Palm oil
Barometer
2022
The inclusion of smallholder farmers in the value chain
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining
trade middle men food & nonfood
processing
large companies oleo chemical company
retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
Primary production Oil extraction
Independent
mill
Intermediaries
Plantation
mill
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
Independent
smallholders
Large
plantations
Scheme
smallholders
Largest
plantations
Sime Darby
FGV Holdings
Golden Agri-Resources
Astra Agro Lestari
Bumitama
Kuala Lumpur Kepong
˜
70%
˜
20%
˜
10%
THE PALM OIL SUPPLY CHAIN
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining
trade middle men food & nonfood
processing
large companies oleo chemical company
retail
Refining/processing/
trade
Product manufacturing Retail
Consumption
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
stages
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining processing retail
˜
23%
˜
77%
Refineries
Trade
Bulk station/blenders
Biofuel
Non-food,
Food industry
and animal feed
smallholder
farmer groups
plantations
Indepent crush
plantation - crushing
PKO
CPO
Food industry
non food oleochemicals
agrifood
bulk stations
agri / primary production oil extraction refining
trade middle men food & nonfood
processing
large companies oleo chemical company
retail
Largest
refineries
Wilmar International
Musim Mas
Golden Agri-Resources
Royal Golden Eagle
Mewah International
Cargill
Largest
oleochemical companies
AAK
BASF
Clariant
Dupont
Evonik
Johnson&Johnson
Largest
FMCG companies
Unilever
Mondelez
Nestle
Ferrero
PepsiCo
Procter&Gamble
Largest
Grocery Retailers
Walmart
Schwarz Group
Kroger
Aldi
Costco
Carrefour
PREFACE — 3
Context — 5
INTRODUCTION — 5
SMALLHOLDER INCLUSIVENESS — 5
ABOUT THIS REPORT — 6
Market dynamics — 9
INTRODUCTION — 9
PRODUCTION — 9
TRADE — 12
CONSUMPTION — 13
Smallholder farmers — 17
INTRODUCTION — 17
OIL PALM SMALLHOLDERS — 17
ASIA — 18
LATIN AMERICA — 20
WEST AFRICA — 21
PROFITABILITY AND INCOME — 22
FAIR VALUE DISTRIBUTION — 25
Smallholder inclusivity — 29
INTRODUCTION — 29
CORPORATE TRANSPARENCY — 30
VOLUNTARY COMMITMENTS — 31
CERTIFIED SUSTAINABLE PALM OIL — 31
MULTI-STAKEHOLDER INITIATIVES — 31
MANDATORY REGULATIONS — 34
ACCOUNTABILITY — 36
Conclusion — 39
RECOMMENDATIONS — 41
SOURCES OF FIGURES — 44
LIST OF ABBREVIATIONS — 45
REFERENCES — 46
ENDNOTES — 54
COLOPHON — 56
Contents
Preface
At Solidaridad we envision a world in which all we produce and consume can sustain us,
while respecting the planet, each other and the next generations. The palm oil sector is
perfectly placed to deliver on this vision. The oil palm is a high-yielding crop grown by
millions of smallholder farmers in many countries across the tropics and, under the right
conditions, this crop can generate a living income while the farmers work in balance with
nature. However, all too often the conditions are not right. Smallholder voices are rarely
heard. They don’t feel ownership over their own futures. They receive too little in return for
their hard work, and are forced to take unfair financial risks. All these factors put limitations
on how great a force for positive change oil palm can be.
This report is written with the input of smallholder representatives from Asia, Africa and
Latin America. Through the experiences they share it becomes clear that market dynamics
have led to unfavorable prices and incomes for oil palm smallholders. While they struggle,
food and consumer goods manufacturers and retailers reap the profits in the supply chain.
In addition, we find that governments in consuming and producing countries do not fully
support smallholders to farm in the most sustainable way.
This first global Palm Oil Barometer opens the floor to all stakeholders. How can we reach a
fair value distribution if farmers’ voices are not heard? How do we ensure oil palm small-
holders are included in the global market? This report sets the stage for a lively discussion
that we hope contributes to feasible solutions that work for the smallholders who feed the
world.
Jeroen Douglas,
Executive Director of Solidaridad Network
This report is supported and co-signed by the following smallholders representatives:
Dr. Richard Mani Banda, President, Dayak Oil Palm Planters Association (DOPPA), Malaysia
Douglas Alau Tayan, Secretary General, Dayak National Congress (DNC), Malaysia
Firmus Valentinus, CEO, Keling Kumang Credit Union (CUKK), Indonesia
Dr. M. Edwin Syahputra Lubis, Head, Indonesian Oil Palm Research Institute (IOPRI), Indonesia
Mansuetus Darto, National General Secretary, Serikat Petani Kelapa Sawit (SPKS), Indonesia
Dr. Rino Afrino, Secretary General, Asosiasi Petani Kelapa Sawit Indonesia (APKASINDO), Indonesia
José Edas Mejía Betancourth, President of Board of Directors, National Federation of Palm Oil Smallholders
(FENAPALMAH), Honduras
Milton Alexis Hernandez Godoy, Agriculture Manager, Hondupalma-Paiguay Smallholders Association, Honduras
Jose Pascual Coello Castillo, Member of Board of Directors, Zitihuatl Cooperative, Mexico
Samuel Avaala Awonnea, President, Oil Palm Development Association of Ghana (OPDAG), Ghana
And experts:
Dr. Margaret Chan Kit Yok, Associate Professor, University Teknologi MARA, Malaysia
Jorge Cabra, Consultant, Expertagro SAS, Colombia
Rodolfo Guzmán, Freelance Consultant, Guatemala
Dr. Ir. Maja Slingerland, Associate Professor Plant Production Systems Group, Wageningen University and Research,
The Netherlands
INTRODUCTION
The prevailing image of palm oil today in Europe is that of a crop that devastates the earth,
transforming much of the world’s tropical forests into cookies, cosmetics and car fuel. Palm
oil figures prominently in the press as the crisis surrounding deforestation, biodiversity loss
and climate change builds. Often it illustrates a myriad of deeply divisive subjects, includ-
ing economic development, human rights, and environmental conservation (Meijaard and
Sheil, 2019; Qaim et al., 2020). Although the image of industrial scale companies operating
oil palms as a monoculture plantation crop holds true, a diverse base of more than three
million smallholders produce roughly 30 percent of global palm oil. The contribution of
smallholders in the overall supply of palm oil is expected to increase among others because
of the implementation of zero-deforestation commitments by the private sector. Govern-
mental moratoriums on large-scale oil palm plantation expansion are leading to increased
scrutiny on the growth of bigger estates (CIFOR, 2017).
For millions of smallholder families oil palm contributes to household wellbeing, food
security and rural livelihoods. Because it can be harvested year-round, it provides a steady
cash flow and is often regarded as the one crop that can help a family out of poverty within
a generation (Ayompe et al., 2021).As such, rural poverty alleviation, food security and eco-
nomic development are important arguments of government ministries, industry lobbies,
and companies to motivate the expansion of the oil palm sector.
However, the social and
environmental concernsof palm oil production include land conflicts, the loss of traditional
livelihoods and culture, large scale deforestation, decreasing biodiversity and intensified
carbon dioxide emissions from peatlands (Dauvergne, 2018; Qaim et al., 2020). By isolating
the environmental crisis from the much wider poverty crisis to which it is directly linked, it
is easy to overlook the smallholders’ challenges in growing oil palms sustainably (Azhar et
al., 2017).
SMALLHOLDER INCLUSIVENESS
The sector’s sustainability agenda tends to focus on large industrial plantations, maintaining
that voluntary sustainability standards and zero deforestation commitments are effective
ways to improve the sector’s governance (Grabs et al., 2021; Ten Kate et al., 2020). The main
private sector players also have their own measures in place; defining their own sourcing
criteria, making use of traceability systems or working directly with their suppliers, for
Context
example. Contributing specifically to the resilience of smallholder farmers is part of their
‘inclusive’ business approach and sustainability commitments. Through technical assistance
programmes these smallholders are integrated into the value chain and vertically linked
to large buyers.For farmers and their organisations, inclusion promises to bring higher
incomes, improved access to finance and services, and more equitable distribution of ben-
efits in the supply chain. Inclusion is also expected to have positive effects in environmental
sustainability, for example by promoting biodiversity conservation.
In reality, most ‘inclusive business’ schemes benefit a narrow minority of farmers who have
better access to capital, are more educated, closer to infrastructure, and strongly oriented
toward commercial agriculture (FIL, 2022; Ros-Tonen et al., 2019). In terms of actions to
support rural livelihoods and basic ecosystem services, this approach faces implementation
barriers. The underlying focus on continuous growth of production misses the point that
small farms cannot be thought of as large farms on a smaller scale. Small producers have
different needs, preferences and constraints, and their marginalization means that these
unique characteristics are often overlooked. Smallholders are unlikely to have the capacity to
meet demand for sustainable and deforestation-free palm oil production without consistent
support and incentives from procuring companies or governments (Saadun et al., 2018).
In general, smallholder engagement is a lengthy process that requires investment, planning
and long-term involvement of all stakeholders. While there are opportunities for small-scale
farmers to gain real benefits from sustainable oil palm production, the large number of het-
erogeneous farmers means that achieving this potential requires specific policy approaches
and financial support structures. There is the risk that poorly designed ‘inclusive’ business
activities and sustainable procurement policies will exclude many smallholder farmers by
default. For example, after two decades of Certified Sustainable Palm Oil (CSPO), only
70,000 hectares or 1.5 percent of Roundtable on Sustainable Palm Oil (RSPO) certified
land belongs to independent farmers who make their own management decisions (RSPO,
2022a). The EU proposal for a regulation to reduce deforestation embedded in tropical
products like palm oil, soy and beef, might hinder smallholder market access without ap-
propriate accompanying measures (Solidaridad, 2021). To complicate it further, the market
demand of sustainable palm oil in consuming countries is hindered by its invisibility as an
embedded ingredient in most products. Companies rarely communicate with consumers
about ethical sourcing, sustainability and certification to give them the assurance that they
use sustainable palm oil ingredients in the production process.
ABOUT THIS REPORT
This first edition of the Palm Oil Barometer explores the local, national and global dimen-
sions of the palm oil production system. It brings particular concerns to the surface around
the position of small-scale farming, highlighting the opportunities and challenges that the
development of sustainable palm oil chains presents to smallholders. In view of the chal-
lenges, we will examine the sector’s strategies for change, and individual and collective
efforts to create a truly smallholder-inclusive sector.
First, this report gives an overview of the palm oil market, where consumption and there-
fore demand is expected to increase. Against this backdrop we examine the role and posi-
tion of smallholders in the production of palm oil, by observing how the socioeconomic and
environmental aspects are intertwined in the main producing countries.
Second, the report questions the effectiveness of conventional sustainability interven-
tions aiming at upgrading smallholders into modern export markets. The narrow focus of
projects tends to overlook the diversity of smallholder livelihoods and denies the complex
tangle of economic, social and political factors. Price premiums, market access, and offers
of technical assistance are typically cited as incentives for producers to improve their
practices. However, the limited scope of these strategies appears unable to drive systemic
changes that are truly sustainable, inclusive and impactful at producer level, especially in the
demanding environment of unorganized smallholders in Africa, Asia and Latin America (see
box 2).Price volatility is another constraint, making it difficult to plan financially, which can
have big implications on monthly cash-flow streams (see figure 1). For example, despite the
considerable profit margins of embedded palm oil in consumer products, most smallholders
consider palm oil prices too low to make ends meet.
2
Finally, the report looks at the growing support for non-competitive sector collaboration,
blending public and private investments to address fundamental sustainability challenges at
an impactful scale. Several multi-stakeholder initiatives (MSIs) address the complex sustain-
ability challenges in the sector. These MSIs involve a wide range of stakeholders, including
NGOs, retailers, traders, processors and governments from consuming as well producing
countries. Such broad stakeholder initiatives come in many forms and formats, like the
Accountability Framework Initiative (AFI), the Palm Oil Collaboration Group (POCG) or
the RSPO. A better understanding of how smallholders’ interests are currently represent-
ed might help to go beyond top-down approaches and place oil palm smallholders at the
centre of strategies for change.
500
1000
1500
2000
2500
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Palm kernel oil
Palm oil
FIGURE PALM OIL PRICE AND PALM OIL KERNEL PRICE MEDIO
(US$/mt)
500
1000
1500
2000
2500
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Palm kernel oil
Palm oil
“ To succeed in the global fight
against the climate and biodiversity
crises we must take the responsibility
to act at home as well as abroad.
Our deforestation regulation
answers citizens’ calls to minimize
the European contribution to
deforestation and promote
sustainable consumption.”
Frans Timmermans,
Executive Vice-President for the European Green Deal.
European Commission (2021 November 17).
Market dynamics
INTRODUCTION
In the last two decades, oil palm expansion has taken place through different agribusiness
models, with a preference for medium and large-scale, monocrop plantations, which are
either state owned or private (Byerlee et al., 2017). These commercial plantations, that can
extend over tens of thousands of hectares, tend to be part of large ventures often owned
by multinational companies. The continuous expansion of large oil palm plantations has
received much attention as the public face of palm oil production. A recent example is the
controversial oil palm plantation project Tanah Merah in Papua, Indonesia. On the island
280,000 hectares of highly biodiverse rainforest is designated for conversion to palm oil
production plantations and infrastructure. The pieces are all in place to predict several det-
rimental effects, including displacement of indigenous people, deforestation and destruc-
tion of a global biodiversity hotspot (Earthsight, 2018; Gecko project and Mongabay, 2019).
Clearly, continuing with this business-as-usual approach to satisfy demand for palm oil is a
far cry from promoting development with optimal social and ecological results.
In this context, it’s important to realize that approximately three million oil palm smallhold-
ers produce fresh fruit bunches (FFB) that are processed into around a quarter to one third
of the total palm oil supply.
3
A widespread expectation is that, through market inclusion,
small producers can contribute to meeting the global demand for sustainable edible oils.
With the right incentives and support, smallholders can even prosper in the face of the
palm oil sector’s major challenges. To better understand their current and future position
we will look at the sector’s specific market dynamics in global production, consumption and
the drive for sustainability.
PRODUCTION
Palm oil is a vegetable oil that is extracted from the fruit of the oil palm, a perennial tree
crop. The palm bears fruit bunches that can be harvested year-round over a tree’s life
span of 25 years. Oil palm grows best in the lowland humid tropics of Asia, Africa and the
Americas and plantations range from small farming plots of a few hectares to agro-industri-
al estates that cover tens of thousands of hectares. An assessment of 2019/20 satellite data
has resulted in a detailed global oil palm map, which reveals a division between 73 percent
industrial and 27 percent smallholder plantations in terms of area (Descals et al., 2021).
4
Plantations are found in 49 countries and the total land dedicated to the crop covers an
INDIA
PAKISTAN CHINA
EU
6.850
THAILAND
MALAYSIA
USA
Import
Export
Own use
Unit = 1.000 MT
COLOMBIA
GUATEMALA HONDURAS
NIGERIA
PAPUA NEW GUINEA
INDONESIA
8.600
7.2003.550
300
685
17.220
3.370
2.427
584
1.200
810 600
1.625
550
1.765
15.445
29.500
FIGURE GLOBAL PRODUCTION AND CONSUMPTION 2021 (EXPORT/IMPORT/USE)
INDIA
PAKISTAN CHINA
EU
6.850
THAILAND
MALAYSIA
USA
Import
Export
Own use
Unit = 1.000 MT
COLOMBIA
GUATEMALA HONDURAS
NIGERIA
PAPUA NEW GUINEA
INDONESIA
8.600
7.2003.550
300
685
17.220
3.370
2.427
584
1.200
810 600
1.625
550
1.765
15.445
29.500
area of nearly 21 million hectares (Mha). The actual area under oil palm production could be
10–20 percent greater than the area detected from satellite imagery, because young planta-
tions (less than approximately three years old), open-canopy plantations or mixed-species
agroforests may have been omitted.
With 19 Mha, Southeast Asia has the largest area under
production, followed by South and Central America (1.4 Mha), Central and West Africa (1.0
Mha) the Pacific (0.14 Mha). The region with the highest percentage of smallholder oil palm
is West Africa with almost 70 percent of total plantings.
In 2021, Indonesia and Malaysia accounted for over 64 million of the 76.5 million metric
tonnes of global palm oil production (USDA FAS, 2021). When considering all production
regions, Southeast Asia represents 84 percent of total production, Africa is responsible for
four percent and Latin America for eight percent of the volume. In just 20 years production
has tripled. Global demand is on track to push production to 80 million metric tons by 2026,
compared to an annual average of 73,500 million metric tons produced between 2017-2021
(USDA FAS, 2021).
TRADE
In the movement from harvest to consumption, the oil palm’s fresh fruit bunches (FFBs)
are milled to derive the crude palm oil and further refined to producevegetable oil. This
needs to be done quickly, usually within 48 hours of harvest, as otherwise the fruit begins to
deteriorate and free fatty acids build up (Philips et al., 2022). Often there is an intermediary
or trader who organizes the transport, delivery orders, the contractual arrangement and
payments between the smallholder and the mill.
In Indonesia and African countries, smallholder access to mills is often hindered by poor
road infrastructure and/or long waiting lines at the mills. The price smallholders receive for
their FFBs depends on access to the mills and fair-trading practices (see paragraph 3.3).
At the palm oil mill, the FFBs undergo a threshing process, separating the fruits from the
bunch. The fruit has a unique feature: it contains two oils of strikingly different composition.
Both the flesh (known as mesocarp: 90 percent of the total oil) and the kernel can produce
oil. Crude palm oil (CPO) is a deep orange-red, semi-solid fluid, while palm kernel oil (PKO)
is a white-yellow oil extracted from the kernel (Murphy et al., 2021).
In Asia, the CPO and PKO oils are then transported by truck and boat to refineries, while
in Africa substantial volumes are used for artisanal processing and consumption without
refining (Rafflegeau et al., 2018). The refinery processes crude palm oil into household cook-
ing oil and other refined ingredients for clients in the food, industrial and fuel industries.
Refineries often source CPO from many different mills. For example, nearly 250 palm oil
mills and many smaller refineries supply the Wilmar refinery in Pelintung, Indonesia. It also
acts as a bulking station – a storage facility gathering truckloads of crude palm oil for bulk
transportation to its next stop on the supply chain (Philips et al., 2022). The industry leaders
include Wilmar International, Musim Mas, Mewah Group and Sime Darby. Many are vertically
integrated (from plantations to refinery) and own a large part of the processing and storing
facilities in most oil palm producing countries. They also engage in plantation manage-
ment, outgrower schemes, export and import of CPO, logistics, storage, risk management
and finance (Pirard et al., 2020; Rijk et al., 2021). Wilmar International, for instance, already
represents the handling of 40 percent of the global CPO trade. This volume is equivalent to
almost all palm oil production outside of Indonesia in 2021.
CONSUMPTION
About 75 percent of refined CPO is processed in the food industry. Palm oil-based products
might be used in the form of cooking oil, but often palm oil is embedded as an ingredient
in other products like margarine, chocolate, cookies and ice cream. Approximately half of
packaged food and personal hygiene products in a typical supermarket now contain palm
oil. Palm oil and its derivatives are also processed in non-food ingredients for the home
and personal care industry (for example, cosmetics, soaps and detergents) and industrial
inputs (oleochemicals, pharmaceutical) industry. Palm kernel oil is mainly used in the home
and personal care industry, and the palm kernel meal is absorbed in animal feed (Rijk et al.,
2021).
One growing use for palm oil is in the bioenergy market, where edible oils like palm oil and
its by-products are used as an alternative to fossil fuels. In 2020, 23 percent (17.5 million
MT) of the global production of palm oil was used in biodiesel – see figure 3 for a country
specific overview. Between 2021 and 2023 the EU has capped palm oil for transport fuel at
69% = 5.7 million MT (2020)
47.8% = 8.81 million MT (2021)
29% = 0.97 million MT (2021)
1.7% = 0.153 million MT (2021)
6.9% = 0.479 million MT (2021)
70% = 0.6 million MT (2020)
PALM OIL CONSUMPTION
% USED FOR BIOENERGY
EU
Indonesia
Malaysia
India
China
Colombia
FIGURE GLOBAL PALM OIL CONSUMPTION FOR BIOENERGY
Unit = 1,000 MT
the 2019 level per member state and is phasing out its use by 2030 over concerns that the
production contributes to global carbon emissions, exacerbating climate change (EC, 2019).
Several EU member states have set their own reduction trajectories that decrease palm oil
use sooner than the EU requires. Meanwhile, the demand for biofuels is growing in other
markets. Two other major export markets for biodiesel are China and India, while in Indone-
sia biofuels alone account for almost half of all domestic palm oil consumption (Rijk et al.,
2021).Biofuel usage targets promote the demand for palm oil and hence positively influence
palm oil prices.
5
For example, Indonesia has high biofuel usage targets to maximize domestic
use of palm oil and cut imports of oil. Its targets are 30 percent by 2020 and 40 percent by
2030 (CDP, 2021).
Palm oil demand will continue to grow particularly in Asia, partly because it’s cheaper than
other vegetable oils and is promoted as being healthier. The projection of global palm oil
demand shows an estimated growth between 0.8 and 2.8 percent a year (USDA FAS, 2022;
Worldbank, 2022). To meet the demand in the minimal scenario of 0.8 percent growth,
production has to rise to more than 94 million MT in 2030.
6
However, the expansion of oil
palm faces many challenges (Pirker et al., 2016). For instance, labor shortage has become a
structural issue, and large-scale renovation (replanting) is crucial to increase and maintain
productivity levels. In combination with zero deforestation commitments and governmental
moratoriums on large-scale plantations expansion the widespread expectation is that small-
holder farmers will play a growing role, not only to meet the global demand of palm oil, but
also as stewards of natural resources and biodiversity.
Calls for corporate responsibility and strict environmental policies have led to several public
and private efforts, in both consumer and producer countries. To improve the governance
of palm oil production various standards and policies have been developed, such as the
global RSPO. At national level there are sustainability standards too, like the Indonesian
Sustainable Palm Oil (ISPO) standard, the Malaysian Sustainable Palm Oil (MSPO) scheme,
the Indian Palm Oil Sustainability Framework (IPOS), and Sustainable Palm Oil (APSCO)
Colombia. Although these standards and certified sustainable palm oil have an important
role when it comes to working towards a more sustainable and inclusive palm oil supply
chain, there are legitimate critiques on the scope, effectiveness and enforcement of certifi-
cation standards and the scale of individual private sector initiatives (see chapter 4).
The demand for sustainable palm oil mainly comes from western markets, with Europe be-
ing the largest market for certified sustainable palm oil. Currently, this demand is met by the
production volumes of certified plantations. It is difficult for independent smallholders to
become certified. Direct benefits, like sustainable price premiums or access to new markets,
are limited by the extent to which international markets absorb the total volume of certified
palm oil. For instance, Europe represents only nine percent of the global palm oil market
(USDA FAS, 2022), of which 70 percent is used for bioenergy, which will be phased out by
2030 (IDH and EPOA, 2021). The major importing regions, collectively responsible for about
half of total palm oil imports, are the Indian subcontinent (India, Pakistan, Bangladesh) with
about 13.5 Mt, China with 7.1 Mt and the EU with 6.8 Mt (USDA FAS, 2021). So far these mar-
kets do not set sustainability requirements for the volumes they import.
In Europe and the USA the sector has become almost synonymous with deforestation
and biodiversity loss (Meijaard and Sheil, 2019). Consumer campaigns led by NGOs like
Friends of the Earth, Greenpeace and Global Witness have raised public awareness about
the negative impacts of oil palm production.
7
Consumer sentiment in western markets has
been turning against palm oil. This has led some retailers, manufacturers and consumers to
boycott palm oil. For example, the UK supermarket chain Iceland tried to eliminate palm oil
from its private label products or the Dutch margarine of Flower Farm branding its pro-
ducts palm oil-free (Southey, 2020).
Despite this, many academics and conservation organizations agree that banning palm oil
would simply shift the problem elsewhere, threatening other habitats and species. Instead
of a boycott, solutions for palm oil include the development of better governance and land
use planning, enforcement of labor laws, price remuneration for sustainable palm oil and
appropriate consumer communication.
“ Our lives improved a lot when
we started cultivating oil palm. My
daughter had the opportunity to
study in a private university,
I built my house, I’m much more
comfortable, and we have basic
utilities like water, drainage, even
cable – none of this would have been
possible if it weren’t for oil palm.”
Ana Villasis, a smallholder from
the Ucayali region, Peru, 2022.
Smallholder
farmers
INTRODUCTION
Meeting the growing demand for palm oil, while adhering to new zero deforestation
commitments
and the overall need to be more sustainable, will require a combination of
approaches, including increasing yields in existing production areas. Minimizing negative
outcomes of oil palm farming requires sustainable production methods that focus on
ecologically and socially sustainable development (Cadman et al., 2019; Meijaard et al. 2020).
In view of threats including climate change, poverty migration and food insecurity, it is par-
amount to support integrative approaches to rural development that put local people and
nature at the centre.
Hence, a good starting point would be to focus attention on the lands managed by small-
holders, to support poverty alleviation, food and nutrition security, resilience and livelihood
security. There are excellent examples of well-organized smallholders who produce compet-
itive yields in line with stringent sustainability standards. The higher the quality of the FFB,
the greater the quantity of crude oil that can be extracted from it. Improving the yield from
FFB is thus crucial for smallholders in getting a better income (Murphy et al., 2021).
Another income challenge smallholders face, although it varies from country to country,
is that most of them are poorly connected with market information and each other. This
makes it difficult for them to successfully compete with other actors in the value chain.
They often lack the time and the money to invest in improved practices to meet social and
environmental standards, which in addition may not be clearly communicated to them
(Grabs et al., 2021). Irrespective of the optimal strategy, replanting with high-yielding palms
or implementing land-sharing agroforestry techniques are challenging for smallholders
since they may not be able to access the improved plant varieties required to increase
yields (Khasanah et al., 2020; Khatun et al., 2020; Purwanto et al., 2020). In such situations,
provision of technical support from government agencies, companies and NGOs may help
smallholders choose intensification over clearing more land to increase the acreage of oil
palms.
OIL PALM SMALLHOLDERS
Smallholders are part of the global palm oil supply chain in a variety of ways, with signifi-
cant differences between countries. As global data on the number and size of smallholder
oil palm farms is not conclusive, it’s estimated that some three million smallholders are
involved in palm oil production worldwide and their numbers are increasing (Jezeer and Pa-
siecznik, 2019). There is great divergence between what is considered a small holding from
country to country. Oil palm smallholders follow a wide range of land use strategies and
models of social organization. Commonly, families operate as independent units and pursue
their own livelihood strategy with a combination of different production activities to gener-
ate household income (Jezeer and Pasiecznik, 2019). A typical oil palm land size is below five
hectares, despite the fact that the threshold for smallholder farmers is set at 25 hectares in
Indonesia and at 40 hectares in Malaysia (Pramudya et al., 2022; Mohd et al., 2021).
According to the most up-to-date scientific research (Descals et al., 2021), smallholder
farmers account for an estimated 27 percent of the total cultivated land area and between
25 and 30 percent of global production.
8
Large plantations often integrate smallholders
through outgrower schemes or rental agreements. These so-called scheme smallholders are
specialized in oil palm farming and rely on the plantation company for improved planting
stock, fertilization and training. The livelihood basis for the vast majority of independent
smallholders is diversified agricultural production, where the linkages between forest, farm
and land support human well-being and a range of ecosystem services (Jezeer et al., 2019).
These smallholders are developing their operations independently from the estates. They
organize themselves in farmer groups, in cooperatives and associations, to collect and sell
their FFBs to the mill that offers the best price. Or they depend on intermediaries for selling
their produce as well as for access to inputs and credit.
BOX SMALLHOLDER DEFINITION
The term oil palm smallholders or farmers often lacks a precise definition, but in
practice tends to refer to differences in size and level of reliance on family labor. The
farm provides the majority of income to the family, and in turn the family provides the
majority of labor on their farm (Jelsma, 2017).
9
This aligns with the RSPO’s definition:
Smallholders are those managing palm oil plantations of 50 hectares or less. They can
operate either independently or in collaboration with companies. In this definition, the
RSPO distinguishes two types of smallholders: scheme smallholders and independent
smallholders.
Scheme smallholders: do not have enforceable decision-making power on how they
operate their land and their production practices, and/or freedom to choose how they
use their land, the types of crops to plant, and how to manage them.
Independent smallholders: all other smallholders not classified as scheme smallhold-
ers. They have the freedom to choose how they use and manage their land including
the types of crops to plant.
Asia
The primary regions for oil palm farming in Indonesia are Sumatra and Kalimantan. The ma-
jority of smallholders are located in Sumatra, where the oil palm sector is well established
and plantations are mature. There are fewer smallholders in Kalimantan where industrial
plantations tend to dominate. In these areas, smallholders develop the lands in the gaps be-
tween larger oil palm concessions (Descals et al., 2021). Although the statistics detailing the
number of smallholders is limited, it’s estimated that there are 1.46 million smallholders en-
gaged in the Indonesian oil palm sector, controlling about 4.3 million hectares. About 25 per-
cent of these smallholders are tied to companies through different partnership schemes,
while 75 percent are independent, managing more than 3.1 million hectares (Rijk et al., 2021).
Unfortunately, the number of the smallholders who are members of functioning coopera-
tives remains unknown, as is the number of medium-scale landholders in production zones
(Pacheco, 2017). Despite the lack of reliable data, the Palm Oil Agribusiness Strategic Policy
Initiative (PAPSI) predicts that the area of Indonesian smallholder plantations will continue
to increase and account for around 60 percent of Indonesia’s oil palm plantation area by
2030 (Suhada et al., 2018). This is mainly because Asia will need much more vegetable oil
than present and large-scale plantations have already reached optimal productivity. The
level of scrutiny is huge (with or without any moratorium) for them to expand into forests.
In this scenario, growth is then automatically expected to come from smallholders (Gaveau
et al., 2022).
The palm oil industries of Southeast Asia are interconnected. Up until April 2020 as many
as 337,000 migrant workers (80 percent from Indonesia) worked on Malaysian plantations.
Thousands of them went home during the Covid-19 pandemic, with a steep drop in pro-
duction of palm oil. As a result, the oil palm yields dropped. Plantation owners are finding
it harder and more expensive to hire workers, leaving plantations well below full capacity
in the 2022 harvest season (Chu, 2022). Meanwhile, Malaysian and Singaporean companies,
either via direct investments or joint ventures with local companies, control more than two-
thirds of the total production of Indonesia’s palm oil (Pacheco, 2017).
While in Malaysia the peninsula is the historic centre, considerable oil palm expansion has
occurred in Sabah and Sarawak (Murphy et al., 2021). In the Malaysian model, the palm oil
sector is dominated by a dozen large conglomerates that are often vertically integrated and
operate plantations, mills and trade, down to the processing plants in consumer markets
like Europe, China and India. The mills have contracts with smallholders who are seen as
out-growers, and are managed through a range of contractual structures mediated by
government agencies or companies. Large-scale plantations owned by private companies
have a share of 61 percent, while 22 percent are under government schemes, half of which
belong to out-grower smallholders, and 17 percent owned by independent smallholders
(Mohd Hanafiah et al., 2021). There are roughly 300,000 smallholders (farmers who own
40 hectares of land or less), and of this group 260,350 are independent (Rahman, 2020). In
new oil palm zones and forest frontiers, the scheme smallholder model tends to dominate.
Under this model, the company obtains rights to develop the plantation on local communi-
ty lands, clears the area and develops the plantation. A major portion of these plantations
(80 percent) is often owned by the company while 20 percent is planted for smallholders
(Pacheco, 2017).
Thailand is the third largest producer of palm oil. Small farmers owning less than 8 hectares
comprise more than 90 percent of the one million planted hectares in southern Thailand.
Most of the production comes from 120,000 smallholders, while an additional 180,000
smallholders and their families support their household income with oil palm (EFECA,
2020). Most of the palm oil production in Thailand is used in domestic consumption and
biodiesel, with limited volumes for the export market.
In Papua New Guinea, oil palm is a very important export crop. This crop earned about 56
percent of the country’s total value of agricultural exports in 2020. By 2030, the Papua New
Guinea government aims to have 1.5 million hectares under oil palm cultivation, compared
to about 150,000 hectares in 2016 – this implies a ten-fold increase. Large areas of rainfor-
est are currently under concession by palm oil and pulpwood companies, contributing to
large scale deforestation and conflicts with indigenous communities. In terms of rural em-
ployment, this industry creates livelihoods for about 23,000 smallholders. Notably, oil palm
smallholders do not have ownership rights on the lands they operate. This tenurial right is
consistent with the country’s dominant land tenure system, popularly known as customary
land (Eliha and Michael, 2017).
Latin America
The Latin American region’s global market share has been gradually increasing. With a total
output of 4.6 million MT in 2020/21, this region is second to Asia in global palm oil provi-
sion. It has nearly doubled its oil palm area in the last decade, making it the fastest growing
producing region in the world (Furumo and Aide, 2017). The Latin American region con-
sumes on average 75 percent of its own palm oil production, with Europe being the most
important export market. Particularly in South America, palm oil production has often been
promoted by government subsidy programmes and development agencies to substitute
illicit crops in the region (Quiroz et al., 2021).
Oil palm expansion across the region shares two characteristics. First, large corporate
plantations play a significant role in palm oil production. And second, landless rural inhabi-
tants provide labor for oil palm farming. These workers include migrants from neighboring
regions, as in the case of Guatemala or Brazil or from neighboring countries, as in the case
of Guatemalan laborers in southern Mexico or Colombian workers in northern Ecuador
(Castellanos-Navarette et al., 2019).
Smallholders in Latin America, though fewer than in Asia, play an important role in the pro-
duction of palm oil, especially in Colombia, Ecuador and Honduras (Lesage et al., 2021). In
MALAYSIA
COLOMBIAEQUADORGHANA
PAPUA NEW GUINEA
INDONESIA
CÔTE D’IVOIRETHAILAND
1,460,000
300,000
300,000
23,000
6,400 4,800
31,000
20,000
HONDURAS
16,000
FIGURE OIL PALM SMALLHOLDERS PER COUNTRY
Colombia 480,000 hectares of land is under oil palm cultivation, an increase of 75 percent
during the last ten years. More than 80 percent of the 6,000+ producers are smallhold-
ers and the sector has 140 associations in which small, medium and large producers are
integrated (FEDEPALMA, 2022). Together they produce almost 1.6 million MT of palm oil.
Colombia is projected to produce two million MT of palm oil by 2030, increasing by around
25 percent in relation to current levels, with palm oil-based biodiesel as an important and
growing market (Kuepper et al. 2021). Guatemala’s oil palm cultivated area is approximately
180,000 hectares, having increased by about 130 percent over the last ten years. Officially,
there are only 235 oil palm growers in the country. Smallholders account for 55 percent,
while one third are medium-sized producers and 12 percent are large producers. In con-
trast, in Ecuador oil palm is cultivated by some 6,600 producers, of whom 96 percent are
smallholders with fewer than 50 hectares. In 2020/21 the country produced 540,000 tons, a
decline of 15 percent over the last five years due to the impact of bud rot disease (Kuepper
et al. 2021). Honduras produced 600,000 MT of palm oil in 2020/21. Approximately half the
oil palm area is cultivated by 16,000 smallholders with land sizes between five and 25 hect-
ares (Lagunes-Espinoza et al., 2022; Solidaridad Central America, 2022).
West Africa
Oil palm is a perennial crop native to Africa and there are some industrial operations and
plantations that have been active there for a long time. However, only recently oil palm in-
dustries are expanding in many of West Africa’s tropical countries with Nigeria, Ghana, Côte
d’Ivoire and Cameroon as the main producers (Paterson, 2021). In most countries oil palm
crops are used for local consumption, with Côte d’Ivoire and Cameroon as the only major
palm oil exporters (Murphy et al., 2021). Smallholders manage a far greater total land area
than industrial plantation producers, cultivating anywhere between one and 50 hectares of
land.
The available data on the number and size of oil palm producing plots is not conclusive and
accurate data on the number of smallholder farmers is even harder to find. In Ghana, there
are more than 20,000 smallholder oil palm farmers. Independent smallholder farmers play a
MALAYSIA
COLOMBIAEQUADORGHANA
PAPUA NEW GUINEA
INDONESIA
CÔTE D’IVOIRETHAILAND
1,460,000
300,000
300,000
23,000
6,400 4,800
31,000
20,000
HONDURAS
16,000
significant role, accounting for about 60-80 percent of production (Khatun et al., 2020).
In Côte d’Ivoire there are 44,900 oil palm growers, of whom about 70 percent are small-
holders (Guero et al., 2021).
The expectation is that palm oil production will accelerate across Africa (Feintrenie et al.,
2016). However, due to current socio-cultural, technical, political and ecological constraints,
only around one-tenth of the potential 51 million hectares in the four main producing coun-
tries in tropical Africa are likely to be profitably developed in the near future. Although this
might change as technological, financial and governance conditions improve.
PROFITABILITY AND INCOME
Many smallholders are attracted to growing oil palms for its greater yield and potentially
higher prices, as well as the fact that it can be harvested year-round, providing a steady
cash flow. Compared to other commodities like cocoa, coffee or tea, oil palm is seen as a
profitable crop and price is rarely the subject of public debate. It’s likely that this is linked to
the fact that palm oil is generally more profitable and that, in most cases, smallholders have
larger plots than their peers in other crops.
Multiple factors can influence a farms’ profitability, including its size, exchange rates, labor
costs, market access, fertilizer costs, or lack of access to capital and insurance.In addi-
tion, farmers’ revenue depends on the quantities they sell, the prices they receive and the
production costs. To receive a fair price for their FFBs, smallholders are often reliant on a
variety of conditions:
• The implementation of a pricing mechanism formula that’s often prescribed by local or
national governments.
• The world market price, as the price received by smallholders often relies on global
prices.
• Whether the buyer is selling to intermediaries or directly to the mill
• The state and availability of local infrastructure and transport logistics
• The number and capacity of mills that can be reached before the FFB starts to
deteriorate.
• The reliability and fairness of weighing scales and quality control procedures.
• The efficiency of the mill, as the price received by smallholders often relies on the Oil
Extraction Rate (OER).
Farmgate prices are influenced by the national pricing mechanism policies in Indonesia,
Malaysia, Côte d’Ivoire and India (Asante-Poku and Dzifa Torvikey, 2021).
10
From the per-
spective of smallholder inclusivity, it’s important to note that:
• If government authorities set the price for all transactions, it’s crucial that the informa-
tion is widely and freely available to all stakeholders.
• Fixed pricing formulas that include the world price for CPO risk the possible volatility
transmission from the world price to the local price. Most smallholders favor stable
prices that allow them to generate a living income throughout the year. Pricing mecha-
nisms should take into account the ability of smallholders to earn a living income.
Additionally, farmers are constantly facing rapid changes in the market. In May 2022, the In-
donesian government temporarily banned the export of palm oil. As a consequence of this
ban, larger companies could no longer export and storage capacity filled up, leading to mills
reducing production and limiting purchase from smallholders. Through these dynamics,
the volatile market prices squeeze smallholder margins that are already narrow (Llewellyn,
2022).
11
“ Before the ban, we would sell our palm fruit for 3,600
to 3,800 rupiah (USD 0.25 – USD 0.26)per kg. Now the
price has gone down to 2,210 rupiah (USD 0.15) per kg. […]
Farmers have been forced to accept lower and lower prices
for our palm fruit and, in addition to the price of fertilizer
rising, the price of pesticides has also doubled. We are now
losing money and not making any profit.”
Vincentius Haryono,
farmer of four hectares of oil palm, Jambi, Indonesia
“ Our hope is that the price will rise again, but there is a
limit to farmers’ patience, and they are not going to want
to harvest. It’s going to cause social problems if the ban
lasts much longer. How are people meant to pay for their
daily needs? How are they going to send their children to
school? How are they going to buy groceries? ”
Albertus Wawan, farmer of five
hectares of oil palm, West Kalimantan, Indonesia
Although the specific country context of palm oil pricing mechanisms plays a role in
smallholders’ income, it’s important to realize that palm oil is a buyer-driven chain. While
palm oil is increasingly lucrative, with a value of USD 282 billion in 2020, smallholders only
generate USD 17 billion, or six percent of the value in the entire chain (Rijk et al., 2021, see
figure 5). Smallholders lack the economicscaletogenerate the same profit margins as large
plantation companies, but data suggest that they generate the same price level per pro-
ducedmetric ton of CPO. With an extraction rate of CPO from FFB of approximately 20
percent, production per hectare can be 3.5 MT of CPO, making it approximately 10 MT of
CPO per smallholder. Consequently, with a palm oil price of USD 754 per MT (2020), the
average revenue for a smallholder is approximately USD 7,540 per year.
12
With a USD 7,540
per year revenue and an average household of 4.3 people, there’s a high chance of poverty
with this income level. Thus, the concept of ‘profit’ is not applicable to smallholders (Rijk et
al., 2021).Research in Malaysia illustrates this lack of profit margins, and similar patterns are
found in Mexico and Indonesia too:
Malaysia: smallholders consider low prices as a key issue, stating that the average FFB price
for the last 3.5 years hardly covers the cost of operations. This is also related to high input
costs, particularly agrochemical inputs and labor – due to a shortage of workers, small-
holders often have to pay workers higher rates than the commercial plantations. A typical
Malaysian oil palm smallholder has an annual income of USD 8,377 per hectare per year and
makes a net profit of USD 4,236 per hectare per year. The annual national living wage (2019)
for a Malaysian family is between USD 4,021 and USD 5,831. To reach this living wage, an oil
palm farmer in Malaysia needs around 1 to 1.4 hectares.
13
Mexico: a typical Mexican oil palm smallholder has a production area of five to seven
hectares, an annual income of USD 2,813 per hectare per year and makes a net profit of USD
989 per hectare per year. The annual national poverty line for a Mexican family is USD 5,124
and the living income for a rural family is USD 9,312. To reach above the family poverty line,
an oil palm farmer needs around 5.2 hectares. To make a living income, 9.4 hectares are
required. Based on palm oil income alone, this means that the typical farmer with five to
seven hectares under production can generate an income that’s above the national poverty
line, but insufficient to make a living income.
14
Indonesia, West Sulawesi: a 2021 study shows that in 2018, a year with low palm oil prices,
the average total net income from oil palm farming was USD 1,827 per farmer. Oil palm
farmers complemented their income with on-farm and off-farm activities to reach a total
household income of USD 2,129. The average household spending was USD 1,643. While
this might seem a profitable business case, it’s important to note that in the same year the
annual living wage for a typical Indonesian family was between USD 1,724 and 2,372. All sur-
veyed smallholders reported that low and unstable FFB price is a serious problem for them.
The researchers found that lack of management knowledge is another big problem faced by
smallholders, followed by herbicides and fertilizer scarcity.
15
“ It’s getting more and more difficult for farmers with
all these changes in the prices. Some feel as if 50 percent
of their livelihood has been lost as the prices of the fresh
fruit bunches have been slashed and, at the same time, the
prices of fertilizers and pesticides have risen by more than
100 percent.”
Valens Andi, head of the Farmers’ Hope Oil Palm Plantation Cooperative,
West Kalimantan, Indonesia
BOX SMALLHOLDER INCLUSIVENESS
To discuss inclusiveness in the palm oil supply chain, it’s helpful to specify the concept of
inclusivity in relation to smallholder farmers. Vermeulen and Cotula (2010) developed a
typology of smallholder-inclusive agribusiness models spanning the four dimensions of
inclusion; ownership, voice, risk, and reward. The operationalization of these different
aspects allows for an integral perspective on inclusiveness and a better understanding
of the actual conditions under which smallholders are included in business practices
(Schouten and Vellema, 2019).:
1. Ownership: deals with the question who owns what part of the business, and assets
such as land and processing facilities.
2. Voice: the ability of marginalized actors to influence key business decisions, including
weight in decision-making, arrangements for review and grievance, and mechanisms for
dealing with asymmetries in information access.
3. Risk: including commercial (i.e. production, supply and market) risks, but also wider
risks such as political and reputational ones.
4. Reward: the sharing of economic costs and benefits, including price setting and finance
arrangements.
To deliver on all four aspects of inclusive agribusiness, it’s crucial to be aware of the close
interlinkages. For instance, ownership can influence voice, voice in price-setting crucially
affects reward. Ownership influences risk, as a jointly owned business also involves shar-
ing of business risks.
Translating ideas of inclusiveness from scientific thought to the application in the palm oil
sector is not without its challenges. Therefore, we do not strictly follow the above oper-
ationalisation criteria in this report, instead we highlight interlinked elements like income
and value distribution, corporate transparency or participation in MSIs.
FAIR VALUE DISTRIBUTION
While smallholders are struggling to make ends meet, on the downstream end of the chain,
food manufacturers and consumer goods (FMCG) companies and retail manage to gener-
ate 66 percent of the gross profits on embedded palm oil. This is critical for understanding
the distribution of value in the palm oil chain. The focus to cut costs to optimize profits is in
sharp contrast with the individual companies’ sustainability commitments, as well as the glob-
al climate and UN’s Sustainable Development Goal agendas. The underlying concern is that
global palm oil buyers show little willingness to compensate producers for operating sustain-
ably, for example, by paying a premium price or investing in long-term trading relationships.
For instance, WWF highlights the complete lack of demand for certified sustainable palm oil
in the Asian market. This is due to complex challenges such as the persistent lack of transpar-
ency on the palm oil footprint of companies in the region, a low consumer awareness and the
absence of clear labelling of palm oil products (WWF, 2021). Ultimately, companies’ inclusive
business approaches should aim to ensure that smallholders are in a position to safeguard the
wellbeing and rights of the community and the environment (see Box 2). This would create
a more balanced relationship between producers, buyers and service providers. Therefore,
the business and corporate social responsibility perspectives are meant to be integrated, not
separate.
%
%
%
%
%
%
Smallholder
Plantations
Refineries
Oleochemicals
Large companies
Retail
6.1%
14.1%
23.2%
2.8%
24,3%
ADDED VALUE IN CHAIN
PROFIT
Smallholder Plantations Refineries Oleochemicals FMCG Retail
Profit
Smallholder
Plantations
Refineries
Oleochemicals
FMCG
Retail
29,5%
Smallholder farmers’ livelihoods depend on the use of land, forest, other natural resources,
their harvest and price levels. As seen from the above country overview, smallholders are
not a homogenous group. In most geographies, they range from subsistence farmers to
scheme growers and medium enterprise owners. Nevertheless, in their oil palm growing
practices all these small farmers must constantly consider multiple needs including diver-
sifying income, ensuring food security, and protecting cultural values (Jezeer and Pasiec-
znik, 2019). Given the entrepreneurial nature of agriculture, smallholders have to analyze
their options, manage risks and make their own decisions – even in the face of information
asymmetries and unfavorable policies. Naturally, their priorities might be summarized as
improved well-being, stability and creating better future perspectives.
While most smallholders have practical experiences and knowledge of the land, crops and
natural resources, there is a lack of knowledge and skills in processing, logistics and com-
mercialization (Prabowo, 2021; Santika et al., 2019). Mainly because of logistics and the need
to sell FFB within a short time post-harvest, farmers are strongly affiliated with a limited
number of mills or collection centres in their direct vicinity. Combining this with the lack
ADDED VALUE
FIGURE OVERVIEW PROFITABILITY IN THE PALM OIL VALUE CHAIN
%
%
%
%
%
%
Smallholder
Plantations
Refineries
Oleochemicals
Large companies
Retail
6.1%
14.1%
23.2%
2.8%
24,3%
ADDED VALUE IN CHAIN
PROFIT
Smallholder Plantations Refineries Oleochemicals FMCG Retail
Profit
Smallholder
Plantations
Refineries
Oleochemicals
FMCG
Retail
29,5%
of land tenure and access to affordable bank loans, it’s a constant challenge to invest in the
farm itself. Lack of finance, risk avoidance and securing livelihood sustenance are at the
centre of their decisions, which hinders the adoption of farm-level innovations, like better
farm management techniques or adhering to sustainability standards.
The difficulty for most smallholders is having to make livelihood choices while lacking
access to information about market demands, social and extension services, environmental
regulation, and the global market. All of this information is necessary to improve their pro-
ductive capacity and align with sustainability standards. A common issue for smallholders
cited by oil palm farmer organizations is a lack of financial resources. Typically, available cash
is invested in immediate consumption, or reserved for education or health care expens-
es.
16
A fairer value distribution across the palm oil value chain enables farmers to both
escape poverty and make an income that sustains their family’s livelihood.
Explanation: the embedded palm oil supply chain generates a total
value of USD 282 billion, USD 52 billion of gross profit, and USD 18 billion
of operating profit. Retailers generate the largest value (USD 83 billion)
in embedded palm oil. The FMCG sector generates the largest gross
profit at USD 20 billion and an operating profit of USD 6 billion. Although
smallholders generate USD 17 billion, which is six percent of the entire
chain, their share in profits is close to zero (Rijk et al., 2021).
PROFIT
“ The palm industry has really contributed to
the reduction of poverty in our country. But
once we passed the survival stage and started
to see some profits, we started to think that
there were many other factors that we had to
take into account.
Our production should be responsible and
environmentally friendly, we must treat
our workers properly, and maintain good
relationships with the communities around
us. We also realized that we needed to take
it one step further to be able to access other
markets around the world.”
Nelson Araya, General Manager of farmer
group Hondupalma, Honduras
Smallholder
inclusivity
INTRODUCTION
The majority of FMCGs have adopted sustainable palm oil sourcing policies, voluntari-
ly committing to social and environmental best practices, including RSPO certified palm
oil and no deforestation, no peat, no exploitation (NDPE) policies. Or they are pledging
zero-deforestation commitments. However, reaching zero deforestation and smallholder
inclusion are very different goals that must be pursued at the same time. Since FMCGs fre-
quently do not know who their smallholder-suppliers are, let alone where they are located
or what capabilities they have (or do not have) (Lake et al., 2020), it is difficult to deal with
increasingly demanding sustainability challenges. Interest and progress in legal interventions
is growing as a potential stronger mechanism for changing corporate practice. An example
is the upcoming EU-wide legislation on human rights and environmental due diligence in
global supply chains (Drost et al. 2022).
Currently, not all companies’ policies are effective and functional, nor do they reflect the
scale of investments required for the palm oil sector to make meaningful progress. Most oil
palm smallholders are poorly equipped to comply with sustainability standards (Kusuman-
ingtyas, 2019). And, without adequate support, they risk becoming increasingly alienated
from both domestic and global palm oil markets. Ideally, the combination of private sector
commitments, international trade policies, multi-stakeholder collaboration and financial
support are inclusive of smallholder producers. Otherwise these efforts will not halt defor-
estation. Instead they will fail to help these communities to finance the agricultural improve-
ments necessary to thrive (Pasiecznik and Savanije, 2017; Orbitas, 2020). It would be reason-
able to expect an active contribution from all involved to foster smallholder inclusiveness
(see Box 2) in any of these initiatives. By recognizing the need for increasing participation
and encouraging collective action from local people by building on their ideas, it is feasible
to go beyond a short-term technical assistance agenda.
CORPORATE TRANSPARENCY
Upstream the value chain, in the refinery segment only a few dozen refineries (processors/
traders) source from thousands of palm oil mills. These companies are relatively close to
the farmers and most of them are directly involved in the design and implementation of
training programmes to improve and protect economic, social and environmental condi-
tions at the beginning of the palm oil chain. Typically, FMCGs expect their first-tier suppliers
(traders and refiners) to comply with sustainability standards. In turn, they ask for compli-
ance from their suppliers (mills), who ideally ask the same from their suppliers (farmers).
In doing so, the industry claims palm oil can be grown sustainably, responsibly and con-
flict-free (Dauvergne, 2018). By positioning corporate investment, international trade and
industrial-scale production as vital for conservation, food security and rural development,
this industry-friendly narrative is directing criticism towards unsustainable production, with
smallholders in particular being blamed for practices such as deforestation (Austin et al.,
2019; Kusumaningtyas et al., 2019).
Figure 6 is based on information available on the SPOTT (Sustainable Palm Oil Transparency
Toolkit) online platform. It provides an overview of how the 10 main palm oil refineries, pro-
cessors or traders address smallholder issues in their operations.
17
This includes how they
incorporate smallholders into their commitments, disclose information on the smallholders
they source from, and provide details on the levels of support they provide to smallholders
in their supply chains (Dodson et al., 2019).
The combination of SPOTT results and companies’ own sustainability information shows
that companies vary significantly in the transparency and strength of their smallholder
farmer inclusion policies and reporting. If sustainable palm oil is to become the norm,
corporate commitments and sustainability reports give some insights, but the reporting is
rarely easy to compare (Spencer et al., 2019). Furthermore, the available evidence focuses
on policies, without any reference to the resulting change in impacts at farm level or in pur-
chasing practices. This lack of transparency inhibits third parties’ ability to assess the actual
impact of existing smallholder programmes. For example, geolocating production areas can
let companies identify potential risks, engage with suppliers, and measure progress. Ideally,
these geolocation data would include a level of transparency that identified the specific
boundaries of farms where oil palm fruit is harvested (Global Forest Watch, 2022).
18
In re-
ality, for most companies, tracing palm oil to independent smallholder source farms is very
complex, time-consuming, and costly (Sargent et al., 2020). An illustrative example is the
decision by confectionery and pet food producer Mars to limit the number of palm oil mills
in its supply chain from 1,500 to 50 in 2022 (Taylor, 2020). In this scenario smaller farmers
and suppliers could be left behind, continuing with bad practices and selling to global buy-
ers that do not have safeguards on forest protection. At the same time, Mars committed to
long-term contracts with suppliers who in turn work with a lower number of smallholders
in high-risk areas of its supply chain. This shows the balancing act of buyers: while some
smallholders might be left behind by a companies’ supply chain cleaning, others stand to
gain from a stronger relationship.
VOLUNTARY COMMITMENTS
Certified Sustainable Palm Oil
RSPO is the leading sustainable palm oil certification system. It covers a set of environmen-
tal and social criteria with which companies must comply to produce Certified Sustainable
Palm Oil (CSPO). It was created in 2004 with the goal of promoting the growth of the sus-
tainable palm oil sector through credible global standards and engagement of stakeholders.
Today the RSPO has over 5000 members, encompassing the entire supply chain, from oil
palm producers to investors. Only 19 percent of global palm oil production is RSPO certified
(RSPOa, 2022).
19
A major problem is that the RSPO is not yet sufficiently smallholder inclusive (Bitzer and
Steijn, 2019). At this stage the number of certified farmers is still low: only 162,500 small-
holders (22,338 independent and 140,162 scheme smallholders) are certified and produce
almost nine percent of the global CSPO volume (RSPO, 2022b). Scheme smallholders
(producing under contract with large palm oil companies) can be certified more easily,
but independent smallholders often lack organisation, land titles, and training on specific
management practices, which are important preconditions for certification (Pramudya et
al., 2022).
To improve smallholder inclusion into the RSPO system, among other measures, a specific
Independent Smallholder Standard (ISH) was adopted in November 2019 (RSPO, 2022b).
This standard lowers the burden to entry through a phased process for reaching and veri-
fying compliance. Despite many smallholder support programmes, uptake by smallholders
and medium-sized companies remains difficult (RSPO, 2022c). Of course, this strategy will
only succeed if the global market demand creates clear economic incentives for indepen-
dent smallholder producers, like price premiums or access to markets.
FMCGs and other companies can directly incentivize smallholders by purchasing RSPO
Credits via the online trading platform PalmTrace (RSPO, 2022d). From July 2020 to June
2021, 47 independent smallholder groups raised almost USD 3 million through RSPO Credits.
There’s a lot of room for growth, since only 64 tonnes or 0.1 percent of the global volume
is covered by ISH credits.
20
This support not only builds an end-to-end value chain but also
generates resources that can be invested in farmers’ businesses, benefitting the wider com-
munity (Prabowo, 2021).
Multi-stakeholder initiatives
Certification is just one aspect that can make palm oil production more sustainable – it’s not
sufficient to resolve all the sector’s pressing problems. This requires more collective action
of a wide range of stakeholders, including the private sector, governments, civil society
and farmer organizations. The most influential sector partnerships and MSIs are presented
in figure 7 and include the RSPO, the Consumer Goods Forum’s Forest Positive Coalition
(CGFFPC), the Palm Oil Collaboration Group (POCG) and the Accountability Framework
Initiative (AFI). A potential benefit of these partnerships is that they can help stakeholders
to better understand the challenges of others in the sector and identify opportunities to ac-
knowledge successes and share best practices via collaboration. Ideally, they reduce the sec-
tor’s fragmentation of sustainability efforts and enhance transparency and accountability.
SPOTT indicator
SPOTT
nr.
Wilmar
Musim
Mas
Apical
Group
HSA
Group
LDC
Sime
Darby
Cargill
Mewah
Group
IOI Group Bunge
Commitment to support smallholders
160
Programme to support scheme/plasma
smallholders
161
Percentage of scheme/plasma smallholders
involved in programme
162
Programme to support independent smallholders
163
Percentage of independent smallholders
outgrowers involved in programme
164
Process used to prioritise, assess and/or engage
suppliers on compliance with company’s policy
and/or legal requirements ESG
165
Number or percentage of suppliers assessed
and/or engaged on compliance with company
requirements ESG
166
We are making good progress in achieving
certification for our scheme smallholders
with about 31% of scheme smallholder areas
across Indonesia and Ghana RSPO-certified
at end 2020.
All six of the company’s sister companies commit
to support smallholders. However PT OSI is the
only company to disclose the nature of this com-
mitment. These commitments also do not
clearly cover all smallholders i.e. scheme/
plasma smallholders
We must do more to develop improved
metrics and reporting practices, encour-
age stakeholder collaboration, co-devel-
op and implement better and stronger
regulations, and bolster investment in-
centives. Musim Mas also recognizes the
urgent need to make progress against
our sustainability commitments across
our entire supply chain
We must do more to develop improved metrics and
reporLaunched the SMILE programme in October
2020 to help independent oil palm smallholders
in Indonesia to improve their yieldsing practices,
encourage stakeholder collaboration, co-develop
and implement better and stronger regulations, and
bolster investment incentives.
FIGURE OVERVIEW INDIVIDUAL COMPANY SPOTT CONTENT
SPOTT indicator
SPOTT
nr.
Wilmar
Musim
Mas
Apical
Group
HSA
Group
LDC
Sime
Darby
Cargill
Mewah
Group
IOI Group Bunge
Commitment to support smallholders
160
Programme to support scheme/plasma
smallholders
161
Percentage of scheme/plasma smallholders
involved in programme
162
Programme to support independent smallholders
163
Percentage of independent smallholders
outgrowers involved in programme
164
Process used to prioritise, assess and/or engage
suppliers on compliance with company’s policy
and/or legal requirements ESG
165
Number or percentage of suppliers assessed
and/or engaged on compliance with company
requirements ESG
166
The company reports to have a total of 61,719
smallholders in its entire supply chain across
Papua New Guinea, Indonesia and Malaysia, as
of 2020.
The company is hosting workshops and
educate its smallholders on the adoption of
sustainable agricultural practices in oil palm
cultivation.
The company states that
it has assisted outgrowers
for one of its mills achieve
MSPO certification, and
also provided fertiliser to
other smallholders, how-
ever clear numbers are
not reported.
The company reports to
have a smallholder pro-
gramme called ILHAM
with the aim to “boost
small farmers’ produc-
tivity by helping them
implement sustainable
agricultural practices.”
The company reports that in 2020,
40% of mills supplying to its refineries
participated in engagement work-
shops on how to use its self-declara-
tion tool to show compliance with its
policy.
The company reports in ACOP 2018 that “It has
a 2 year contract agreement with about 3,000
independent smallholders located in Ketapang to
receive their FFB crop”, but a percentage could
not be calculated as only an approximate figure is
reported.
SPOTT assesses 100 palm oil producers, processors and traders on their public disclosure of Environmental,
Social and Governance issues (ESG). Here we only highlight some examples of the 7 smallholder indicators.
For a complete overview of company performance visit the SPOTT benchmark website: Palm oil: ESG policy
transparency assessments - SPOTT.org
>> www.spott.org/palm-oil/
A key characteristic of MSIs is that (in theory) participants share decision-making respon-
sibilities. Thus, understanding who participates in the governance of an MSI is an essential
first step to understanding who has power within the initiative, in terms of both shaping
the initiative’s goals and leveraging its resources. Therefore, the involvement of smallholder
farmers is integral to an MSI’s legitimacy and its potential to have a positive impact on local
communities (MSI Integrity, 2017). Smallholders and their organizations are uniquely posi-
tioned to help an initiative build local trust and capacity around programme implementation
and to create true impact at community level. Farmers could also steer initiatives towards
addressing the issues of greatest importance to their communities. Or, they may help ad-
vance learning and dialogue within an initiative by directly engaging and providing feedback
to company representatives (MSI Integrity, 2020).
Despite the importance of including smallholders in decision making, there are not many
MSIs that actually do this. Of the different partnerships, only the RSPO has smallholders
represented in its executive board. The other initiatives should acknowledge local people’s
interests and agenda setting, too, to avoid developing top-down solutions. Clearly, we need
to pay more attention to how we can support smallholders in their capacity to make choic-
es in the face of new opportunities, shifting power structures and external sustainability
agendas. One of the greatest challenges is that smallholder palm oil growers themselves are
often not organized to represent their views in such MSIs. Nevertheless, even existing farm-
er organizations stress the fact that smallholders should have more influence in the palm
oil sector. The organizations particularly ask for support in their efforts to bring local voices
into the global debate in search for better informed policies and practices.
21
MANDATORY REGULATIONS
Increasingly, governments, civil society, companies, investors and business groups recognize
the need to complement voluntary approaches with regulations, in both consumer and
producing countries.In 2021, the European Commission launched a proposal to require op-
erators to ensure only deforestation-free products are put on the EU market in an attempt
to reduce the EU’s impact on global deforestation and forest degradation. On top of that
the European Commission presented a proposal in 2022 to require European companies
and those operating in the EU to undertake mandatory human rights and environmental
due diligence in their global operations and supply chains.
While these more stringent regulatory initiatives seek to address negative social and
environmental impacts, it’s important to be aware of their potential unintended effects.
A lesson from voluntary initiatives is that compliance with certification standards is easier
to arrange for bigger players. Smallholders are perceived as a risk, since it’s more difficult to
assure their compliance with regulations. Furthermore, economies of scale work in favor of
large companies, with respect to auditing costs, for example. As such, the costs of organiz-
ing compliance and minimizing risk at smallholder level are higher.
In various producer countries national sustainability standards have been developed. For in-
stance, Indonesia, Malaysia and Colombia have developed their own sustainability standards
and certification scheme for palm oil: Indonesian Sustainable Palm Oil (ISPO), Malaysian
Sustainable Palm Oil (MSPO) and Colombian National Sustainable Palm Oil Program (APS-
CO). This is also connected to the growing importance of South-South trade, which creates
Governance Reference to smallholder
inclusiveness
Roundtable on Sustain-
able Palm Oil (RSPO)
One seat allocated to smallholder
representation in the board
RSPO recognises the importance
of smallholders and the need for
improving smallholder inclusion
into the RSPO system
One of four Standing Committees
dedicated to smallholders’ inte-
rests
Consumer Goods
Forum’s Forest Positive
Coalition (CGFFPC)
Only CEOs of FMCGs and retail
companies, no specific role for
smallholder representatives
Smallholders need support to help
them to earn a living while protec-
ting forests
Retailers Palm Oil
(RPOG)
Only retail companies can become
members, no specific role for
smallholder representatives
We focus on positive environmen-
tal and social outcomes, including
supporting smallholder farmers
Palm Oil Collaboration
Group (POCG)
Brings together companies in the
palm oil supply chain, no specific
role for smallholder representa-
tives
The Production and Protection
Beyond Concessions working
group aims to support smallholder
production and forest protection
beyond concessions through iden-
tification of proactive interventi-
ons, action protocols and targeted
monitoring.
Accountability Frame-
work Initiative (AFI)
International coalition of civil
society organizations dedicated
to protecting forests, natural eco-
systems, and human rights: while
there is a private sector advisory
group there is no representation
of smallholder organisations in this
group.
The AFi aims to facilitate small-
holder inclusion in ethical supply
chains by clarifying how implemen-
tation and monitoring of commit-
ments can be adapted to smallhol-
der contexts.
FIGURE OVERVIEW MULTI-STAKEHOLDER INITIATIVES
new market opportunities for producers of agricultural commodities that are not subject to
the specific sustainability demands from European or American buyers (Schleifer and Sun,
2018).
Although ISPO, MSPO and APSCO are presented as an alternative to sustainability initiatives
that are perceived to be dominated by western perspectives, many of the implementation
challenges remain (Bakhtary et al., 2021). For instance, in Indonesia the latest revision of
ISPO obliges all big and small plantations to have ISPO certification by 2025. Data on ISPO’s
achievements from December 2020 indicated that only 17 smallholder cooperatives cover-
ing 12,809 hectares (or 0.19 percent of the total smallholder plantation area) were certified.
Failure to comply will risk independent smallholders being considered illegal (Pramudya et
al., 2022).
To ensure such regulatory frameworks don’t marginalize smallholders, it is important that
producing and consuming governments, as well as companies across the supply chain, pro-
vide specific support to meet requirements. This way smallholders are not just part of the
problem, they can also be an essential part of the solution to effectively halt deforestation
and forest degradation (Solidaridad et al., 2021). The EU could improve the relevance and
credibility of voluntary and mandatory standards by partnering and negotiating with local
stakeholders and providing support, thereby stimulating a robust sustainability framework
for palm oil production and consumption. The new Renewable Energy Directive II (EC, 2019)
shows how this can be done. It includes provisions to ensure palm oil used for biofuels is
not sourced from deforested areas or peatland, though smallholders with plantations of up
to two hectares are exempt. Joint efforts in such a partnership could also reduce percep-
tions of antagonistic positions, develop trust, and provide a mechanism that combines key
priorities of all countries involved (Roozen, 2019).
ACCOUNTABILITY
To date, individual company sustainability policies and collective initiatives have not been
able to significantly improve the position of smallholder farmers in the palm oil sector. For
example, the RSPO appears unable to reach smallholders at scale. And the challenging living
income and living wage question only recently started featuring the palm oil sector’s agenda
(Ichsan et al., 2021).
Whilst some companies are demonstrating that they are taking necessary steps to imple-
ment a comprehensive sustainability agenda, to become smallholder inclusive, the sector
as a whole needs to substantially improve its actions and investments with a lens on the
smallholder perspective. While global demand for palm is growing, only half of palm oil pro-
ducing companies are currently working with their suppliers to manage supply chain sus-
tainability risks. Overall, behind the SPOTT smallholder indicator scores, the actual activities
tend to focus on technical assistance and training and seem only able to reach a relatively
small minority of farmers. Without significant interventions that compensate for structural
disadvantages, it is debatable whether smallholders will be able to successfully compete and
become sustainable palm oil producers (see box 2, p25).
Clearly, individual companies and MSIs have to respond to the challenges, set the priorities
and ensure that they take action at the appropriate level. For instance, few of them look
specifically at the role and position of smallholders and their linkages with competitiveness
and long-term sustainability. However, the promise of a more collaborative, bottom-up
approach to tackle the problems is slowly gaining ground. When set up well and under
the right conditions, smallholders and their organizations could play a pivotal role in laying
sustainable foundations for the future of the palm oil sector. Solutions will not be the same
everywhere and probably have to be found in a combination of voluntary and mandatory
approaches.
“ I used to grow corn, but I never
had the results I have with palm. With
all my children, I was able to finance
part of their education with income
from my palm plantation. And now
I’m building a large house. That’s what
palm production has given to me.
Many people can benefit from palm.
It’s a win for the gas station, for the
driver, for the workers, and for the
smallholder.”
Cristobal Choc, smallholder farmer Guatemala
Conclusion
Assessed in economic terms, palm oil is an international success story. Looking at the
incredible growth of production and demand in the last two decades, achieving widespread
sustainability of palm oil is a significant challenge for companies, governments, growers and
processors. Although implementation of all sorts of sustainability initiatives is common, at
times it seems that accommodating the demands of the most influential palm oil stakehold-
ers in the planning and investment agenda is paramount. Therefore, the sector’s sustain-
ability agenda tends to focus on the large industrial plantations, overlooking the pivotal role
smallholders play in the industry.
Globally, palm oil production is giving an ever-growing group of three million smallholders
access to what is arguably the most desirable prospect: a steady income and livelihood
options. Clearly, smallholders are not a homogenous group. They range from subsistence
farmers in Côte d’Ivoire, to scheme growers in Indonesia and medium enterprise owners
in Colombia. Nevertheless, in their oil palm farming practices all these small farmers must
constantly consider multiple needs of diversifying income, ensuring food security, and
protecting cultural values. A number of programmes, regulations and supporting schemes
are already in place in the palm oil sector. Still, few of them look integrally at the inclusion of
smallholders in the value chain, taking into account different interlinked aspects of inclusive
agribusiness, like ownership, voice, risk and reward.
In the face of new opportunities and external sustainability agendas, more attention has to
be paid to how companies can better support smallholders. Farmers’ organizations them-
selves have a key role to play in contributing to the debate on the future of smallholder oil
palm farming. Such a debate, which engages the voices of the farmer as well as the private
sector, needs to be fostered in search of better informed policies and practices. Any type of
support that targets local interests, rather than national or global goals, would put small-
holders in a much better position to fulfil a more active role.
The combined purchasing power held by FMCGs and retailers gives them significant
influence over their suppliers’ business practices. However, the industry sustainability
agenda does not consider a more fundamental shift in the business model to move away
from large-scale monoculture oil palm farming systems to production models addressing
landscape conservation and climate resilience. In an increasingly land-constrained world,
new production strategies for palm oil will depend on integrated land management, and an
almost inevitable increase in production costs.
It may be precisely in the articulation between fair value distribution and minimizing envi-
ronmental degradation that we find the opportunities to retrieve sustainability at smallhold-
er farm level. The sector needs fair prices for farmers, for their livelihoods and for invest-
ments to ensure the long-term viability of their farms and environments. Although palm oil
is increasingly lucrative with a retail value of USD 286 billion in 2021, smallholder palm oil
producers cannot count on deriving a living income from their crop. The tendency of the in-
dustry to cut costs to optimize profits reflects the underlying concern that palm oil buyers
(FMCGs and retail) exhibit little willingness to compensate producers for operating sustain-
ably, for example by paying a premium price or investing in long-term trading relationships.
While some companies are demonstrating that they are taking necessary steps to imple-
ment a comprehensive sustainability agenda, the sector needs to substantially improve its
actions and investments at the smallholder level. In a scenario of growing demand for palm
oil and structural sustainability risks that lie in supply chains, only half of the palm oil pro-
ducing companies are currently working with their suppliers to manage these risks. Overall,
the actual activities tend to focus on technical assistance and training and seem only able to
reach a relatively small minority of farmers. Without significant interventions that compen-
sate for structural disadvantages in relation to risk and reward, it is questionable whether
smallholders will be able to successfully compete and prosper.
Furthermore, after 20 years, RSPO certified palm oil still only covers 20 percent of the
global palm oil sector, of which independent smallholders make up a negligible one per-
cent. Regardless of the apparent deficiencies and limitations of certification standards, the
uptake of certified products remains limited. To make sustainable palm oil the norm and
not the exception at the demand side, we need to demystify palm oil. Opening up commu-
nication to the public about the challenges and why they should buy/ask for certified palm
oil is essential. And while most major consumer goods companies (in the EU) have made
strong commitments to shift their palm oil sourcing for the better, there is a need for other
important markets, such as the US, China and India, to make similar pledges.
However, maintaining that voluntary regulations are sufficiently effective to improve the
sector’s social and environmental performance is debatable. Millions of people live, and will
continue to live, in remote rural areas characterized by fragile environments like forests and
peatlands. Smallholders are unlikely to have the capacity to meet demand for sustainable
and deforestation-free palm oil production without consistent support and incentives from
procuring companies and governments. As the size of the palm oil economy increases rel-
ative to its agricultural resource base, it becomes even more urgent to ensure the sustain-
able management of ecosystems, biodiversity and forests in producing countries.
To minimize risk and take advantage of opportunities, the key point is to acknowledge
smallholder farmers’ interests and agenda-setting as the point of departure, rather than
implementing preconceived ideas. It is not that farmers’ representation is thought to be a
bad idea by any of the MSIs active in palm oil, quite the opposite. All of them are aware of
the importance of farmer inclusivity. The reason for farmer exclusion is probably far more
fundamental. Companies and NGOs have other business or sustainability interests higher on
their agenda than listening to the opinions of smallholders. The urgency cannot be under-
estimated and our observations on the role and position of smallholders must inform a
rethink in voluntary and mandatory sustainability policies and practices.
RECOMMENDATIONS
Most people say they want to drive smallholder inclusivity forward. However, so far it hasn’t
been successful. It’s time to take a step back and re-evaluate: how can the palm oil value
chain be made more inclusive? We do not have the silver bullet; different approaches will
have to co-exist and strengthen each other. Regulation from importing countries alone can-
not fix the situation on the ground. Even the most robust certification scheme is obviously
not the answer. By themselves, grievance mechanisms do not prevent harm to farmers,
communities, workers and the environment. Pre-competitive initiatives can be valuable in
setting a minimum sustainability standard, but might be less useful in raising prices. Small-
holders do not benefit from an all-or-nothing debate between western NGOs. Smallholder
inclusivity requires a smart use of the available approaches. We should stay away from a
discourse where a solution is written off because it does not, in itself, fix all issues. For a
comprehensive smallholder inclusive approach to drive sustainability in the sector we rec-
ommend the following:
INDUSTRY ( PROCESSORS, TRADERS, FMCG, RETAIL)
• Invest in the creation of sustainable palm oil value chains by investing in inclusive palm
oil production. Do not divest from the palm oil sector if you want to create positive
impact in global agricultural sectors.
• Pay a fair price: commit to fair value distribution across the supply chain especially in
the primary line of production where smallholders are the supplying base.
• Buy from oil-palm smallholders proportionate to the share of smallholders in national
production.
• Do not exclude smallholders when implementing NDPE policies or certification stan-
dards.
• Define common metrics for reporting on smallholder inclusivity.
• Support continuous strengthening of national sustainability frameworks.
MULTI-STAKEHOLDER INITIATIVES
• Make smallholders members or representatives of boards and important organs.
• Facilitate smallholder organizations and related social NGOs to participate in defining,
challenging and steering the sustainability agenda.
SEE NEXT PAGE
PUBLIC POLICY MAKERS
• Ensure enabling policy environments where smallholder farmers can thrive.
• Include smallholders in decision-making processes.
• Work with different stakeholders including CSOs for accelerating the implementation
of mandatory frameworks and national sustainability standards.
• Ensure that measures to avoid imported deforestation, do not unintendedly exclude
smallholders.
• Ensure support is available to organize compliance with the reporting on legality,
deforestation, geolocation and traceability.
• Initiate multilateral dialogues between palm oil consuming and producing countries to
discuss sustainable transformation of the edible oils sector.
FOR SCIENCE AND INNOVATORS
• Form an international panel to provide science based knowledge on sustainable palm
oil production.
• Promote and support the application of technical knowledge of regenerative agricul-
ture at the level of oil palm production systems of small producers.
• Generate diversification systems for palm oil smallholders based on their cultural,
economic and environmental situation. Make proposal of diversification model for
instance, agroforestry system or intercropping systems.
FOR BANKS AND FINANCIAL INSTITUTIONS
• Make smallholder inclusion part of your sustainability criteria.
• Make sure all investments combine NDPE policies with smallholder support to meet
requirements.
• Ensure financial instruments work for smallholders.
FOR ALL STAKEHOLDERS
• Acknowledge that there is a shared responsibility in the value chain by developing clear
and ambitious targets and having public monitoring and transparent accountability in
place.
FUENTES DE FIGURAS
Figura 1.
Worldbank (2022). Mercado de insumos primarios: ‘Pink sheet’ datos julio 2022. https://
www.worldbank.org/en/research/commodity-markets
Figura 2.
USDA FAS (2022). Explorador de aceite de palma: Aceite de Palma 2021. https://ipad.fas.usda.
gov/cropexplorer/cropview/commodityView.aspx?cropid=4243000
Figura 3.
IDH y EPOA (2021). Situación actual: el papel de Europa en el impulso del aceite de palma
sostenible - Informe sobre el aceite de palma 2020. https://www.idhsustainabletrade.com/
publication/report-state-of-play-role-of-europe-in-driving-sustainable-palm-oil/
Pacheco, P., Gnych, S., Dermawan, A., Komarudin, H. y Okarda, B. (2017). La cadena de valor
global del aceite de palma: implicaciones para el crecimiento económico y la sostenibilidad
social y ambiental. Working paper 220. CIFOR. https://www.cifor.org/publications/pdf_files/
WPapers/WP220Pacheco.pdf
Rijk, G., Wiggs, C. y Piotrowski, M. (2021). FMCGs, Venta al por menor obtiene el 66 % de
las ganancias brutas en la cadena de valor del aceite de palma. Investigación de reacción en
cadena. https://chainreactionresearch.com/wp-content/uploads/2021/06/FMCGs-Retail-Earn-
66-of-Gross-Profits-in-Palm-Oil-Value-Chain.pdf
Figura 4.
La información de esta infografía es un resumen del número de pequeños productores de
palma de aceite a los que se hace referencia en párrafos 3.2.1, 3.2.2 y 3.2.3.
Figura 5.
Rijk, G., Wiggs, C. y Piotrowski, M. (2021). FMCGs, Venta al por menor obtiene el 66 % de
las ganancias brutas en la cadena de valor del aceite de palma. Investigación de reacción en
cadena. https://chainreactionresearch.com/wp-content/uploads/2021/06/FMCGs-Retail-Earn-
66-of-Gross-Profits-in-Palm-Oil-Value-Chain.pdf
Figura 6.
La selección de una empresa para ser evaluada en SPOTT se ha basado en varios criterios,
que incluyen: capitalización de mercado y tamaño de los ingresos derivados del aceite de
palma; tamaño de la propiedad de la tierra dedicada a la producción de aceite de palma; la
atención mediática de la empresa; y el estado de la biodiversidad y la amenaza que repre-
senta la producción de productos básicos en el país de operación.
Véase la categoría de indicador “pequeños productores y proveedores” https://www.spott.
org/palm-oil-assessment-summary/
LISTA DE ACRÓNIMOS
AFI Iniciativa del Marco de Rendición de Cuentas
APSCO Programa de Aceite de Palma Sostenible de Colombia
CGFFPC Coalición de Acción Forestal Positiva del Foro de Bienes de Consumo
CPO Aceite crudo de palma
CSPO Aceite de Palma Sostenible Certificado
CE Comisión Europea
ESG Criterios Ambientales, Sociales y de Gobernanza
RFF Racimos de Fruta Fresca
FMCG Empresas de Fabricación de Alimentos y Bienes de Consumo
IPOS Marco de Sostenibilidad de Aceite de Palma de la India
ISPO Aceite de Palma Sostenible de Indonesia
IMPI Iniciativa de Múltiples Partes Interesadas
MSPO Aceite de Palma Sostenible de Malasia
NDPE No Deforestación, No Turba, No Explotación Comercial
ONG Organización No Gubernamental
PKO Aceite de Palmiste
POCG Grupo de Colaboración del Aceite de Palma
RPOG Grupo de Minoristas de Aceite de Palma
RSPO Mesa Redonda sobre Aceite de Palma Sostenible
SPOTT Caja de Herramientas de Transparencia de Aceite de Palma Sostenible
VSS Estándares de Sostenibilidad Voluntarios
TEA Tasa de Extracción de Aceite
OSC Organización de Sociedad Civil
Figura 7.
Iniciativa del Marco de Rendición de Cuentas (AFI): http://accountability-framework.org
Coalición de Acción Forestal Positiva del Foro de Bienes de Consumo (CGFFPC): https://
www.theconsumergoodsforum.com/environmental-sustainability/forest-positive/
Grupo de Colaboración de Aceite de Palma (POCG): https://palmoilcollaborationgroup.net
Grupo de Minoristas de Aceite de Palma (RPOG): https://www.rpog.org
Mesa Redonda sobre Aceite de Palma Sostenible (RSPO): https://rspo.org
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home
1 Quote taken from the oil palm farmer organization questionnaire by Solidaridad, 2022.
2 In light of the steep price hikes in the first half of 2022 this sentiment might have changed.
3 There is a lack of accurate data on the exact production capacity of smallholder oil palm farmers. Better
data are direly needed since different studies estimate their contribution to range between 25 and 40
percent of the global volume. Given the general assumption in the sector that smallholder production
is slightly lower than plantation production, it is unlikely that smallholders produce up to 40 percent of
global crude palm oil on only 27 percent of cultivated oil palm land (Descals et al., 2021). In this report
it is estimated smallholder oil palm farmers produce between 25 and 30 percent of all crude palm oil.
4 The study of Descals et al., (2021) identified only closed-canopy oil palm stands, due to the omission
of young and sparse oil palm the area estimate is lower than the harvested area reported by the Food
and Agriculture Organization (FAO), particularly in West Africa. The article and high-resolution map of
smallholder and industrial closed-canopy oil palm plantations can be found here: https://essd.coperni-
cus.org/articles/13/1211/2021/
5 When the price of biodiesel is higher than the diesel fuel price, the Indonesian government is required
to introduce subsidies in support of the blending targets. The subsidy is financed by tariffs on palm oil
exports. Malaysia aims to implement a biodiesel mandate by the end of 2022.
6 In a 3% growth scenario (based on USDA FAS 2022 projections), with a baseline of 73.5 million MT in
2021, production has to rise with 28 percent in the next 9 years to 94 million MT.o
7 Greenpeace (2018 November 23). Timeline Greenpeace palm oil campaign 2007 - 2018. https://www.
greenpeace.org/nl/natuur/11405/timeline-greenpeace-palm-oil-campaign-2007-2018/
Global Witness (2021 October 07, updated 2022 June 14). The true price of palm oil. https://www.
globalwitness.org/en/campaigns/forests/true-price-palm-oil/
8 See endnote 3.
9 For a more detailed typology of the diversity of palm oil smallholder farmers in Indonesia see: Jelsma,
I., Schoneveld, G., Zoomers, A. and van Westen, A. (2017). Unpacking Indonesia’s independent oil palm
smallholders: An actor-disaggregated approach to identifying environmental and social performance
challenges. Land Use Policy, 69, 281–297. https://doi.org/10.1016/j.landusepol.2017.08.012
10 A forthcoming AidEnvironment study (2022), found that controlled pricing systems like in Malaysia also
exist in Uganda, while in Ghana and Nigeria prices are based mainly upon a free market system. The
research also shows that in Latin America, countries like Guatemala, Mexico, Honduras and Colombia
all have a system where FFB prices are determined monthly or weekly with FFB prices defined as a %
of the average global reference (Rotterdam or Malaysia) of the month (or week) before. This % differs
significantly per country (e.g. Honduras 15% or 16% depending on the season, Nicaragua 12%, Mexico
12,5%, Honduras 14%) (Solidaridad Central America, 2022).
11 Llewellyn, A. (Al Jazeera 2022, May 16). Indonesian farmers decry palm oil export ban as prices plum-
met. https://www.aljazeera.com/economy/2022/5/16/indonesian-farmers-decry-palm-oil-export-ban-as-
prices-plummet
12 In 2019, the average price per MT palm oil was USD 601, leading to an average revenue for a smallhold-
er of approximately USD 6,010 over 2019. In 2021, the prices were very high: USD 1,131 per MT, which
amounts to USD 11,310 annual revenues.
13 Malaysia case:Production, costs and revenues calculations by Solidaridad Asia.Living wage September
2019:https://wageindicator.org/salary/living-wage/archive-no-index/malaysia-living-wage-series-septem-
ber-2019
ENDNOTES
14 Mexico case: production, costs and revenues calculations by Solidaridad Central America. Living wage:
https://align-tool.com/download-data. Michoacán, northwestern regions of Mexico. 2018.
15 Indonesia West Sulawesi case, according to Solidaridad Indonesia the data are reasonably complete
and accurate. Production, cost and revenues from: The Impact of Oil Palm Farming on Household
Income and Expenditure in Indonesia,https://koreascience.kr/article/JAKO202109554061437.pu-
b?&lang=enLiving wage 2018 indicator: https://wageindicator.org/salary/living-wage/archive-no-index/
indonesia-living-wage-series-january-2018-country-overview
16 Information taken from the oil palm farmer organization questionnaire by Solidaridad, 2022.
17 SPOTT Platform: See indicator category ‘smallholders and suppliers’ https://www.spott.org/
palm-oil-assessment-summary/
18 Global Forest Watch (2022 January 25). Universal Mill List. https://data.globalforestwatch.org/docu-
ments/gfw::universal-mill-list/explore
19 The RSPO has two different certification systems: https://rspo.org/certification/supply-chains
20 Calculation based on RSPO Palmtrace portal and input from RSPO staff. 64,000 metric tonnes of ISH
credits is less than 0,1 percent of the 76.5 million metric tonnes of global palm oil production (USDA
FAS, 2021).
21 Information taken from the oil palm farmer organization questionnaire by Solidaridad, 2022.
Citation: Solidaridad (2022), Palm Oil Barometer 2022,
the inclusion of smallholder farmers in the value chain.
Text: Sjoerd Panhuysen - Ethos Agriculture
Additional text contributors: Marieke Leegwater, Michel Riemersma,
Bram Verkerke - Solidaridad Europe, Shatadru Chattopadhayay - Solidaridad Asia
Editing: Sarah Oxley - Solidaridad Europe
Graphic Design: Roelant Meijer - Tegenwind
Expression of the authors: We appreciate the effort of interviewees in answering our
questionnaire and reviewers for their feedback. The final responsibility for the content and
the views expressed in this publication lies solely with the authors. The authors would like to
thank the participants of the Advisory Committee for their feedback and contribution.
External
Bunie Japah, Representative, Sarawak Dayak Oil Palm Planters Association (DOPPA), Malaysia
Richard Lias, Director, Dayak National Congress (DNC), Malaysia
Douglas Alau Tayan, Secretary General, Dayak National Congress (DNC), Malaysia
Firmus Valentinus, CEO, Keling Kumang Credit Union (CUKK), Indonesia
Samuel Awonnea Avaala, President, Oil Palm Development Association of Ghana (OPDAG), Ghana,
Dr. M. Edwin Syahputra Lubis, Head, Indonesian Oil Palm Research Institute (IOPRI), Indonesia
Mansuetus Darto, National General Secretary, Serikat Petani Kelapa Sawit (SPKS), Indonesia,
José Edas Mejía Betancourth, President of Board of Directors, National Federation of Palm Oil Smallholders
(FENAPALMAH), Honduras
Milton Alexis Hernandez Godoy, Agriculture Manager, Hondupalma-Paiguay Smallholders Association, Honduras
Juan Jose Alvarenga Morales, Agriculture Manager, Hondupalma Company, Honduras
Jose Pascual Coello Castillo, Member of Board of Directors, Zitihuatl Cooperative, Mexico
Dr. Margaret Chan Kit Yok, Associate Professor, University Teknologi MARA, Malaysia
Jorge Cabra, Consultant, Expertagro SAS, Colombia
Rodolfo Guzmán, Consultant, Freelance, Guatemala
Dr. Ir. Maja Slingerland, Associate Professor Plant Production Systems Group, Wageningen University and Research,
The Netherlands
Maria Goldameir Mektania, Head of Communication and Social Media Division, Apkasindo, Indonesia
Rizki Amalia, Researcher, Representing IOPRI on behalf of Apkasindo, Indonesia
Sachnaz Oktarina, Researcher, Representing IOPRI on behalf of Apkasindo, Indonesia
Solidaridad
Shatadru Chattopadhaya, Regional Director, Asia
Isaac Gyamfi, Regional Director, West Africa
Heske Verburg, Regional Director, Europe
Rosemary Addico, Programme Manager NISCOPS, West Africa
Marieke Leegwater, Coordinator Palm Oil Programme, Europe
Suresh Motwani, Director Palm Programme, Asia
Kulbir Mehta, Country Director, Indonesia
Law Chu Chien, Country Director, Malaysia
Flavio Linares, Technical Head of Programmes, Central America
Dubail Rosa, Programme Officer, Honduras
Javier Anaya Caden, Project Officer, Mexico
Billy Hasbi, Head of Programme Operations, Indonesia
Michel Riemersma, Palm Oil Policy Advisor, Europe
COLOPHON
This report is supported and co-signed by the following smallholders representatives:
Dr. Richard Mani Banda, President, Dayak Oil Palm Planters Association (DOPPA), Malaysia
Douglas Alau Tayan, Secretary General, Dayak National Congress (DNC), Malaysia
Firmus Valentinus, CEO, Keling Kumang Credit Union (CUKK), Indonesia
Dr. M. Edwin Syahputra Lubis, Head, Indonesian Oil Palm Research Institute (IOPRI), Indonesia
Mansuetus Darto, National General Secretary, Serikat Petani Kelapa Sawit (SPKS), Indonesia
Dr. Rino Afrino, Secretary General, Asosiasi Petani Kelapa Sawit Indonesia (APKASINDO), Indonesia
José Edas Mejía Betancourth, President of Board of Directors, National Federation of Palm
Oil Smallholders (FENAPALMAH), Honduras
Milton Alexis Hernandez Godoy, Agriculture Manager, Hondupalma-Paiguay Smallholders
Association, Honduras
Jose Pascual Coello Castillo, Member of Board of Directors, Zitihuatl Cooperative, Mexico
Samuel Avaala Awonnea, President, Oil Palm Development Association of Ghana (OPDAG), Ghana
And experts:
Dr. Margaret Chan Kit Yok, Associate Professor, University Teknologi MARA, Malaysia
Jorge Cabra, Consultant, Expertagro SAS, Colombia
Rodolfo Guzmán, Freelance Consultant, Guatemala
Dr. Ir. Maja Slingerland, Associate Professor Plant Production Systems Group, Wageningen
University and Research, The Netherlands
KONGRES KEBANGSAAN DAYAK
(PPM-015-13-25062013)
Lot 9065, Section 64, 2
nd
Floor KTLD, Jalan Tun Jugah, King Centre,
93350, KUCHING, SARAWAK
e-mail add : dnc.central@gmail.com
___________________________________________
Date: 10/7/2022
Kind Attention,
Dr Law Chu Chien
Managing Director,
Solidaridad Network Asia,
Kuala Lumpur Malaysia
Dear Dr Law,
Subject: The Palm Oil Barometer Report
I have read through the above report.
In my opinion, the report is sufficient to address the current issues affecting the Palm Oil Industry.
On behalf of DNC, we hereby agree to be the co-signatories of the Report and we attached the following for your
perusa
l:
1. Name of Organisation : Dayak National Congress (DNC)
2. DNC’s LOGO :
3. Name of DNC Representative : DOUGLAS ALAU TAYAN
4. Designation : SECRETARY GENERAL
5. Signature :
With Kind Regards,
Douglas Alau Tayan
Secretary General
Dayak National Congress
c.c. : President DNC- Mr. Paul Anyie Raja
: Deputy President DNC - Mr. Richard Lias
This publication was made under the Reclaim Sustainability! programme,
thanks to the support of:
Request for information can be addressed to:
Marieke Leegwater: Coordinator Palm Oil Programme Europe:
‘t Goylaan 15, 3525 AA Utrecht, the Netherlands
+31 (0)30 272 0313
