The importance of smallholders in the palm oil sector is often misunderstood or overlooked, especially when it comes to their role in improving the sustainability of the industry. Sustainability criteria, including the ESG standards, are used by palm oil companies for complying to international requirements and increasing economic benefits, but the reported scores are rarely a reflection of the local reality (Moohan-Sidhu, 2018; Thoumi, 2018).

Smallholders, as defined by the RSPO, are farmers growing palm in small plantations with an area below 50 ha where the family provides most of the labor. These family farms manage 40% of the global palm oil production area, a percentage which will continue to expand due to companies facing increasing barriers for opening new large tracts of land (Jeezer et al., 2019). Independent smallholders, as opposed to those under a scheme, are the most neglected in the sector. They have more difficulty accessing financial resources and produce around 20% lower yields than company plantations (Jelsma et al., 2019). Independent farmers represent a large portion of all smallholder area—for example, in Indonesia more than half of these area, 2.54 million ha, corresponds to independent smallholders. 

Including smallholders in the palm oil supply chain and addressing their state of exclusion is crucial for attaining environmental and social results. Despite some attempts to promote the adoption of standards among small producers only a low number of independent smallholders have been certified (Sagar et al. 2019). In Indonesia, only 1% hold a RSPO or ISPO certification (WRI, 2018). Other efforts led by palm oil companies which claim sustainability objectives, such as the Indonesia Palm Oil Development for Smallholders program implemented by Musim Mas, are focused on improving the productivity and traceability of smallholders along the supply chain. However, these ultimately end up benefitting companies but having little environmental impact. These initiatives do not show clear results in terms of avoided deforestation nor accountability for the distribution of premia returns to local communities.

Including smallholders and reducing the barriers they face are crucial for attaining credible and measurable sustainability results at a significant scale. While increasing the equity of the palm oil supply chain will create its own set of challenges, such addressing the complex traceability, accessibility, and layered sourcing system, ultimately it is worth the effort.

By Sandra CHIRI, 16 Nov 2020