Cost of Social Conflict in Oil Palm

Authors: Daemeter Publication, in partnership with IBCSD

Publisher: Daemeter

Jan 2017

Material impacts arising from social conflict have long been appreciated by industry. Yet, managers in oil palm companies have lacked sufficient financial data to make the business case for investing in social engagement as part of the development planning practice. To address this, Daemeter was commissioned by the Conflict Resolution Unit of IBCSD to quantify the costs of social conflict in the palm oil sector.
Using data from conflicts in five plantations in Kalimantan and Sumatra, Daemeter calculated financial values for direct and indirect costs and loss of value from tangible and intangible assets. These data were supplemented with a dataset that chronicled 174 instances of conflicts in West, Central and East Kalimantan.
The report concludes that the cumulative costs of social conflict are significant, undervalued and can pose a serious risk to investment return. Conflict also imposes material costs on communities and local government. We found that the tangible costs of social conflict range from USD 70,000 to USD 2,500,000, the largest of these resulting from lost income due to operational shut-downs and costs of staff time re-assigned to address conflict.
The study also shows that when conflict occurs, the average annual per hectare costs of conflict, considering tangible costs only, are equal to 65% of total operational costs per hectare. These costs also represent 132% of annualized investment costs on a per hectare basis, considering the affected hectares only.
Intangible or “hidden” costs, are those costs that are not expected at the onset of the conflict. These costs are associated with the risks and unforeseeable consequences that conflicts may create. Considering four types of intangible cost – (1) reputational damage; (2) recurrence (or escalation) of conflict; (3) violence to property, and (4) violence to people (threatened or actual– the report determines that intangible costs may range from USD 600,000 to USD 9,000,000 per conflict event.
The report concludes with recommendations for consideration by growers, buyers, the government and civil society organizations. Highlights include:
  • Companies should strengthen their conflict management policies and procedures, including the design of KPIs and other incentives to motivate and reward socially responsible practices among their staff.
  • More data is needed to deepen our knowledge base on conflict progression pathways, as a basis to design effective conflict mitigation strategies.
  • Drawing upon experiences to date, Best Practices for conflict prevention, mitigation and resolution should be developed, including an analysis of the cost-effectiveness of different approaches to avoid or resolve conflict.
  • Districts where Jurisdictional Approaches are being trialed could offer opportunities for piloting large scale conflict mitigation and resolution efforts directly supported by local authorities
  • Companies should examine their timelines and approach to social engagement, especially during land acquisition and development stages, to understand how this affects the risk of future conflict.