Elsevier

World Development

Volume 40, Issue 3, March 2012, Pages 555-569
World Development

Swimming Upstream: Local Indonesian Production Networks in “Globalized” Palm Oil Production

https://doi.org/10.1016/j.worlddev.2011.07.012Get rights and content

Summary

When agricultural commodities in developing countries experience an economic boom, they offer potential pathways out of poverty while creating environmental and social problems. While recent research provides insights into the governance of international supply chains, it provides less analysis of the local production networks creating critical problems. Indonesia is now the world’s largest exporter of crude palm oil. This paper analyses processes of oil palm development in three oil palm districts. It considers how policy models, regime interests, and agribusiness strategies shape local production networks, generate local outcomes, and affect the possibilities of tackling issues associated with this boom.

Introduction

The production of lucrative crops in developing countries, such as palm oil, offer potential pathways out of poverty for many. However, they also raise significant environmental and social questions. In Indonesia, the center of global production of the world’s most traded vegetable oil (World Bank Group, 2010), analysts have linked oil palm development with both widespread economic development alongside extensive deforestation and pollution, and conflicts over land use (Colchester et al., 2006, Laurance et al., 2010, McCarthy and Zen, 2010, Rist et al., 2010). Oil palm has been associated with complaints of extensive “losses of land by indigenous people and a failure to achieve sustainable livelihood improvements for small farmers,” which it is anticipated will lead to future poverty for many (CAO, 2009, p. 20). In response to these problems prominent international campaigns have increased the pressure on palm oil investors, buyers and producers across complex production networks. Consequently, during 2009–10, Unilever, the world’s largest buyer of palm oil, “blacklisted two major Indonesian members of the Roundtable on Sustainable Palm Oil (RSPO) for engaging in ‘unsustainable’ practices” (Anon, 2010). Nestle, the world’s biggest food and beverage company, announced it would also withdraw from another key Indonesian supplier. Earlier, the World Bank Group also ordered a complete moratorium on investment in palm oil (Jia, 2009). To date, attempts to address these problems by improving the governance of global production networks have met considerable obstacles.1 The most significant are located at the upstream end of palm oil production in districts where there is little pressure to meet international social and environmental standards, and where the Indonesian state has less capacity to regulate or hold local state actors to account.

To be sure, the literature on global value chains (Gereffi et al., 2005, Humphrey and Schmitz, 2002) and global production networks (Coe, Dicken, & Hess, 2008) has provided a framework for analyzing shifts in global governance structures and networks useful for studying these problems. However, while identifying the need to examine the key dynamics of global production networks at both the national and local levels, this literature has only begun to analyze the national and local dynamics that shape them (Fold, 2008, Murphy and Schindler, 2009, Neilson and Pritchard, 2009).2 In order to address this need, this article draws together insights from the literature on global value chains and global production networks, combining it with the literature on state formation and fiscal sociology (Eriksen, 2005, Moore, 2004). In exploring the variation in the political-economic dynamics shaping outcomes, we follow (Tsing, 2005) who noted that “global forces are themselves congeries of local/global interaction.” By analyzing what happens as global processes articulate with local dynamics, we provide a corrective to more structural accounts that privilege transnational forces that have a tendency to overlook local agency and difference.

This article advances two sets of arguments. First, we find that local regime interests and agribusiness strategies—as articulated through particular business and policy models that reflect the workings of power laden relationships in specific political-economies—largely determine outcomes at the upstream end of global production networks.3 Changing regime interests, state policies and agribusiness agendas are mutually constitutive, cumulatively shaping local production networks. The way these work together in a particular location affects the developmental pathway there. In large part these also determine the degree to which integration into the global palm oil economy leads to increased concentration of land ownership, smallholder marginalization, social conflict and/or the “upgrading” of smallholders into more lucrative forms of production.

Second, in the final section, we consider the implications of this study for how the problems associated with this crop might be regulated. Lead firms have responded to the risks to their reputations when they buy from problematic local production networks. They have supported internationally recognized forms of product certification elaborated under the Roundtable on Sustainable Palm Oil (RSPO). Regulatory approaches such as these, however, tend to be methodologically blind to the way regime interests, state capacities, and plantation business agendas work together to shape outcomes. Further, they tend to have a less compelling effect on nonlead local firms who predominately sell to India and China (McCarthy & Zen, 2010).4 Adjustments to the certification programs are needed to make them more effective and improve the market and regulatory environment where certification processes function are pertinent (Dauvergne & Lister, 2010). However, this article suggests the need to go further to address the underlying problems in upstream production networks.

Using qualitative, case study methods (Burawoy, 1998, Flyvbjerg, 2001, Small, 2009), this paper draws its conclusions from research conducted in three districts. These cases were selected to elucidate contrasting situations within Indonesia’s agrarian mosaic.5,6 Using decentralization as an opportunity for “focused sub national comparisons,” this study analyzes the relationships between specific institutional changes, social action and outcomes (cf Fox, 2007). By considering spatial and temporal variation, we have sought to understand the causal mechanisms linking district regimes, state policy, corporate strategies and agrarian change. We draw conclusions regarding how state-society-agribusiness configurations evolve, and how this affects processes, leading to a diversity of outcomes.

In the first site (a district in Jambi province), the research studied the transition from state-led to a laissez-faire development, characterized by minimal state engagement in smallholder development. This contrasts with a second district, located in West Kalimantan, where a resource-poor district government facilitates oil palm development through a policy model offering the most attractive terms to investors.7 In the third site, a district in Riau province, returned to an earlier era of developmental planning, one where the state used oil palm production as an instrument of pro-poor policy. Rather than generalizing out from a specific case, cross-case comparisons enables us to contrast the dynamics and processes affecting the evolution of governance-policy regimes. Further, this allows us to analyze, amidst enormous variability, the emergence of paradigmatic dynamics and processes providing characteristic pathways of inclusion into this global production network.8

The article will proceed in three sections. The first section links our empirical investigation with theoretical considerations. The second section presents our three case studies, and the third offers our conclusions.

Section snippets

Governance structures, agribusiness risk, and regime interests

With large retailers, merchandisers and buyers dominating decentralized, global-scale modes of organizing production, a literature has emerged that focuses on the factors that shape governance structures within global value chains (Coe et al., 2008, Gereffi et al., 2005, Humphrey and Schmitz, 2002). A critique of the earlier Global Value Chain (GVC) approach suggested that, as well as analyzing the actors within a GVC, it is important to understand the wider institutional context and its

The jambi case: The shift to laissez faire

In the hilly Sumatran districts of Tanjung Jabang, during the state development period (under the former Suharto regime) the state had implemented the NES and the KKPA smallholder development schemes discussed earlier. These, together with the expanding industrial timber plantations, meant that there were only limited areas of village land now available for oil palm expansion. The area had experienced large scale agro-industrial development.

Discussion

The analysis of transnational commodity networks offers a framework for understanding the “the governance of transnational trading networks in terms of political-economic power and authority in supply chains” such as those associated with oil palm (Hughes, Wrigley, & Buttle, 2008). However, these frameworks have tended to neglect the workings of specific institutional contexts and the dynamics that shape them (Fold, 2008, Murphy and Schindler, 2009), losing the “analytical traction” provided by

Implications for civic regulatory approaches

In advanced retail markets such as Europe the major suppliers of products with significant palm oil content are facing increased risks to their reputations due to their association with the upstream production processes outlined above. Banks and financial institutions with significant palm oil investments are in a similar position. According to one explanation, civic regulatory processes are increasingly being developed to solve the collective action problem within these markets. Alternatively,

Acknowledgements

The Australian Research Council and a grant from the Australian Indonesia Governance Research Partnership funded this research. Thanks to RISTEK and the University of North Sumatra for supporting this research. We are grateful to district and provincial governments as well as the many communities and oil palm farmers who hosted us during fieldwork in West Kalimantan, Riau and Jambi for their generous advice and assistance. Thanks to Jeff Neilson, Tania Li, Derek Hall, Adrian Wells, Ross McLeod,

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