Palm Oil Business Partnership Sustainability through the Role of Social Capital and Local Wisdom: Evidence from Palm Oil Plantations in Indonesia
Abstract
:1. Introduction
2. Materials and Methods
- Palm oil plantation companies play a vital role in supporting agricultural development through various initiatives. Firstly, they provide essential agricultural inputs and technological support. Kansiime et al. (2021) highlight that the provision of high-quality seeds, fertilizers, and pest control methods by these companies significantly boosts crop yields and farmer incomes [38]. Additionally, these companies invest in infrastructure that benefits both their operations and local communities, with a direct impact on economic development by facilitating the production process, reducing transaction costs, improving competition, and creating employment opportunities [39]. Furthermore, palm oil companies facilitate farmer access to larger markets. Ismail et al. (2024) note that, by integrating farmers into their supply chains, these companies help ensure that their products reach broader and more profitable markets, increasing their income and economic stability [40].
- Academia plays a crucial role in driving agricultural innovation and policy analysis within the palm oil industry. Research conducted by Sarip et al. (2020) highlights the development of new technology in the form of a hydraulically operated palm oil loader system, showcasing how higher education institutions contribute to technological advancements in agriculture [41]. Furthermore, the involvement of academia is evident in the research by Nain et al. (2022), which delves into the use of artificial intelligence frameworks for palm oil prediction, demonstrating how cutting-edge technologies are being integrated into the industry [42]. This not only revolutionizes processes within the palm oil sector but also underscores the role of academia in driving technological advancements that enhance productivity and decision making.
- Non-governmental organizations (NGOs) play a crucial role in various aspects of sustainable agricultural development, being instrumental in promoting sustainable farming practices, enhancing agricultural productivity, and contributing to the overall welfare of farming communities [43]. Research by Kabiru (2020) has shown that NGOs not only focus on farm implements but also extend their reach into areas such as research, extension services, technology transfer, institutional capacity development, innovation, and effective policy implementation mechanisms [44]. NGOs’ involvement in agricultural projects has been linked to the mitigation, adaptation, and food security dimensions of climate-smart agriculture, showcasing their significant impact on sustainable agricultural practices [45]. The government plays a key role in ensuring the success of partnerships between farmers and palm oil companies through various important functions. According to Hasan et al. (2022), the government establishes regulations and policies governing the palm oil industry to ensure partnership sustainability and fairness [46]. Effective policies promote practices that support farmers’ welfare and environmental sustainability, including government incentives such as subsidies and soft loans to encourage companies to invest in sustainable practices, ensuring fair farmer benefits.
3. Results
3.1. Profile of Palm Oil Plantations in the Study Area
3.1.1. A Brief History of Palm Oil Companies
3.1.2. Partner Institutions
3.1.3. Managing Business Partnerships between Plantations and Farmers/Landowners
- The produced TBS, which belongs to the landowner and the company, is sold to the company’s commitment at market price, and the proceeds from this sale are called “gross income”.
- A total of 40% of the TBS sale price, called “operational costs”, is deducted from the gross income, and the difference is called “operating results”.
- In PT.SPL, the landowner and the company will jointly return investment costs by deducting 30% of their operating results in the first year, 40% in the second year, 50% in the third year, and so on. The remaining profit, called “net income”, will be divided between the landowner (40%) and the company (60%).
- PT.DJL divides its investment and operational costs as 60% for the company and 40% for the landowners. As for the net income, the landowner receives 20%, whilst the company receives 80%. PT.SPL decides its profit-sharing pattern based only on land area and not on land productivity. By contrast, PT.DJL takes land productivity into consideration when dividing its profits.
- After paying off the cost of building the plantations (investment cost), the operating results described in point 3 will no longer be deducted by 50%. Therefore, the operating results become the net income of each party.
- The following rules that govern investment costs are regulated in Article 3 of the agreement:
- The company agrees that building the plantations costs IDR 35,000,000,00 per hectare.
- The landowner bears 40% of this cost (IDR 14,000,000,00 per hectare), whilst the company bears 60% (IDR 21,000,000,00 per hectare).
- The investment costs use the financial facilities of the company at an annual interest of 12%.
- The repayment period for the investment costs will be determined based on the production results of the plantation, which will be monitored. The remaining debt for each party will also be calculated every month.
3.2. Social Capital Practice
3.2.1. Trust
“In the past, when the company started clearing land and planting palm oil, it always engaged in socialisation with the local community. However, the company stopped socialising with the community after it started producing palm. The company was not open, and the production results did not meet the conditions agreed upon by both parties”.
“The community often reports to the government, but the government only listens and accepts the concerns of the community. The community waits for a response from the government, but the government takes no action. So, the community immediately went to the field to demonstrate at the company and shut down is operations. The company only responded to the community after the demonstration. But now, people must wait for the results from the company because they are tired of reporting to the government and holding demonstrations”.
3.2.2. Social Networking and Participation
“There are no farmer groups, so we have no one to talk to if there is a problem. We have no leader or chairperson, and the village government is unreliable. We hope that a farmer group will be formed to help its members. We are unable to communicate with the company when we have a problem”.
3.2.3. Social Solidarity
3.2.4. Reciprocal Benefits
3.3. Local Wisdom Practices
“The local community is enthusiastic about working together on environmental issues, and this has been their habit since ancient times”.
3.4. Social Capital in the Sustainability Dimension of Palm Oil Plantations
3.5. Role of Social Capital in Palm Oil Business Partnership Sustainability
3.5.1. Role of Trust
3.5.2. Role of Social Networks and Participation
3.5.3. Role of Reciprocal Social Capital
3.5.4. Role of Social Solidarity
3.6. Role of Local Wisdom in the Sustainability of Palm Oil Plantation Business Partnerships
3.7. Efforts to Sustain Business Partnerships through Social Capital
4. Conclusions
- The social capital of landowning farmers in North Konawe is characterized by low levels of trust and weak social networks between farmers and palm oil companies. Farmer participation in sustainable management is also limited. However, local wisdom and social solidarity have great potential to enhance partnership sustainability if effectively leveraged.
- Social capital, including trust, social networks, and participation, greatly influences the effectiveness of business partnerships between farmers and palm oil companies. Currently, issues of low trust and weak social networks hinder mutually beneficial relationships. Strengthening institutional structures at the village and sub-district levels can optimize the role of social capital in these partnerships.
- Local wisdom is crucial in managing business partnerships, as it fosters solidarity and mutual respect between farmers and companies. This includes traditional values that support community cohesion, ethical behavior, and environmental stewardship. By integrating local wisdom into business practices, partnerships can become more effective and sustainable.
4.1. Practical Implications
- Social Capital of Landowning Farmers: To improve the social capital of landowning farmers in North Konawe, it is essential to build trust between farmers and palm oil companies through transparent communication and consistent, fair practices. Strengthening social networks among farmers can be achieved by implementing cooperative societies or regular community meetings, which will enhance their collective influence and support. Additionally, increasing farmer participation in sustainable management can be promoted through training programs and inclusive policies, ensuring that their voices are heard in decision-making processes. Leveraging local wisdom and social solidarity offers significant opportunities to enhance business partnership sustainability. Integrating traditional practices and cultural insights into partnership strategies can foster mutual understanding and respect. Community initiatives that emphasize collective well-being and mutual support can further promote social solidarity. By addressing these areas, the challenges of low trust, weak social networks, and limited participation can be overcome, leading to more effective and sustainable partnerships between landowning farmers and palm oil plantations in North Konawe.
- The Role of Social Capital in Managing Business Partnerships: To effectively manage business partnerships, addressing trust issues between farmers and palm oil companies is essential. This can be achieved by improving transparency and consistency in company practices, ensuring that all parties adhere to fair and open communication. Strengthening social networks and encouraging greater participation through community-based initiatives and stakeholder engagement can also significantly enhance these partnerships. By fostering stronger connections and active involvement, farmers can collectively influence decisions and contribute to the success of the partnerships. Institutional strengthening at the village and sub-district levels is crucial for optimizing the role of social capital. This includes establishing local governance bodies and providing capacity-building workshops to empower community leaders and stakeholders. Emulating successful partnership models like PT.DJL, which ensures mutual benefits and fair resource distribution, can provide a framework for other partnerships. Additionally, promoting reciprocal benefits can enhance the sense of mutual gain, supporting long-term partnership sustainability and fostering a cooperative environment where both farmers and companies can thrive.
- The Role of Local Wisdom in Managing Business Partnerships: Implementing programs that emphasize traditional values and practices can foster solidarity and mutual respect between farmers and companies. Local wisdom can be used to build trust and transparency in business dealings by adhering to ethical standards and long-established norms. This approach will create a collaborative atmosphere where both farmers and companies can work together towards common goals. Additionally, leveraging social solidarity can reinforce positive aspects of social capital, such as participation and collaboration, leading to more effective management. Optimizing the integration of local wisdom into business practices will help achieve mutual benefits and long-term success, ensuring the sustainability and effectiveness of these partnerships. With these measures, business partnerships between farmers and palm oil plantations in North Konawe can become more effective and sustainable.
4.2. Theoretical Implications
4.3. Future Research Opportunities
Author Contributions
Funding
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
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No | Stakeholders/Informants | Number of Informants (People/Respondents) | Data Collection | |
---|---|---|---|---|
1 | Company | PT.PN-14 | 2 | Interview, FGD |
PT.DJL | 2 | Interview, FGD | ||
PT.SPL | 2 | Interview, FGD | ||
2 | Government | North Konawe People’s Representative Council | Interview, FGD | |
Head of the North Konawe Plantation and Horticulture Service | 1 | Interview, FGD | ||
Village Heads | 11 | Interview, FGD | ||
3 | Academics | Higher Education | 2 | FGD |
4 | Community (Landowners) | Landowner Representatives | 5 | Interview, FGD |
5 | NGO | LEPMIL | 1 | FGD |
6 | Media/NGO | Executive Director WALHI Sultra | 1 | FGD |
7 | Communities Surrounding Oil Palm Plantations | Palm Farmers (Owners, Managers, and Workers) | 321 | Survey |
Company Name | Initial Year of Operation | Location | Area (Ha) | Production (Tonnes) | ||
---|---|---|---|---|---|---|
2020 | 2021 | 2022 | ||||
PT. Sultra Prima Lestari (factory available) | 2006 | Andowia, Asera, Langgikima, Oheo | 6.900 | 32.000 | 41.000 | 47.000 |
PT. Damai Jaya Lestari (factory available) | 2006 | Landawe, Wiwirano | 6.989 | 28.000 | 42.000 | 48.000 |
PT. Perkebunan Nusantara XIV (no factory) | 1994 | Wawontoaho, Wiwirano, | 6.500 | 51.870 | 84.435 | 87.425 |
Terms of Agreement between Company and Farmer/Landowner | ||
---|---|---|
PT.SPL | PT.DJL | PT.PN XIV |
The landowner hands over the land/soil and the growing plants without compensating the company. During the term of this agreement, the company will manage the entire land area that has been handed over entirely. | PT.PN XIV has a nucleus and plasma plantations on farmers’ land with a credit system. | |
For farmers/landowners who lend land to the company, 60% (sixty percent) is used for the company’s interests, and 40% (forty percent) is returned to the landowner in the form of oil palm plantation products during one oil palm production cycle (±30 years). | Farmers who own land lend it to the company; the landowner obtains a profit share of 20 percent from the company while the company takes 80 percent. | Capital assistance is provided to plasma farmers, which is returned in the form of business credit. |
|
Respondents’ Social Networks and Participation | Respondents’ Assessments (Score = 1–5) | ||
---|---|---|---|
SPL DJL (N = 100) | DJL (N = 109) | PT.PN 14 (N = 111) | |
Economics | Score/(N) | Score/(N) | Score/(N) |
Access to companies related to employment opportunities | 4 (95) | 4 (105) | 4 (80) |
Productivity transparency of plasma/community palm oil plantations | 3 (100) | 3 (43) | 2 (77) |
Access market price information | 2 (85) | 2 (60) | 2 (55) |
Family participation in savings and loan cooperatives | 2 (50) | 2 (15) | 2 (35) |
Ecology | Score/(N) | Score/(N) | Score/(N) |
Involvement of environmental NGOs | 4 (81) | 4 (89) | 3 (50) |
Government attention to the environment | 3 (83) | 3 (92) | 3 (90) |
Farmer participation in protecting environmental pollution | 3 (75) | 3 (105) | 3 (75) |
Cooperation in preventing land damage | 3 (97) | 3 (87) | 3 (93) |
Social | Score/(N) | Score/(N) | Score/(N) |
The education level of farmer families increases | 4 (85) | 4 (60) | 4 (60) |
Intensity of agricultural extension | 3 (72) | 2 (68) | 3 (70) |
Communication between farmers | 3 (85) | 3 (78) | 4 (82) |
Communication between the community and the company | 2 (70) | 2 (39) | 2 (41) |
Communication between farmers and community leaders | 4 (98) | 4 (92) | 4 (90) |
No | Stakeholder | Stakeholder Statement of Solidarity in Palm Oil Plantation Business |
---|---|---|
1 | Landowners (Farmers) | Landowners/farmers hope for support or facilities from companies, facilitated by the government. |
2 | NGOs | NGOs hope that the role of palm oil companies can protect the environment and ensure fair landowner/farmer welfare. |
3 | The Government | The Government of the Regent of North Konawe, through the Plantation and Horticulture Service, instructed the company to commit to fulfilling permits as a condition for building the factory. The parties need to help investors continue to operate. |
4 | Academics | Academics provide support to ensure that companies are committed to partner farmer/landowner welfare while still paying attention to institutional strengthening and improving cultivation technology and waste management for the benefit of increasing palm oil productivity. They have a role in managing palm oil processing factories, providing labor wages and capacity-building training to farmers/landowners. Moreover, the sustainability aspect should not be ignored from an ecological perspective. They recommend that the government strengthen farmers’ position, especially in terms of implementing regional minimum wages for workers, disclosing information on palm oil prices, and launching Regional Regulations on Sustainable Palm Oil Management. |
Regional Legislative Member | They increase awareness of environmental issues and strengthen institutions. The existence of a palm oil plantation company shows its commitment to realizing the welfare of partner farmers, utilizing palm oil products from the North Konawe Regency. | |
Youth Farmers (Young Generation) | The younger generations (landowning families) specifically want their parents to improve their skills in managing oil palm plantations. |
No. | Stakeholder | Informant Statement |
---|---|---|
1 | Landowner 01 | I feel that from the first year to 2019, almost the same results, or there is no increase in results. There are still fewer employees in companies who get BPJS for employment. |
2 | Landowner 02 | Company PT.SPL and PT.DJL operate because of the kindness of the landowners, in this case, the farmers, who do not own the core land until now. Care or maintenance of oil palm plants should be done seriously. Improvement of garden roads to facilitate the transportation of palm oil. Not consistent in revenue sharing and should be by the agreement. |
3 | Landowner 03 (Land in Wiwirano Village) | The oil palm industry promised a factory, but so far, it has not been realized. The workforce is a concern for the Company. Forming BUMDES as a medium for increasing the capacity of farmers. |
4 | Village Head in Mantasole Village | The price is the first point we should pay attention to; far from what is expected. The price is not negotiable. There is a need for training for farmers by companies and extension workers. |
5 | Landowner 04 | I am very grateful to the PTPN XIV oil palm company because my son’s school, which was stopped for a while, can return to school again. By reactivating cooperatives, farmers can help each other overcome existing problems. |
6 | PT.PN Nusantara XIV Kebun Asera Unit | There is no factory yet for the sale of Tandang Buah Segar (TBS) from farmers; we work with partner companies SPL and DJL to buy TBS from us, but there are farmers who jointly do not sell to their partner companies, and as a result, credit instalments are not smooth. |
8 | Public Relation PT.SPL | The system used is for profit. Another problem with the Company is that this community freely cuts palm oil on the ground to be used as a vegetable at the festival. Even though the palm oil they cut is still productive. The Company PT.SPL is about to share a small yield from year to year due to natural factors or a large harvest in the rainy season, but the road is damaged, so it cannot be reached, and the fruit rots. |
9 | Public Relation PT.DJL | a. There is no core garden yet. b. The soil is not fertile, so production is low. |
10 | Head of North Konawe Horticulture and Horticulture Department | The need for consistency on both sides (businesses and farmers) related to the MOU that was agreed upon. The Company must transparently convey related costs, namely (a) investment costs, (b) general costs, and (c) operational costs. Optimizing the role of agricultural extension. |
11 | Executive Director of WALHI Sultra | The flood was caused by the impact of plantations and mining. The good Company will follow the process by the existing provisions and rules. There is injustice and a lack of transparency in the Company. In developed countries, farmers are respected. We are here; being a farm labourer has no honour. Entrepreneurs use the centralized autonomy of this region to invest in stakeholders and those stakeholders to exploit the region. |
12 | Lepmil/NGO | If the regulations are not changed, the community’s well-being will remain unchanged. Why did mines dare to change the regulations? Why didn’t oil palm plantations issue a revision of the law so that they could no longer send CPOs abroad? Why don’t we make the industry in Indonesia? Should Southeast Sulawesi farmers send to their own industry, or should they send to India or Malaysia? We are laborer’s forever. There is no government control over fertilizers and prices. No government controls the community and always loses in negotiations. The principle is that if the old paradigm is still used and the method used is still a dream, it will not be achieved. |
13 | North Konawe DPRD Member | In the House of Representatives, the people are devising regional regulations regarding recognizing territories elsewhere. If in Konawe Utara’s “Customary rights to land”, it is true that he is almost marginalized in North Konawe as a whole because his land is handed over to companies whose contracts will dominate for 30 years. So, this society needs to be in a stronger position. Companies that invest in North Konawe to be cooperative with the regional government. |
14 | North Konawe DPRD Member | There is a need for proper socialization because Malaysia can develop its country with oil palm, so why not us? We must encourage the birth of a regional regulation, especially in North Konawe. There is no clear legal basis that provides protection to oil palm companies and farmers so that they both benefit equally. I have had many discussions with farmers. They desire to plant oil palm, but they are thinking about where our oil palm products will be marketed. Farmer institutions at the level of BUMDES have become a media source of information and capacity-building for farmers. |
15 | Academic from North Konawe | The benefits of palm oil for the community include: The openness of the community’s vision and mindset so that many sons and daughters are sent out of the district for school. It used to be a remote region (difficult access). Now the access is better. Dormant land (unproductive) becomes cultivated/open. The community obtains a permanent job (as an employee) who previously cultivates the fields (suitable for cash crops and long-term crops) and searches for rattan (locally called pa ratan) and hunts jong (deer). Farmers’ institutions are needed to increase farmers’ capacity. |
Variables | Social Capital Indicator | Information Related to the Sustainability Dimensions of Palm Oil Management Partnership Models | Information Source |
---|---|---|---|
Social Capital | Economic | ||
Trust | Transparency of palm oil TBS prices Management of oil palm land Palm oil production | Farmers (landowners) Company | |
Social Networks and Participation | Productivity of plasma/community palm oil plantations Farmer participation in cooperatives Influence of external information on palm oil TBS | Farmers (landowners) Company | |
Local Wisdom | Employment recruitment Community and government cooperation Involvement of community leaders | Farmers (landowners) Company Local government | |
Social Solidarity | Determination of profit sharing Maintain good communication with the company Support company programs Help fellow farmers | Farmers (landowners) Company | |
Reciprocity | Job opportunities TBS payments on time Farmer income level | Farmers (landowners) Company | |
Ecology | |||
Trust | River water quality management CSR environmental care program The company continues to maintain the fertility of the land | Local government Farmers (landowners) | |
Social Networks and Farmer Participation | There is involvement of environmental NGOs Farmer participation in environmentally friendly farming Cooperation between farmers is lacking in the management of palm oil | NGOs Local government Farmers (landowners) | |
Local Wisdom | Soil fertility treatment Proportion of forest area to plantation land Tradition of maintaining plantation and food crops, animal husbandry, and fisheries | Farmers (landowners) Local government | |
Social Solidarity | Help preserve river borders Help each other in dealing with flood disasters Support company environmental programs | Department of Agriculture Farmers Academics | |
Mutual Benefits | Reduced negative environmental impacts Public health and environmental sustainability | NGOs Local government Academics | |
Social | |||
Trust | Institutional management of farmers Landowner status Company leadership | Farmers (landowners) Company | |
Social Networks and Participation | Farmer education level Participation of agricultural extension workers Participation in farming management of armers (landowners) | Farmers (landowners) | |
Local Wisdom | Livelihood Farmer cooperation | Farmers (landowners) | |
Social Solidarity | Protection of farmers and environmental issues Attention of government agencies Implementation of CSR | Farmers (landowners) Government | |
Reciprocal | Availability of labor Assistance with public facilities Social assistance | Farmers (landowners) Company Local government |
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Baka, W.K.; Rianse, I.S.; la Zulfikar, Z. Palm Oil Business Partnership Sustainability through the Role of Social Capital and Local Wisdom: Evidence from Palm Oil Plantations in Indonesia. Sustainability 2024, 16, 7541. https://doi.org/10.3390/su16177541
Baka WK, Rianse IS, la Zulfikar Z. Palm Oil Business Partnership Sustainability through the Role of Social Capital and Local Wisdom: Evidence from Palm Oil Plantations in Indonesia. Sustainability. 2024; 16(17):7541. https://doi.org/10.3390/su16177541
Chicago/Turabian StyleBaka, Wa Kuasa, Ilma Sarimustaqiyma Rianse, and Zulfikar la Zulfikar. 2024. "Palm Oil Business Partnership Sustainability through the Role of Social Capital and Local Wisdom: Evidence from Palm Oil Plantations in Indonesia" Sustainability 16, no. 17: 7541. https://doi.org/10.3390/su16177541