The palm oil industry in Indonesia is gripped by fear as the military seizes plantations

In late June, Indonesian soldiers wearing fatigues entered a palm oil plantation in Borneo and displayed a sign declaring that the estate was under government control.

The Melati Hanjalipan Plantation is a perfect example of a military-backed takeover which has shocked the 16 million-strong workforce and the world's largest palm oil producer. Agrinas Palma Nusantara is the new state-owned palm oil firm that has a land area of 9.1 million acres. Nearly half was transferred to it, making it the largest palm oil company in terms of size. This crackdown, ordered by the President Prabowo Subianto, is the largest structural change to Indonesia's palm oil industry. It has put a total 5 million hectares of land under military surveillance. This is approximately 30% of Indonesia's palm oil land and is larger than the Netherlands.

Agrinas could be given the territory, but industry experts claim that they are not equipped to manage it.

Agrinas and the president's office did not respond when asked for comments.

Prabowo, who has been in power since October 2024, told his cabinet that he was determined to eliminate corruption cases that could not be investigated.

COMPANIES UNDER SIGE

Former special forces commander Prabowo has expanded the role of the military in civil affairs, reigniting fears that Indonesia will return to its authoritarian Suharto era. He appointed retired generals to Agrinas board, and created a taskforce of soldiers, police, and prosecutors, which will target plantations that operate in areas designated as forests, according to a presidential decree from January and the company website.

Questions about the seizures were not answered by the task force, the Indonesian defence ministry or the military.

In interviews with 12 company executives, growers in Indonesia, and five industry observers, including the most respected analysts of the sector, there was widespread concern about the future of their operations and the impact the crackdown would have on the global supply. Sources at three of Indonesia’s largest palm oil producers have confirmed that they have reduced their fertiliser usage and regular upkeep of areas at risk of takingover. This could affect future yields.

Agrinas was formed by Agrinas, a company that has been seized of assets. The executives have requested anonymity out of fear of government reprisals.

What can a business do if the government uses military or police? Who do we protest to? "Do you think we'll dare?" One executive replied: One executive said.

Eddy Martono, chairman of the industry group GAPKI, said that the "uncertainty" could cause a drop in production as early as this year.

'KING OF THE THIEVES

Melati Hanjalipan is two hours away from Sampit, through remote terrain with poor mobile reception and dust clouds following passing trucks. Sabarani, the cooperative's head, said that under state control there is a bleak future for this 106-hectare plantation, as monthly fruit bunches production has already dropped to 23 metric tonnes from an average of 80-100 tons.

He said that their caretaker partner did not want to maintain the plot because of its legal dispute.

Why is the state turning into the kings of thieves? He asked.

Sabarani admitted to managing the plot, which was cleared by a Dutch timber company for 20 years without any proper documents. The cooperative had an expired local government permit, but when the central government reclassified it as forest they did not secure a Forest Area Utilisation Permit.

This is similar to the experience of smallholders, who began planting on ancestral land before they were told that they were invading forests.

An association that represents them reported that seizures have also affected tens and thousands of small plantations operated by transmigrant farm workers resettled in the country under former strongman leader Suharto.

Sabarani stated, "We do not want to join Agrinas if we aren't legal." "We do not want to be used to work for Agrinas but be illegal," Sabarani said.

MILITARY RUN PLANTATIONS Prabowo believes that the military-run plantations are essential for achieving food and energy independence within five years.

Agrinas has been tasked to achieve his ambition of producing a diesel made entirely of palm oil, and controlling at minimum 30% of the domestic market for cooking oils.

Agrinas, a newly formed company, was given the palm brief by Prabowo in March. It had no prior experience. The lawyer for the company showed pictures and videos of armed troops arriving at Duta Palma Group plantations, which were the subject of a money laundering case. Agrinas was given the lands. Sutomo stated that it plans to manage three million hectares by 2029. In September, he said, "My job used be to run around and go undercover. But now I'm told to take care palm oil."

"This is an honor, a mandate even though I know nothing."

INDUSTRY’S BIGGEST NAME The task force has focused its attention on some of the biggest names in the industry. The forestry ministry listed subsidiaries of Singapore-based Wilmar as well as SD Guthrie and Sinar Mas Group.

Wilmar reported that despite challenges, the company had seen a 5% rise in production of fresh fruit bunches during the first half. However, full-year results are dependent on "resolutions to various issues" between Indonesian authorities.

The company said it had engaged with Agrinas in a few plantations, and supported the regulation of illegal plants.

Cargill stated that it was aware of the ongoing reviews and is in a constructive dialogue with authorities. SD Guthrie declined to comment on requests, but said in August that 3% of their planted area had been affected. First Resources and Musim Mas declined comment. Golden Agri, parent company of Sinar Mas did not respond.

COMPLEX LEGAL MAZ

Seizures bring to light decades of murky legality in land. Deforestation, unclear rights to land, changing rules, and inconsistent enforcement have plagued Indonesia's palm-oil sector since the 1990s boom.

Three senior executives say many growers have documents relating to Jakarta disputes, and are faced with opaque processes for regularising permits.

Investors are increasingly concerned about companies that have been certified as sustainable.

This could have a long-term impact on production, especially since growth has already slowed down due to the ageing of trees and the moratorium on new permits for primary forests.

Globally, a significant production shortfall could have repercussions on the global edible oil market. The markets are already constrained as Jakarta converts more palm into biodiesel.

Sjafrie Sjamsoeddin is the leader of the task force and has stated that Agrinas must be prepared to ensure production does not decrease, but should actually increase.

Top analysts at an industry event in Mumbai warned that seizures will continue to decline if they continue.

Thomas Mielke, a forecaster at Oil World, said: "We assume Indonesia's production to rise by 0.7 millions tons next year. However, I wouldn't be surprised if it turns out that the increase is much smaller because investments are being cut."

Dorab Mistry, an industry analyst, echoed these concerns: "The threat to nationalisation leads immediately to lower yields."

(source: Reuters)