Smallholder are increasingly identified as important actors in the deforestation of forest and peatland in Indonesia, the world’s largest palm oil producer, and attempts to bring them into the fold of sustainability necessitated a multi-stakeholder engagement, the results of a research is showing.
The result of a research by international climate think tank Climate Focus and Meridian, a non-profit consultancy, unveiled this week showed that there had been a massive expansion of areas cultivated by smallholders in the last two decades. From less than 1.6 to 5.8 million hectares between 2001 and 2018.
Indonesian smallholders currently supply 38 percent of palm oil production, while covering nearly half of the country’s area of oil palm plantations.
“Engaging with this group of smallholders is thus a crucial part of efforts to build a sustainable palm oil sector in Indonesia,” Climate Focus said announcing the report on its website.
The research singled out the top five challenges to engaging smallholders in Indonesia.
The first was the lack of smallholder’s access to finance and technical support. This, the report said remained a key barrier to smallholder productivity, a major factor driving the expansion into forests. The second was the lack of tenure documentations and without them, smallholders could not access finance for intensification.
Third was the lack of organization capabilities among independent smallholders. Most efforts related to bringing sustainability among smallholders were targeted at groups of growers and not individuals, and weakness smallholder organizations hindered collective action to improve productivity and environmental practices.
The report said that companies also faced the challenge of establishing smallholder traceability and in helping them to comply with sustainability requirement
It pointed out that independent smallholders faced barriers and lacked incentives to join certification schemes. Most could not meet certification nor procurement sustainability standards of certain company due to the informality of the sector, poor production practices and a lack of access to the necessary financial support, training and inputs.
The research stressed that the palm oil supply chain in Indonesia was complex and the independent smallholder landscape was particularly diverse, encompassing farmers with different characteristics, levels of market integration, needs and capacities.
“So far, efforts to address deforestation have failed to reach smallholders at scale,” the report said, adding that “a single stakeholder group–whether a company, NGO or local government –cannot effectively engage with smallholders alone.”
Rather, each of these actors played a distinct role in the smallholder palm oil supply chain, roles which could be leveraged to facilitate more sustainable practices across smallholders.
Involving local governments was crucial since fundamental aspects, such as land registration and extension services related to smallholders, are managed by them.
“Given the complexity of the smallholder sector and its potential to alleviate poverty and improve livelihoods, collaboration is not only needed along the supply chain, but also across the whole sector,” the report said.
The research came out with specific recommendations for organizations working directly with smallholders, companies, governments and finance institutions, for integrating independent smallholders in sustainable and zero-deforestation supply chains.
For organizations working directly with smallholders, the recommendations included making it clear to smallholders the benefits of engaging with sustainable palm oil initiatives, such as access to markets.
They could also work to enhance the capacity and sustainability of farmer organizations to avoid dependence on external support. “This might include strengthening the governance and Standard Operating Protocols of organizations and assisting with internal control systems such as checks on deforestation,” it recommended.
Organizations could also help finance the costs of land registration and titling to enhance credit worthiness of independent smallholders to access finance. They could also help smallholders improve practices in both palm oil production and in the production of other agricultural commodities, and create opportunities for alternative sources of income for palm oil-dependent families.
For companies, the recommendations included that they collaborate with independent smallholders through long-term programs to support them to adopt sustainable practices, that they mobilize funding for field-level support and make longer-term buying commitments and support to independent smallholders.
Companies should also work directly with independent smallholders and not through agents, and provide increased prices to guarantee high quality supply or as a premium for certified supply.
They should also map their suppliers to help build fully traceable supply chains, and monitor commitments to ensure a system of accountability. Reporting regularly on their progress of engagement with smallholders and their use of existing guidance help to ensure inclusive and sustainable smallholder supply chains
“Companies can effectively engage smallholders in a mutually beneficial manner by providing benefits and positive incentives to smallholders, which can enable companies to fulfil their supply chain commitments and secure adequate volumes of responsibly produced commodities,” it said.
The recommendations for governments included strengthening the implementation of land use planning and ensuring better law enforcement and monitoring to reduce illegal expansion. Governments could also scale and create easier ways for land registration and legalizing of land status, as well as address land disputes and take remedial action.
Another recommendation for government was for them to assist with the collation of shared information on individual famers and their plantations, needed by banks for the provision of loans, prioritizing mapping and traceability of smallholders in priority, high risk, areas.
Government should also provide smallholders access to government finance while also creating loan guarantees for the repayment of loans of independent smallholders to boost lender confidence, and arranging easier requirements for smallholders to access CPO Fund.
They could also regulate due diligence and reporting for financial actors to steer finance away from unsustainable land use, target national budget processes to incentivize district support to smallholders.
Developing training centers and digital solutions like mobile phone applications to provide reliable information to smallholders on how to improve their farming practices, was also what government could and should do.
For finance institutions, the study recommended among others that they seek to understand the differentiated financial needs of independent smallholders for finance. They should also open the opportunity for blended finance and ensure that the financial structure for opportunities like CPO Fund can work.
It was also for finance institutions to provide loans and lowering interest rates to independent smallholders engaging in sustainability actions and also include support to smallholders as a condition for investment in the palm oil sector.