Why smallholders are crucial for a responsible sourcing strategy (even for the European Union)
By Carolyn Lim
Smallholders in Indonesia make up over 40% of oil palm planted areas and are an integral part of the Musim Mas Group’s supply base, directly and indirectly. Musim Mas leads Indonesia’s most extensive and innovative independent smallholders’ program. Over 40,700 smallholder farmers have been trained under this program, and they represent planted areas of over 78,300 hectares. Over 3,500 have achieved the Roundtable on Sustainable Palm Oil (RSPO) certification, and 1,600 have received the Indonesian Sustainable Palm Oil (ISPO) certification.
Here are three reasons why we will continue to source from smallholders to meet the triple bottom line of Planet, People, and Profit.
Planet: Smallholders Hold the Key to Stopping Deforestation
There is an estimated number of over 2.6 million oil palm smallholders in Indonesia as of 2022. This number is set to rise to 60% more smallholders by 2030. To make sustainable palm oil the norm, independent smallholders are a critical group that needs to be engaged. Independent smallholders have the potential for increased productivity and better sustainability impacts.
However, these smallholders face many barriers and challenges toward better productivity. Smallholders often lack access to quality planting material and technical advice and find it difficult to secure loans.
Smallholders facing lower yields might resort to clearing forests to increase their livelihoods. They may rely on slash-and-burn techniques, often the lowest-cost practice.
Musim Mas has developed and implemented programs to support independent oil palm smallholders since 2015. We assist them in adopting efficient farming techniques by bringing training to them, with modules covering good agricultural practices (GAP) and No Deforestation, No Peat, No Exploitation (NDPE).
People: Smallholders form the Backbone of Indonesia’s Development Agenda
According to the World Bank, around 43% of Indonesia’s population resides in rural areas, and nearly 29% of the Indonesian workforce works in the agricultural sector. Primary agricultural production accounted for 13.7% of GDP in 2020.
Around half of Indonesian farmers in the agricultural sector are smallholders – earning an average of US$3.2 per day and are vulnerable to climate and price shocks.
The Indonesian government estimates that the palm oil sector has lifted millions out of poverty thanks to industry growth over the last three decades.
Today, palm oil represents roughly 14% of Indonesian exports, mostly made of refined and processed palm products, making it the second largest export from the archipelago nation.
Growing oil palms and harvesting their fruits provides a significant source of income for around 3 million smallholder farmers who depend partly or solely on palm oil for their livelihoods. Oil palms can be harvested year-round, so their cultivation provides families with a steady source of income.
Profit: Smallholders are the key to the future growth of the palm oil industry
Smallholder farms provide a large proportion of the food supply in developing economies, and they have to be part of any solution for achieving the higher food production required to feed the world’s projected 2050 population of nearly 10 billion people.
With limited land expansion for new oil palm plantings, increasing smallholder yields is essential for increasing the total production of palm oil.
Additionally, two or three decades after their establishment, many smallholder oil palm farms will require replanting soon. Replanting offers a unique opportunity to redesign farms, close yield gaps, and secure livelihoods without sacrificing more forest.
Providing opportunities for improved incomes, industrial development, and, ultimately, resilience, palm oil is integral to the economic development of Indonesia.
Smallholders are an integral part of any responsible sourcing strategy, given the long-term opportunities that smallholders present to the triple bottom line.
Regulations should aim at supporting and integrating them as a priority. Regulatory changes such as the European Union Deforestation Regulation (EUDR) should be designed with a long-term view. While the EUDR might exclude deforestation from the EU market in the short term, it will not stop deforestation or create the conditions for a durable development pathway for small farmers. Smallholders face the burden of proof as they cannot meet the rigorous traceability and legality requirements. They will most likely be excluded from the EU market.
Certification schemes such as RSPO and ISPO have prepared a better future for oil palm farmers. The EUDR needs to recognize and build upon the work of the RSPO and ISPO. Musim Mas believes that recognizing the existing standards of the RSPO will be more impactful in encouraging the uptake of sustainable palm oil production. Incentivizing the uptake of RSPO certification among smallholders will contribute to halting deforestation. Since the smallholder program started, the Group has been onboarding independent smallholders for the certifications.
Over the years, Musim Mas has gone beyond training smallholders directly to include landscape-based collaborations. Musim Mas’ six Smallholder Hubs unite smallholders, palm oil dealers and refiners, off-takers, governments, and civil society to consider sustainable land use across broad landscapes. Musim Mas will continue to invest in farmers, as it is the right thing to do for long-term sustainability and profitability.