After the Fall

After The Fall

The sun sets on a palm oil plantation in North Sumatra, Indonesia. In an area so heavily dependent on this one crop, the sharp decline in the commodity market leaves many villages without an income.

In North Sumatra, the rise and fall in palm oil prices had dire effects on small farmers. A Heifer partnership is looking to help.

By Jaman Matthews  | World Ark senior editor
 
KOTA PARI, INDONESIA - From the air, much of central North Sumatra looks green and pleasingly geometric. Palm trees align to a perfect grid, each tree a point on a graph. Straight, red-orange roads subdivide the green expanse, bisecting the occasional village. This is a palm oil plantation. Palm oil is big business in Indonesia, the biggest, and each year more and more acreage goes into palm oil production.

On the ground, 10,000-acre palm oil plantations rise along the roadside like endless green walls. What looked orderly from the plane now appears alien, forced on the landscape. There are only oil palm trees, nothing else. The wide dirt roads that subdivide the plantations, perfectly smooth when seen from the air, are rough from the constant rain and laden lorries used to transport the ripe oil palm fruit to the processors.

The rapid increase in palm oil production - more than 280 percent in the past decade - was a calculated move endorsed by the Indonesian government to take advantage of the swelling demand and price for palm oil in the global marketplace. The goal was to become the world's largest producer of palm oil. So during the last two decades, rainforests were clear-cut, rice paddies drained, protected habitats burned; and all were replanted in neat rows of oil palms. Foreign palm oil corporations bought up even more land. Small landholders put their tiny tracts into palms hoping to cash in on the boom, too. And by 2007, the goal was reached: Indonesia was the world's leading producer of palm oil, edging out neighboring Malaysia.

The timing couldn't have been better, it seemed. Palm oil prices kept rising on growing demand for food and biofuel. By February 2008, palm oil was trading at a record $1,000 a ton on the international commodity market. In North Sumatra alone, where at least 1.25 million acres were planted in oil palms (some sources say it's closer to 2 million acres), the industry employed more than half of the work force, and as much as 90 percent in rural areas.

But then came the crash. By September 2008, the same month the Dow Jones Industrial Average lost 6 percent on news of failings like Lehman Brothers, palm oil prices plummeted 27 percent. And losses didn't stop there.

THE VIEW FROM THE VILLAGE
When Americans talk about the economic downturn, we generally think of falling stocks, failing banks, 401(k) losses; but the downturn also affected global commodity markets, the markets that govern the prices of goods like cacao, rubber and palm oil. This means that the tentacles of the economic collapse reach into remote regions and unheard-of villages thousands of miles away from the major financial centers of New York, London and Tokyo.

In the North Sumatran village of Kota Pari, on the edge of the palm oil plantations, everyone is connected in some way to the palm oil industry, and everyone has a story about the industry's collapse. In fact, people here got hit twice - once with the loss of jobs and income and then again with the higher cost of palm oil, used every day for cooking. In November 2008, a dozen Kota Parians gathered at the edge of the village to talk about how their lives changed in the wake of the collapse and how a project supported by Heifer International brought some stability to their lives.

Kota Pari lies 25 miles west of the North Sumatran capital of Medan, at the edge of a state-owned palm oil plantation. The 10 men and two women who gathered to discuss the fall of palm oil prices and its effects in their village sat cross-legged around the perimeter of a large, brightly colored mat spread out in the shade of tropical trees. Plates of fried taro root and glasses of sweet, red tea made the rounds. These villagers are the unseen casualties of the current crisis. Most of them have worked on the plantations and many have small plots of oil palms themselves.

Fadhil Azhar spoke first. A lean man in his 30s with a black moustache, he was a voice in the wilderness advocating diversity in a time of over-reliance on a single crop. Azhar is not from Kota Pari, but he works closely with the farmers here.

Azhar explains the palm oil industry in North Sumatra. The large plantations - those that spread like gridded shrouds across the landscape - are either state-owned or held by private multinational corporations. But there are also smaller, community oil palm plots, like those seen within villages. "Because of the high price of palm oil, many farmers converted their land to oil palms," Azhar said. But the small landowners who converted their land to oil palms did so late in the bubble, he said, and so never had a chance to profit but will still suffer greatly. "They could lose everything."

The current trend toward planting everything in oil palms began in the early 1990s, he said. At that time, according to Azhar, the very rich and the high-level bureaucrats began buying up land for palm oil plantations on the knowledge that Indonesia's government wanted to become the world's top producer. The palm oil craze reached Kota Pari by 1997. "Before, we depended mainly on rice," said Sudarto, a 46-year-old villager and landowner, who like many in Indonesia goes by only one name.

Rice has long been the staple in North Sumatra. The Sungai Ular, or "Snake River," flows within a mile of Kota Pari, and an irrigation canal diverts water to the village's rice paddies. But the water brought in by the irrigation canal wasn't enough for all the village's rice paddies, so individual farmers began converting their land, a piece at a time, to oil palms. Sadikin, another of the men sitting around the mat, spoke up. "If a person doesn't have any land or paddies, if they had four oil palm trees, they could make enough to eat and live." That was before the market crashed.

"In 2007, we could get 2,200 rupiah per kilo [about $180 per ton]," said Suparjo, a group member wearing a red and-blue taqiyah atop his head. "Now, we only get 300 to 250 rupiah per kilo [about $20 per ton]. Since June 2008, the price has fallen. It keeps falling." Before, the farmers could afford to hire other people to help with the palm oil harvest, thus employing several other villagers. But now they must do it all themselves; now they work longer for less money. "Before, we could have enough," said Suparjo. At the height of the palm oil boom, a small landowner could make 100,000 rupiah—about $9—per week on his few acres of oil palms. But by late 2008, that income had fallen to more like 15,000 rupiah—less than $1.50—per week.

For many villagers, this was a rude education in the vagaries and volatility of the international commodity markets.

Want more great stories like this one? Sign up now for your free subscription to World Ark magazine.

After The Fall

Heifer project participant Sudarto carries a bundle of palm oil fruit on his shoulder. Each bundle weighs more than 50 pounds but is now almost worthless.

NOT-SO-HOT COMMODITY

The palm oil harvested and processed in North Sumatra,including that grown and harvested by small farmers in Kota Pari, is sold on a specialized commodity market. The price a commodity like palm oil will fetch, and thus the amount that trickles down to the farmer, is dictated by this international market. "The important thing to recognize about those markets," said Patrick Conway, professor of economics at the University of North Carolina, "is that they tend to be very volatile."

"A commodity," explained Conway, "is any type of raw material or agricultural product, typically coming from a developing country, and sold in a homogenous form on a world market." Basically, commodities are natural resources - anything that can be farmed, mined or logged. It is important that they be homogenous - a barrel of oil is a barrel of oil is a barrel of oil - so they can be combined, stored and then shipped internationally.

As of March 2008, food commodity prices had risen 98 percent since 1999 (crude oil had risen 547 percent in that same period). What caused this spike in commodity prices? Conway pointed out two things: The first is what he called "the biofuel push." A new and growing demand for alternative, plant-based energy drove up grain and seed oil prices around the world. Remember the rise in corn prices when U.S. ethanol subsidies were announced? And palm oil is the king of biofuel crops, capable of producing more than 500 gallons of biodiesel per acre, 10 times better than soybeans and five times better than rapeseed.

The second major factor Conway cited was the rapid expansion of China and India as consumer markets in the last few years and their need for raw materials and commodities. India, for example, imports more than 3.5 million tons of palm oil each year, and China imports more than 4 million tons, most of that from Indonesia and Malaysia.

But during this time, the global economic landscape changed dramatically. In 2006, the U.S. economy began to slow, entering an official recession by the end of 2007. And with it, other world economies slipped. Yet even as economies were failing, commodity prices kept rising, like the cartoon coyote that runs off a cliff and continues on his trajectory, until he looks down and realizes there is nothing there to support him. Then comes the inevitable fall.

In late 2008, stories had begun circulating in North Sumatra of palm oil processors suspending production and harvested palm oil clusters rotting by the roadside, not lucrative enough to even pick up. Small growers were perhaps the hardest hit, left with all their land in worthless oil palm trees. "It's not easy to cut down oil palm trees," said Suparjo. "People will buy rubber trees, to make furniture. But no one wants oil palms."

And so the boom-bust cycle goes, with those at the bottom bearing a disproportionate burden but rarely having a voice in the aftermath. Since this isn't the first run-up and subsequent collapse in a commodity market, and it won't be the last, small farmers need a way to better prepare in the future.

After The Fall

Aldi Setiyawan, son of one of the project participants, holds one of the sheep his family received from Heifer Indonesia.

FARMER FIELD SCHOOLS

So how can small landowners like those in Kota Pari prepare for the next boom-bust cycle of the global commodity markets? Azhar, the mustachioed leader, has a solution. He works with PANSU, an agricultural organization founded two decades ago by a group of university students opposed to the use of pesticides in agriculture. The organization has evolved and now conducts experiments and teaches farmers how to diversify their farms and how to develop local markets instead of relying solely on erratic commodity crops.

PANSU first partnered with Heifer Indonesia in Kota Pari in 2003. PANSU members were crop experts but realized that livestock offered a complementary piece to their work. Heifer International began a sheep project in the village that, in addition to the added income from the sale of sheep, provided farmers with manure they could use as a free fertilizer on their crops. PANSU and Heifer teamed up to provide farmer field schools - intensive trainings on composting manure, using herbal medicines for livestock and developing local markets.

The project in Kota Pari also trained farmers in how to improve the quality and quantity of their crops in order to get the best price. Take, for instance, cacao, from which chocolate is made. Cacao is traded on an international commodity market, but unlike many other commodity crops, cacao trees can be grown in polyculture, on a mixed, diverse farm. The problem in Kota Pari was that many of the cacao trees produced only small, worm-infested pods. So PANSU identified a local cultivar that produced large pods that were also resistant to most pests and led a field school in cacao grafting.

Suparjo, the project member in the red and blue hat, eagerly demonstrated his grafting technique. He produced a small knife and cut off a pencil-thick branch from one of the many healthy cacao trees on his land. He shaped the cutting with the knife into a six-inch stob. Kneeling by another cacao tree, one that produces inferior fruit, Suparjo made a shallow incision - a "T" - low down the trunk. He peeled back the bark and inserted his cutting, covering it all with a plastic bag and wrapping the graft tightly to secure it and keep the humidity high. Within a few weeks, this graft will put on new leaves. The plastic bag will be removed and the branch will grow like any other on the tree, only this grafted limb will produce the larger pods.

PANSU also worked with local farmers to reduce damage from worms without using chemicals by breaking the insects' life cycle and using natural predators, like red ants. Now, every project member has cacao trees around his house that produce large, worm-free fruits.

Suparji and his wife, Kasmawati, harvest greens from their field. With the fall of international commodity markets, these greens will bring a better price in local markets than palm oil brings abroad.

The project in Kota Pari does not, of course, focus solely on cacao. One crop that receives a lot of attention is rice. Just outside the village proper, Azhar and several farmers waded knee-deep through a rice paddy. PANSU runs this experimental plot to help answer some basic questions: Will adding manure produce healthier rice? Spacing rice plants further apart will mean less money spent at the outset, but how will it affect yield? How does varying planting time affect harvest? Their goal is to find ways of increasing yields while decreasing expenses and using natural, locally available resources.

In the experimental paddy, farmers from Kota Pari are the designers, the researchers and the experts. One villager trudged through the deep mud pulling behind him a long pole with four widely spaced prongs, like a giant rake. He walked from one end to the other and back again, making parallel lines in the mud. When he had covered the entire paddy, he changed directions and walked perpendicular to his first lines. When he was done, he rested against the long pole, looking back at this work. The entire paddy was divided into a neat grid that would be the starting point for this season's rice experiments.

Staple crops like rice are central to local economies because there is a local market for them, but they don't get as much attention from the government as high-priced commodities like palm oil. So projects like this collaboration between PANSU and Heifer Indonesia are important. Farmers can use their land to feed their families and sell to their neighbors instead of gambling on the volatile international commodity markets.

In the late evening, as the light faded in Kota Pari and night settled on the palm oil plantations, a man and his wife moved through a small field, laid out in long, narrow plots. Suparji balanced two watering buckets on a yoke across his shoulders. He walked between the plots, emptying and refilling the buckets while his wife, Kasmawati, stooped to pick leafy greens. In their work and their conversation, they seemed unconcerned with the rise and fall of palm oil prices that have consumed everyone else's attention.

This piece of land has not been planted in oil palms. Instead, Suparji, who participated in the farmer field schools, has maintained a small, diversified farm. The far end of the field is flooded to grow rice, and they planted a rotation of food crops in the dry part. The family also kept ducks, which provided them with eggs and manure. All of these products are staples and can be sold within the village for a steady price, regardless of international markets.

As Kasmawati tied the greens into bunches, Suparji scooped handfuls of composted manure from a drum and spread it on the field. The greens are eaten at most meals here, so there is always a local market for them. Kasmawati held up one bunch and says they can get about 12 cents for it here in the village. That's more, Suparji said, than the going rate for an entire cluster of ripe palm oil fruit.