DEFINING THE LEGALITY OF OIL PALM FRESH FRUIT BUNCHES: EXPERIENCES FROM INDONESIA 1

Transcription

1 DEFINING THE LEGALITY OF OIL PALM FRESH FRUIT BUNCHES: EXPERIENCES FROM INDONESIA 1 1 This study was carried out by Institut Penelitian Inovasi Bumi (INOBU) and financed by RSPO. Bernadinus Steni is the lead investigator with support provided by: i) Joko Arif (providing technical support during the field research and expert discussions); and ii) Silvia Irawan and John Watts (contributing to the English report writing). AsM Law Office provided technical inputs throughout the research, including leading the field research in Riau and wrote a portion of the Indonesian version of this report. 1

2 DEFINING THE LEGALITY OF OIL PALM FRESH FRUIT BUNCHES: EXPERIENCES FROM INDONESIA... 1 Introduction... 3 Context...3 Methodology: defining legality...4 Desk Review... 7 Review of regulations...7 Legal requirements for companies...8 Licensing Process...8 Plantation Establishment Transporting Fresh Fruit Bunches Legal requirements for farmers Stories from the Field Perceptions and interpretation of regulations Practices Recommendations Defining legality An ideal definition of legality for oil palm fresh fruit bunches Intermediate legality for oil palm smallholders Illegal oil palm fresh fruit bunches produced by companies Illegal oil palm fresh fruit bunches produced by smallholders Bibliography Annex 1: Review of Regulations Related to FFB Production Annex 2: Criteria for Illegal Fresh Fruit Bunches... Error! Bookmark not defined. 2

3 Introduction Context Sustainable supply chains for palm oil depend upon farmers and plantations growing fresh fruit bunches (FFB) sustainably and legally. The Roundtable for Sustainable Palm Oil (RSPO) is the international, multi-stakeholder platform that defines the standards for sustainable palm oil production. The definition of sustainable palm oil production is further detailed into a set of Principles and Criteria, and the accompanying Indicators and Guidance. One of the principles of RSPO is compliance with applicable laws and regulations (Principle 2). This principle is to ensure that all palm oil products are legal and not in violation of the regulations applied where they are produced. Although the Principles and Criteria of RSPO have been agreed since 2013, the legality of oil palm fresh fruit bunches became a major concern after a report issued by WWF (2013) that revealed how two RSPO certified companies were involved in the trade of illegal oil palm. 2 Illegal oil palm was defined as oil palm that was produced from plantations inside Tesso Nilo national park. However, in many areas it is not easy to sort out the legality definition clearly for many reasons as explained further in this study. Under the RSPO P&C 2013, Indicator , RSPO certified mills should record the origins of all third-party sourced FFB. Whereas current systems are able to trace fresh fruit bunches produced in nucleus and plasma scheme plantations, there is no system in place for tracing fresh fruit bunches produced by independent farmers. Independent, smallholder farmers constitute a large proportion of the rural poor in Indonesia, and many palm oil mills source their fresh fruit bunches from these farmers. The uncertainty of where and how fresh fruit bunches are produced affects the certification of mills and members of the Roundtable on Sustainable Palm Oil (RSPO). In order to ensure that certified mills and RSPO producer members are in full compliance with sustainability standards, the external suppliers of either certified mills or RSPO producer members should also be traceable and that legality can be proven. In response to these challenges, RSPO has established the Fresh Fruit Bunches Legality and Traceability Taskforce (FLTTF) to improve the legality and traceability of the palm oil supply chain. One of the important tasks of the Taskforce is to define what constitutes the legality of FFB. In the case of Indonesia, defining the legality of oil palm is not straightforward. The definition of legality has some substantive legal problems such as lack of clarity, inconsistency among legal criteria and incomplete operational guidelines. This problem is complicated by the wrong perceptions held by actors in implementing the legal criteria and plurality of practices in pursuit of legality. Therefore, clarifying the legality of oil palm fresh fruit bunches is a multifaceted approach. The first step is to agree on a definition of legality with the national ministries, district and provincial governments who have the authority to regulate the production of palm oil. As part of the process of defining legality, the process of how legality can be proven needs to be clarified too. The study aims to propose options for the definition of legal fresh fruit bunches and the mechanisms for proving legality. This study was carried out for the FFB Legality and 2 WWF-Indonesia, 2013, Palming Off a National Park. Tracking Illegal Oil Palm Fruit in Riau, Sumatra. 3

4 Traceability Taskforce (FLTTF) to improve the system to trace the supply chain. Several steps were carried out in the study including: 1. A review of the laws and regulations relating to the legality of fresh fruit bunches. 2. Case studies at the provincial and district levels the field research was carried out in one site in Sumatera and Kalimantan respectively. The case studies look at local government regulations related the legality of fresh fruit bunches, including local practices and the documentation used to prove legality. 3. An expert meeting and a focus group discussion (FGD) about what constitutes legality to reach an agreement on the definition of legality and the mechanisms for proving legality. The report was reviewed by experts through several Meetings and FGDs. See Annex 3 for the participants to the Expert Meeting and FGD. Methodology: defining legality Legality is the prominent tenet of the modern legal system. It defines certainty of law, guiding rules and regulations to be in harmony with the higher rank of law. However, legality is not merely the product of written law, but shaped by political, economic and social processes. Legality as shown in many law-making processes in Indonesia is defined by political processes, which eventually direct or determine the final definition of a legal product (Halliday and Carruthers, 2007, Lindsey and Santosa, 2008). Similarly, the market often determines the concept of legality. As described by Juwana (2004, 2005), the globalized market influences investment law in Indonesia following the market need of supply and demand. At the community level, communities often have their own customs and traditions that define legality (Beckmann, Beckmann, 2006). The principle of legality was born in the late 18 th Century (Berman, 1983). In the civil law system, such as is applied in Indonesia, legality is defined by regulations (See Box 1 for the description of Civil and Common Law legal systems). The legality principle, generally, states that a deed cannot be punished before there is a law that prohibits it, or as it is articulated in Latin: nullum crimen, nulla poena sine praevia lege poenali (Ferdinandusse, 2005). 3 Four significant precepts are derived from this principle, namely: 1. Lex scripta (punishment based on the written law); 2. Non-retroactivity (prohibition of retroactive enforcement); 3. Lex certa (the criminal element must be clear); and 4. The prohibition to apply analogical interpretation. 3 The Legality Principle is included in the Constitution of the United States in 1783, and in the Declaration des droits de L homme et du citoyen (1789), which was a product of the French Revolution. 4

5 BOX 1: CIVIL VERSUS COMMON LAW Two legal systems adhered to in the world are the Civil Law originating from the Roman-German tradition and Common Law, which was developed based on the British tradition. The Civil Law strictly regulates its legal hierarchical source, namely the laws and regulations, jurisprudence, and customs. On the other hand, Common Law is based on social customs cultivated by the judge in court. The different sources of law affects the legal principles that form the basis of each of these systems. Laws and regulations are the main source of law in civil law system that is made by the consensus between parliament and executive. Meanwhile judges in the court make laws in common law system. In the tradition of the Civil Law, the legal principle occupies a significant position. In contrast, the legal principle is not too important according to the Common Law tradition, but it is the sense of justice that serves as the reference. Furthermore, the violations of the law in the Civil Law system are proven so long as the elements of the existing law are met, whereas in Common Law, a violation of the law occurs if the perpetrator had the intent to do so. 4 However, as shown by several socio-legal studies (Safitri, 2010, Warman, 2010, Simarmata, 2012) that define legality especially in the field of natural resources, law cannot be based entirely on the Civil Law approach, which insists on referring to regulations. This is mainly because of the weaknesses found in the regulations themselves which often are difficult to implement because they are unrealistic and due to the weak capacity of the institution and human resources. The regulations often also neglect local customs that are practiced by local communities. Ideally, defining the legality of oil palm fruit should combine Civil Law and Common Law approaches. This means that the basis of legality must not only be found in laws and regulations, but also from customs and norms. The implication for legal work is that we should design legality criteria based on the entire aspect of legislation, practice and norms. However, it is acknowledged that the process of defining legality using the approaches of both legal systems would be time consuming as a consensus should be achieved between stakeholders. This report does not intend to create a new complex criteria of civil-common law, but takes legal criteria from the existing legislation that should be common for oil palm legal requirements. Hence, this study refers to the existing regulations to frame the minimum definition of legality in the context of Indonesia. The practical and field experiences that we use here are merely cases that we use to enrich and strengthen the concepts of the legality and propose as a solution to address the problem of illegality. The scope of the legal solution is a combination of legal criteria and inputs from practice and perceptions from the ground. This paper begins by proposal of a minimum definition of legality based on Indonesian regulations, which is consistent with the civil law system adhered to in Indonesia. Regulations can be formulated as recommendations (optional) and commands (imperative). A regulation can provide a recommendation if the substance of the regulation is only to give advice or an option. The word that is often used here is "can". On the other hand, a rule is a command that entails a penalty in the case of violation such as imprisonment, fines and others. The word that is often used in the regulations is "mandatory" or "must" 4 Actus non est reus mens rea- a deed does not have the consequence of making a person guilty, except if that person intended to do harm 5

6 (Mertokusumo, 1986). In many cases, it is difficult to differentiate between a recommendation and a command. Hence, this study identifies commands in the regulations based on the provisions of sanctions or penalties for violations. After presenting the minimum definition of legality, this study goes on to describe the practices of farmers and others in the palm oil sector to assess the implementation of the regulations that determine the legality of fresh fruit bunches. Many regulations cannot be implemented because they are unclear, unknown to the public or deliberately violated. We will present the regulations that are currently unclear and creating disagreement between stakeholders who are supposed to implement or enforce the regulations. Obvious violations of the regulations are often because the regulations are formulated without considering the existing practices or customs of local people. As outlined above, to find a solution, it is hence important to combine the approaches of civil law and common law, where the basis of legality derives not only from legislation, but also from customs and norms that are developed in the community. BOX 2: LESSONS FROM THE TIMBER INDUSTRY As a comparison for studying the legality of oil palm fruit, let us briefly examine the concept of legality in the timber sector. During the last 15 years, one of the sectors developing legality standards was the timber sector. In 2003, the European Union s Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan, was agreed upon. The FLEGT Action Plan is a commitment by the European Union to screen illegal timber entering that zone. The core goals of the FLEGT action plan were to: Prevent import of illegal timber into the European Union; Increase the supply of legal timber; and Enhance the demand for timber from responsibly managed forests. Moreover, the long-term aim of the action was: sustainable forest management. Definitions of legallyproduced timber should therefore incorporate laws that address the three pillars of sustainability i.e., those aimed at economic, environmental and social objectives. These are likely to include: Granting of and compliance with rights to harvest timber within legally-gazetted boundaries; Compliance with requirements regarding forest management, including compliance with relevant environmental, labour and community welfare legislation; Compliance with requirements concerning taxes, import and export duties, royalties and fees directly related to timber harvesting and timber trade; Respect for tenure or use rights to land and resources that may be affected by timber harvest rights, where such rights exist; and Compliance with requirements for trade and export procedures. To implement the FLEGT action plan, countries that supplied timber to the European Union then designed the timber legality standards to be adhered to in their countries. In Indonesia these standards were mostly based on and developed from various Indonesian laws and regulations. Legality in Indonesia was defined on the basis of Indonesian laws and regulations regarding forestry, trade, the environment, agriculture, and land affairs, as well as on international agreements signed and agreed upon by Indonesia. The legality definition was officially acknowledged in 2009 through two regulations signed respectively by the Minister of Forestry and the Director General of Forestry Production Development. The Indonesian legality definition was designed on the basis of a number of key 6

7 principles covering aspects of production and processing, and depending on the type of forest where timber was harvested. For natural and plantation forests within state forest areas the principles covered: Legal status and zone, and business licenses to utilize timber forest products; Compliance with the legal requirements on product harvesting; and Compliance with the environmental and social aspects related to product harvesting. Desk Review Review of regulations We review the existing regulations that are related to the production and trading of FFB in Indonesia. The existing regulations covering the production of palm oil are listed in Annex 1. The presentation of these regulations are classified into the five major stages in the production of palm oil, including: 1. The plantation licensing process; 2. The plantation establishment process; 3. The plantation management process 4. The trading of FFB; and 5. The processing of FFB to Crude Palm Oil (CPO). Indonesia s regulations apply different legal requirements to large-scale companies and smallholders or individuals. Although the production of oil palm by large companies is heavily regulated, there are only limited regulations stipulating the requirements for the production of FFB by individuals. Based on Law 39/2014, smallholders (or pekebun) are Indonesian citizens who own small-scale plantations. Although the regulations do not specifically define the size of smallholder plantations, based on agrarian legislation in Indonesia, individual land ownership is restricted to 25 hectares per individual. Smallholders can be classified as either schemed or independent farmers. Schemed farmers usually are usually tied to a plantation company who provides support for the establishment of the plantation and has a contract where the company will buy from the smallholders. Independent smallholders are those who establish and manage their own plantation without any support from a plantation company. For smallholders, particularly independent smallholders, there are no specific provisions in the Plantation Act describing the obligations of farmers. However, several other sectoral laws such as the Forestry Law and regulations for protected areas describe the obligations for everyone, including farmers, related to forests. Considering the differences in the regulations stipulating the operations of big plantations and smallholders, the legal analysis presented in this paper will be divided into two sections: legal requirements for companies and for smallholders. 7

8 Legal requirements for companies Licensing Process Companies that intend to operate in state-owned lands should obtain necessary permits from different levels of government (Table 1). A plantation company should first obtain a location permit from a district head to operate in state-owned lands. The acquisition of the land, stated in the Location Permit, is subject to the release of rights and interests of other parties in the land. Land should be acquired by a plantation company after it has secured a location permit. This should be done through selling and purchasing, providing compensation, land consolidation or other methods based on an agreement with the rights holders or concerned parties and the existing regulations. Only after the relevant land has been acquired does the Location Permit holder have the authority to use the land in accordance with the purposes mentioned in the investment plan. Companies then should obtain a Plantation Business Permit (Izin Usaha Perkebunan - IUP) from the head of the district or municipal government. The proponent should submit the following to obtain the IUP: location permit from District Head, environmental impact assessment report, recommendations related to the suitability of the plantation activity to the district spatial plan and the macro plantation development plan from the Provincial Governor. After obtaining the IUP, companies should obtain The Use Right (Hak Guna Usaha - HGU) permit no later than 2 years after the issuance of IUP. When oil palm plantations operate in areas classified as conversion forests, the company should obtain a permit from the Ministry of Forestry. The company should submit a request together with the location permit, business permit and recommendation from the Governor or District Head to the Ministry of Forestry. The company should obtain the permit for forest clearing prior to commencing any operation. The company should also obtain a license to extract the timber from the District Head if they wish to harvest any timber from the land. After a location permit has been issued, lands for new plantations are first transferred from communities or individual owners to the companies. In arranging the location permit, the head of the district National Land Agency should hold a coordination meeting to explain to the district or provincial head that there is an obligation to consult with rights holders. The National Land Agency should also collect relevant social and environmental data from the community and provide information regarding land price for the community to consider in proposing the amount of compensation that should be paid by the company. Upon the receipt of compensation payments, a formal written agreement on the transfer or the release of the land title should be prepared by the land title holder. By so doing, the original owners relinquish all rights to the released land. The National Land Agency then transfers the land to the company as a HGU or building permit (Hak Guna Bangunan - HGB). The decree for a Land Permit or Ijin Lokasi should be signed by the District Head. 5 There is no clarity about at which stage of the licensing process that oil palm plantations can commence operations. Many consider that a company can start operating once they obtain the IUP. However, Indonesian Sustainable Palm Oil System (ISPO) only certifies companies that have obtained HGU, which gives an impression that a HGU should be 5 8

9 obtained prior to commencing operations. The regulation, however, clearly stipulates that land clearance for establishing oil palm plantations cannot commence unless a company has obtained a permit to clear the forests. The plantation area should also not be located in areas designated as forest areas. Other regulations that apply to the production of FFB include Law No. 41 Year 1999 on Forestry and Law No. 18 Year 2013 on the Prevention and Eradication of Forest Destruction. Both regulations prevent individuals from operating in areas classified as state forests. 9

10 Table 1: Licenses required for establishing oil palm plantations NO PROOF OF LEGALITY COMPANIES AUTHORITY WHO ISSUES THE PROOF 1 Location permit (Izin Lokasi) Bupati/Mayor 2 Plantation Permit (IUP) Bupati/Governor 3 Environmental Management Permit or Environmental Permit 4 Wood utilization permit (Izin Pemanfaatan Kayu - IPK) Bupati/Mayor/ Governor Bupati/Mayor 5 Business Use Rights (HGU) Ministry of Land For companies to obtain the required licenses, several legal requirements are applied. Licenses cannot be allocated in either forest or protected areas. There are, however, several legal procedures that allow companies to apply for licenses within areas classified as conversion forest. There are specific legal requirements related to each step of the application process (Table 2). The common requirement for each license is a company has to have a legal entity and fulfill its obligations such as an operations license, tax identity number, and legal domicile. LICENSES Table 2: Requirements for licenses NECESSARY REQUIREMENTS Location Permit Conduct public consultation with the affected communities and land owners in the proposed area Recommendation letter from Bupati Environmental Permit Conduct environmental impact assessment (AMDAL) Certificate of AM DAL from Bupati Plantation Business Permit Proof of land acquisition from the land owners Letter of partnership agreement with farmers or affected communities Letter of statement to distribute 20% of concession to local communities Forest Relinquishment Decision (if the proposed location is in forest areas) Business Use Right Complete land acquisition process Environmental permit Plantation Business Permit 10

11 Plantation Establishment When establishing oil palm plantations, companies are regulated by two major regulations, which stipulate: No slashing and burning while clearing land based on the Presidential Instruction Number 16 of the year 2011 on Enhanced Control of Forest and Land Fires. Companies should comply with ISPO standards when clearing for plantations including: 1. Standard Operating Procedures (SOP) for land clearance including: no burning and according to conservation standards; 2. Documentation that no burning was used to clear lands since 2004; 3. Land clearance is according to the Environmental Impact Assessment; 4. Land clearance cannot be carried out in area with slope >40%; and 5. Preparing drainage and cover crops to minimize erosion and land degradation. Table 3 details the proof of legality required for the establishment of a plantation, including the authorities responsible for issuing the documents. Table 3: Proof of legality required for plantation establishment NO PROOF OF LEGALITY COMPANIES AUTHORITY WHO ISSUES THE PROOF 1 Letter of no slash and burn and provide control unit against burning Bupati/Mayor 2 Letter confirming the plantation has passed evaluation Bupati/Mayor, Governor/ Director General of Plantations, Ministry of Agriculture 3 Letter conforming the mill has passed the ISPO standard ISPO Commission Plantation Management The Plantation Law 39/2014 stipulates several elements that are related to the management of oil palm plantations. Moreover, some other regulations that are not specific to the plantation sector will also affect plantation companies, including: The management of workforces within plantation companies based on Labour Law Number 13 of the year 2003; Safety standards for workers based on Government Regulation Number 28 of the year 2004 on the Safety, Quality and Nutritional Value of Food and Government Regulation No 50 of the year 2012 on the Application of the Safety and Health of Workers Management System (SMK3); 11

12 The prohibition of employing child labour based on Law Number 20 of the year 1999 on Ratification of 1LO Convention No. 138 Concerning Minimum Age for Admission to Employment the Abolition of Forced Labour, Law Number 23 of the year 2002 on Protection of Children; Control of hazardous chemicals based on Decision of the Minister of Manpower RI No 197 of the year 1999 on the Control of Hazardous Chemical Materials; The obligation to implement the environmental management plan based on the environmental impact assessment, according to Law No 32/2009 on the Protection and Management of the Environment, Government Regulation No 27 of the year 2012 on Environmental Permits. The Plantation Law stipulates that companies producing oil palm should conform to good agricultural practices. The government will check the practices of oil palm companies during an Assessment of Plantation Businesses (Penilaian Usaha Perkebunan), which is regulated by Agriculture Ministerial Decree No. 07/Permentan/OT.140/2/2009. The results of the Assessment will determine the eligibility of a company to obtain ISPO certification. It is compulsory for companies to obtain ISPO certification according to the Ministry of Agriculture Regulation 11/Permentan/OT.140/3/2015. ISPO includes a wide range of criteria and principles related to oil palm plantation management. The principles and criteria encompass: Conservation of water sources and quality; Seedlings; Planting in mineral soils and peat lands, maintenance, harvesting, processing and transportation; Control of organisms; Receiving FFB in mills; FFB Processing; Waste Management and Hazardous Substances; and Environmental Management. During the ISPO audit, companies should supply evidence of their practices as the basis of the assessment. In order to prove legality based on the principles discussed above, companies should be able to produce documents as evidence of their compliance to the regulations as listed in Table 4. The responsible authorities for monitoring or verifying the evidence is also detailed in Table 4. 12

13 Table 4: Proof of legality related to plantation management NO PROOF OF LEGALITY COMPANIES AUTHORITY WHO MONITOR/VERIFY 1 Employment Agreement with workforce Labor Agency 2 Work plan includes safety standards Bupati/Mayor, Governor/ Plantation Directorate General 3 Statement of not using child labor ISPO Commission Labor Agency 4 SOP of managing plantation based on environmental standards (not using chemical pesticides that are not approved by the Pest Commission of Agriculture Ministry, managing waste, etc). Plantation Agency 5 Letter of annual internal audit by auditor certified by ISPO Independent Auditor Certified by ISPO The Plantation Law does not specify any requirements related to the management of the smallholder plantations. The Ministry of Agriculture should develop specific regulations to provide further details for the implementation of the law. However, these regulations have not yet been completed. Transporting Fresh Fruit Bunches No specific regulation stipulates the requirements for transporting FFB from a plantation to a mill. In the case of transporting timber, for instance, the government stipulates that transporters should carry documents to prove the legality of the timber, such as the Surat Keterangan Sah Kayu Bulat (SKSKB) and Faktur Angkutan Kayu Bulat (FA- KB). There are, however, no such regulations in the case of agricultural products such as oil palm. The drivers of motorized vehicles carrying and transporting FFB are, however, subject to Law Number 22 of 2009 On Road Traffic and Transportation. Drivers should have proper licenses to drive, the vehicles should be suitable to the road category and the vehicles should have clear proof of ownership. Failure to comply with these rules may result in the vehicles being held by the police. It does not mean, however, that the products being transported are illegal. This regulation applies to companies and smallholders. Article 480 of the Code of Criminal Procedure stipulates that one should not buy, hire/rent, receive or transport stolen goods or goods obtained from criminal conduct. Moreover, carrying FFB that are produced in state forests is prohibited as the FFB are considered an illegal product based on the Forest Crime Prevention Law 18/2013. Hence, according to the Article 480 of the Code of Criminal Procedure and Law 18/2013, one should not buy, hire/rent, receive or transport FFB produced in state forests. 13

14 Fresh Fruit Bunches trading Regarding the trade of FFB, the Plantation Law specifically mentions that traders should not falsify the quality of the product. They cannot use materials, additives or objects for processing which could endanger human health and safety, damage the function of the environment and/or lead to unfair competition. This is the only regulation specifically addressing the trading of FFB in the Plantation Law. Another regulation that will affect the trading of FFB although not specifically in the plantation sector is Article 480 of the Criminal Code. The article clearly prohibits actors from receiving stolen or illegal FFB. Furthermore, according to the Forest Crime Prevention law 18/2013, FFB produced within areas classified as the state forests are considered as illegal products. Hence, any trading activity, storing and processing of FFB produced from state forests (without proper permits) is considered as an illegal activity. According to the Basic Forestry Law 41/1999, only forest commodities such as timber can be produced in areas classified as production forests within state forest areas. Legal requirements for farmers Some of the legal requirements for smallholder farmers are similar to those applied to the companies, such as the prohibition on using fire to clear the plantation area and the prohibition on operating within forest and protected areas. Registration Letter For individual smallholder farmers cultivating oil palm, a registration letter is required according to the Ministry of Agriculture Decree 98/Permentan/OT.140/9/2013. The registration letter is known as Surat Tanda Daftar Budidaya (STD-B). The basic requirements to obtain STD-B are: 1. Proof of the ownership status or the right/claim on the land as stipulated in the Basic Agrarian Law No. 5 of A letter from the Local Environmental Agency stating the environmental impact of the plantation area and how to manage environmental issues in the plantation. Plantation establishment Smallholders are also prohibited to use fire in clearing land for their plantation based on the Presidential Instruction Number 16 of the year 2011 on Enhanced Control of Forest and Land Fires. Moreover, smallholders can also be certified by ISPO following the issuance of ISPO principles and criteria for smallholders as stated in the Ministry of Agriculture Regulation 11/Permentan/OT.140/3/2015. However, ISPO certification is optional for smallholders, while it is compulsory for companies to obtain ISPO certification. There are no clear legal guidelines for smallholders in terms of plantation management, transportation and FFB trading. The new Plantation Law 2014 instructs the Ministry of Agriculture to issue a Ministerial Decree including a no burning policy and minimum standards for companies and smallholders to manage plantation. So far, however, the Ministry has not issued a decree based on the instruction. 14

15 Stories from the Field During our field studies, we studied the perceptions of local stakeholders regarding the regulations defining legality of oil palm products and also their existing practices. Without specifying the locations, we summarize the findings below (Table 5). Perceptions and interpretation of regulations The authority for agricultural management has been devolved to district governments in coordination with provincial governments as the representatives of the national government. National regulations are not always be interpreted uniformly across different levels of government. There are often multiple interpretations of national regulations: even between agencies at the same subnational level of government. Table 5 explains different perceptions between government officials, mills, growers and farmers. 15

16 Table 5: Perceptions of legality Permits and plantation location LOCAL GOVERNMENT PERCEPTION Agreement: FFB should not be produced in forest areas (kawasan hutan). Disagreement: FFB produced in plantations with IUP and located in APL is legal. ISPO requires a plantation with HGU to be considered legal. Changes in spatial plans i.e. previously classified as non-forests but designated as forest areas by the new spatial plan. Grey Areas: PRACTICES OF PALM OIL MILLS Do not require evidence of where the FFB was grown when buying FFB. Some mills have an agreement with cooperatives as their suppliers. Cooperatives should obtain evidence or proof for land ownership and a registration letter from the farmers who supply the FFB. Cooperatives are often assisted by the mill. Stakeholders (government officials) agree on the stages of the permitting process. However, there are no clear guidelines about what to do when a violation occurs. Smallholders should obtain a registration letter or STDB for their plantation. However, the requirements for obtaining the letter are unclear and vary across districts (i.e. SHM vs. SKT). 6 No clear guidelines whether the district/municipal head could delegate the mandate for signing the STDB to the head of the Plantation Office. 6 - Surat Keterangan Tanah (SKT) is a letter isued by Head of District/Lurah consisting information related to the origin of the land, land boundaries, and statement of the value of the land. Surat Hak Milik (SHM) is an official certificate of land ownership. 16

17 Plantation Establishment Transporting FFB Agreement: No burning while clearing land. IPK for timber during land clearing. Protection of protected area based on Presidential Decree 32/1990. Regular environmental monitoring particularly for smallholders. Disagreement: Work Plan on safety standards is not always required, should depend on the context. Relevant district government agencies only give some advice on how to improve safety standards. Agencies responsible for monitoring: district governments have the mandate to conduct monitoring based on Permentan 98/2013. In some provinces, provincial governments have the mandate to conduct monitoring. Agreement: No specific regulation for transporting FFB, unlike timber. Proof of legality varies between districts (letter of fruit ownership/origin) Do not require evidence regarding no burning during land clearing. Mills do not have any specific mechanism to anticipate FFB produced in areas that were cleared using fire. Internal mechanisms are mostly established to verify the origin of the FFB as described below on the Trading column. Mills impose certain standards (i.e. closed Sunday, uploaded in mills before 5 PM). Those who transport FFB should be equipped by a Delivery Order or Surat Pengantar Barang from the suppliers to the mills. The suppliers should usually have an agreement with the mills as the legal basis. Trading Agreement: No specific regulation stipulating the requirements for FFB trading. Local governments only recommend mechanisms for FFB trading (i.e. through cooperatives or farmer groups). Preventing illegal FFB (including stolen FFB) entering the market: Local governments proposes various mechanism. Some agencies propose the issuance of letters that the ownership and source (asal buah) of FFB. Others suggest avoiding creating another layer of administrative Mills require a certain quality of fruit. Companies will buy from traders who have an agreement (or a delivery order) with the companies. Mills have specific Standard Operating Procedures and internal mechanisms to prevent FFB sourced from illegal activities. SOP requires mill to buy from legal source and anticipate the uncertainty by setting up 17

18 requirements. The reason is because another layer could lead to malpractice i.e. bribery. several mechanisms, such as: Having an agreement with FFB traders highlighting at least three legality issues: (i) requirement for collectors to buy FFB from legal source only, (ii) a disclaimer policy that is intended to prevent a mill from any civil liability arising for particular acts or omissions of the collectors, such as buying FFB produced in land with conflicting claims, forest area or protected area, and (iii) a mill has a right to reject FFB that is allegedly sourced from illegal activities. Establishing a specific unit within a mill that is responsible to carry out field check on the FFB sources. 7 Having an MoU or agreement with the mill that aims to provide the lists of their sources especially farmers that are affiliated in a cooperative. The list is including names, map and the boundary of the plantation. However, these mechanisms are not easy to implement as the local market of FFB does not have any requirement regarding the legality. 7 This mechanism is intended to take the coordinates of the plantations that will be overlaid with forest area and spatial plans to determine whether the location is legal. If it is illegal, a mill has a right to reject the FFB. 18

19 Practices Besides the ambiguity in the regulations and their interpretation, we found some common practices that are not in strict accordance with the regulations (Table 6). These practices cannot be strictly considered as illegal practices due to the ambiguity in the regulations. Some findings related to existing practices include: Written proof of legality varies at the local level. For instance, the written claim of smallholder land rights can take form of Surat Keterangan Tanah, Surat Keterangan Tanah Adat 8, Surat Keterangan Ganti Rugi, 9 Girik 10, and Surat Hak Milik. The regulations often are formulated without considering the existing practice of local communities. Moreover, there are some flaws in the ways the regulations were formulated. The designation of forest areas, for instance, was carried out with limited information. 8 Surat Keterangan Tanah Adat is a letter for strengthening the rights of local people to land which has been controlled by the individual over generations. The letter is created by the Village Head and supported by the subdistrict head (camat). The legal basis for the letter is the Regulation of the Minister for Agriculture and Agrarian Affairs No 2/1962 (Article 3). 9 SKGR is a proof of ownership of land owned by many smallholders in Riau. This letter was obtained by immigrant farmers who buy farm land cultivated local communities. Farmers believe that SKGR is an official letter that was made by the owner of the land and authorized by the village administration, or sub-district head. This is because the letter is signed by the lowest tier of government officials, it is considered as a legitimate form of government recognition of land rights. 10 Girik is a written acknowledgement for a customary where a land certificate has not been processed. The terminology of Girik is used in Sumatera and Central Java. Other places in Indonesia use different names. However, they are all acknowledged by Agrarian Ministry No 3/

20 Table 6: Existing practices SMALLHOLDERS Permits Claims or rights to the land that are used as the basis to obtain permits. Land claims do not necessarily need written evidence. 11 The written evidence required also varies and can include: Surat Keterangan Tanah, Surat Keterangan Tanah Adat, Surat Keterangan Ganti Rugi, Girik, and Surat Hak Milik. Written proof is usually obtained by communities when the owners trade the land with other parties. SHM is usually obtained by those who receive credit from banks. The Bank often provides assistance for farmers to obtain a land certificate. Landholders that have certificates also usually hold a plantation registration letter (STD-B). There are few smallholders, however, that possess land ownership certificates as most will be held by banks as security for loans. Location based on certain regulations issued by the national government. There are often contradictions between regulations. Efforts to harmonize the regulations often have not been fully completed. Some plantations are also located in areas classified as forest or protected forests. Some plantations are also found in areas with peatland more than five (5) meters deep. PLANTATION COMPANIES Companies usually buy lands from communities during the establishment of plantations. The communities often do not have clear written proof for their land ownership. As a result, companies often have to compensate more than three times to local people to make sure a piece of land is fully owned. Some companies cannot get the HGU because of the incomplete process of the spatial planing. Some plantations that have already got HGU and operated for years are suddenly considered as operating in protected area. This issue occurred due to the contradicting regulations issued by the Government related to the zoning. Land clearance Lands are cleared for plantations using self-taught methods. There is no guidance for smallholder farmers related to land clearance provided by the Government. Certified plantations use modern techniques in land clearing to comply with regulations and market standards Certified plantations/mills comply with several standards such as Kosher, ISCC and RSPO who will certify their practice of land 11 Land claims are acknowledged if there have been no conflicts over the ownership or with the neighbors regarding the boundaries within a certain period (usually more than 10 years). 20

21 clearing. Transportation Trading FFB are usually transported using motorized vehicles that do not comply with regulations, transported on roads that are suitable for the vehicles, and fruits often are left by the side of the road before they are transported. If the standards are too complex, traders can sell FFB to other mills that do not impose any standards. Their main concern is to generate profit. Currently there are no mechanisms for proving the origins of fresh fruit bunches. Farmers sell the fruits to traders who then sell to the mills. Some of the traders have direct agreements with the mills, while others do not have any agreements. Those without agreement usually supply fruit under the name of traders who have direct agreements with the mills. A farmer can sell FFB to any trader without any necessary standard. Non-certified mills usually do not need to comply with standards Certified mills impose standards as discussed in Table 5 above. Companies have SOP and internal mechanisms to anticipate illegal FFB. This is relatively easy for companies with plantation and mills. But independent mills cannot force the farmers to follow the standards. They have to compete with other mills that receive the FFB whatever the source. 21

22 Recommendations Defining legality The aim of this study is to produce a definition for the legality of oil palm fresh fruit bunches (FFB). The question to be answered is: what kind of oil palm fruit should be considered legal? This definition should not only focus on existing regulations but also consider existing practices in the palm oil sector. Following the legal analysis and field research, defining legality is not straightforward due to several reasons: a. Limitations of strict regulatory definitions. Although Indonesia adheres to Civil Law, it is not possible to define legality entirely based on the regulations. This is mainly because the weakness is found in the regulations themselves which often are unrealistic and sub-national government agencies do not have sufficient capacity and human resources to enforce the regulations. Compounding these challenges is the fact that regulations are often interpreted differently and communities adhere to their own customary practices. It is necessary, therefore, to combine the approaches of Civil Law systems with those from Common Law, where existing practices and norms are taken into account. Building on this view, the legality definition we present in this report has three layers: ideal, intermediate and illegal. The intermediate definition is a combined approach between facts and legal definition. b. Legality versus equity. Many smallholder farmers are currently operating in areas classified as state forests, which is technically illegal. State forests in Indonesia, however, were often gazetted without consultation with local communities and the legitimacy of the boundaries are questioned. The classification of these areas, consequently, has often marginalised and discriminated against the rural poor. These effects should be considered and addressed when defining legality. At the same time, definition of smallholders should be clear to exclude large scale individually owned plantations. c. Ambiguity and differences in the interpretations of regulations. Stakeholders perceive national regulations to be ambiguous, and consequently, interpret them differently. Mills and companies that purchase FFB, in turn, apply different standards when purchasing FFB. Smallholder farmers also hold differing views relating to the legality of FFB. d. Regulations should be clarified before they can be implemented. There is a need to clarify and provide further detail to existing regulations so that they can be effectively implemented. The process of clarifying the regulations, however, should take into account existing practices and ensure that smallholder farmers and indigenous people are treated equitably. If regulations are strictly implemented in their current form, it is likely that a large proportion of FFB produced by smallholders will be considered illegal. 22

23 Taking into consideration these reasons, we carried out three stages to defining the legality of oil palm fresh fruit bunches and enforcing the definition: 1. An ideal definition of oil palm fresh fruit bunches is agreed. 2. An intermediate definition of legality is created that must be adhered to while taking steps to meet the requirements of the ideal definition of legality. 3. A process to address the existing illegality should be created to follow an intermediate definition. A strict time frame will be determined for oil palm producers to comply with the intermediate and ideal definitions of legality. A sequential approach is necessary as individual producers may not be in a position to comply immediately with the ideal definition of legality without government support. Smallholders may need government support to obtain the relevant certificates and other producers must wait on the government to clarify land tenure. An intermediate definition of legality may be required in the interim. Considering the limitations aforementioned, we propose here to develop a hierarchy for the definition of the legality of Oil Palm Fresh Fruit Bunches. The hierarchy includes three levels: a. Ideal Legality; b. Intermediate Legality; and c. Illegal. In general the definition of the legality of Oil Palm Fresh Fruit Bunches should cover: 1. The plantation licensing process; 2. The plantation development process; 3. The plantation management process; and 4. The trade of oil palm fresh fruit bunches. An ideal definition of legality for oil palm fresh fruit bunches The definition of legality for fresh fruit bunches should build upon definitions of legality from other sectors. For instance, in the timber sector according to FLEGT: Timber is called legal if the authenticity of the timber source, cutting license, cutting system and procedure, administration and documentation of transportation, processing, and trading or transfer can be proven to have complied with all requirements in accordance with the prevailing laws and regulations. Building upon and refining this definition, we propose the following preliminary definition of legal oil palm fresh fruit bunches: Oil Palm Fresh Fruit Bunches are called legal if the authenticity of the oil palm fresh fruit bunches source, plantation licensing, the systems and procedures of the plantation, administration and documentation of processing, and trading or transfer can be proven to have complied with all requirements in accordance with the prevailing laws and regulations. 23

24 This definition applies to both oil palm smallholder and large-scale companies. The regulations that stipulate the production of FFBs in the country are listed in detail in Annex 1. Intermediate legality for oil palm smallholders The intermediate definition of legality is an interim definition, where oil palm producers are given specific timeframes to achieve the criteria of the ideal definition of legality. Currently, there is no specific timeframe provided by policy as a reference cutoff date. RSPO uses 2005 as a base year for legality. This means that any illegal operations after 2005 have to be brought into the legality trajectory. The Indonesian government uses 2030 as a limit of the highest emission projection followed by a deeper cut scenario. By combining RSPO s baseline and the Indonesian government s emission projection, an intermediary scenario could be defined as the period between of This definition, however, will eventually be based on a period determined and agreed upon by multiple stakeholders. The intermediate definition of legality proposed below is based on inputs from the focused group discussion (FGD) involving multi-stakeholders (Annex 3). Furthermore, this intermediate definition applies only to smallholder farmers, as large-scale companies are indisputably expected to comply with laws and regulations. Every company must meet legal requirements before operationalizing its business. Meanwhile smallholders have no clear guidance on how to start and operate. An intermediate definition fills the legal vacuum for smallholders until they are able to fully comply with the ideal definition of legality. Based on the FGD and expert meeting, the proposed definition of intermediate legality for smallholders is as follow: Land Rights Oil palm smallholder should have a land title, which is issued by a land agency of the district/municipal government. To ensure that farmers have proper land titles, local government should establish timeframe to legalize smallholder farmers and facilitate the process of land registration for individual rights located within state forests or known as IP4T using the government budget. STD-B STD-B is a minimum administrative requirement for smallholder farmers to be considered as legal. Several regulations have stipulated STD-B, such as Permentan No 98/2003 and Permentan 11/2015, however, the implementation is challenging. One of the major challenges is that the application for STD-B involves several administrative procedures. Smallholder usually do not have the capacity to handle complex administrative procedures. To overcome this challenge, local governments should actively assist smallholders to follow the procedures required in the STD-B application process. Several steps were suggested during the FGD and the Expert Meeting to phase out from the intermediate definition to achieve ideal legality. The steps include: Definition of smallholders 24