The replanting of palm oil plants aimed at producing better trees through good agricultural practices. The UNDP’s Good Growth Partnership (GGP) in Indonesia included several projects under one umbrella. Credit: ILO/Fauzan Azhima

By Cecilia Russell
JOHANNESBURG, Apr 27 2023 (IPS)

Smallholder farmers are critical to the success of Indonesia’s efforts to address deforestation and climate change. Creating an understanding and supporting this group, internally and abroad, is a crucial objective for those working towards reducing deforestation and promoting good farming practices, especially as smallholders often work hand-to-mouth and are vulnerable to perpetuating unsustainable farming practices.

Musim Mas, a large palm oil corporation involved in sustainable production, says smallholders “hold approximately 40 percent of Indonesia’s oil palm plantations and are a significant group in the palm oil supply chain. This represents 4.2 million hectares in Indonesia, roughly the size of Denmark. According to the Palm Oil Agribusiness Strategic Policy Initiative (PASPI), smallholders are set to manage 60 percent of Indonesia’s oil palm plantations by 2030.” 

Since last year a new World Bank-led programme, the Food Systems, Land Use and Restoration (FOLUR), incorporates the United Nations Development Programme Good Growth Partnership (GGP). It will continue to be involved in the success of palm oil production and smallholders’ support—crucial, especially as a study showed that the “sector lifted around 2.6 million rural Indonesians from poverty this century,” with knock-on development successes including improved rural infrastructure.

Over the past five years, GGP conducted focused training with about 3,000 smallholder farmers, says UNDP’s GGP Global Project Manager, Pascale Bonzom:

“The idea was to pilot some public-private partnerships for training, new ways of getting the producers to adopt these agricultural practices so that we could learn from these pilots and scale them up through farmer support system strategies,” Bonzom says.

Farmer organizations speaking to IPS explained how they, too, support smallholder farmers.

Amanah, an independent smallholder association of about 500 independent smallholders in Ukui, Riau province, was the first group to receive Indonesian Sustainable Palm Oil (ISPO) certification as part of a joint programme, right before the start of GGP, between the Indonesian Ministry of Agriculture, UNDP, and Asian Agri. This followed training in good agricultural practices, land mapping, high carbon stock (HCS), and high conservation value (HCV) methodologies to identify forest areas for protection.

“The majority of independent smallholders in Indonesia do not have the capacity to implement best practices in the palm oil field. Consequently, it is important to provide assistance and training on good agricultural practices in the field on a regular and ongoing basis,” Amanah commented, adding that the training included preparing land for planting sustainably and using certified seeds, fertilizer, and good harvesting practices.

A producer organization, SPKS, said it was working with farmers to implement sustainable practices. It established a smallholders’ database and assisted them with ISPO and Roundtable on Sustainable Palm Oil (RSPO) certifications.

Jointly with High Conservation Value Resource Network (HCVRN), it created a toolkit for independent smallholders on zero deforestation. This has already been implemented in four villages in two districts.

“At this stage, SPKS and HCVRN are designing benefits and incentives for independent smallholders who already protect their forest area (along) with the indigenous people,” SPKS said, adding that it expected that these initiatives could be used and adopted by those facing EU regulations.

SPKS sees the new EU deforestation legislation as a concern and an opportunity, especially as the union has shown a commitment to supporting independent small farmers—including financial support to prepare for readiness to comply with the regulations, including geolocation, capacity building, and fair price mechanisms.

Amanah also pointed to the EU regulations, which incentivize independent smallholders to adhere to the certification process.

“As required by EU law, the EU is also tasked with implementing programs and assistance at the upstream level as well as serving as an incentive for independent smallholders who already adhere to the certification process. The independent smallholder will be encouraged by this incentive to use sustainable best practices. Financing may be used as an incentive. The independent smallholders will be encouraged by this incentive to use sustainable best practices,” the organization told IPS.

SPKS would like to see final EU regulations include a requirement for companies importing palm oil into the EU to guarantee a direct supply chain from at least 30 percent of independent smallholders based on a fair partnership.

“In the draft EU regulations, it is not yet clear whether the due diligence is based on deforestation-related risk-based analysis. Indonesia is often considered a country with a high deforestation rate, and palm oil is perceived to be a factor in deforestation. Considering this, we hope the EU will consider smallholder farmers by ensuring that EU regulations do not further burden them by issuing Technical Guidelines specifically designed for smallholder farmers.”

In April 2023, the European Parliament passed the law introducing rigorous, wide-ranging requirements on commodities such as palm oil. UNDP is looking into how it can tailor its support to producing countries with compliance of this and other similar current and future regulations.

Setara Jambi, an organization dedicated to education and capacity building for oil palm smallholders for sustainable agricultural management, says that while they are concerned about the EU regulations, small farmers have “many limitations, which are different from companies that already have adequate institutions.

“This concern will not arise if there is a strong commitment from both government and companies (buyers of smallholder fresh fruit bunches) to assist smallholders in preparing and implementing sustainable palm oil management.”

The next five years with FOLUR will face significant challenges. There is a need to ensure that the National Action Plan moves to the next level because it is going to expire at the end of 2024. It will require updating and expanding.

In Indonesia, there are 26 provinces and 225 districts that produce palm oil. And at the time of writing, eight provinces and nine districts have developed their own versions of the pilot Sustainable Palm Oil Action Plan and developed their own provincial or district-level Sustainable Palm Oil Action Plans.

There is a lot to do, including supporting the Indonesian government’s multi-stakeholder process, capacity building for the private sector, supporting an enabling environment for all, and working with financial institutions to make investment decisions aligned with deforestation commitments.

The biggest issue is to get the smallholder farmers on board. Because they live a life of survival, often they are vulnerable to “short-termism.”

On the positive side, the FOLUR initiative has the government’s backing. At the launch in Jakarta last year, Musdhalifah Machmud, Deputy Minister for Food and Agriculture at the Coordinating Ministry for Economic Affairs, said that the implementation of the FOLUR Project was expected to be able to create a value chain sustainability model for rice, oil palm, coffee, and cocoa through sustainable land use and “comprehensively by paying attention to biodiversity conservation, climate change, restoration, and land degradation.”

At that launch workshop in Jakarta, the World Bank’s Christopher Brett, FOLUR co-leader, noted: “Healthy and sustainable value chains offer social benefits and generate profits without putting undue stress on the environment.”

Bonzom agrees: “At the end of the day, they (smallholders) will need to see the benefits—better market terms, better prices, better, more secure contracts—that’s what is attractive for them.”

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A harvester checks the ripeness of oil palm fresh fruit. The UNDP’s Good Growth Partnership has worked with all sectors of the palm oil supply chain to reduce deforestation. Credit: ILO/Fauzan Azhima

By Cecilia Russell
JOHANNESBURG, Apr 27 2023 (IPS)

Indonesia finds itself in a delicate balancing act of uplifting people from poverty, managing climate change and biodiversity, and satisfying an increasingly demanding international market for sustainable farming practices—and at the pivot of this complexity is the management of its palm oil sector.

As the UNDP-led Good Growth Partnership (GGP) joins a new World Bank-led project with similar objectives—the Food Systems, Land Use, and Restoration (FOLUR) Impact Programme, it acknowledges that the government of Indonesia has made considerable advancements in improving the sustainability of the industry and the value chain over the past five years with GGP support.

The GGP, using a multi-stakeholder approach, included several projects under one programmatic umbrella, linking production, demand, responsible sourcing, traceability, and transparency, with supporting financial institutions and investors in relation to reducing deforestation from land use change. The project aimed to connect all components of the supply chain—which, in the case of Indonesian palm oil, represents 4.5 percent of the country’s GDP and 60 percent of global exports.

Late in 2022, Trase, in its report From Risk Hotspots to Sustainability Sweet Spots, confirmed Indonesia had reversed its deforestation trends in 2018-2020; deforestation for palm oil was 45,285 hectares per year—only 18 percent of its peak in 2008-2012. The improvement is attributed to strengthened law enforcement, moratoria, certification of palm oil plantations, and implementation of corporate zero-deforestation commitments.

“Importantly, deforestation has fallen during a period of continued expansion of palm oil production. Although the decline in deforestation has been linked to a drop in the market value of crude palm oil, the recent spike in palm oil prices has not yet been accompanied by a boom in palm-driven deforestation—a cause for cautious optimism,” Robert Heilmayr and Jason Benedict commented on Trase’s website.

However, CDP Palm Oil Report 2022 notes that while companies are adopting a wider range of actions to end deforestation, these “actions are not yet robust enough to end commodity-driven deforestation in the palm oil value chain.”

CDP says while 86 percent of companies implemented no-deforestation policies, only 22 percent have public and comprehensive policies: “Traceability systems have been implemented by 87 percent of companies, but only 25 percent have the capacity to scale these to over 90 percent of their production/consumption back to at least the municipality or equivalent.”

One major challenge is the inclusion of smallholders in the supply chains—and while 44 percent of companies work with smallholders to reduce or remove forest degradation, less than a third support “good agricultural practices and provide financial or technical assistance to help them achieve this.”

It is precisely these challenges the GGP confronted in Indonesia.

“Systemic change in commodity supply chains is one of the essential transformations that must occur this decade to mitigate the combined threats of catastrophic climate change, biodiversity loss, and food insecurity and to achieve resilience for humanity globally,” GGP says in its assessment report, Reducing Deforestation from Commodity Supply Chains.

These deforestation commitments are not new and followed the New York Declaration on Forests (NYDF), adopted in 2014, which called for the end of forest loss and the restoration of 350 million hectares of degraded landscapes and forestlands by 2030. Then came the Paris Climate Agreement, which in terms of its Reducing Emissions from Deforestation and Forest Degradation (REDD+) agreements, was crucial for reducing emissions from deforestation and degradation in developing countries. More commitments flowed after the 2015/2016 fires, which were blamed on slash-and-burn agricultural practices, exacerbated by a dry El Niño; the fires raged for months, leading to deaths, respiratory tract infections, and cost, according to the World Bank, 16 billion US dollars.

The fires were also thought to cause a global rise in emissions and put wildlife, including the endangered orangutan population, at risk. Indonesia is a place where companies have been making commitments for some time, but implementing them with both direct and indirect suppliers is not easy.

Recognizing this challenge, the GGP supported the “improvement of sustainable production and land use policies and increased farmers’ capacities to shift to sustainable practices. At the same time, it has increased supply chain transparency and consumer demand for sustainable palm oil and built the awareness of financial institutions to invest sustainably and screen out deforesters in their portfolio.”

The GGP supported Indonesia’s National Action Plan—which is now being implemented at sub-national provincial, and district levels, too.

The action plan, along with Indonesia’s Enhanced Nationally Determined Contribution (NDC), recognizes the country’s climate change vulnerabilities, especially in the low-lying areas throughout the archipelago and its position in the so-called ring of fires. The Enhanced NDC has set ambitious deforestation and rehabilitation targets, including peat land restoration of 2 million hectares and rehabilitation of degraded land of 12 million hectares by 2030.

Despite good results, stress ratcheted up for the industry as a new European Union policy now excludes sourcing palm oil or produce from areas deforested and degraded after December 31, 2020.

The new regulation will require companies to prove their bona fides through recognized traceability techniques. The sector is still working out its detailed response to the requirements, which some see as a unilateral EU move that does not respect the rights of the producing countries.

While the EU is a small market for Indonesia compared with the domestic, Chinese, and Indian markets, the regulations put additional pressure on an industry still strongly associated with small-scale farmers. It is also likely that other large markets will eventually align themselves with these regulations.

Even before the regulations became an issue, the GGP involved itself in communication campaigns to sensitize the public to sustainable certification, from the Indonesia Sustainable Palm Oil (ISPO)to the Roundtable on Sustainable Palm Oil (RSPO) standards.

The communication campaigns worked to create awareness about sustainability issues among consumers, but also with large retailers (including one called Super Indo) to place RSPO-certified palm oil products on their shelves.

It’s critical to get all players in the supply chain on board, which is where multi-stakeholder tactics work effectively; the GGP believes that this multi-faceted approach is crucial to influencing companies.

“You influence companies through government policies, through the market, but you also influence them through the financial institutions,” says UNDP’s GGP Global Project Manager, Pascale Bonzom. “If the financial institutions that fund these downstream companies require them to show that they have no deforestation commitments, and they are implementing them with results, then they (the companies) are going to have to do something about it.”

Elaborating on the strategy, she said GGP and its partner World Wildlife Fund (WWF) worked at a regional level on building capacity in financial institutions to understand the impacts of their investments.

Now a scorecard is available—to equip and influence the investors to make better decisions and to use this kind of Environmental, Social, and Governance factors (ESG) screening for deforestation.

See Part 2: Smallholders Key to Indonesian Deforestation Successes

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