The Political Economy of Palm Oil

Now that we’ve seen the difficulty of getting rid of palm oil and how land is cleared for the growth of palm oil plantations, we need to first ask this question. How did the palm oil industry in Indonesia get so large in the first place? To answer this question, we will have to look at the political economy of palm oil.

Political economy is the study of how laws and regulations can influence the economy and how the economic factors can at the same time, affect these same laws. It involves taking into account various actors from private businesses to the government.
Immigration policies in Singapore are intertwined with both population and economic policies. In response to a shrinking labour force, immigration rules were relaxed. This shows how economic factors influenced policies. However, at the same time, as citizens became unhappy about these immigration policies, the government eventually tightened labour laws for foreigners, causing businesses to find it harder to secure labour, potentially raising costs for consumers as firms have to pay higher wages for Singaporeans. This is a oversimplified analogy of how the political economist looks at things.

Palm Oil as driver of growth

The Indonesian government saw palm oil as a strategic resource as it made up quite a significant chunk of their exports. Naturally, due to the labour intensive nature of processing palm oil, it was a source of employment and income for many of its citizens. According to a report by the Centre for International Forestry Research (CIFOR) written by Anne Casson in 1999, the Indonesian government introduced various schemes and programmes that help grow the palm oil industry such as increasing ease of access to loans and public-private partnerships. With these incentives, small landowners sought to increase the amount of land that they own to qualify for these schemes to cultivate palm oil, leading to land clearing, often through the slash-and-burn techniques. In a way, government policies are part of how the palm oil industry was able to grow to this level.

The role of private business

An online article by Gadjah Mada University, ASEAN Studies Centre discussed how large private businesses are eroding the government’s authority. This highlights how corporations are exerting more influence over government policies through informal networks and lobbying.

The deep-rooted issue of corruption also allows major palm oil companies to “illegally expand their plantations to neighboring forests”. Bribes are often given to officials in exchange for permits to cut down forests even if proposals are not in accordance to guidelines. These actions add on to more deforestation activity across the Indonesian rainforests and contribute to the fires and ultimately, the haze.

Source: Created by Ng Kian Shin (Author)

The issues covered in this section are but a small portion of the existing problems in the political economy of palm oil. We’ve seen how government policies led to the rise of palm oil through incentivizing private firms and landowners to clear land and enter the industry as well as the effects of businesses have on government policies and regulation. There are a wide array of issues such as the difficulties in enforcing illegal deforestation due to issues such as the decentralised structure of governments to the lack of resources to police the forests.

Up next, we will look at how Singapore and ASEAN have responded to the haze crisis.