls which are showing between 3-5%. However, these polls, in our view, are increasingly capturing the realities on the ground.  Indeed, our recent trip to Jakarta gave a clear impression that the presidential race will go to the wire, and that the election outcome remains uncertain. There is therefore a rising risk of market disappointment, in our view.” Also, view Economist article: http://www.economist.com/news/asia/21606330-indonesias-presidential-race-tightens-election-day-approaches-knifes-edge?fsrc=nlw|hig|3-07-2014|5356bdcd899249e1cca0fce6|

Indonesia domestic business interests
Domestic business interests sound hedged either way (as one would expect), well prepared to lobby for sectoral interests. Reaching out to specialists, we were also updated that a mooted foreign ownership limit is still in the drafting. Clearly it was not ready to be in place before the start of presidential campaigning. We also heard of hopes to launch palm oil sector programs prior to the election, but these may have run out of time. On the question of the rumoured export duty change - it really depends who you talk to i.e. whether they have interest downstream processing (ex-refinery) versus upstream. Some moot a convergence with the Malaysia export duty regime, which would tend to give palm oil farmers a better price. In this regard, the final presidential debate should be of interest as it will also cover energy and agriculture.

A recent interview source notes that SBY has declared his support for the Prabowo team. Presumably, SBY must have good reason (data support?) to do so. As mentioned earlier, Hatta is his in-law. Some senior Indonesians consider the first Presidential Debate a bit of tie while the others were won by Prabowo-Hatta. It is noted that the mainstream newspapers support Jokowi (but note from Interview #1 that most of the large TV stations support Prabowo). Prabowo has the money and the better organization in the electoral campaign. The marked preference that foreign investors have for Jokowi is also noticed by highly-placed Indonesians and there is suggestion of some bias in the way Prabowo’s policies are reported in the international media and by foreign bank analysts[1].

Malaysia observers
In the previous election presidential candidate debates, a Malaysia observer was much struck by the difference between Megawati and the outgoing President SBY. In a past debate, one source remembered that the former was more kneejerk hawkish on her preferred approach to resolve Malaysia-Indonesia dispute matter while SBY quoted the Pancasila and pointed to the need to first negotiate[2]. Clearly there is some discomfort with overly strong nationalistic approaches. However, some Malaysia investors seem relatively sanguine about business regulatory changes. They note that while the candidates may sound more nationalistic in campaigning and new regulations may seem tough, the implementation usually ends up more practical and business-friendly.
[2] Those interested in foreign policy can read this: RSIS Commentary 125/2014 Aspiring Regional Power: Indonesian Foreign Policy Under Next President by Yang Razali Kassim, published 3 July 2014; which finds both candidates willing to negotiate, but reckons that Jokowi is more dove-ish.

Do also view: Indonesia presidential race (update 4), /khorreports-palmoil/2014/06/indonesia-presendial-race.html and Interview #1: Presidential politics and Indonesian palm oil,

Interview #1: Presidential politics and Indonesian palm oil

We've been chatting with Malaysia and Singapore palm oil industry specialists and noticed significant interest in the upcoming Indonesia Presidential vote. Early in the week, we had the opportunity to talk to a Khor Reports reader who was interested to talk about it, and so we present to you this interview. 

Political changes can bring major shifts in resource development policies as well as a different approach to NGOs such as seen in Australia. On the buy side, in major consuming countries, we should note the rise of right wing nationalistic parties who gained more power especially in the European Parliament.

Interviewee #1: Indonesian voter, palm oil industry senor manager, who was part of the student demonstrations in the 1998 ousting of Suharto. A Jokowi supporter.
#1 on the Presidential ballot is Prabowo-Hatta  and #2 is Jokowi-Kalla. The Presidential election is on 6 July 2014 (in just over 3 weeks time). 

What do you think of the recent poll numbers?

40% of Indonesia voters are undecided. Jokowi has a 10% lead. In the USA that would be a win, but Indonesians can decide at the last minute. Indonesians won’t take your money and vote for you like what we hear about Malaysia. There was a famous case where Rp 150,000 (US$14-15) bribe was given at a local election – that candidate just got three votes and he hired a debt collector to try to get back his money!

What's an important issue in Indonesia elections?
A major political lesson from 1998 is not to let food staples prices get out hand. Indonesia pays attention to "sembako"[1] which comprises 9 items, including rice, flour, eggs, milk, oil, sugar etc.  

What is Prabowo's plaftform?
He says that Indonesia is weak. Its riches has been taken by others. Indonesia has been bullied by Malaysia, Singapore, USA and others. It needs a strong leader who can say no and stand up to them. Like in the old days. He tells voters that Indonesia’s riches will go back to Indonesians. He will start nationalising industries. On corruption: he proposes to increase civil servants pay. On plantations: 5 million more hectares should be developed – you don’t need to conserve forest as this retards economic development. Prabowo is funded by business conglomerates, including his brother’s. He also gets money from Bakrie, and MNC media (he’s featured on 5 out of 6 major TV channels; only 1, Metro[2] features Jokowi).

The younger generation demonstrated on streets to topple Suharto. I shall never vote Prabowo as he ordered protestors shot. The “Jangan Lupa” Facebook campaign aims out to remind people about what Prabowo did in the past. Pro Jokowi army insiders recently leaked information that Prabowo was fired and left under a cloud. He is suing the army for leaking that letter. I am still worried that people will forget what he has done. This letter is not featured heavily in the major news.

What does Jokowi stand for?
Jokowi is about transparency, anti-corruption and a new way of thinking. On corruption: he says that pay should be based on merit and that the government should put all information online for the people to see. On plantations: he's for stability for the environment and development. Jokowi is using Obama-style campaign funding[3] – social media funding. From such donations he has raised Rupiah 17.2 billion (US$1.45 million @11,835). He’s not on significant business funding. Now that he has some money, his posters are up all over. Prabowo is suing him as he says that Indonesian law does not allow such public financing.

Jokowi uses the “good cop – bad cop” approach. When he was Governor of Jakarta, his public image was to visit the people while his vice/deputy was the tough guy. Now, Basuki  is Acting Governor of Jakarta – he is an ethnic Chinese;
http://en.wikipedia.org/wiki/Basuki_Tjahaja_Purnama. Muslim parties had protested against having a Chinese governor but the public said it had no problem with this. Basuki is a no nonsense guy. 

Christian support is going for Jokowi. FPI is a vigilante group attacking churches, going around demonstrating for Shariah law, shouting at Muslim women not wearing a headscarf and vandalising stores selling Christian objects. FPI is publicly supporting Prabowo and seeking Shariah in several provinces. Jokowi is saying that Indonesia is a diverse country and will not be drawn into such religious Shia argument. Shariah is only in Acheh.  

How did the 9 June debate go?
In the presidential debate[4], Jusuf Kalla was placed as the attacker; Jokowi spoke first to set the vision and positive messages. The winner of debate was Kalla as he nailed Prabowo until he couldn’t answer on his human rights record. Some thought the presidential debate was against traditional (less confrontational) cultural modes. Some asked why Jokowi spoke from notes. Prabowo spoke 90% of the time and his vice/deputy had 10% speaking time. Jokowi took about 60% and 40% went to Kalla in debating time.

What are the implications for Indonesia palm oil?
On 5 million hectares for oil palm development - this is part of Prabowo's campaign and it was also from the Bakrie program. But this may not all go to smallholders and it may not be good for the (Indonesia-Norway) Moratorium.

On Indonesia CPO export duty removal rumour – the CPO export duty was supposed to go to the farmers and industry; but there’s not much proof of this. How much has been spent in this way? Many say that it did not even go to the Ministry of Agriculture. As an Indonesian voter, I would support the CPO export duty removal as we don’t know where the money goes. As a palm oil industry person, I would also support its removal as it would bring a level playing field to the industry.

On NGOs in Indonesia - Indonesia ministries are keen to do something about the NGO incursion in Indonesia palm oil. President SBY is widely seen as a supporter of Greenpeace. Its “License to Kill” report against Wilmar quotes SBY a lot. SBY has also visited the Greenpeace boat[5].  Under the next presidency – can TFT and Greenpeace move about so freely in Indonesia? A key SBY advisor is a Greenpeace member. Did this advisor bring the 20% carbon reduction policy? Such a self-imposed policy by a developing country is surprising.

Note: Graphics from Greenpeace in May-June 2013.
Khor Reports note: This precedes significant new palm oil buying policy by Unilever in November 2013 and Singapore-based Wilmar in December 2013 with The Forest Trust, associated with Greenpeace in palm oil first via its work with Singapore-listed Golden-Agri Resources / PT SMART (Sinar Mas). Despite the NGO-government engagement and NGO-corporate deals, anti-palm oil campaigns continue: Protect Paradise: An Animation about Palm Oil by Greenpeace, 19 Feb 2014: http://youtu.be/0o6WHN4NDTk and a video produced by the KBRI (Indonesian Embassy) of Brussels to fight against the anti-palm oil campaign. Protect Paradise For All: An Animation on Anti-Palm Oil Dirty Secret, 14 May 2014: http://www.youtube.com/watch?v=FQ5_ITx1JoU.

So there's concern in Indonesia about foreign influence amidst nationalistic feeling?
Foreigners are seen to be “campaigning” for Jokowi. Prabowo points out that Jokowi is accepting undue foreign influence. But there has been no evidence of foreign funding for Jokowi. Voters may notice he spends time with foreigners. For example, when Jokowi cycled to work, the Sweden and Norway ambassadors cycled along with him. Their embassies were not even near the Governor’s office.

A minimum 20% vote is needed to nominate a presidential candidate. PDIP got 18.9% and it had to build a coalition to nominate Jokowi. Prabowo got 11% and he had to build an even bigger coalition with the National Amendment Party who provides his VP. PDIP is a nationalistic party – it is founded on Sukarno’s idealism for diversity, nationalism, and a strong independent country. Prabowo has been talking a lot about this too. Jokowi will have a rising nationalistic streak. He cannot issue laws without coalition support.

Jokowi might try to limit what NGOs are doing in Indonesia, but he’s an open and transparent person, so he may put more limits on NGOs, but in a reasonable manner. Jokowi will run country like he did Jakarta – every meeting he and his vice /deputy has had is on youtube. Prabowo will be different.

Related news:

[1] sembilan bahan pokok are nine basic materials abbreviated as groceries covering basic needs. Set out by the Minister of Industry and Trade as: 1. rice, sago and corn,  2. sugar, 3.vegetables and fruits, 4.beef and chicken, 5. cooking oil and margarine, 6. milk, 7. eggs, 8. mineral oil or LPG gas, 9. salt.
[2] Metro is owned by Surya Paloh, head of the National Democratic Party – who did not get enough votes in the first round results. He threw his support with PDI-P behind Jokowi.
[3] Some campaign funding information here - http://www.thejakartapost.com/news/2014/06/05/jokowi-kalla-ticket-collects-rp-42-billion-campaign.html
[4] Five debates are scheduled between June 8 and July 5. 9 June debate can be viewed here: http://www.youtube.com/watch?v=XYAvBPVRdcc and impact on voter sentiment is reported here: http://www.thejakartaglobe.com/news/presidential-tv-debates-impact-still-undecided/.
[5]  http://www.greenpeace.org/international/en/news/Blogs/makingwaves/in-the-same-boat/blog/45492/: "Just a few hours ago, we met the President again, but this time on our iconic ship, the Rainbow Warrior, which is winding up a one-month tour through Indonesia raising awareness about the need to protect Indonesia's forests and oceans. The President visited the ship with the First Lady Ani Yudhoyono, his daughter-in-law, granddaughter and nearly half his cabinet including Ministers of Environment, Forestry, Fisheries, Foreign Affairs, the Cabinet Secretary, head of Indonesian Navy, Armed Forces and Police. It is a remarkable recognition of our work in Indonesia and of course a validation of our work to protect the country's rich environment..." http://news.mongabay.com/2013/0607-sby-greenpeace-ship.html:  "Indonesian President Susilo Bambang Yudhoyono met with Greenpeace International Executive Director Kumi Naidoo aboard the activist group's ship, the Rainbow Warrior, today in Jakarta to discuss Indonesia's environmental issues. The meeting took place 31 months after the Rainbow Warrior was barred from Indonesian waters under pressure from interests in the forestry sector.  Remarks from the Indonesian president while aboard the vessel underline the country's policy shift in forest management since 2010…..

Note: In Indonesia, the President is directly voted by the electorate and it takes over 50% of the public vote to win. There is no mediation by an electoral college which exists in places like the US. In Malaysia the Prime Minister is selected by the coalition which won power (in Malaysia’s mal-apportioned, first past the post electoral system, there is disconnect between the public popular vote which went to the opposition but with majority of seats staying with the ruling coalition) The Indonesia legislature does not have power to select the president, but they can impeach him. The upper house is purely for constitutional matters.


Indonesia parliamentary elections (update 2)

RSIS Commentary 070/2014, 15 April 2014, Indonesia’s Ambiguous Elections: Implications for the Region by Yang Razali Kassim: Indonesia's 4th parliamentary elections since the fall of strongman Suharto in 1998 have taken place without incident. Though the official results are expected only in May the contours of the new political landscape are emerging. The two-step exercise in its latest democratic transition – parliamentary followed by presidential elections - is likely to revolve around the top three parties, the Indonesian Party of Struggle (PDIP), Golkar and the Greater Indonesia Movement (Gerindra).... Over the next three months, they will display intense political manoeuvering as they engage in coalition-building and deal-making with nine other smaller parties to achieve two parallel objectives: victory in the coming July presidential election and forming a government supported by the majority of the incoming parliament.... In the post-Reformasi era, the Indonesian parliament has become increasingly independent of the Presidency, and at times even prone to chest-thumping, as if to make up for the three decades of being subservient to president Suharto. In the last parliament, such behaviour had come at the expense of Indonesia’s neighbours. For instance ASEAN’s failure to push through a proposed region-wide anti-haze law was partly due to this. The legislature simply dragged its feet and refused to ratify the ASEAN Agreement on Transboundary Haze Pollution Bill, which had been passed by all other ASEAN members.... This posture reflected a parliament that did not want to be seen as being dictated to by other countries. Will the new legislature seek to be even more independent-minded, and more assertive, such that the next President will have a difficult time entering into international agreements with other countries? Will the Haze Pollution Bill be finally ratified by Indonesia so that ASEAN can implement its haze-fighting strategy?.... The second known unknown is about the next president. For the three leading parties, their presidential candidates are clear at this point: the hugely popular Joko Widodo or “Jokowi” for PDIP, Aburizal Bakrie for Golkar and Prabowo Subianto for Gerindra. It is quite possible that a new presidential candidate will emerge following the current coalition bargaining. In the direct presidential election in July, Jokowi’s immense popularity with voters will stand him in good stead. However his path to the presidential election may have been made easier had he not faced some resistance from within the PDIP. Yet, notwithstanding his star appeal, there is, paradoxically, not much known about the presidential front runner.... Unlike Jokowi, Bakrie and Prabowo have issued clear manifestos of what they stand for.

Jokowi's poorer showing is put down in part to the unexpectedly good showing of Islamic parties in the parliamentary poll as they moved to the "centre of the political spectrum, and away from a doctrinaire Islamic position"; http://khoryuleng.blogspot.com/2014/04/indonesia-electoral-politics-and-palm.html refer to Greg Fealy's analysis.

Jokowi. Articles on Jokowi in Tempo: http://www.tempo.co/topik/tokoh/613/Jokowi--Joko-Widodo.

Bakrie's blog: http://icalbakrie.com/?page_id=412; articles on Bakrie in Tempo: http://www.tempo.co/topik/tokoh/219/Aburizal-Bakrie; a critical piece: http://www.theglobalmail.org/feature/an-environmental-problem-for-brisbane-roar/81/;

Prabowo website: http://prabowosubianto.info/; articles on Prabowo in Tempo: http://www.tempo.co/topik/tokoh/137/Prabowo-Subianto; a critical piece: http://www.nytimes.com/2014/03/27/world/asia/indonesia-candidate-tied-to-human-rights-abuses-stirs-unease.html?_r=0;

Indonesia poll outcome dims economic reform hopes: analysts
Channel News Asia;13 Apr 2014; http://www.channelnewsasia.com/news/asiapacific/indonesia-poll-outcome/1069710.html; Prospects for much-needed reforms in Southeast Asia's top economy are in doubt after a worse-than-expected election performance by the main opposition left Indonesia staring at an unwieldy coalition government, analysts warn.

Indonesian Voters Head to Polls; Voice of America April 08, 2014 ‎; http://www.voanews.com/content/reu-indonesia-gears-up-for-legislative-election/1888504.html 
JAKARTA - Some 187 million voters in Indonesia head to the polls Wednesday in parliamentary elections that will have a big influence on the country's presidential poll in July; Current electoral laws stipulate that a party or coalition of parties must win 25 percent of the popular vote or 20 percent of seats in the national parliament to nominate a presidential candidate....  But polls show that only one party, the Democratic Party of Struggle or PDI-P, will definitely pass the threshold... Known locally as Jokowi, the Jakarta governor is wildly popular for his reputation for transparency and his hands-on approach to governance....  After his presidential bid was confirmed last month, the PDI-P’s popularity jumped from 27 to 37 percent in a widely watched opinion poll. The same poll showed the next closest party lagging 20 percent behind....  Professor Jemadu said it is too soon to call a Widodo presidential victory a certainty, but he said it is clear Indonesian voters want change....  A relative outsider with no connection to the country’s political elite, Joko Widodo is being touted as a new breed of Indonesian politician...  Nonetheless, even as Widodo offers hope and change, the voting system is riddled with corruption... Since the collapse of Suharto’s 32-year authoritarian rule, this year marks the fourth time Indonesians will democratically elect their parliament...  Results for the parliamentary election will be officially announced by May 9, but a quick count of the polls is expected within 24 hours.

Indonesia Vote Shapes Presidency Race as Jokowi Seeks Boost, Apr 8, 2014; http://www.bloomberg.com/news/2014-04-07/indonesia-vote-shapes-presidential-race-as-jokowi-urges-turnout.html; Jakarta Governor Joko Widodo said nothing about his party’s plans for the country should it win a large slice of seats in a parliamentary election tomorrow. Instead he appealed to voters for a big turnout for the party, known as PDI-P, in a vote that will affect his bid to become the next president of Southeast Asia’s largest economy.... If Widodo’s popularity means PDI-P can get a significant portion of the vote he may not have to form the type of large, disparate coalition that has been the hallmark of previous governments.... By contrast, President Susilo Bambang Yudhoyono’s Democrat party won about 26 percent of seats in the 2009 vote and had to trade cabinet posts to form a coalition with five other parties.,,,If PDI-P fares well in the vote and seeks a small coalition, potential partners would be the National Awakening Party, or PKB, newcomer NasDem, or the National Mandate Party, or PAN, said Marcus Mietzner, associate professor at ANU.. In a nation where the major parties have similar policy views on issues from the economy to resource management to education, party campaigns have been focused more on pushing individual personalities than laying out details of platforms and how they would help ordinary citizens.... Bakrie of Golkar, Indonesia’s oldest political party, has promoted resource protectionism alongside a focus on building infrastructure, without giving specifics.....

Khor Reports comment: What impact on regulatory changes relating to the palm oil supply chain, including on foreign ownership limit? There is a target to get this done before the end of the current presidential term. The presidential election will be on 9 July 2014. Currently, all the ministries relevant to palm oil are held by different political parties. This is regarded as having stymied more coordinated policy actions. According to news reports, there are few policy differences between the parties; Jokowi has been silent on PDI-P's policy platform while Golkar has promoted resource protectionism. We'll find out more from friends in Jakarta once these results are in and the Presidential campaigns heat up.

Cambodia local elections impacted by land discontent?

Cambodian PM's party triumphs in election test run,PHNOM PENH | Tue Jun 5, 2012 5:37am EDT:"Official results from Sunday's elections for the chiefs of areas known as communes are not expected for several weeks but the major parties were in agreement that Hun Sen's Cambodian People's Party (CPP) had swept the polls, as it has in all national ballots in the past decade. The CPP claimed 72 percent of the seats in what it sees as a test of support ahead of the 2013 election. General elections take place every five years....The latest polls did throw up some signs of discontent, with the CPP's notable loss of seats in areas that have seen long-running land disputes and forced evictions from land leased to foreign companies. The government suspended new land concessions to foreign firms in May...." http://www.reuters.com/article/2012/06/05/us-cambodia-elections-idUSBRE8540E420120605

Khor Reports comment: In the 2007 commune elections, the Cambodian People's Party won 1,592 commune chief (97%) out of 1,633 communes. The claimed victory of 72% of seats last month suggests a 17%-age point reduction in the number of seats. Just before the elections, new economic land concessions to foreigners were frozen. In the previous two years, there had been a surge in award of such concessions. Land disputes seem to be rife and these have apparently impacted on the ruling party's electoral results, although it still holds a very commanding position. When we started to research Cambodia agricultural concessions several years ago, there was little sign of NGO activity. Now, there are several active on land dispute matters. One is focused on sugar projects, lobbying foreign-buyers to boycott Cambodian sugar because of land conflicts.