Indonesian smallholders account for 38% of oil palm produced, cultivating an area equivalent to around half of the country’s palm oil plantations. Looked at collectively, smallholder producers provide significant volumes in the palm oil supply chain.
“Smallholders are an important – and growing – part of the oil palm supply chain. Future volume growth is coming from smallholders,” Olivier Tichit, Musim Mas’ Director of Sustainable Supply Chain, told us.
However, these small-scale players are facing fresh threats to inclusion. Increasingly, large corporations require fully traceable commodities to meet their targets on deforestation. At the same time, regulators in importing regions like Europe are implementing stricter rules to disparage international trade in commodities linked to deforestation. But do these efforts – underpinned by good intentions – risk leaving smallholders behind?
Tichit believes this is a very real danger. For a palm oil processor like Musim Mas, the ‘easy’ answer would simply be to say ‘no more smallholders’ and focus on larger suppliers of traceable volumes that can be verified as deforestation-free. “It is very easy. Then you will be fully compliant,” he explained. “But in our view that is a very short-term solution that definitely won’t address the deforestation issue.”
Professor Rachel Garrett, of the Department of Environmental Systems Science at Swiss university EHT Zurich, agrees. She is also concerned that the language and requirements of the EU’s new Due Diligence regulations ‘encourage a shift away from smallholders’. Different metrics, such as investment in smallholder capacity, should be considered over a simple risk-factor calculation. This is vital because cutting smallholders out of the supply chain won’t stop deforestation.
“All of the policy movements right now are focused on tracking individual supply chains. But is that really our societal objective? Just eliminating deforestation from specific supply chains? Or is it actually in reducing deforestation globally and improving the lives of people in these regions? If it is the second goal – which is much broader and more ambitious – you can’t just focus on individual supply chains,” she told FoodNavigator.
Raising all boats through a landscape approach
In 2020-2021, Indonesia lost 28.6Mha of tree cover. But the good news is that the country’s deforestation rate has decreased each year since 2016. The approach taken by the Indonesian government – as well as the actions of the private sector – have contributed towards this positive trend. “The government has a very strong drive on deforestation, with strong enforcement. On the corporate side, these no deforestation commitments are beginning to have an impact as well,” Tichit observed.
Professor Garrett agrees that the combination of increased accountability at a corporate level and moratoriums on new palm licenses from regulators have had a positive impact. It will be ‘interesting’ this year, she continued, because the global seed oil shortages that have pushed prices up haven’t resulted in a step-change in deforestation trends… yet.
“Now prices have picked up we have not seen a requisite increase in expansion. There is still a little bit of speculation, is this because of COVID, maybe people don’t trust the high prices. But the market signals are having an effect in that companies know large scale expansion will have consequences.”
In a recently launched public-private partnership, Musim Mas, EHT Zurich and IPB University in Indonesia are collaborating on a five-year project to look at what interventions reduce deforestation while safeguarding smallholder inclusion.
“The idea is to focus on the way in which zero deforestation policies and sustainable supply chain policies can achieve their goals of reducing deforestation on the ground while not excluding smallholder farmers, who have a lower ability to comply with such programmes,” explained fellow researcher Janina Grabs, an Assistant Professor of Business and Society at the Department of Society Politics and Sustainability at ESADE Business School in Barcelona.
The research team was attracted to working with Musim Mas on this project because they wanted to collaborate with a company that has a ‘more ambitious approach’ and is ‘tacking deforestation at a landscape level’. This means the researchers can assess whether these ‘more creative and ambitious solutions’ have ‘broader development impacts’.
Musim Mas’ approach is shaped by two objectives that Tichit said ‘go hand in hand’. “One is our commitment to zero deforestation. The second is our strong pillar on livelihoods, we believe in improving livelihoods.”
The company’s efforts have evolved from direct engagement with the smallholders within its own value chain to now include working with regional governments to support change at a landscape level. For Tichit, it doesn’t matter that Musim Mas is helping improve the agricultural practices of suppliers that don’t feed into the company’s operations. It is all an investment in the future. “When we do direct extension, it tends to be around our own supply chain but, for example, if we talk about a region… we train smallholders regardless of what supply chain they are in. We have a long-term view on this. If we are making better farmers today it will benefit us, it will come around.”
So, what sustainability outreach programmes and interventions is Musim Mas betting on?
To influence smallholder practices, Tichit believes it is important to bring something smallholders want to the table: the opportunity to increase yields.
“How do we get people to listen to us when we talk about sustainability? We bring them that knowhow of palm. It is the hook, the bait. Then we can talk about other things because a relationship is created.
“If you can’t talk about palm, smallholders lose interest very quickly. You have to talk to them about things that are of interest to them. We come with valuable knowledge.”
The sustainability expert believes that with ‘seemingly simple’ techniques – improved husbandry and more effective use of fertiliser – smallholders can increase yields by as much as 50% without encroaching further into the forest.
Charting an alternative development path
Ultimately, putting an end to deforestation means people need to have alternative paths to economic and social development. For this reason, the EHT Zurich researchers are looking at social and economic markers linked to outreach programmes alongside deforestation trends.
“We’re taking a multi-pronged approach in our research. We combine both in field survey data with geospatial analysis using satellite imagery. The type of work we are doing on the ground talking to smallholders, is focused on equity – livelihood assessments, inclusion in value chains, their ability to reach international sustainable value chains,” Professor Grabs detailed.
Over the five-year timeframe, the study will look at aspects of the production system such as yields alongside social issues like female participation in the farming system, child labour and access to education.
Professor Garrett is quick to decouple any connection between deforestation rates – which may increase short-term productivity – with longer-term development gains. Alternative paths to development require fresh approaches to investment, she argued.
“There is no scientific basis to suggest deforestation leads to development. It can lead to the generation of foreign exchange that can temporarily bolster your exchange value and help you import more goods, but that’s not long lasting development. Long lasting development only comes when you add value to those agricultural commodities and invest in education, manufacturing, the local community.
“If you want development you shouldn’t be investing in extending the frontier with the forest, which is eroding your future basis to support your existing agricultural system. Rather invest that money in getting more money locally from your agricultural production system through manufacturing value added,” she suggested.
Here again, improved agricultural practices can also help build long-term value as well as delivering environmental gains, Professor Grabs added. “Adding value to the product [will bring community benefits] but, in this context specifically, adding value to the land that is already planted by improving yields is such an immense development opportunity. Increase returns by making the practices that are happening on existing land better,” she urged.
Placing value on the land through a developed system of land-titling would also support this longer-term view of development, according to Tichit. “It might sound like nothing but it is critical. There is still a lot of work to be done on land titling and giving value to the land title,” he explained.
“Why do people not have land titles? Where is the value in the land title? If you are an oil palm farmer in a frontier area, what is the value? What does it do for you? Not much. But if you have a value for the land title, you can use it as collateral to grow your farm further, to buy a bike, household appliances, send your kids to university. That is fundamental, to see a focus on land title and trying to get to a global land register. That’s really very deep reform. It’s very important, it will change the landscape. It is the next level of smallholder farming in Indonesia.”