Smallholders' big impact

“This planet and the environment is what our children will inherit from us,” he says when met by The Edge Singapore at his 8ha oil palm plantation in the village of Sukorejo in Central Kalimantan.

Agung is also deeply aware of the furore surrounding the ruby-red fruit growing on his oil palm trees. Palm oil is cheap, and the low prices have in turn fuelled demand and yet given the industry little incentive to become sustainable. Commodity companies that cultivate the crop have been accused of destroying rainforests and animal habitats when clearing land for plantations, as they embarked on aggressive expansion programmes in a bid to keep up with demand and capitalise on the boom in commodity prices.

Palm oil is the world’s most traded vegetable oil, and global consumption is expected to reach 240 million tonnes in 2050. A myriad of processed food items and consumer products such as soap and cosmetics have some derivative of palm oil in them. Between 1995 and 2015, annual production of palm oil quadrupled from 15.2 million tonnes to 62.6 million tonnes. Of that, about 85% comes from Indonesia and Malaysia, with the former being the largest producer of palm oil in the world. In Indonesia, oil palm plantations owned and farmed by smallholders such as Agung account for 40% of total oil palm plantation land and they produce 35% of total crude palm oil, according to Daemeter Consulting.

But the tide is turning against palm oil, as awareness of sustainability spreads and pressure mounts to do more to address the industry’s shortcomings. In March, the European Union (EU) decided to limit the types of ­biofuels from palm oil that can be counted as renewable energy, prompting protests from both Malaysia and Indonesia. Late last year, British supermarket chain Iceland Foods said it would cease using palm oil in all its own-brand products. It also released an advertisement about deforestation, told from the perspective of a displaced orangutan and a little girl. It was later banned for being “too political”, but went viral worldwide, generating heated discussions around palm oil.

To be sure, engaging public opinion can be effective when pushing for change. Top buyers of palm oil — consumer product manufacturers such as Nestlé and Unilever — have pledged to buy only sustainably produced palm oil. Yet, only half of so-called green palm oil, priced at a premium that takes into account the costs associated with certification, is sold. The rest is offloaded into a common pool of palm oil from uncertified sources.

Boycotts, however, do not make palm oil sustainable. What is needed are concrete efforts that enable the industry — particularly the significant part of it that comprises smallholders — to adopt sustainable farming and production practices.

Sustainability also takes into consideration crop yields and financial returns for farmers. Actual market demand for sustainable palm oil is still weak even after more than a decade of activism. Smallholders such as Agung rarely get the premium prices that certified palm oil is supposed to fetch, which would serve as a much-needed incentive for them to adopt sustainable farming practices to obtain certification.

Indeed, in interviews with several other smallholders like him, a pattern begins to emerge: Smallholders are trying to make a difference, but they have yet to see the returns, or any tangible reasons, for doing so.

Little incentive

Today, the certification of sustainable palm oil is done by various bodies, which have developed standards such as the Roundtable on Sustainable Palm Oil, Indonesian Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil. The RSPO is the most widely and globally accepted standard for palm oil certification, which is essentially a set of outcomes and criteria for ecological, environmental and social protections in palm oil production.

The RSPO said 13.6 million tonnes of certified sustainable palm oil were produced globally last year, accounting for 20% of global output. However, only an ­estimated half of this “green” palm oil is actually being sold at the premium it commands — it is estimated that it costs an additional US$8 to US$12 per tonne to certify palm oil as sustainable.

Consumers, too, are not buying into sustainable palm oil. According to the World Wildlife Fund, demand for Certified Sustainable Palm Oil in major consumers such as India, China, Malaysia and Indonesia remains low. Even in Europe, not all companies have adopted “ambitious, time-bound commitments to procure 100% CSPO”, though uptake from the EU is the highest globally, WWF’s global palm oil lead Elizabeth Clarke says.

If sustainable palm oil does not pay, why would farmers bother with it? This, in essence, is the fundamental stumbling block for making palm oil truly sustainable: Very often, it simply is not worth it for the farmers.

A report by the World Resources Institute quoted researchers from Wageningen University, who estimate that the upfront costs for independent smallholder certification — including all the necessary documents, training and audits — range from 16% to 39% of the farmers’ mean annual income. The annual cost of certification, including surveillance audits and membership fees, can reach up to 12% of annual income.

In Indonesia, local non-governmental organisation INOBU’s field coordinator for smallholder certification, Heni Martanila, tells The Edge Singapore that a smallholder has to spend IDR300 million ($28,609) to IDR400 million to get certified. “The cost of certification is paid by smallholders, including the costs to be audited both internally and externally, training and logistical costs. INOBU pays for the RSPO registration and membership fees,” she explains.

Without the help of NGOs, many farmers would find it difficult to comply with the RSPO criteria.

Two years ago, Agung began working with INOBU to get certified. It cost him a pretty penny, but he acknowledges that it was necessary to do so. “Obviously, we had to bear the initial capital ourselves; we understood that and followed the process for trainings and expenses incurred. We hope that investing in going green and getting certified will generate wins for us. We know we won’t gain anything if we don’t spend the money,” he says, referring to the co-operative of smallholders to which he belongs. The smallholders band together to deal with buyers to get a better deal, much like a union.

The process of certification takes time, but Agung says it is making a difference. The farmers get training in different planting methods, the use of non-toxic fertiliser and, overall, are able to manage their plantations more effectively. However, Agung has not seen an increase in his income, as prices of palm oil are still depressed following the commodities boom, with stockpiles remaining high.

The farmers’ incomes are dependent on global crude palm oil prices, yet they have little control over how much they receive.

Samsudin, a 40-year-old smallholder who has 1.6ha to his name, tells The Edge Singapore that he wishes for more transparency in how his palm oil is sold to private companies. He explains that the middlemen, who sold palm oil to the companies on behalf of smallholders, are now being made a part of the same co-op, in order to avoid tensions and conflict. Now, the middlemen act as “marketers” for the smallholders’ palm oil, and they get a cut too.

However, Samsudin says, there is another system in place that has made him and some co-op members uncomfortable. He explains that the produce from the ­co-op of smallholders is being sold via an online platform, which also lists their certifications. All the payments are made to the co-op’s bank account, which, says Samsudin, “arouses suspicions”, as he is not convinced the correct amounts of money are being given back to the individual smallholders.

“We want to try selling directly to the buyers through the manager of our co-op. Right now, this platform is not transparent,” he notes, adding that he would like more open negotiations between the buyer and the seller. This platform only adds to the difficulties of smallholders in getting back the money they spent trying to go green.

Separately, despite increased yield and cost savings, smallholder Siti Halimah, 29, says the money saved from the new processes that INOBU helped put in place is still not enough to cover the falling prices of palm oil.

“We used to pay about IDR10 million every four months for fertiliser. After implementing sustainable practices, we spend about IDR8 million, because we use less pesticides and use organic waste as additional fertiliser. The problem is, the price of oil palm fruit has fallen to about IDR500 per kilogram,” she says.

Still, these farmers are determined to carry on doing what is right. Samsudin says more and more farmers are asking to get involved every day. “The way I see it, the palm tree is our boss. If we don’t serve ‘him’ well, is it possible that our boss gives us something good in return? So, we need to give what the boss wants, to care for him. If we serve our boss well, he will return something good to us as well,” he explains.

Oil palm a scapegoat?

Professor Dodik Ridho Nurrochmat, vice-rector at the Bogor Agricultural University, agrees that the selling prices of sustainable palm oil are not as premium as they ought to be. “The premium price and the expensive processes, these have been issues for a long time. The difference in [the selling] price between CSPO and non-CSPO is only about 1%,” he points out.

Dodik, who has researched extensively into the issues regarding palm oil, says the vicious cycle of low prices brought on by unsustainable practices in turn leads to the perpetuation of bad practices, as sustainable palm oil production is not profitable for farmers.

He argues, however, that palm oil is being used as a scapegoat for deforestation. According to him, the total area of agricultural land in Indonesia is 40 million hectares, which make up 21% of the country’s total land area of 187 million hectares. Land used for oil palm plantations accounts for only 7% of total agricultural land in Indonesia.

“How can oil palm be responsible for deforestation if it makes up only about 12 million hectares of 125 million hectares of forests? Other countries have lost more forest cover for agricultural use than Indonesia,” he asserts. He points to the UK, where nearly 70% of the country’s land is used for agriculture. He believes there is a lack of understanding by the EU, Australia, the US and others.

“It’s crazy that every country is trying to push us around!” he says, adding that the issue was aggravated when the Palm Oil Free Certification Accreditation Programme was launched in Australia in 2017. In the one year since the programme was launched, it has declared 705 products from 18 countries free of palm oil. “The issue is not only about the environment, it is about pressure from other countries,” Dodik says.

Arya Hadir Darmawan, an associate professor of political ecology at Bogor Agricultural University, however, notes that there is a huge problem with illegal smallholder plantations in Indonesia. “Millions of hectares of oil palm exist within forest areas and areas marked for other use, and that is wrong. We have to be honest with ourselves that we do have a problem within our country,” he says. “But it is not easy to resolve long-standing issues with smallholders who, due to customary and cultural land claims, feel the land is rightly theirs.”

Based on satellite images, he has seen plantations spread like spots inside protected national parks, such as the Tesso Nilo Park in Riau province.

“We have found oil palm trees that are not planted legally, such as at the side of the road or near riverbanks. By regulation, land that is 150m from the river must be clear of crops. Our data shows that there are some 2.6 million hectares inside the forest and they belong to smallholders. Sometimes, they work for themselves, but there are also those who work for ‘agents’ with fat wallets who instigate the farmers to expand their land illegally. So, these smallholders are just puppets of the mastermind,” he says.

Breaking the vicious cycle

With prices of palm oil depressed owing to environmental, social and global pressure, how can the vicious cycle be broken? Bogor University’s Arya says there have always been two opposing and extreme views on oil palm.

“Those in the first group say oil palm is a disaster. They say the large scale of oil palm plantations disrupts ecology, biodiversity and leads to land rights abuses. These are the ecologists and environmentalists, who want more to be done to preserve forests and who are anti-oil palm,” he explains.

The second group thinks of the economic profit and opportunity from oil palm. To those in this utilitarian group, the national revenue generated by palm oil benefits the economy, and the taxes collected can be used to develop the country. “They think, so long as oil palm plantations are not illegally expanded into areas where they have no business to be, all is well,” he continues.

The conflicting views held by the environmentalists and economists mean neither one side can be satisfied with the action taken. “If we push for the economic argument, then ecology will be at risk, and if we take the side of ecology, our economy will be affected. We are struggling to look for a situation where everyone can win, and that is not easy,” he says.

Arya has been heavily involved in developing the ISPO, which he hopes can be the much-needed bridge between the ecological and economic interests. However, even with the ISPO, he is not sure the problems will go away.

“We can’t implement it because it will harm smallholders who cannot comply with the standard of sustainability. Also, one of the main principles of ISPO is land legality,” he adds. This point is contentious, owing to the lack of documentation among the small farmers.

“While President Joko Widodo has started to address this issue, for most of our smallholders, they don’t have an administrative process for land. The farmers just point from one tree to the next one as their land border, and other villagers will recognise it for generations,” says Arya. “But today, ISPO requires legal certification of land ownership. Imagine how much it will cost and how difficult it is for villagers to proceed with that certification.”

Still, INOBU’s Heni is optimistic. She says there are three core pillars to making a real change. “The first is the government. It needs to study what policies support sustainable palm oil. And if there is one, how does the government deliver it to the smallholders? Our job, as an NGO, is to disseminate the policy and the implementation of it to the smallholders.”

Heni also says companies that buy and use palm oil, such as Unilever and Nestlé, should do their bit in picking up the tab for ensuring sustainability. Certified green palm oil is being produced at their behest and comes at a premium that they should pay for. After all, they are part of the supply chain and ecosystem. “They are often focused on their own sustainable ­practices. We hope to make them understand that they should contribute,” she points out.

The final point, Heni says, is to change the mindset of the smallholders and their farming methods, as they are key in redeeming the industry from its terrible reputation. As Agung, the smallholder, acknowledges: “Who else will save the environment but us?”

Nita Roshita is an Indonesian journalist, environmental activist and blogger