05 May 2016

Corporate capture in the palm oil industry

Anne-Maria writes:*

The advancement of corporate agendas by an economic elite to the detriment of the environment and human rights has become a pertinent issue within environmental policy-making. One of the primary missions on the agenda of NGOs like Friends of the Earth International is the elimination of this problem of corporate capture, i.e., environmental regulators serving corporate rather than public interests.

The unsustainable palm oil industry, widely accused of a reckless disregard for human rights and the environment, is one of the most pressing environmental issues today. The WWF states that approximately half of all packaged supermarket foods contain palm oil. While palm oil production is highly efficient, it leads to rampant levels of deforestation, loss of biodiversity, land erosion, illegal land clearing and threatens endangered species crucial to the functioning of tropical ecosystems.

Besides environmental degradation and gross violations of human rights, palm oil extraction has raised political tensions and exascerbated corruption in exporting countries (Indonesia and Malaysia jointly account for nearly 90% of the world’s palm oil supply).

The alarming rate of illegal land clearing plays a decisive role in the tension between the Indonesian government, sub-national governments and indigenous communities. After Suharto’s dictatorship came to an end in 1998, Indonesia decentralized the power over land. The smaller kings ‘bupatis’ have been frequently accused of corrupt allocations of logging concessions. Tomasz Johnson, forest campaigner at the Environmental Investigation Agency (EIA) notes that the bupatis “take decisions in best interest of companies (…) rather than communities.”

Although the illegal and corrupt practices of the unsustainable palm oil industry have been publicly denounced on the national political level, instances of sub-national oppression, transgression of environmental regulations and violence against local communities are abound. EIA’s detailed investigation [pdf] sheds light on lax law enforcement and corruption in the palm oil industry in Indonesia. Furthermore, it unveiled practices of regional governments transferring public resources to private firms.

While disproportionately large shares of the benefits from palm oil extraction are captured by corporate palm oil industries, the deleterious consequences are borne by the public. Even though national governments have acknowledged and publicly condemned this corporate grabbing hand, both corporations and smaller firms have found ways to circumvent and transgress regulations and boundaries at a sub-national level. This points towards the necessity of potential reformations like a recentralization of land power, increased transparency measures, more effective monitoring, improvement of corporate governance and raising awareness on the graveness of the current palm oil situation.

Bottom Line Palm oil corporations and smaller firms strategically manipulate governments and public institutions to their advantage at the expense of the public interest. This notion of corporate capture necessitates solutions to protect the environment, (endangered) species and human rights.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.


  1. Use of palm oil for biodiesel is part of the problem. The EU has subsidized or mandated use of palm oil for biodiesel in the past, over protests from environmentalists. What are recent changes in that policy? I think Indonesia itself also subsidizes use of biodiesel from palm oil--something that sounds a lot like the US policy of encouraging ethanol from corn as a substitute for gasoline.

    A further issue is whether the WTO should allow countries to place countervailing tariffs on imports of products that they think have harmful environmental effects.

    1. Thank you for your suggestions! As for the biodiesel subsidies, I have read about this controversial issue as well. Oil palm expansion in the name of energy security is used as a new possibility or weapon for the oil palm businesses to ignore environmental and social issues. The Oil Palm Smallholders Union, for example, also expressed concern that this is just another way to protect corporate benefits at the expense of the social good.
      With regards to your question about WTO: trade policies are an important tool to influence environmental quality, particularly when trade is a direct contributor to the problem (which it is, because the main cause of the initial palm oil expansion was heightened global demand), but there are many alternatives to trade obstacles/restrictions like financial assistance and aid to help countries develop more environmentally-friendly production processes. Which of those possibilities would be most efficient clearly remains a pertinent and complex issue.

  2. I can imagine it will be difficult to reimplement a centralized governance system in Indonesia. Every island has its own subculture, and informal institutions. It would therefore be interesting to look at whether there are any cases where local communities find ways to deal with this problem. Is there any collective action taken against this issue to protect their environments in forms of protecting their land or fighting to get their land back? David mentioned this already in class, but Elenor Ostrom touches upon this solution (in her book on Common Pool Resource Management) since in some cases it may be more effective.

    1. Thank you for putting that forward, Monica. There is indeed a collective action problem, especially amongst officials, subnational politicians and land managers who benefit individually from bribes and privileges, which constitutes a major obstacle to effective change.
      - Anna-Maria


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