Do smallholders hold the key to sustainable palm oil?

Palm oil smallholders play an increasing role in deforestation and peat degradation. To make sustainable palm oil a reality, an industry is searching for ways to steer these farmers towards more responsible practices.

Palm oil smallholder farmer
Smallholder palm oil farmers are growing sources of deforestation in Indonesia. What can be done to encourage them to switch to sustainable farming? Image: Shutterstock

Palm oil is on a lot of people’s minds. With the world waking up to climate change and the media covering the social and environmental ills prevalent in the industry in greater depth, public awareness of these issues is growing, and the pressure on large companies to address them increasing.

But while reports of rainforest destruction wrought by large plantation firms continue to emerge, recent studies have also pointed to the role of smallholder farmers—oil palm growers who cultivate palm in an area not exceeding 25 hectares—as growing sources of environmental damage.

New data from a satellite monitoring system called Starling, for instance, indicates that rainforest loss in Indonesia is now mainly driven by smallholders nibbling at the edges of forests rather than by industrial-scale tree felling.

Consequently, the industry is now paying concerted attention to the challenges smallholders face in switching to sustainable palm oil, and the solutions that could help these farmers overcome them, says Anita Neville, vice president of corporate communications and sustainability relations at Golden Agri-Resources (GAR), the world’s second largest palm oil producer.

Poor farmers struggling to put food on the table are going to clear forests.

Anita Neville, vice president of corporate communications and sustainability relations, Golden Agri-Resources

The underlying cause of many obstacles smallholders face is poverty, Neville tells Eco-Business.

“Poor farmers struggling to put food on the table are going to clear forests. They are going to open up land and once one person starts doing it, it’s really easy for others to come in behind,” she notes.

Helen Nesadurai, professor of international political economy at Monash University Malaysia, says that poverty negatively impacts smallholders’ productivity and ability to meet minimal sustainability standards because, with few resources at their disposal, these farmers lack the means to buy high-quality seeds and fertiliser.

It is among independent smallholders not linked to a corporate schemes that these barriers are particularly pronounced, while scheme smallholders receive financial support, farming advice and market access, Nesadurai notes.

Not only have such constraints resulted in farmers lacking agricultural know-how and concern for sustainability, but also in markedly lower yields than commercial plantations, which reduces smallholders’ incomes and is therefore a major driver of expansion into forests and peatlands.

Finance is key

Besides inefficient farming techniques, low productivity largely stems from underperforming and ageing oil palms, making replanting one of the most pressing sustainability issues for smallholders, and one that is costly to resolve, a study by the Center for International Forestry Research has found.

Without access to loans, Nesadurai explains, smallholders are reluctant to replant oil palms after their 25–year maturity period, which is when yields start declining, resulting in a steady drop in productivity.

Small-scale growers, however, rarely have access to finance due to ambiguous land ownership status, and the high risk involved in lending to individual farmers, GAR’s Neville shares.

Many independent smallholders lack legal title to land in Indonesia, while factors such as low income and unfavourable debt repayment history further increase the probability of their defaulting on credit obligations, she notes, adding that government intervention is needed to resolve the issue of land titling.

To mitigate risks, commercial banks often charge high interest rates smallholders cannot afford and require that farmers be organised into cooperatives, Neville says.

But attempts to aggregate them into groups and efforts made by plantation firms to support them through plasma schemes are often hampered by farmers’ fear of being tied to a big company, she shares.

Such circumstances are aggravated by a track record of failure of cooperative structures in Indonesia, stemming from weak leadership and low administrative capacity, while rigid arrangements that limit farmers’ decision-making have often made plasma schemes unattractive.

“Independent smallholders are independent for a reason,” Neville says. “They don’t want to be attached to big companies. They want the sense of being in control of their own destiny.”

“We talk about them as if they are not, but they are small business people. It would be like a corner shop owner being told that they have to be part of a big supermarket chain,” she shares.

Education would encourage consumers to make more informed and well-rounded purchasing decisions that take into account not just cost, but also the environmental impact of production.

Rubens Marques, president director, Louis Dreyfus Indonesia

Support mechanisms need to respect such sentiment, while the financial sector must design financial products better suited to smallholders, delivering long-term loans at affordable rates and in more flexible and decentralised ways, for instance, through technology like digital wallets, she says.

One solution that seeks to accommodate smallholders’ needs is the RSPO Smallholder Engagement Platform, which aims to connect them with potential project partners and provides access to resources, says Ashwin Selvaraj, head of the smallholder programme at the Roundtable on Sustainable Palm Oil (RSPO) – the most widespread certification standard for sustainably sourced palm oil.

“The platform allows smallholder groups seeking support to share the details of their project, and for facilitators and market players to directly connect with and assist them,” he shares.

But the process of identifying and engaging with these facilitators, and insufficient commitment on the side of market players, mean that it is hard to make the platform work, he says.

Eliminating poor farming practices

Just as important as finance is implementing a system of support that educates farmers on the benefits of better farming practices and enables them to adopt such techniques, shares Ruben Marques, president-director at Louis Dreyfus Company Indonesia, a large agribusiness firm.

Various companies—including consumer goods giants and plantation firms—have implemented such programmes that offer farming advice services or financial support, or a combination thereof, to help smallholders run their farms more productively, while eliminating the use of fire and harmful pesticides.

GAR has introduced a strategy to address the issue of replanting using financial mechanisms that combine a long-term loan and cost-of-living supplements for the initial production gap, while also providing market access and agricultural training, says Neville.

In addition, GAR’s fire-free village programme aims to render the practice of clearing forests with fire culturally unacceptable in rural communities through educational programmes, while making technology available that enables farmers to convert land using machinery instead of fire, she shares.

Another example is a programme designed by Procter & Gamble (P&G) that provides technical advisory support to achieve better farm operations management, which means harvesting optimisation, nutrient plans and budget management, says Girish Deshpande, P&G Global Business Planning, Sustainability.

But due to the sheer number of smallholders and their often-remote location, effectively reaching out to such farmers is difficult, shares Reza Azmi, executive director at Wild Asia, a Malaysian non-profit-organisation that works with smallholder farmers to address their environmental and social concerns.

“Sometimes, one glosses over the fact that this is a mass-media and educational challenge,” Azmi tells Eco-Business, but points out that better supply chain collaboration could help resolve this issue.

“Palm oil mills and their traders are in a very good position to play a leading role to guide and educate,” he observes. “We are missing a way to directly incentivise these mills to create meaningful programmes for their smallholders.”

Certification is the way forward

Increasing yields may put more money into farmers’ pockets, but to improve their livelihoods over the long term, the industry needs to connect them to certification schemes which enable them to receive the sustainability premium and secure steady access to high-quality seedlings, farming advice, finance and international markets, says RSPO’s Selvaraj.

What makes switching to sustainable palm oil challenging for smallholders is the time-consuming process of learning and implementing sustainable farming techniques, while travelling long distances to attend training sessions requires the commitment of additional resources and valuable time that smallholders could otherwise spend working in the field, shares Selvaraj.

However, Wild Asia’s Azmi shares that the greatest difficulty lies not so much in the adoption of sustainable production methods, but in the certification system itself, adding that the upfront costs for independent smallholder certification, including the necessary documents and audit requirements, can make it prohibitively expensive.

In a 2016 study, researchers from Wageningen University estimated that the upfront costs of certification for independent smallholders in Indonesia range from 5 to 14 per cent of farmers’ mean annual incomes.

In addition, certification schemes are often developed for large-scale agriculture, featuring criteria that are not relevant in the smallholder context, Azmi notes.

To promote greater smallholder inclusion, the RSPO has provided support through its Smallholder Support Fund (RSSF) and is developing a separate Independent Smallholder Standard and certification approach that considers the reality of their needs, while a new set of tools simplify the various assessments required to become certified, thereby significantly reducing the cost of compliance, says Selvaraj.

However, without direct cash income benefits, smallholder farmers are unlikely to switch to and maintain the consistency of sustainable farming techniques, says Selvaraj.

At present, only 62 per cent of certified palm oil is sold as sustainable, and receives a premium price in the marketplace, says Selvaraj. Such low uptake by corporate buyers could mute the interest of smallholder farmers to go sustainable, he adds.

“To get smallholders into a programme or certification scheme, there must be a market and farmers need to see that it is worth their money, time and effort. Operating sustainably does cost growers money and the return on that investment needs to be sufficient to really incentivise the change,” says Neville.

Consequently, the sector must develop solutions to improve market opportunities for sustainably sourced palm oil. Marques of Louis Dreyfus Indonesia says: “It would be good to see the growing emphasis and resources placed on sustainable palm production be balanced with greater efforts to educate consumers on this progress.”

He adds: “Education on the whole would encourage consumers to make more informed and well-rounded purchasing decisions that take into account not just cost, but also the environmental impact of production.”

But most importantly, end users must be prepared to pay the premium for certified sustainable palm oil, shares Neville.

“There are plenty of growers who would like to see all the sustainable palm oil that is grown under certification schemes sold as sustainable. So, this is a question for end users and ultimately consumers. What are you prepared to pay to ensure the food you eat is grown sustainably?” she says.

Smallholders, who already account for over 30 per cent of palm oil planted land in Indonesia and Malaysia, increase cultivation at a rapid rate, which is anticipated to make up 60 per cent of total oil palm planted area by 2030.

As a result, their adverse environmental impact will likely grow further, while industrial plantations and particularly the plantation multinationals have mostly cleaned up their act, says Nesadurai of Monash University Malaysia.

A major problem is that measures taken by governments and companies, including moratoria, no deforestation pledges and sustainability standards, are largely focussed on concession plantation owners and therefore often fail to adequately address smallholders’ challenges and environmental impacts, observes GAR’s Neville.

Should the sector rethink smallholder sustainability?

According to Azmi of Wild Asia, an obstacle to more small-scale growers going sustainable is also the industry’s perception of the farming techniques needed to do so.

“If we define smallholder sustainability not in the same light as large industrial plantations, then many of the so-called challenges are actually opportunities,” he says. 

He explains that smallholders could benefit from agricultural methods not used on industrial-scale plantations. Low-input, low output farming, for instance, reduces costs and may be far more profitable for smallholders than methods used by large plantations, while ground cover and composting improve soil fertility and increase the amount of groundwater available to crops, he shares.

In addition, increasing crop diversity could further improve soil health and yields, while also providing alternative income sources when smallholders face cash shortages during the initial production gap after replanting, he notes.

“Such farming practices could greatly benefit smallholders. From a commercial perspective, low cost and small-scale farming with multiple crops has more potential for serving a premium or niche market than simply being certified,” shares Azmi.

Did you find this article useful? Join the EB Circle!

Your support helps keep our journalism independent and our content free for everyone to read. Join our community here.

Most popular

Featured Events

Publish your event
leaf background pattern

Transforming Innovation for Sustainability Join the Ecosystem →