“What kind of oil should we buy?” Luo Xiaohua shouts to her cousin from the cooking oil aisle in Yonghui Supermarket in the heart of Chongqing, a rising Chinese megacity. Luo, 50, is the quintessential Chinese shopper. She earns $3,250 a year and has an elementary education. She’s fiercely opinionated about her purchases.
Luo stands before amber-hued bottles loaded with a commodity that fuels China’s and India’s growing consumer classes. “From what I understand, all of these brands contain palm oil,” she says. “But they just don’t say it on the label.” She says she’d prefer to use olive oil but can’t afford it. “Corporations have the power in this country, and consumers have to make decisions based on limited options.”
Palm oil and its derivatives are found in thousands of products worldwide, from doughnuts to soap, lipstick to biodiesel. Globally, palm oil consumption has quintupled since 1990. Demand in Asia, where palm oil is widely used in cooking oil and noodles, has driven the growth of a $44 billion industry. In February, exports from Indonesia, the world’s largest producer of palm oil, hit a five-year high.
Shoppers such as Luo are at the heart of that boom. China is the world’s largest consumer of vegetable oil, of which palm oil is the world’s most-produced variety. Since the late 1970s, as the Chinese shifted away from traditional staples such as rice and grains and toward a higher-fat diet, palm oil imports have grown 150-fold.
As it’s grown, the palm oil industry has drawn scrutiny from environmental activists in Europe and the U.S. They decry the destruction of rainforests in Indonesia and Malaysia to support oil palm expansion, which threatens the natural habitats of endangered species such as pygmy elephants and Sumatran tigers. The human costs of the palm oil boom, however, have been largely overlooked. A nine-month investigation of the industry, including interviews with workers at or near 12 plantations on Borneo and Sumatra—two islands that hold 96 percent of Indonesia’s palm oil operations—revealed widespread abuses of basic human rights. Among the estimated 3.7 million workers in the industry are thousands of child laborers and workers who face dangerous and abusive conditions. Debt bondage is common, and traffickers who prey on victims face few, if any, sanctions from business or government officials.
The U.S. government has highlighted the prevalence of human-rights abuses in the palm oil trade: A 2012 U.S. Department of Labor report found that among the industries most notorious for forced and child labor were apparel, seafood, gold, and palm oil. But because palm oil companies face little pressure from consumers to change, they continue to rely on largely unregulated contractors, who often use unscrupulous practices. The impact of any reform efforts will be limited unless the new consumer giants—China and India, which account for more than a third of global palm oil imports—are brought into the debate. “We have a Western-facing strategy on an Eastern-facing problem,” says Dave McLaughlin, who oversees agriculture issues for the World Wildlife Fund.
Among the world’s most significant palm oil suppliers is Kuala Lumpur Kepong, a 107-year-old Malaysian corporation. KLK, with revenue in 2012 of $3.2 billion, is by area the world’s fifth-largest palm oil plantation company. Its principal shareholder, a holding company called Batu Kawan, is controlled by KLK’s chief executive and his brother, both among Malaysia’s richest citizens.
In labor-intensive cycles repeated across most of its 73 plantation estates, KLK relies on contractors who in turn enlist thousands of low-wage workers. Those workers first prepare land for the palm groves. After three years, they manually harvest the palm bunches, which can each weigh up to 55 pounds and yield 3,000 fruitlets. Within 48 hours of harvest, trucks carry those bunches, which last year amounted to 3.3 million metric tons, to KLK’s nearby mills. From there, crude palm oil is shipped for further processing at two KLK-owned oleochemical plants in Shanghai and Zhangjiagang, China, or elsewhere, before the refined palm oil or derivatives are sold into the commodity and consumer markets.
Interviews with former workers as well as statements recorded by local nongovernmental organizations reveal a tragic underside of KLK’s supply chain. These workers tell of being defrauded, abused, and held captive by representatives of a labor management firm called CV Sinar Kalimantan. Their claims of fraud are substantiated by affiliates of the contractors, as well as by the labor contracts themselves, copies of which were obtained by Bloomberg Businessweek.
Photograph by Kemal Jufri
The experience of “Adam,” a 19-year-old Indonesian from North Sumatra, shows the coercion faced by untold numbers of palm oil workers. (Out of concern for their safety, Adam and another alleged victim asked that their names be changed.) In July 2010 a stocky Indonesian foreman named Atisama Zendrato allegedly lured Adam and his cousin two thousand miles away from their home in Nias, a poor, largely underdeveloped North Sumatran island. He promised to pay them $6 a day (roughly the minimum wage at their destination in Borneo) to drive trucks. Partway through the three-week journey to Berau, East Kalimantan—after Zendrato had transported them and 18 other recruits, some as young as 14, to his house in Duri—he compelled them to sign contracts that spelled out different terms, Adam says.
The contracts bound the workers to Zendrato’s boss, a Malaysian based in Medan, North Sumatra, named M. Handoyo, and compelled them “to work without the freedom to choose the type of work, to be obliged to do any work as asked by the employer.” Under the terms, the daily wage was dropped to $5 per day. But Zendrato allegedly said the firm wouldn’t pay workers anything for two years, instead “loaning” them up to $16 a month for necessities such as rudimentary health care. Food beyond meager rations could only be purchased from a company store allegedly owned by Handoyo. The contract stated that workers, who included men, women, and children, would not be allowed to leave the plantation, even temporarily, without permission, and that Handoyo “will not accept any reason/excuse whatsoever from the [worker] to go back to his/her village during the [two-year] term of this contract.”
At PT 198, a plantation near Berau owned by top KLK shareholder Batu Kawan, workers entered a system of tightly controlled forced labor, according to Adam and other alleged victims. At least 95 workers were held at the plantation for up to two years. At night they were locked in stifling, windowless barracks. An environmental NGO, Menapak, later reported that they were fed small portions of salted fish and rice, which several said were often weevil-infested. A truck with fresh water came once a month, but that supply would last no more than a week; workers pulled most water for cooking, cleaning, and drinking from a stagnant ditch that ran alongside the barracks. Adam says Handoyo confiscated their national identity cards and school certificates, along with a deed to a home, which his village collectively owned.
Instead of working as drivers or low-level administrators, the workers were ordered to prepare the newly planted palm groves. Some had to spread at least 20 50-kilogram sacks of fertilizer each day. If they fell short, they had to make it up the next day or see their already deferred pay cut. They say they were required to spray with the herbicide Paraquat, a substance that’s been linked to kidney and liver damage and is banned in at least 32 countries. (China, which announced in April it would phase out the herbicide, would be the 33rd.) Because they weren’t given protective gear, some claim to have suffered respiratory damage. An alleged victim, “Jacob,” who was held with his wife for two years at PT 198, reported nightly bloody coughing fits but says Zendrato denied him adequate medical care.
Other workers say those who tried to escape were punished harshly. One young man made it as far as a nearby river before being caught by boatmen whose livelihood depends on the palm oil companies. Once alerted, Zendrato’s men hauled the escapee back and allegedly beat him in front of the others, say Jacob and other witnesses. Several workers report witnessing Zendrato’s enforcers regularly beat workers with wooden clubs and occasionally with the sides of machetes.
Despite the risks, Adam and his cousin decided to flee. Early one morning in late August 2010 they pounded on the locked door of their barracks and asked the guards to allow them to use the latrine. Shrouded in blankets they had taken from the barracks, the young men scrambled beyond that latrine and crawled to the road. A truck from neighboring Berau Coal Energy (BRAU:IJ) happened to pull up. A colleague of the driver’s allowed them to hide from Zendrato’s search parties on his boat for three days and helped them with safe passage to a more populated area.
One month later, after another escaped worker was caught and beaten, a supervisor at PT 198 alerted authorities to the conditions at the plantation. Police from central Berau arrested Zendrato and held him for a day before releasing him without charges. His arrest caught the attention of Menapak, which notified Jakarta-based Sawit Watch, a palm oil watchdog group, and SBSI, a national labor union. On Sept. 24, 2010, Menapak representatives traveled downriver and helped the workers walk away.
In early November 2010, after Rainforest Action Network reported on the abuses at PT 198, representatives of KLK, the plantation’s manager, reached out to the organizations that had investigated the charges. Three workers, including a 14-year-old boy, met with senior KLK officials, who at the time were attending the annual Roundtable on Sustainable Palm Oil (RSPO) meeting in Jakarta. The officials apologized to the workers for their treatment and said they were unaware of the abuses. They agreed to pay for their return journeys to Nias and to compensate them for their stolen pay. According to KLK CEO Tan Sri Dato’ Seri Lee Oi Hian, the company canceled the contract of CV Sinar Kalimantan and blacklisted the contractor. After the meeting, KLK said “we discovered (but not able to prove) that one of our contract agents had been providing some under-age workers, and also illegally withholding some wages.”
Adam, however, says he was never paid for his work nor given passage home. Former PT 198 workers who were returned to Nias say they were compensated, though the pay varied. One reports receiving $200 for two months’ work. Jacob, who worked for two years and claims to have endured esophageal damage and chemical burns from the herbicide, received $100 in total, or less than 2¢ an hour. KLK CEO Lee said that his company “didn’t hear anything about further claims” for compensation from the workers. According to Lim Poh Poh, a spokeswoman, KLK encouraged the contractor “to pay their workers, which they confirmed to us that they did. … It is their workers and in a way we also want them to be responsible for their workers and to ensure that all the unpaid wages are paid.”
Meanwhile, though claims of workers and managers conflict, it appears that both Zendrato and his boss, Handoyo, may still be involved with KLK. In the fall of 2012, Zendrato attempted to pay at least four men to recruit workers for new plantations in Borneo and Sumatra, according to recordings made by the workers. Several people in contact with Zendrato last fall say he was still recruiting and managing workers for Handoyo’s brother, Hendra, a contractor of PT Adei, a plantation company in the Sumatran province of Riau. Since 1996, KLK has owned 95 percent of PT Adei.
Though Hendra did not respond to requests for comment, he denied to KLK that he employed Zendrato. Reached by phone, Zendrato acknowledges continuing to work in the palm oil industry but denies being involved in any labor abuses at PT 198. “Why are you looking for this ‘Zendrato’?” he asked. “I did not treat people unjustly, nor did I cheat them by not paying their wages.”
KLK has labor issues elsewhere. On March 20 of last year, dozens of workers at PT Jabontara Eka Karsa, a KLK plantation about 100 miles southeast of PT 198, staged a protest against what they said was an unfair wage reduction. A visit this spring to the plantation by reporters working on this article found at least two children gathering palm fruit, while workers there described false wage promises and onerous contracts similar to the one allegedly used at PT 198. Workers say the name at the top of the contract was M. Handoyo—Zendrato’s PT 198 boss. (Handoyo did not respond to requests for an interview, and Lee denies currently contracting with him.)
Bloomberg Businessweek obtained a copy of the contract for land clearance between the Jabontara plantation company and Hendra, Handoyo’s brother. Clauses in that contract prohibit Hendra from outsourcing without permission, using child labor, or paying workers less than minimum wage but also appear to indemnify Jabontara in the case of such labor violations. The contract was executed in December 2010, the month after the abuses at PT 198 were exposed.
In 2012, KLK’s shipments to North America and Europe accounted for 26 percent of its revenue. At least 38 companies have bought KLK’s palm oil and palm oil derivatives since 2009, according to company executives and records from shipping database Import Genius. These include Archer Daniels Midland (ADM), BASF (BASFY), California Oils, and Unilever (UL). Cargill, America’s largest privately held company, received at least 31 shipments of palm oil from KLK, totaling more than 61 million pounds, over the last three years. Cargill has sold palm oil and its derivatives to Nestlé (NSRGY), General Mills (GIS), Kraft Foods (KRFT), and Kellogg (K).
From December 2010 through June 2013, KLK sent a minimum of 18 shipments of at least three types of palm oil derivative, totaling nearly 34 million pounds, to Procter & Gamble (PG). The company uses about 1 percent of global palm oil and its derivatives. Those derivatives appear in such consumer products as Crest toothpaste, Gillette shaving cream, and Oil of Olay skin products, all leaders in U.S. and Chinese markets.
KLK is not the only palm oil company to face allegations of human-rights abuses. Since 1998, Sawit Watch, the Jakarta-based advocacy group, has chronicled hundreds of social conflicts—often concerning wage exploitation or land disputes—on or near palm plantations. Indonesia’s National Commission on Human Rights has documented thousands of alleged human-rights violations around plantations. On the Malaysian side of Borneo, where at least 70 percent of plantation workers are foreign migrants, laborers are more vulnerable to exploitation because of their immigration status, says Verité, a nonprofit consulting firm that audits labor practices in supply chains for multinationals.
In an interview, KLK’s Lee said, “It is not our policy to condone abuse of workers, ‘slavery’ practices, or exploitation of workers.” He stresses that the company requires contractors to adhere to “rules and regulations of the country” including minimum wage standards, but that KLK management “does not regulate the workers. Some of these workers, of course, are employed by the contractors. But subsequent to the complaints raised by the NGOs … our management is very well aware that they have to check on the contractors.” He claims that “we are moving more and more to direct hire practices.”
Photograph by Kemal Jufri
Lee says that he “absolutely” believes that slave and child labor are crimes. When pressed about why he did not report evidence of abuses at PT 198 to local authorities, the CEO said, “You’ve been in Indonesia sometimes, and you know how well the system works in Indonesia, right?” Local authorities, he suggested, were unreliable. Terminating the contract and blacklisting the company “was sufficient enough, was strong enough to send a warning to other contractors within the company.”
When asked about the allegations of abuse on KLK’s plantations, California Oils, Kellogg, Kraft, General Mills, P&G, and Unilever all cited their supplier codes of conduct, which prohibit such behavior. Additionally, Nestlé and Archer Daniels Midland pledged to investigate the allegations.
Cargill defended its supplier. “At this time, KLK is not in violation of any labor laws where they operate nor are we aware of any investigation of KLK’s labor practices,” says Cargill spokeswoman Susan Eich in an e-mail. Eich says Cargill had recently consulted with industry observers and nongovernmental organizations and concluded “there are no active charges or allegations that KLK has violated labor laws or is engaged in slave or child labor.”
KLK and at least 10 companies that buy its oil are members of RSPO, a Kuala Lumpur-based industry group whose stated goal is to provide a framework for “sustainable” production of the commodity. For the roundtable to classify palm oil as “certified sustainable,” growers must undergo third-party assessments verifying the oil is the product of “legal, economically viable, environmentally appropriate, and socially beneficial management and operations.” Some 15 percent of for-profit RSPO members, including P&G, have pledged to sell only sustainably grown palm oil by 2015, KLK’s target year for certifying all of its Indonesian operations. Observers see stronger certified oil demand being created with moves like that of New York Comptroller Thomas DiNapoli, who since 2010 has won pledges from portfolio companies in the state’s $153 billion pension fund—including Dunkin’ Donuts (DNKN), Sara Lee (HSH), and Smucker’s (SJM)—to only use sustainable oil.
Even so, organizations such as Greenpeace say the industry’s enforcement of both environmental and human-rights standards remains weak. Just 35 percent of all RSPO member growers have been certified, and none has been decertified for poor performance. “Every time an NGO shines a light into the activities of an RSPO producer, it finds dirt,” says Tomasz Johnson of the London-based Environmental Investigation Agency. “Yet the RSPO hasn’t displayed any ability or intent to exclude anyone.” According to RSPO Secretary General Darrel Webber, the body has never suspended a member for violations of labor standards. In April, the RSPO expanded its standards, adding language to ban all “forms of forced or trafficked labour.”
Much of RSPO’s marketing has been oriented toward European nations and to a lesser extent the U.S. But since those countries consume just 12.5 percent of the world’s palm oil, the organization’s effectiveness is limited. Less than 2 percent of RSPO members are Chinese entities, the first four joining in 2011. The RSPO trademark is unknown in China, where few consumers are aware of the provenance of their palm oil.
Recent surveys suggest there’s potential for change. A 2012 McKinsey survey of 10,000 Chinese consumers in 44 cities found that 44 percent “were willing to pay more for products that are good for the environment,” vs. 33 percent in Britain and 37 percent in the U.S. “The environmental impact, the pollution, and eco-damage are so serious that people have more direct and greater concern over this than their counterparts in Europe and America,” says Ma Jun, founding director of the Beijing-based Institute of Public & Environmental Affairs. Chinese consumer interest in product safety and the environment, however, has yet to bring greater attention to labor standards. Just 5 percent of Chinese consumers polled said concern over labor conditions influences their purchases, according to a 2009 Ruder Finn Asia study.
As the Chinese middle class continues to swell, palm oil will become a fixture in more and more Chinese lives. Adam, the 19-year-old who fled the PT 198 plantation in 2010, says he hopes shoppers like Luo Xiaohua ask themselves a simple question when they consider which oil to buy: “Is there slavery in this?”
The investigation was supported by Humanity United and the Nathan Cummings Foundation.