The Palm Scribe

Major Hurdles to Palm Oil Smallholders Certification

Global palm oil demands increase rapidly and are putting pressure on the Indonesian government to accelerate the certification of independent palm oil smallholders but a number of observers forewarn that the action will face two major hurdles related to funding and land tenure.

World Resource Institute Indonesia (WRI) Land Use Accountability Project Lead Bukti Bagja believes that the palm oil smallholders certification shows that a transformation is taking place, from “business-as-usual” to sustainable practices.

palm oil smallholders

Due to the high cost of the process, starting from administering legality aspect, providing training, institutionalization, the personnel and facilities needed, to auditing, the government definitely needs to intervene and play a role in helping out.

“The government’s role in heading to a permanent transformation, not a mere provisional or donor-driven one, is essential,” Bagja said.

The role includes synergizing funding from various sources such as Palm Oil Fund and other sectors to help the independent palm oil smallholders.

Besides that, the government also needs to revitalize regional institutions which assist independent palm oil smallholders to settle the legality aspect of the independent plantations’ land tenure and to continuously improve the regulatory framework so that there is more certainty on those matters.

According to Sawit Watch Campaigner Mario Saputra Sanuddin, lack of funding is the most important problem in the acceleration of palm oil smallholders certification.

“Funding is very significant in this matter. The government should prioritize capital provision for palm oil smallholders,” Maryo said, adding the fact that many smallholders in the palm oil sector have difficulties obtaining loans from banks.

Maryo further explained that smallholders need funds to be able to manage their plantation in a sustainable way and with good productivity. Even though they sometimes have collateral to offer, the existing regulations and the implementation are often too complicated, rigid, and make it difficult for palm oil smallholders to obtain credits.

Bagja said that the majority of independent palm oil smallholders do not have access to banking facilities.

“It is estimated that less than 20% of the smallholders work efficiently and have an output that may attract investors or banks. To boost productivity or to process certification, they need initial investment or upfront costs,” he told Palm Scribe.

The upfront cost may be covered by public funds or be included in financing schemes.

Maryo questions why the smallholders are not eligible for the microcredit program Kredit Usaha Rakyat (KUR) despite their huge contribution to Indonesia’s substantial economic growth,

Meanwhile, Indonesian Center for Environmental Laws (ICEL) researcher Isna Fatimah pointed out that the KUR implementation mechanism in the agriculture sector has actually been regulated under Agriculture Minister Regulation number 32/2016.

“On the other hand, financial service institutions need to be consistent in their sustainable financing implementation as mandated in the Law No. 32/2009 on Environmental Protection and Management and further elaborated in the Financial Service Authority (OJK) Regulation number 51/POJK.3/2017,” she said.

Agriculture Ministry, together with OJK, should be proactive to raise awareness that KUR is created to assist small-scale plantation farmers.

“It is as important to always involve Environment and Forestry Ministry as the mandate holder to coordinate the sustainable management of the environment and natural resources,” Fatimah added.

Forest Watch Indonesia Executive Director Soelthon Gussetya Nanggara believed that providing direct assistance in distributing high quality seeds, fertilizers, agriculture equipment, and tools as well as improving palm oil farmers’ capacity are better at alleviating the independent smallholders’ burden than providing direct financial assistance.

“Private sectors or financial institutions can provide capital assistance, with a guarantee in the form of harvest-sharing agreement, for example,” Nanggara said. He added that the government should offer a special certification for independent palm oil smallholders that does not require too much fund, both in the appraisal and its verification processes.

A mere declaration on the legality of a land tenure should be enough to get the certificate, and a mechanism with the principle touching the essence of sustainability is to be developed next.

According to Fatimah, access to funds is not a priority—plantation legality is. Legality issues of palm oil smallholders’ plantation of under 25 hectares should be addressed immediately.

Ministries, together with regional governments, may start registering plantations and issuing Plantation Business Registration Certificate (STD-B).

“After the registration, it would be much easier for the government to set its target of assistance and monitor it until the small-scale plantation farmers can meet ISPO requirements,” said Fatimah in regards to ISPO scheme in which the government has made mandatory for big palm oil producers and small farmers.

Maryo, however, has a different opinion. According to him, it is still too early for the government to prioritize independent palm oil smallholders certification. Assisting the farmers to increase productivity is considered more urgent.

“The independent smallholder’s productivity is still low. When the plantation productivity is increased then it is time to talk about certification,” Maryo said.

“The certification process is very complicated and needs not only many documents but also a substantial amount of time and funding. The farmers are already in difficulties in increasing the productivity and having to go through the certification process is just another burden added on them.

“Government is to be proactive in improving capacity with related stakeholders and intensively monitors them,” Fatimah said.

The government needs to set the standards and quality assurance so that the capacity building can answer the smallholders’ inefficiency problems.

Agreeing on the need for smallholder capacity building as part of the government’s efforts to accelerate the transformation, Bagja suggested the government lead the process by revitalizing the role of plantation advisors and collaborating with all stakeholders, including the private sectors.

All observers agreed on the importance of Non-Governmental Organizations’ role in the certification of the palm oil smallholders.

“So far, there have been some independent smallholders certificates issued, thanks to the collaboration between private sectors and NGOs or donors,” Bagja explained. NGOs play an important role in assisting the people and advocating changes in the management and regulatory framework.

According to Fatimah, NGOs which have flexible access to the community, policymakers, and experts need to be able to share responsibilities among themselves, depending on their capability and their organizations’ mandates.

Nanggara reminded the government to accurately define the category of independent smallholders before facilitating the certification process.

“I think the smallholders who deserve the convenience are the farmers that independently cultivate palm oil on their own land without outside help,” he said.

In contrast, plasma farmers are not categorized as independent smallholders as they have a company backing them up. They receive technical assistance and are able to access agricultural inputs. Plasma farmers are more likely to be able to get certification thanks to the partnership with the company.

Nanggara emphasized that priority should be given to independent smallholders regarding the clarity of their land status.

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