Indonesia’s palm oil industry rife with human-rights abuses

“What kind of oil should we buy?” Luo Xiaohua shouts to her cousin from the cooking oil aisle in Yonghui Supermarket in the heart of Chongqing, a rising Chinese megacity. Luo, 50, is the quintessential Chinese shopper. She earns $3,250 a year and has an elementary education. She’s fiercely opinionated about her purchases.

Luo stands before amber-hued bottles loaded with a commodity that fuels China’s and India’s growing consumer classes. “From what I understand, all of these brands contain palm oil,” she says. “But they just don’t say it on the label.” She says she’d prefer to use olive oil but can’t afford it. “Corporations have the power in this country, and consumers have to make decisions based on limited options.”

Palm oil and its derivatives are found in thousands of products worldwide, from doughnuts to soap, lipstick to biodiesel. Globally, palm oil consumption has quintupled since 1990. Demand in Asia, where palm oil is widely used in cooking oil and noodles, has driven the growth of a $44 billion industry. In February, exports from Indonesia, the world’s largest producer of palm oil, hit a five-year high.

Shoppers such as Luo are at the heart of that boom. China is the world’s largest consumer of vegetable oil, of which palm oil is the world’s most-produced variety. Since the late 1970s, as the Chinese shifted away from traditional staples such as rice and grains and toward a higher-fat diet, palm oil imports have grown 150-fold.

As it’s grown, the palm oil industry has drawn scrutiny from environmental activists in Europe and the U.S. They decry the destruction of rainforests in Indonesia and Malaysia to support oil palm expansion, which threatens the natural habitats of endangered species such as pygmy elephants and Sumatran tigers. The human costs of the palm oil boom, however, have been largely overlooked. A nine-month investigation of the industry, including interviews with workers at or near 12 plantations on Borneo and Sumatra—two islands that hold 96 percent of Indonesia’s palm oil operations—revealed widespread abuses of basic human rights. Among the estimated 3.7 million workers in the industry are thousands of child laborers and workers who face dangerous and abusive conditions. Debt bondage is common, and traffickers who prey on victims face few, if any, sanctions from business or government officials.

The U.S. government has highlighted the prevalence of human-rights abuses in the palm oil trade: A 2012 U.S. Department of Labor report found that among the industries most notorious for forced and child labor were apparel, seafood, gold, and palm oil. But because palm oil companies face little pressure from consumers to change, they continue to rely on largely unregulated contractors, who often use unscrupulous practices. The impact of any reform efforts will be limited unless the new consumer giants—China and India, which account for more than a third of global palm oil imports—are brought into the debate. “We have a Western-facing strategy on an Eastern-facing problem,” says Dave McLaughlin, who oversees agriculture issues for the World Wildlife Fund.

Among the world’s most significant palm oil suppliers is Kuala Lumpur Kepong, a 107-year-old Malaysian corporation. KLK, with revenue in 2012 of $3.2 billion, is by area the world’s fifth-largest palm oil plantation company. Its principal shareholder, a holding company called Batu Kawan, is controlled by KLK’s chief executive and his brother, both among Malaysia’s richest citizens.

In labor-intensive cycles repeated across most of its 73 plantation estates, KLK relies on contractors who in turn enlist thousands of low-wage workers. Those workers first prepare land for the palm groves. After three years, they manually harvest the palm bunches, which can each weigh up to 55 pounds and yield 3,000 fruitlets. Within 48 hours of harvest, trucks carry those bunches, which last year amounted to 3.3 million metric tons, to KLK’s nearby mills. From there, crude palm oil is shipped for further processing at two KLK-owned oleochemical plants in Shanghai and Zhangjiagang, China, or elsewhere, before the refined palm oil or derivatives are sold into the commodity and consumer markets.

Interviews with former workers as well as statements recorded by local nongovernmental organizations reveal a tragic underside of KLK’s supply chain. These workers tell of being defrauded, abused, and held captive by representatives of a labor management firm called CV Sinar Kalimantan. Their claims of fraud are substantiated by affiliates of the contractors, as well as by the labor contracts themselves, copies of which were obtained by Bloomberg Businessweek.

The experience of “Adam,” a 19-year-old Indonesian from North Sumatra, shows the coercion faced by untold numbers of palm oil workers. (Out of concern for their safety, Adam and another alleged victim asked that their names be changed.) In July 2010 a stocky Indonesian foreman named Atisama Zendrato allegedly lured Adam and his cousin two thousand miles away from their home in Nias, a poor, largely underdeveloped North Sumatran island. He promised to pay them $6 a day (roughly the minimum wage at their destination in Borneo) to drive trucks. Partway through the three-week journey to Berau, East Kalimantan—after Zendrato had transported them and 18 other recruits, some as young as 14, to his house in Duri—he compelled them to sign contracts that spelled out different terms, Adam says.

The contracts bound the workers to Zendrato’s boss, a Malaysian based in Medan, North Sumatra, named M. Handoyo, and compelled them “to work without the freedom to choose the type of work, to be obliged to do any work as asked by the employer.” Under the terms, the daily wage was dropped to $5 per day. But Zendrato allegedly said the firm wouldn’t pay workers anything for two years, instead “loaning” them up to $16 a month for necessities such as rudimentary health care. Food beyond meager rations could only be purchased from a company store allegedly owned by Handoyo. The contract stated that workers, who included men, women, and children, would not be allowed to leave the plantation, even temporarily, without permission, and that Handoyo “will not accept any reason/excuse whatsoever from the [worker] to go back to his/her village during the [two-year] term of this contract.”

At PT 198, a plantation near Berau owned by top KLK shareholder Batu Kawan, workers entered a system of tightly controlled forced labor, according to Adam and other alleged victims. At least 95 workers were held at the plantation for up to two years. At night they were locked in stifling, windowless barracks. An environmental NGO, Menapak, later reported that they were fed small portions of salted fish and rice, which several said were often weevil-infested. A truck with fresh water came once a month, but that supply would last no more than a week; workers pulled most water for cooking, cleaning, and drinking from a stagnant ditch that ran alongside the barracks. Adam says Handoyo confiscated their national identity cards and school certificates, along with a deed to a home, which his village collectively owned.

Instead of working as drivers or low-level administrators, the workers were ordered to prepare the newly planted palm groves. Some had to spread at least 20 50-kilogram sacks of fertilizer each day. If they fell short, they had to make it up the next day or see their already deferred pay cut. They say they were required to spray with the herbicide Paraquat, a substance that’s been linked to kidney and liver damage and is banned in at least 32 countries. (China, which announced in April it would phase out the herbicide, would be the 33rd.) Because they weren’t given protective gear, some claim to have suffered respiratory damage. An alleged victim, “Jacob,” who was held with his wife for two years at PT 198, reported nightly bloody coughing fits but says Zendrato denied him adequate medical care.

Other workers say those who tried to escape were punished harshly. One young man made it as far as a nearby river before being caught by boatmen whose livelihood depends on the palm oil companies. Once alerted, Zendrato’s men hauled the escapee back and allegedly beat him in front of the others, say Jacob and other witnesses. Several workers report witnessing Zendrato’s enforcers regularly beat workers with wooden clubs and occasionally with the sides of machetes.

Despite the risks, Adam and his cousin decided to flee. Early one morning in late August 2010 they pounded on the locked door of their barracks and asked the guards to allow them to use the latrine. Shrouded in blankets they had taken from the barracks, the young men scrambled beyond that latrine and crawled to the road. A truck from neighboring Berau Coal Energy (BRAU:IJ) happened to pull up. A colleague of the driver’s allowed them to hide from Zendrato’s search parties on his boat for three days and helped them with safe passage to a more populated area.

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