PepsiCo and Nestlé sever ties with Indonesia’s largest palm oil supplier in wake of alleged human rights abuses

By Gill Hyslop contact

- Last updated on GMT

Related tags: Palm oil, Human rights, Indonesia, Indofood

Nestlé announced it closed its joint venture with the Indofood Group last month, while PepsiCo reiterated its stance to not source palm oil – either directly or indirectly – from the company and its subsidiaries, purportedly linked to deforestation and human rights abuses.

In January 2017, PepsiCo announced its Indonesian joint venture (JV) with Indofood – IndoFood Fritolay Makamur – was suspending the procurement of palm oil from Singapore-listed IndoAgri, a subsidiary of Indofood.

The company updated its “PepsiCo sourcing of palm oil from Indonesia” document in September 2018, reiterating the suspension.

It did, however, note it will continue its JV with Indofood, which is the sole producer of PepsiCo products in Indonesia.

“While we note developments in the RSPO [Roundtable on Sustainable Palm Oil] complaints process, PepsiCo has been concerned that the complaint​ against IndoAgri has remained unresolved and we have not seen sufficient evidence of progress from IndoAgri in addressing the concerns raised,”​ PepsiCo’s spokesperson told BakeryandSnacks.

“Over the last months, we have therefore engaged with our direct suppliers to ensure that they suspend any sourcing of palm oil from IndoAgri. We will review this decision on a regular basis, taking into consideration developments in the RSPO complaint process and actions taken by IndoAgri. At PepsiCo’s request, our Indonesian joint venture, IndoFood Fritolay Makamur, suspended procurement of palm oil from IndoAgri in January 2017.”

A Nestlé spokesperson told this site that, in December 2016, Nestlé and Indofood Group agreed that Nestlé would take over palm oil sourcing for Nestlé products manufactured under its JV, Nestlé Indofood Citarasa Indonesia (NICI).

Nestlé has committed to use 100% responsibly sourced palm oil by the end of 2020.

“As part of its accelerated value creation model, Nestlé is continuously reviewing its business portfolio, and with PT Indofood CBP Sukses Makmur Tbk (ICBP), have agreed to end their joint venture [in September 2018],”​ the spokesperson told us.

“The joint venture was established in 2005 to combine Nestlé’s product development capability with Indofood’s Indonesian flavor profiling expertise. While the business has delivered strong growth, profitability was a challenge.

“Accordingly, both parties believe that this move will allow them to further develop each of their culinary businesses. Nestlé is convinced that building a culinary pillar in this growing market is a promising move and a sound business decision, which eventually will enable Nestlé to accelerate growth and to continue to win in the ever-evolving consumer landscape.

Growing trend

According to San Francisco-based Rainforest Action Network (RAN), the move by the two companies escalates a growing trend of major companies dropping palm oil suppliers possibly linked to modern-day slavery and the destruction of rainforests and wildlife habitats.

Similar moves have recently been made by Cargill; palm oil traders Bunge Loders Croklaan, Wilmar and Golden Agri Resources;​ and Musim Mas,​ a major Indonesian palm oil processor.

Praise for PepsiCo

Commenting on PepsiCo’s action, Fatah Sadaoui, campaigns manager at SumOfUs – a global consumer watchdog that campaigns to hold big corporations accountable – said: “PepsiCo made the right decision, but there is still a lot more work to be done [by the company] to guarantee that its supply chain is free from human rights abuses and rainforest destruction.

“PepsiCo must adopt a comprehensive policy on palm oil, which includes an absolute ban on deforestation, peatland exploitation, endangered species habitat destruction and worker abuse closing the loophole that has allowed joint venture partners and direct palm oil suppliers to get away with such violations for so long.”

Praise for Nestlé

Robin Averbeck, agribusiness campaign director of RAN, also commended Nestlé on its decision.

“This is a strong move by Nestlé​. Indofood has been caught red-handed exploiting its workers and violating Indonesian law numerous times over the past years.

“The fact that so many companies are moving ahead of the RSPO  should be a loud wake up call to the certifier that it cannot continue to certify Indofood’s labor abuses as ‘sustainable,’” ​she said.

Mounting pressure

The RSPO is currently assessing a grievance against the palm oil supplier​ filed by RAN, Indonesian labor rights group OPPUK and Washington-based International Labor Rights Forum (ILRF) in October 2016, purporting labor rights issues such as laborers under 18 years of age, low pay, health & safety conditions, production quotas and use of informal labor.

A number of investigations have taken place since then and, according to the RSPO’s website – as of August 2018, it was still “to follow up with the verification team for the final report incorporating the comments from both parties to the complaints.”

Report exposes alleged labor rights abuses

In April 2016, RAN, OPPUK and ILR published a report ​ documenting interviews with 41 workers on two of Indofood’s palm oil plantations.

Indonesian law

Article 68 of the Indonesian Act No 39 of 2003 concerning Manpower​ states “entrepreneurs are not allowed to employ children”​ (defined as anyone below the age of 18 years).

Article 69 provides an exemption for children between the ages of 13 and 18 years “for light work”,​ but for “no longer than three hours per day”​ (Article 71).

Article 88 stipulates every “worker has the right to earn an income that meets a livelihood for that is decent for humans,” ​with Article 90 stipulating that “entrepreneurs are prohibited from paying wages lower than the minimum wages.”

It alleged that investigations had found evidence of child labor, workers being exposed to hazardous pesticides, payments 20% to 75% below the minimum wage, long-term reliance on temporary workers to fill core jobs, and the use of company-backed unions to deter independent labor union activity, among other findings.

Contended violation of fundamental rights

“Simply put, this report reveals that Indofood is violating the fundamental rights of workers on its palm oil plantations,”​ said RAN’s Averbeck at the time. 

“These workers live in a world dominated by palm oil. The plantations stretch for miles in every direction, and Indofood’s subsidiary PT London Sumatra has nearly complete power over the livelihoods of its workers.

“Women are rarely afforded full, permanent employment and are given some of the most toxic jobs applying highly hazardous pesticides. Harvesters, one of relatively few permanent positions, struggle under a high quota system, which forces them to bring their wives and children to work with them for help to earn the measly base pay – well below a living wage.

“Children leave school and childhood behind and work in the rows of palm oil trees to help their families make ends meet. It’s a disturbing system of abuse, where workers’ rights are rarely respected,” ​he added.

Government intervention

“As such a major employer in the country, the Indonesian government should enact specific labor laws to protect palm oil plantation workers, who face unique and heightened risks from their geographic isolation,”​ added Herwin Nasution, executive director of OPPUK.

“Specifically, urgent attention needs to be paid to those workers most at risk and least protected – women workers and child laborers – who perhaps suffer the most under the impossibly high quotas and unethically low wages.”

At the time, Indofood declined to comment on the report, stating that, as far as it is concerned, it has complied with all Indonesian laws and regulations.

Indofood had not responded to our request for comment by the time this article went to print.

The Jakarta-based company is controlled by Anthoni Salim, owner of the Salim Group, one of Indonesia’s biggest corporations. The company’s 2017 revenue was Rp70.19 trillion ($47bn).

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