Hans Nicholas Jong, Jakarta – Palm oil from a company that burned a pristine orangutan habitat in Sumatra has entered the global market due to an oversight, possibly ending up in products made by multinationals such as Nestle and Mars, according to a new report.
That was the finding from an investigation by the U.S.-based campaign group Rainforest Action Network (RAN) into the activities of Indonesian oil palm grower PT Kallista Alam (KA). In 2012, fires from the company's concession razed 1,000 hectares (2,500 acres) of pristine lowland rainforest in the Tripa peat swamp, part of the Leuser Ecosystem in northern Sumatra, a region considered one of the last wild bastions of the critically endangered Sumatran orangutan. In 2015, a local court ruled KA liable for the fires; the Supreme Court upheld the ruling and ordered the company to pay a then-unprecedented 366 billion rupiah (about $26.5 million at the time) in fines and damages.
KA has since been largely blackballed by palm oil buyers with commitments to not deforest, clear peatlands, or exploit communities and workers (known in the industry as "no deforestation, no peat, no exploitation," or NDPE). But despite this, and the court ruling, KA continues to cultivate oil palms on its plantation near the fire-destroyed peatland, according to RAN's investigation.
"This plantation covers over 6,500 hectares [16,000 acres] and was obtained without the consent of local communities in Kuala Seumanyan and at the expense of Tripa's peatlands and forests that recently provided the most dense habitat for Sumatran orangutans on the planet," RAN said in its report.
The company also went on to sell its crude palm oil (CPO) to a major refinery in Belawan, North Sumatra province. The refinery is owned by Indonesia's Permata Hijau Group, one of the top 10 palm oil processors and traders in the country.
"Permata Hijau's policy and supplier code of practice [since 2017] claim that it requires its suppliers to comply with No Deforestation, No Peatland and No Exploitation practices," RAN said. "But our investigations have found that it continues to process and sell conflict palm oil produced by PT Kallista Alam."
Permata Hijau is known to supply palm oil to major markets, including the U.S., Japan, India, China, Bangladesh, Pakistan and Russia. But it doesn't name KA on its supplier list.
Permata Hijau "has remained a top supplier of palm oil by volume to the U.S., and an importer to the Japanese market, despite its lack of progress," RAN said. "The ongoing ability for this known processor to supply conflict palm oil to both the U.S. and Japanese markets shows the lack of implementation of responsible procurement policies by major traders and brands manufacturing consumer goods in both regions."
'Unfortunate and unacceptable oversight'
Permata Hijau has confirmed that it bought CPO from KA in the second half of 2019, but attributed this to an oversight.
"First of all, we acknowledge that KA is in our supply chain and that we failed to include it in our supplier list," Henry Cai, Permata Hijau's sustainability head, told Mongabay.
He said that in response to the investigation, Permata Hijau had ceased all commercial relationship with KA effective June 10.
"This is a very unfortunate and unacceptable oversight which we highly regretted," Cai said, adding the company would investigate to find out why the oversight happened and ensure it doesn't happen again.
"However, we would like to emphasize that this oversight is not an intentional effort to mislead our buyers," Cai said.
Permata Hijau will also review and update its supplier list to weed out problematic companies, he said.
"We can be considered a latecomer in sustainability and transparency but we are working very hard and are confident that if given time and support we will be able to reach the level of the other established players," Cai said.
But RAN questioned Permata Hijau's ability to identify non-compliant suppliers, saying the company sources from 181 mills and can only trace 3% of its supply back to the plantation.
"Permata Hijau's ability to trace the palm oil it processes to the location where it was grown is simply non-existent," RAN said.
That makes it likely the company will continue to source CPO from mills that, in turn, buy their palm fruit from plantations established through the destruction of the Leuser Ecosystem, the watchdog says. Leuser is the last place on Earth where critically endangered orangutans, tigers, rhinos and elephants still exist in the wild, according to RAN.
Ninety-two palm oil mills operate within 40 kilometers (25 miles) of the Leuser Ecosystem, according to an analysis by Chain Reaction Research. Permata Hijau sources from 45 of these mills. The analysis notes that plantation expansion by palm oil companies continues on the periphery of the ecosystem and inside it.
Permata Hijau said it would engage with its suppliers located around Leuser to educate and support them on sustainability.
The "oversight" that led to Permata Hijau buying CPO from Kallista Alam means it's likely the palm oil has entered the global supply chain.
Permata Hijau is a supplier to major commodities traders such as Cargill, which in turn sells palm oil to multinational food producers like Nestle and Mars.
"Nestle and Mars are two global brands that have been repeatedly exposed for sourcing conflict palm oil grown at the expense of the peatlands in the Leuser Ecosystem," RAN said.
The group added that despite KA having been profiled as a rogue actor since 2011, both Nestle and Mars have failed to publish a no-buy policy on KA, and that neither can prove its global supply chain is free of palm oil from KA.
RAN called on Nestle and Mars to publish a permanent no-buy policy for KA and immediately suspend sourcing from Permata Hijau and other suppliers such as Cargill if they fail to suspend sourcing from Permata Hijau.
This also means working with the mills in close proximity to the Tripa peatland to ensure that palm oil produced by KA and others at the expense of the Leuser Ecosystem is not sourced, sold and used to manufacture their products, RAN added.
An online petition has been launched to demand Nestle and Mars intervene to protect the Leuser Ecosystem from conflict palm oil.
Nestle and Mars did not respond to Mongabay's requests for comment. Mongabay was unable to reach KA for comment. Cargill said it was not aware that Permata Hijau sourced from KA.
"Cargill affirms our position that PT Kallista Alam is non-compliant with our sustainability policy," Nasuha Thaha, Cargill's stakeholder engagement manager, told Mongabay.
Cargill said it traditionally didn't source from Permata Hijau's refinery in Belawan, and that its exposure and engagement in Leuser was usually with its other direct suppliers. Thaha said Cargill had immediately expressed concern with Permata Hijau over the RAN report and asked the company to take measures in response.
Among these is an immediate review of the protocol for traceability documentation, and better handling of suspended or noncompliant suppliers. Cargill said it has also asked Permata Hijau to prioritize engagement with mills in the Leuser landscape to prevent sourcing from noncompliant plantations.
"Cargill has long approached the Leuser Ecosystem as a high-priority landscape," Thaha said. "We expect our suppliers who are sourcing from the landscape to prioritize traceability to plantation and ensure that mills and their suppliers are aware of the list of non-compliant plantations."
She said Cargill is working together with Permata Hijau to collect traceability data and hold a training workshop on traceability for Permata Hijau's suppliers.
Five years since KA's guilty verdict, the company hasn't paid the fine or rehabilitated the burned land, evading its obligations through a variety of legal challenges.
KA didn't respond to two letters from the environment ministry demanding payment of the fines and damages, prompting a district court to order an auction of the firm's assets, including its land bank, sized at 5,769 hectares (14,255 acres), and any buildings or crops on it, in January 2019.
In July 2019, KA challenged the court's auction order by filing a lawsuit at a different district court, which now has jurisdiction over the company's area. The lawsuit is still ongoing, with hearings stalled due to the COVID-19 pandemic. KA says the first district court failed to properly inform it about the auction, and that it should therefore be released from any responsibility over the 2012 fire.
"KA is still operating as usual and they continue to reap the profit," said Nurul Ikhsan, a lawyer at the NGO Forest, Nature and Environment of Aceh (HAkA). "According to rough estimates, the company can get hundreds of millions of rupiah from their plantation and their mills a day."
Nurul said the company twice blocked a team sent by the environment ministry to assess the value of the company's assets.
"The company argued that some legal cases are still ongoing. But those have nothing to do [with the company's legal responsibility] because the original case already has a legally binding verdict," Nurul said, referring to the Supreme Court's ruling.
He said the new district court had the authority to seize KA's assets, but hasn't done so.
Even while KA has been allowed to continue operating, the 1,000 hectares of burned land has been left abandoned and unmonitored. This has allowed outsiders to encroach into the area and claim the land as their own, according to Nurul.
"There should be at least some signs saying that this land belongs to the state or this land is still contested," he said. "But there's none and it's a form of negligence by the government."
At least three lawsuits have been filed over ownership of the land. Two of them have been dismissed, and the third, filed by a group of eight people, is being heard in court, Nurul said.
He said he suspected KA was behind the lawsuits, noting that locals couldn't afford the cost of litigation.
"They are farmers and housewives, but they have hired lawyers from Medan [the North Sumatra provincial capital] and they also present experts from prominent universities in Java as witnesses to the court," he said. "So the company must be behind the lawsuits."
With a long track record of environmental violations and refusal to comply with court orders, Kallista Alam is a company that global buyers of palm oil should steer clear of, according to RAN.
"KA is a textbook example of the kind of supplier that should have been explicitly excluded from the supply chains of any global brand committed to a No Deforestation, No Peat, No Exploitation policy," RAN said. "This case provides a clear litmus test of the legitimacy of these commitments among global brands."