Introduction to the Company
APRIL Group’s pulp and paper mill and plantation operations are primarily situated in Riau Province, Sumatra, Indonesia, where the company employs more than 5,400 people and manages 480,000 hectares of plantation alongside over 400,000 hectares of conservation and restoration forest. The company’s Kerinci-based mill produces up to 2.8 million metric tons of pulp and 1,150,000 metric tons of paper per year and exports to over 75 countries worldwide.
Asian Agri, a leading Asian palm oil producer, also operates in Riau Province. Like APRIL, it is independently managed as part of the Royal Golden Eagle (RGE) group of companies. Asian Agri operates 20 palm oil mills and currently manages 27 oil palm plantations across a total oil palm plantation area of 160,000 hectares.
Introduction to the Project
The Riau Province, where APRIL and Asian Agri have been operating since the 1980s, has a growing population and offers an abundance of natural resources and a developing economy centered on the oil, gas and agricultural sectors.
As one of the largest pulp and paper producers in Riau Province, APRIL’s contribution to gross regional domestic product (GRDP) alone grew from 1.99% in 2000 to 11.5% in 2012, while actively supporting local social and economic development. For example, APRIL has reached more than 200 entrepreneurs through community programs to foster local small- to medium-sized business development, creating a local business cluster that supports its operations.
To measure this contribution to Riau’s social and economic well-being, RGE engaged the Tanoto Foundation, a philanthropic organization founded by RGE’s chairman, to design and then commission a study to measure the impacts of APRIL’s and Asian Agri’s business activities in Riau Province between 1982 and 2012 at a regional and national level. The aim of the study is to measure and quantify the primary contributions to local economic development, household welfare, community lifestyle, and patterns of land use and its impact on poverty reduction in Riau Province.
One of the key drivers of the study was to establish and nurture relationships with local communities in order to maintain each company’s social license to operate. By acting on the results of the study, the company aims to further improve this business-enabling environment in the medium to long term.
The main stakeholder groups impacted by APRIL and Asian Agri’s business activities are identified (in order of importance) as:
- Communities surrounding APRIL and Asian Agri’s business operations
- Local government
- Local NGOs, such as those who work with APRIL and Asian Agri on its community-level fire prevention programs.
The aim of the study was to measure the economic impact of APRIL and Asian Agri’s business activities in the area where each company’s plantation and processing operations take place—an area that includes 784 villages and 1,050 households. The study was conducted in 2014-2015 and collected data relevant to the period between 1982 and 2012, covering the history of APRIL and Asian Agri’s operations. Going forward, APRIL and Asian Agri will use the results of this assessment as a baseline to measure the impact of specific community initiatives.
The primary audiences for the results are the local stakeholders (government, community support organizations (CSOs), universities, etc.) and RGE group stakeholders (APRIL and Asian Agri management).
A key aim of the project is to employ a strong, proven methodology to ensure credible results that can be used as a benchmark over time. To achieve this, the Demographic Institute of the University of Indonesia was engaged as it has in-depth knowledge of the study area and is widely experienced in economic impact assessment projects. Based on APRIL and Asian Agri’s brief, it was decided that quantitative data would be the most appropriate way to tell a straightforward and condensed story, supplemented by qualitative data. Other methodological aspects included:
- The economic impact indicators chosen were the contribution of the pulp and paper industry and the palm oil industry to Riau’s GRDP. To quantify and place a monetary value on this, the input-output (IO) method27 was used.
- Changes in land prices in the area have been used as a proxy indicator for the increase in household welfare. Land prices were found to be consistently higher in areas where APRIL and Asian Agri operate, as their operations drive other activities, such as the creation of infrastructure (both that funded by the companies and by the government, growth of markets, and other amenities) while rural areas become more urban through development. The hedonic pricing method28 was used to calculate the land prices, using tax object sales value data reported by the government as a proxy for land price.
- Survey questions were used to try to understand what specific components of household welfare have changed, leading to the overall land price increase (see extract from Household Questionnaire).
- Data was collected through a household survey, supplemented with qualitative data collected from focus group discussions over a period of six months.
The 30-year timeline for data collection posed some challenges as data had not been collected in the early years (around 1982) and was not available through the Office for National Statistics.
This challenge was overcome by surveying community members who had been in their community for 30 years (see extract from Household Questionnaire below). The “snowball method” was used to grow the group of respondents to the critical size needed, meaning asking each interviewee to nominate other interviewees until enough data was gathered to be useful for research.
It is clear that other factors beyond just the business activities of APRIL and Asian Agri will have contributed to the land price and welfare increases seen over the 30-year period. While the parties involved have not yet calculated an estimation of the businesses’ contribution to the change, the study includes some initial attribution indicators as a first step. Some examples include:
- Percentage of respondents who know the business;
- Percentage of respondents who have worked/are still working for the company or have income generating activities tied to the companies;
- Percentage of respondents who reported that the operations of the companies make it easier to meet their daily needs/to find jobs/to access education/to contribute to better roads and bridges;
- Percentage of respondents who reported that they lost their livelihoods due to the company’s operations/that there were conflicts between the company and the community;
- Percentage of respondents who perceived air or water pollution due to company wastes/sound pollution or damaged roads caused by company operations;
- Percentage of respondents who reported that they cannot get a job at the companies due to lack of skills.
In communicating the results of this study, the organizations carefully tailored the amount and type of information shared based on the communication needs of each audience group. For example, as management responds better to straightforward, quantitative data, the organizations condensed the final results into a much shorter version and supplemented it with some qualitative data. They shared a different version with local stakeholders.
The organizations outsourced the whole of the assessment to an academic institution with the right set of skills, resources and reputation to undertake the analysis. As APRIL and Asian Agri do not consider this to be a core business, they did not set up a process to ensure transfer of knowledge. However, the companies intend to build on the results of the study to conduct future assessments of community initiatives in order to understand how they can improve their corporate social responsibility activities and to build a more robust list of indicators.
The research findings have helped APRIL and Asian Agri measure their contributions to social and economic development in a scientific and systematic way. The process has been a positive one because in addition to gaining knowledge and insight, the direct engagement required for the social impact assessment (for example, through the household survey, interviews and focus group discussions) has led to improved relationships with the communities.
The results will help measure the impact of particular initiatives and identify areas for improvement and best practice delivery that might be shared. These will also inform the design and focus of existing and future community engagement as the region evolves and new challenges emerge. Going forward, APRIL and Asian Agri will also be looking at determining their overall contribution to the United Nations Sustainable Development Goals, mapping out how the impacts of their business activities contribute to relevant SDGs.