Smallholders

Oil palm smallholders are farmers with less than 25 hectares of planted oil palm. On average, smallholders manage about 2 hectares per household. Traditionally, the family provides the majority of labor and grows other crops for subsistence1.

There are two types of smallholders: Scheme and Independent.

Scheme smallholders Independent smallholders
Bounded to a particular mill by contract or credit agreement
Autonomy to work with mill operator or agent of their choice
Receive supervision and training on planting, crop management techniques by mill managers
Access to schemes or assistance from government agencies, businesses or cooperatives High Low

As of 2015, smallholders in Indonesia hold approximately 40% of oil palm plantations – independent smallholders at 22.5% (2.54 million ha) and plasma or scheme smallholders at 17.7% (2 million ha). There is an estimated number of over 1 million smallholders in Indonesia2. Yet, only less than 1% of independent smallholders are certified by the Roundtable on Sustainable Palm Oil (RSPO) and Indonesia Sustainable Palm Oil (ISPO)3.

According to the Palm Oil Agribusiness Strategic Policy Initiative (PASPI), smallholders are set to manage 60% of Indonesia’s oil palm plantations by 2030. This means that smallholders are a substantial group that must be included in the journey to make sustainable palm oil the norm.

Read: Four reasons why smallholders are key to sustainable palm oil

1 RSPO Smallholders Definition. Roundtable on Sustainable Palm Oil (RSPO). Retrieved here.
2 Overview of Indonesian Oil Palm Smallholder Farmers. Daemeter, November 2015. Retrieved here.
3 Smallholder Farmers Are Key to Making the Palm Oil Industry Sustainable. World Resources Institute (WRI), March 2018. Retrieved here.

 

Independent smallholders are usually disadvantaged due to the lack of access to updated technical and operational knowledge, limited access to markets, and financial resources. The result is often lower yield productivity, profitability, and sustainability standards. Scheme smallholders, due to their business relations with companies, have access to technical knowledge and financial resources. This is covered under our KKPA (Kredit Koperasi Primer Anggota) scheme.

Research from International Finance Corporation, a member of the World Bank, shows that independent smallholder yield is 116% below company plantations in Indonesia. The research also highlighted the agricultural practices of smallholders and how it can be improved, such as the efficient use of fertilizers and optimal harvesting periods.

As smallholders depend on the forests and environment for their livelihood, it is essential to promote sustainable production of oil palm to ensure resilience and long-term economic growth.

What is the smallholder program?

Targeted at independent smallholders, our program aims to integrate independent oil palm smallholders into sustainable palm oil supply chains. Its curriculum is developed from a diagnostic study on smallholders and is developed around five components that would encourage smallholders to produce oil palm sustainably.

  • Yield

    Improve oil palm agricultural practices. Increase quality and yield. Increase income and improve livelihoods.

  • Market access

    Increase market access by enhancing communication between smallholders and mills. Improve access to agri-finance for fertilizers.

  • Replanting

    Support replacement and replanting efforts in the case of aging palm trees.

  • Legitimacy

    Confirm the legality of the smallholders’ land titles.

  • Alternate livelihoods

    Assist smallholders to generate alternative income.

The curriculum modules within components of the smallholder program are designed such that smallholders work towards NDPE policy compliance. The modules and components are geared towards improving the livelihoods of smallholders. It covers good agricultural practices, financial literacy, and personal nutrition. The figure below lists the modules taught in the smallholder program.

Improving independent smallholders’ access to finance empowers them towards better profitability, social cohesion, and environmental protection. To facilitate this process, Musim Mas financed a working paper by the Singapore Institute of International Affairs (SIIA) to explore the prospect of providing green financing to independent smallholders.

Read the full working paper here.

Smallholders form approximately 40% of our supply base. It is important for us to engage as many independent smallholders as possible.

To fully scale up smallholder programs, we developed a roadmap with three approaches (see Figure 1 below).

Figure 1: Scaling up Musim Mas’ smallholder program via three approaches

Indonesian Palm Oil Development for Smallholders program

Since 2015, Musim Mas has collaborated with the International Finance Corporation (IFC) to assist independent smallholders in North Sumatra and Riau to meet the same efficient farming standards as those adopted by large palm oil organizations.

The collaboration, dubbed the Indonesian Palm Oil Development for Smallholders program, provides smallholders with agronomic training, access to financial support and global markets, and education on legal requirements such as terminating paraquat use. See th above action for the main modules in the program curriculum.

As the largest independent smallholder program in Indonesia, the project aims to reach out to 20,000 smallholders by 2020 and build the capacity for 2,000 smallholders to achieve RSPO certification.

Our smallholder program takes into consideration Indonesia’s ethnic diversity and complexity, always ensuring that we maintain positive relationships with the village chiefs and community members. We offer quality training and assistance to help smallholders gain access to financial aid such as government subsidies, and certification programs.

Extension Services Program for Third-Party Suppliers

In 2017, we introduced the Extension Services Program (ESP) to extend our smallholder program to the independent smallholders of our third-party suppliers. The ESP was developed based on findings from risk assessments and mill questionnaires within priority landscapes.


Figure 2: Musim Mas’ Extension Services Program (ESP)

The curriculum of ESP mirrors our smallholder program in Approach 1. The ESP has a strong emphasis on good agricultural practices to assist independent smallholders in improving their yields within the specified districts.

ESP cements an active partnership with third-party supplier mills to produce palm oil sustainably and works towards NDPE compliance.

We aim to engage 5,000 smallholders by 2020 through ESP.

Smallholder Hub

As we scale up our smallholder program from our own mills to third-party suppliers’ mills, we recognize that a coordinated effort based on geographical area or district level is paramount. The Smallholder Hub is a platform where palm oil companies share their expertise and resources to train independent smallholders, regardless of whom they sell to, within a specific district.

We are in talks with NGOs to discuss how the Smallholder Hub can be integrated into their existing multi-stakeholder programs which involve the government and the private sector on a district level.

There are limitations to what one single company can do to address NDPE concerns. We are aware of the delicate balance between economic prosperity, developing the community, and conserving the environment. To make the Smallholder Hub a reality, we are working with stakeholders with common goals, such as the provincial government, government departments, buyers, NGOs and CSOs, growers, mills, consultants, and smallholders.

To date, we have established smallholder programs across Indonesia.

Independent smallholder program:

Province District Musim Mas’ Mill Mill Name Started In Smallholders Trained
Aceh Aceh Tamiang PT Pati Sari Apr-18 179
Central Kalimantan Karamuan PT Multipersada Gatramegah (MPG) Apr-19 74
South Sumatra Musi Bayuasin PT Bastian Olah Sawit (BOS) Dec-17 261
North Sumatra Rantau Prapat PT Siringo-ringo (SRR) Apr-15 5569
Riau Indragiri Hilir PT Guntung IdamanNusa (GIN) Dec-18 261
Riau Pelalawan PT Sinar Agro Raya (SAR) Oct-16 2708
Riau Roakn Hilir PT Bahana Nusa Interindo (BANI) Oct-16 3302
Riau Road Hulu PT Indomakmur Sawit Berjaya (ISB) Oct-16 4404

For progress on our scheme smallholders, refer here.

Scheme smallholders are structurally bound to a specific mill by contract or credit agreement. We provide them with planting materials such as seeds, fertilizers and pest control. We invest significant resources for them to adopt good agricultural practices. Schemed smallholders are generally guided and overseen by the management of the mill, estate or scheme to which they are linked.

We reach out to our scheme smallholders in two ways: through a smallholder cooperative which is an individual-based approach tailored to families that own a plantation; and through a village program, a community-based approach designed for villages that collectively manage plantations. Both programs were initiated voluntarily in the 1990s, well before the 2007 establishment of Indonesian regulations that require companies to facilitate the creation of plasma smallholder schemes for the benefit of surrounding communities.

Kredit Koperasi Primer Anggota

In 1996, we initiated a primary cooperative credit scheme called Kredit Koperasi Primer Anggota (KKPA) for smallholder family units who own two hectares of land or less. KKPA was first introduced in West Pasaman Regency in the Indonesian province of West Sumatra to empower local communities to achieve the necessary technology and skills to undertake palm oil cultivation. The scheme provides smallholders with practical support, including bank loan guarantees, agricultural training, and the transfer of quality seeds and fertilizers.

The smallholders under the KKPA scheme achieved compliance with the RSPO certification requirements in 2010. The KKPA in West Sumatra was the first smallholder scheme in Indonesia to receive the Indonesian National Interpretation of the RSPO P&C certification. These smallholders must now strictly adhere to RSPO standards, undertaking one main audit every five years and four annual surveillance assessments.

The KKPA scheme, which was launched with 762 smallholders, now comprises of 2,423 smallholders cultivating a total planted area of 4,625 hectares (as at 31 December 2017).

The KKPA scheme continues to increase productivity. The income of scheme smallholders has grown by 30-40% over the last few years, from just IDR 86 billion in 2015. This has reaped benefits for community development. For instance, the cooperative contributed to the construction of a mosque, a kindergarten, and an indoor sports center.

Village Development Program

In 2000, Musim Mas launched an outreach initiative for schemed smallholders known as the Village Development Program (VDP). Unlike our smallholder cooperative approach, which targets individual smallholder units, VDP is tailored for community-managed plantations. It is set up to promote economic independence and improve the welfare of communities in the surrounding areas by managing oil palm plantations while the land remains under their ownership.

Through VDP, Musim Mas facilitates funding and investment for oil palm development while providing the communities with technical guidance and training on oil palm cultivation. Once the oil palm enters its productive years, it is sold to Musim Mas, and the villages that own the plantation receive the proceeds from sales of FFB. These proceeds are used to cover operational costs and as installments towards investment costs.

We started out with four villages covering 12 hectares. We now work with 16 villages under the program.

As a result of VDP, the combined income of the villages has almost doubled over the last few years, totaling IDR 1 billion as of 2018.

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