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Cargill exits palm oil in Papua New Guinea with US$175 million leaving a trail of trade union rights abuse


In November 2005, Cargill announced the acquisition of palm oil operations in Indonesia and PNG through the purchase of Pacific Rim Palm Oil Limited (PRPOL), a company owned by the CDC Group (an entity for British state investment in the developing world). According to CDC’s public reports, the Group received £80.2 million (equivalent to US$141 million at 2005 exchange rates) for PRPOL. The company was bought by Cargill in a joint venture with Temasek Holdings, the Singapore government sovereign wealth fund, in which Cargill maintained a majority share (public records of the exact breakdown are not available). The name of the joint venture company was CTP Holdings.

In purchasing PRPOL, Cargill gained control of approximately 55,000 hectares of palm oil plantations in Indonesia and PNG. At the time of the purchase Cargill owned one palm oil plantation in Indonesia. The purchase allowed Cargill to enter significantly into the rapidly growing and highly profitable palm oil business at the initial point of production.

When the new management arrived at HOP a series of changes were made to conditions which were not appreciated by workers. Among those changes was a refusal by the company to recognise long-service entitlements which workers had earned while working for PRPOL and the removal of paid maternity leave. In late 2006 a new leadership emerged in the Higaturu Oil Palm Processing Workers’ Union (HOPPWU) and began to revive the union which had lain dormant. From 2007 onwards HOPPWU successfully recruited workers to the union and attempted to engage with the management to improve workers’ conditions.

You can have a union…but do not expect to exercise your rights.

The response of the management at HOP was to frustrate, ignore, penalise, intimidate, mislead and try to neuter the union at every stage. Depsite operating at HOP for four and a half years, management refused to conclude a single agreement with the union.

Starving the union…

In PNG, the law governing trade unions is the Industrial Organisations Act of 1962. The law is quite clear regarding the responsibility of an employer when a worker advises the employer to deduct membership dues and pay these to the union. Workers have a legal right to a check-off system and employers must deduct the dues and pay these to the union within 35 days. If the employer fails to collect the dues these are considered a debt of the employer owed to the union.

From the start of 2007 as HOPPWU membership began to grow, the local management continually failed to process membership forms in a timely fashion. The union repeatedly brought to the attention of the company the failure to process the membership forms and deduct dues. What initially might have been considered extremely poor management on behalf of the human resources department, could no longer be regarded as such when the same problems remained more than three years later. HOPPWU membership is approximately 1,300 workers, yet the union only receives dues from around half of the members. It is estimated the company’s failure to collect the dues (a breach of the Industrial Organisations Act) has denied the union thousands of dollars in income. Funds which could have been used to educate, organise and inform workers and union members of their rights and allow the union to better represent workers’ interests.

84 hours work in seven days…with no overtime pay

One of the most outrageous practices which Cargill’s management maintained through its time in PNG was a shift system for security guards which required a 12-hour shift each day for seven consecutive days, followed by seven days of not working. This meant security guards were working 84 hours in seven days. The Employment Act of 1978 states that normal working hours are 44 hours in a seven day period, or eight hours in a day, which means that the security guards should have been paid 40 hours of overtime. HOPPWU first raised this issue with the management in July 2007. In August 2007, the Employers’ Federation of PNG wrote to HOP management and advised the company, “Employees are entitled to overtime and must be paid accordingly.” Despite hours which are utterly appalling and workers receiving no proper overtime compensation, Cargill’s management refused all requests from the union to change the system. For the period Cargill operated HOP, the IUF estimates each security guard is owned back wages for 4,500 hours of unpaid overtime.

Union leaders? You’re relocating to the most remote part of the plantation

In 2008, three of HOPPWU’s five executive leadership, including the then president of the union, were ordered by management to shift to the most remote part of HOP. The move totally isolated a majority of the leadership from the vast bulk of the members of the union. The area the executives were moved to lacked proper facilities and access to adequate food. The transport connections to the main town were extremely difficult and initially no telephone communications were available.

A wage rise? But we are losing money making palm oil…

In December 2008 and in 2009, during a period of extremely sharp increases in the prices of commodities (including palm oil), HOPPWU attempted to negotiate wage rises with the management. At the same time inflation in PNG was high and due to the general remoteness of the area basic foods are expensive. On 8 December, HOPPWU representatives were told by the HOP General Manager, “the cost of producing the [palm] oil is more than the selling price.”

In November 2005, when Cargill acquired PROPL, according to statistics from the country’s central bank, the price of palm oil leaving PNG was Kina 1,218 per tonne (US$490). In December 2008 when HOPPWU was seeking to negotiate wage rises, the price had for the previous year averaged over Kina 2,000 per tonne (US$800).

In March 2010, New Britain Palm Oil in an announcement to shareholders published the profits of Cargill’s PNG operations, figures which were never shared with the union. To May 2008, Cargill made a gross profit of US$32 million from palm oil in PNG. To May 2009, gross profit was US$46 million.

On 13 January 2009, one month after telling the union the company could not make palm oil profitably, Cargill announced global profits of US$1.19 billion…for three months.

Management refused all subsequent attempts by the union to negotiate wages, telling the union, decisions on wages were entirely the company’s responsibility.

Good bye, you’re on your own…

On 19 March 2010 HOPPWU wrote to the local management asking for clarification about the sale of Cargill’s PNG operations and sought assurances on employment continuity. Six weeks later and the day before the hand over was to take place, HOPPWU had still received no reply.

…and thanks for the cash.

The total area of palm oil plantations which Cargill’s CTP Holdings has sold in PNG is a little over 26,000 hectares. In 2005, Cargill effectively purchased Pacific Rim’s palm oil plantations for around US$2,500 per hectare (including the physical assets such as plant). This would make the value of the PNG operations in 2005 approximately US$65 million. By February 2010, even allowing for the costs associated with constructing two mills, the sale of the PNG operations at a price US$110 million higher than the estimated cost in 2005 is an extremely handsome profit in any language. Or, to look at it another way, Cargill was able to obtain a value of about US$6,500 per hectare when it sold the PNG operations, a 160% increase in the per hectare price of 2005.

Trade union rights and justice

The actions of Cargill’s management with regard to the union at Higaturu Oil palm can only be seen as continuous denial of fundamental human and trade union rights. The right to information and the right to negotiate are clearly defined in international law and the treaty obligations of PNG. The laws of PNG are clear in respect to employment conditions and the rights of workers who are members of industrial organisations. From the IUF’s perspective, Cargill’s management in PNG have flagrantly disregarded the trade union and human rights of the workers at Higaturu Oil Palm and are walking away from substantial liabilities owed to workers.

Given the serious nature of Cargill’s behaviour, the IUF will join with HOPPWU, its affiliate in PNG, in seeking justice and compensation. As part of this campaign on 29 April, the IUF registered a complaint with the US National Contact Point (NCP) regarding Cargill’s actions and how these have breached the OECD Guidelines on Multinational Enterprises (download letter to US NCP).