IOI Corporation Berhad (IOI) is a palm oil producer that has plantations and vertical integration into the processing of palm oil (About Us, IOI Group, 2020). They operate globally. Businesses that operate globally are said to contribute to and enjoy globalization. Globalization has been criticized for damaging the environment, supporting questionable international practices, human rights violations, and corruption (McGraw-Hill Ryerson, 2020, slide 5).
IOI’s economic activities impact the social and political issues in the countries where harvesting and manufacturing is done. Additionally, a partially owned firm has manufacturing operations in the USA, Canada, Ghana and China (About Us, IOI Group, 2020). Products are shipped all over the world. IOI’s impact on social and political issues is global due to their global operations and various value added firms owned or partially owned by IOI.
Developing nations are specifically impacted more directly and more negativity by palm oil harvesting and production. Major palm oil crop exporting countries regard it as a life-saving crop for poverty alleviation, while international financial institutions regard it as a driving force for economic growth.
Since the consumption of palm oil is rapidly increasing, social issues being a concern in the general production of palm oil in developing nations are violations of human rights, land grabs, and independent farmers’ income loss (Social Impacts, Spot, 2016).
Workers rights are a social issue that has been increased by globalization which puts social pressure on host countries. Businesses sometimes move to overseas operations to avoid regulatory costs. Palm oil harvesting happens mostly in developing countries because of the climate, so producers have no choice but to operate in less regulated markets where there is more room for human rights abuses. Processing and production are more complicated and done in stages throughout the whole world, usually started in the country where it was harvested.
The economic activities of enterprises become more active while the industry developing. In order to ensure the lowest production price, IOI Group tries to squeeze the labour rights to obtain higher profit returns. On September 16, 2014, an article of “IOI group suspected of serious labor rights violations” was published on Finnwatch website. The article said “the IOI group was accused of paying less than the legal minimum wage, confiscating workers’ passports and restricting freedom of association. Most of the IOI group’s plantation workers do not understand employment contracts written in foreign languages.” (IOI Group suspected of serious labour rights violations. n.d. ) Those migrant workers who wanted to rely on this wage to support their families were cheated into the plantation. Because of their weak income, they could not choose to return to their motherland and were forced to work.
“In business contexts, utilitarianism implies an obligation for businesses to do what they can to act in a way that maximizes happiness and minimizes suffering. So, utilitarianism provides a basis for criticizing business behaviors that cause harm to anyone at all.” (Ethical Theory: Utilitarianism, 2018) Malaysian palm oil producers rely heavily on cheap foreign labor, mainly from India, Bangladesh, Nepal and India, which account for more than 80% of plantation workers (Pattisson, 2018). This industry brought opportunities for over 40,000 workers (Pattisson, 2018). According to a utilitarian perspective, unemployed workers have found a job which creates value or profit even if they only pay the lowest salaries.
Local independent farmers depend on palm oil crops for income (Social Impacts, Spott, 2016). Taking away the livelihood of independent producers is an issue because large firms can reduce costs through mass-scale production and better technology. Local farmers of palm oil are dependent on income. These farms are usually run by a whole family and passed down through generations.
Additionally, land ownership disputes are common in the industry (Social Impacts, Spott, 2016). Palm oil tree land is very valuable and there is a strong power dynamic between the local farmers and large firms who want the land. When large firms buy up land or are able to sell products more cheaply it puts local farmers at a disadvantage.
Damage to environment
Planting oil palm has caused great changes in the rainforest ecosystem and destroyed the habitat of orangutans. Environmental NGOs are most concerned about the disappearance of the only habitat for endangered Sumatran tigers, Sumatran rhinoceros, and Sumatran orangutans, which will lead to the extinction of endemic animals(Local-Guides, 2019).
In addition, the carbon dioxide emissions from planting oil palm trees were “estimated to cause the equivalent of 2% of global fossil-fuel CO2 emissions” (Russell, M. Para. 5, 2018). According to Russell (2018), Palm tree plantations implement “slash and burn” cultivation, to burn down the wood and woodland in the rainforest. Burning wood puts a lot of carbon dioxide into the atmosphere, which became a contributor to global warming. During the dry season, such commercial activities can lead to serious forest fires. In 2015, the forest fires in Indonesia caused “at least US $16 billion and caused as many as 100 000 premature deaths”(Russell, M. Para. 7, 2018).
“Environmental ethics believe that humans are a part of society as well as other living creatures, which includes plants and animals” (Conservative Energy Future, para.1, 2020). According to environmental ethics, we should consider the environment and animals when we make business economic behavior. The oil palm industry has conflicts with environmental ethics, just as the IOI group has been repeatedly pointed out to violate RSPO standards. The unreasonable and immoral production mode of IOI group leads to the threat of rainforest environment and rare animals, which violates the environmental ethics.
The industry provides jobs for about 72,000 workers in Malaysia and about 4 million workers in Indonesia (Spott, 2018). Besides, most of the oil palm plantations are located in more remote rural areas, which improves local employment scarcity, thus contributing to rural development and poverty alleviation.
From the economic point of view of the country of origin, planting oil palm not only increases the local average income, but also creates more employment opportunities for rural labor. (Russell, M. 2018) With the increase of demand, the number of poverty-stricken populations in rural areas has decreased, since the number of employed people in producing countries has increased (Russell, M. 2018).
In 2016, the society and environmental protection organizations paid attention to the environmental damage caused by IOI in the production process. RSPO took action on IOI’s sustainable palm oil certification, and they decided to suspend their certification (Russell, para. 3, 2018). As a result, the IOI group has terminated its purchase contracts with several purchasers. Meanwhile, many institutional investors began to consider that the immoral business behavior of the industry will bring great risks to the investment. Investing decisions have been affected by the case circumstances. Therefore, the palm oil industry has also lost a lot of investment opportunities. Besides, IOI not only lost the volume of sales, and the firm faced great financial pressure.
Palm Oil regulation is a contentious issue between policymakers due to the pressure of the government trying to balance promoting economic gains and ensuring sustainability.
Many countries in the world benefit from palm oil production, then also condone certain palm oil production due to the impact on the environment, land claims issues, and the environment. Countries that support palm oil production face higher scrutiny from international actors.
IOI has links to politics in Malaysia, showing there is a relationship. Some people believe the private sector should not have power, or be needed by the government because it creates bias. In March 2020, IOI supported the Malaysian Palm Oil Association in giving the Malaysian Ministry of Health RM500,000 to combat COVID-19 efforts (IOI Group, 2020).
Environmental degradation could contribute to political issues in the future. Global warming causing the sea levels to rise will cause a refugee crisis that will be politically destabilizing for coastal residents that must move, and to neighboring countries responsible for the refugees.
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