InfoSAWIT, JAKARTA – The passage of Indonesia's Agrarian Reform Bill into law on September 22 has brought renewed attention to the country's land governance framework and its implications for long-term investment, including in the palm oil industry.
The legislation was approved relatively quickly, raising questions over the depth of deliberations and the extent to which public participation and the interests of affected communities were accommodated during the legislative process. These issues are particularly important given the scale of land governed by agrarian policy and the economic value of Indonesia's plantation sector.
Indonesia's palm oil industry remains closely tied to land-use certainty. The sector generates significant foreign exchange and provides livelihoods for millions of people. Its long-term development therefore depends not only on land governance that is fair, but also on rules that are predictable for businesses and investors.
Previous legislative discussions had raised expectations that some longstanding land-related uncertainties could be addressed. However, several regulatory gaps remain.
Institutional Structure Remains a Key Issue
From a governance and fiscal-efficiency perspective, legislators' decision to remove plans for establishing the Agrarian Reform Implementation Agency, previously proposed as the National Agrarian Reform Agency, could help prevent the expansion of the bureaucracy.
However, leaving the establishment of such an institution to a presidential regulation also creates a potential legal vulnerability.
An institution established through a presidential regulation generally has a different level of statutory authority, executive mandate and budget certainty than one created directly through legislation. This could make the implementation of agrarian reform more exposed to political-cycle changes and potentially weaken its ability to address disputes involving multiple ministries.
At the same time, the new mechanism for identifying priority agrarian-reform areas provides an important shift. Responsibility for verifying land information is no longer placed entirely on local communities, with the state expected to systematically identify and verify land data.
The change could be particularly relevant to independent smallholders and small farmers, who manage a significant portion of Indonesia's palm oil plantation area but can face difficulties entering formal supply chains because of administrative issues or state forest-area designations.
Regulatory Harmonization Still Matters
The new law may also face challenges in harmonizing with existing legislation, including the 1960 Basic Agrarian Law, Forestry Law, Plantation Law and land provisions under the Job Creation Law.
Without clear boundaries between the authority of technical ministries and the new regulatory instruments, agrarian reform could potentially prolong land disputes rather than resolve them.
For the new framework to strengthen agrarian rights and community welfare without undermining investment certainty in the palm oil sector, several principles are particularly relevant.
- Clear Land Rights and Conservation Protection
Land rights need to be clearly defined within the legal hierarchy. Existing community-owned certificates should receive full legal recognition, while legitimately issued cultivation rights should also receive strong legal protection against conflicting claims.
Conservation areas located within plantation concessions also require clear treatment. High Conservation Value (HCV) and High Carbon Stock (HCS) areas should be explicitly excluded from being classified as abandoned land where companies are maintaining them as part of their conservation commitments.
- Equal Protection and Dispute Resolution
The principle of equal protection under the law should apply to both legitimate holders of cultivation rights and communities holding recognized land rights.
Land disputes should be resolved through formal courts or authorized mediation mechanisms rather than discretionary administrative decisions.
- Flexible Operational Limits
Restrictions on plantation areas should avoid rigid and uniform limits across regions. While remaining consistent with existing legislation, land-use policies should take into account economies of scale, differences in agro-climatic conditions and the level of investment already made in downstream infrastructure.
Such an approach would recognize the long-term nature of plantation investment and the operational scale required to maintain efficiency.
- Non-Retroactivity and Consistent Partnerships
New regulations should respect the principle of non-retroactivity. Rights and investments that were legally acquired under previous regulations should not be retrospectively undermined by subsequent rules.
The requirement to facilitate community-managed plantation areas equivalent to 20% should also be aligned closely with productive partnership models established under Indonesia's Plantation Law.
Ultimately, implementation will depend heavily on an open, transparent and integrated land administration system.
Without a reliable single-map system, overlapping boundaries between plantation concessions, conservation areas and customary community lands are likely to remain a persistent challenge.
Agrarian reform should therefore extend beyond the redistribution of land. It can also serve as a foundation for broader economic transformation by bringing community welfare and sustainable business activity into a more coherent framework.
Given the speed of the legislative process, close public and parliamentary oversight of implementing regulations will be important. The practical implementation of the law will ultimately determine whether it can address longstanding agrarian issues.
For Indonesia's palm oil industry, long-term legal certainty remains essential. That certainty needs to protect smallholders' rights while also providing safeguards for legitimate strategic investment against recurring land disputes.
Finding an appropriate balance between these interests will remain an important test for Indonesia's agrarian governance and its efforts to promote sustainable and inclusive economic growth. (*)
By Edi Suhardi / Sustainability Analyst
Disclaimer: This article represents the author's personal views and is entirely the responsibility of the author. It does not represent the views of InfoSAWIT.
