The Palm Scribe

Agents, Brokers and Potential Players in Mainstreaming Sustainability in Palm Oil Industry

ispo certification

As Indonesia steps up its drive to mainstream sustainability in the palm oil sector – currently the country’s largest source of non-oil and gas revenues and an important contributor to poverty eradication- the focus is now shifting towards smallholders who account for some 40 percent of oil palm areas.

It has now become accepted wisdom that assisting smallholders is key in making Indonesia’s palm oil more sustainable, especially since their role is expected to grow further in time.

But for millions of smallholders in Indonesia’s palm oil sector, agents/brokers are an integral part of their livelihood. More often than not, they are the immediate link between smallholders and buyers of their products, especially for independent planters who are far from any mill.

However, these agents/brokers have been ignored and are among the main stakeholders not to have been mobilized in the sustainability journey. Under existing palm oil sustainability schemes, they are under no obligation to get certified, and therefore even though they, along with companies, are the ones with direct access to farmers, they have been excluded from efforts to assure the sustainability of the entire palm oil supply chain.

This access and their understanding of the environment of both buyers and smallholders, placed them as an effective entry point to engaged farmers in the path to sustainability, drive supply chain transformation and also improve market access for sustainably-produced palm oil.

Narno, who heads the Amanah Association of Independent Palm Oil farmers in Riau province, said that agents who are already legally registered, can take part in the certification process, as well as involved beyond just buying and selling.

“These agents are under the obligation to provide guidance to the supplying farmers, in line with the principles and criteria in the certification process,” Narno told The Palm Scribe in an e-mail.

However, in the exercise of this role, they should also be facilitated by donor funding and also receive guidance from companies and non-governmental organizations. Corporations and NGO could assist in building capacity and support for their sustainability commitments, Narno further explained.

Meanwhile, Ermanto Fahamsyah, from the Forum for the Development of Sustainable Strategic Plantation, said that although agents and brokers, in theory, can and should be involved in works towards inclusion and progressive transformation, the implementation would be difficult.

“The reality is that it would be difficult. Even companies, which are under the obligation to provide these guidelines, are mostly not yet doing it well,” Fahamsyah said,

He said that these agents or brokers were a necessity in the current context in Indonesia’s palm oil sector.

Mostly cash-strapped smallholders needed the services of these brokers to get paid when they deliver their products. Companies usually take time, up to a few days, to process payments, something smallholders could not really afford.

With their small volumes of supply, especially in isolated areas, he said, were also dependent on these brokers. They shorten the supply transportation that would otherwise cost too much for the smallholders in getting a small amount a large distance to the mills.

Mills also benefited from these brokers, as they could provide supply in times of shortages as well as the intermediary services detailed earlier.

Fahamsyah said that issuing regulations requiring agents and brokers to play a role in spreading good agricultural practices would also be ineffective. Sustainability consistency was already hard enough to enforce.

Meanwhile, Kaoem Telapak, a non-governmental organization active in the field of environment, said in its website that in strengthening the sustainability system in the palm oil sector there is the need to identify all actors in the palm oil supply chain in Indonesia.

“So that this system can be effectively implemented, the scope of certification must cover all those actors. On top of that, various schemes for verification and facilitation of actors such as planters and brokers/collectors needed to be identified and formulated,” Kaoem Telapak said.

With agents or brokers playing such a substantial role in the palm oil supply chain in Indonesia, it would serve everyone in the industry if sustainability attributes should become an increasingly important aspect of the business models of these actors.

Because of their familiarity and access to smallholders, agents and traders could also help the government in a comprehensive effort of mapping these smallholders. They could be enlisted to seek the relevant data on smallholders whom they are in contact with.

Narno said that so far, he only knows of one agent, trading company UD Lestari in North Sumatra which has activities in the form of program or promotion of sustainable practices. UD Lestari, which has some 500 smallholders members, has received certification from the Roundtable on Sustainable Palm Oil (RSPO).

Indonesian smallholder oil palm farmers own and/or manage at least 40 percent of the country’s total oil palm planted area and generating an estimated 35 percent of total crude palm oil production nationwide. Palm oil supply from smallholders usually accounts for about around a third of most palm oil processing mills.

Smallholder farmers are present in all of Indonesia’s palm oil growing areas, with significant areas of smallholder-managed farms in at least 18 provinces.

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