Sustainability Standards for Palm Oil

Abstract

This article investigates the integration of smallholders into voluntary certification schemes, exemplified by smallholder certification under the Roundtable on Sustainable Palm Oil in Indonesia (RSPO). It identifies the main barriers to the adoption of standards by smallholders and the specific compliance challenge in the context of RSPO smallholder certification, thereby contributing to the growing literature on the effectiveness of voluntary sustainability standards. It discusses findings on smallholder certification, focusing on antecedent variables as potential adoption determinants at the level of smallholders, smallholder organization, and the institutional context. The empirical findings suggest that smallholders, and specifically independent smallholders, often lack both the information and the degree of organization that certification demands. The article also identifies the most important compliance challenges for independent smallholders in relation to land titles, seedlings, pesticide usage, fertilization, and documentation and outlines how smallholders can be supported so that they can be included in certification schemes.

Keywords

sustainability standards certification smallholders palm oil Indonesia RSPO

Palm oil generates both substantial positive socioeconomic as well as negative environmental and social impacts, giving rise to important questions at the nexus of environment and development issues. While the palm oil sector can be a lucrative source of income, also for smallholders (e.g., Feintrenie, Chong, & Levang, 2010; Rist, Feintrenie, & Levang, 2010),¹ palm oil cultivation and production can have serious negative impacts regarding environmental sustainability, including reduced biodiversity and massive greenhouse gas emissions, especially when forest and peat lands are replaced (e.g., Danielsen et al., 2009; Sheil et al., 2009). The growing global demand for palm oil, an input to a large variety of products including many consumer goods as well as biofuels, can thus undermine environmental protection and threaten sustainable development. Today, Indonesia is the biggest global producer and exporter of palm oil worldwide. More than half of the total global production of palm oil, accounting for more than 33 million tons in 2014, comes from Indonesia, generating more than 10% of the overall Indonesian export revenues, second only to oil and gas (Wright & Wiyono, 2014). Hosting tropical forests and peat lands that range among the world's largest, Indonesia serves as a good example to illustrate the increasing relevance of sustainability issues in the palm oil sector.

In response to rising sustainability concerns, a number of standard-setting and certification initiatives have evolved over the past years. In comparison to other commodities such as coffee or cocoa, sustainable palm is particularly hard to incentivize at the consumer end because it often makes up only a small percentage of end products. But increasing worries about sustainability and mounting public pressure on companies and governments have led to the emergence of standards and certification schemes in the palm oil sector as well. The most widespread initiative for palm oil is the Roundtable on Sustainable Palm Oil (RSPO). For the palm oil sector, the RSPO—including its set of principles and criteria (P&C) and system of third-party verification—is the most prominent private standard-setting body so far.² In 2014, more than 12 million tons of RSPO-certified palm oil were produced, amounting to 18% of total global palm oil supply, with an upward trend (RSPO, 2015).

As the original focus of commodity-oriented certification schemes was large-scale production units and specific standards for small producers were only developed later, experience with smallholder certification was initially almost absent, including in the RSPO.³ At the same time, the inclusion of smallholders into certification schemes is essential. Smallholders account for 85% of the 525 million farmers worldwide (Food and Agriculture Organization of the United Nations, 2012).⁴ These smallholders and their livelihoods are important both from a developmental as well as from an environmental perspective. For example, they can be both a hurdle for the improved “mainstreaming” of certification (e.g., Steering Committee of the State-of-Knowledge Assessment of Standards and Certification, 2012) or play the beneficial role of “managed ecosystems” (Swinton, 2008). Globally, around 40% of the global palm oil production is from smallholdings. In Indonesia, the more than one million smallholders are an essential element of the palm oil sector. They account for around 40% of cultivation area and 35% of production output (Indonesian Palm Oil Commission, 2012).⁵

Certification schemes are potentially more effective both from an environmental and an economic perspective if they integrate this important group. First, including smallholders in certification systems for standards like the RSPO offers an instrument to achieve more environmental sustainability in the oil palm sector. The large-scale environmental impacts from oil palm cultivation, such as greenhouse gas emissions through land-use conversion or deforestation, can occur both through the expansion of large and small plantations, albeit at different scales, and smallholder certification can be a complementary instrument to help prevent these negative impacts. Moreover, certification can lead smallholders to improve their agronomic practices, thereby reducing small-scale negative environmental impacts, for example, through the correct application of agrochemicals. Second, as set out in recent reviews of existing studies (e.g., Dankers & Loconto, 2014; International Trade Centre [ITC], 2011b), smallholder certification holds the potential for economic benefits for smallholders, for instance, through increased yields. Moreover, the integration of smallholders in the RSPO certification scheme addresses potential worries about the exclusion of smallholders from the growing international markets for sustainably certified commodities. At the same time, smallholder certification is said to be particularly challenging, as it demands a set of financial, managerial, and agronomic capacities that smallholders often lack.

As smallholder certification in the palm oil sector is a new development, there has been relatively little research on its potentials as well as its pitfalls (for exceptions, see Colchester et al., 2006; Lee, Rist, Obidzinski, Ghazoul, & Koh, 2011; Levin et al., 2012; Pichler, 2013). This article aims to contribute to addressing this gap by investigating the integration of smallholders into private certification schemes, exemplified by smallholder integration into the RSPO in Indonesia. The objective is to identify the main barriers to the adoption of sustainability standards by smallholders and to compliance with their requirements, thereby contributing to the growing literature on the effectiveness of voluntary sustainability standards. The article presents findings on two types of oil palm smallholders, namely, scheme smallholders, who are contracted to a plantation company, and independent smallholders, who operate independently through all phases of production. At the same time, the article puts a particular focus on independent smallholders because information on their certification is particularly scarce (cf. International Finance Corporation [IFC], 2013). On the basis of a smallholder survey and interviews conducted with a variety of different stakeholders, this article offers data on the challenges of smallholder certification as well as insights into and lessons learned from ongoing certification projects.

The article is structured as follows: It begins by reviewing the relevant literature and outlining the analytical framework it uses. After outlining the research method, the article presents the empirical results on the adoption of standards by smallholders by discussing the RSPO's approach to smallholder certification and the findings on antecedent factors that influence RSPO adoption by smallholders as well as the specific challenges of standard compliance. The last section offers concluding comments.

Literature: Sustainability Standards and Smallholder Certification

Voluntary sustainability standard and certification schemes such as the RSPO are an example of a newly emerging form of transnational private or nonstate market-driven governance initiatives (Auld, Balboa, Bernstein, & Cashore, 2009), which often fill in the gaps that governments and international institutions are not (yet) willing or able to regulate. There are currently more than 450 “ecological” labels in at least 25 industry sectors (Ecolabel Index, 2015). The literature refers to this boom as the rise of “civil regulation” (Vogel, 2008) or the “certification revolution” (Conroy, 2007).⁶ Numerous of these private forms of regulation, such as the RSPO, have been initiated by multistakeholder arrangements of businesses and nongovernmental organizations (NGOs)—many of them seeking to change markets through the introduction of a sustainability agenda that transcends sovereign territories (Glasbergen, 2011).⁷

While there is a growing body of literature on voluntary sustainability standards and their effectiveness (e.g., see the reviews by ITC, 2011a, 2011c, 2012; Steering Committee of the State-of-Knowledge Assessment of Standards and Certification, 2012),⁹ there has been less research on the special case of smallholder certification. The recent reviews by the World Bank (Jaffee, Henson, & Diaz Rios, 2011) on GlobalGAP and the comprehensive reviews by ITC (2011b) and by Dankers and Loconto (2014) of the most recent empirical studies on standards and smallholder market participation in developing countries constitute a welcome exception in this regard. At the same time, while there are exceptions (e.g., Colchester et al., 2006; Lee et al., 2011; Levin et al., 2012; Pichler, 2013), there is still a lack of research on the RSPO or on any other sustainability standard for the palm oil sector, especially with a view to smallholder certification.

With regard to the costs and benefits and the effects of smallholder certification on the income of participating farmers, a review of existing studies suggests that, while results are highly context specific, both costs—for example, compliance and production costs—and benefits—for example, yield, quality, know how—tend to increase (e.g., Dankers & Loconto, 2014; ITC, 2011b). For instance, participation in standard certification schemes tends to benefit producers in terms of their socioeconomic situation and income, among other things through increased yields and enhanced quality as well as higher prices received and profits (Barham, Callenes, Gitter, Lewis, & Weber, 2011; Barham & Weber, 2012, p. 6; Bolwig, Gibbon, & Jones, 2009; Dragusanu & Nunn, 2014; Fort & Ruben, 2008; Gibbon, Bolwig, Odeke, & Taylor, 2008), but the findings of some studies entail mixed or even negative evidence on the net income of producers insofar as the higher earnings often do not make up for the additional labor needed to comply with standards requirements (Jaffee, 2009) or the supplementary costs, sometimes covered by donors, exporters, or NGOs (e.g., Sexsmith & Potts, 2009).

The review of evidence analyzed to date suggests that whether certification costs create a barrier to smallholder market participation is a context-specific question but that stringent standards tend to disadvantage the participation of smallholders in the relevant value chains. This is mainly because it is more burdensome for companies to source from many different smallholders rather than from a limited number of larger suppliers, in particular because of higher transaction costs, for instance, due to monitoring compliance or the need to financially support the certification of smallholders (e.g., Dankers & Loconto, 2014; ITC, 2011a). The review of existing studies suggests that those who have the resources and the means to undertake the investments required are the first to participate in certification schemes but that the link between private standards and smallholder market participation also hinges on the preferences of retailers, manufacturers, and importers, as well as on the institutional context and support from national institutions (Dankers & Loconto, 2014). At the same time, as mentioned earlier, relatively little is known with regard to the impact of sustainability standards for palm oil, such as the RSPO, in terms of their adoption by smallholders—and above all independent smallholders. This article seeks to contribute to closing this gap by identifying the main barriers for the effective adoption of the RSPO by smallholders and the main compliance challenges regarding the requirements of this sustainability standard.

To contribute to the aforementioned literature on smallholder certification, this article focuses on oil palm smallholder certification by building on a recently proposed framework for assessing smallholder certification, primarily with a view to the adoption of standards by small-scale producers and its impact on their market participation, which are influenced both by standards system variables and by antecedent variables: First, relevant standard system variables include the stringency of technical requirements for production methods, the organizational demands of the verification system, and the auxiliary services of the standard scheme; second, there are relevant antecedent variables at the smallholder level, at the level of smallholder organization and the value chain, and at the level of the institutional context (Dankers & Loconto, 2014). The theoretical link between these different types of antecedent variables and the impact of standards hinges on the way in which an innovation—in this case the sustainability standard RSPO—is adopted and diffused (Rogers, 1962). Factors that have an influence on whether farmers take up this innovation can be referred to as adoption determinants (Dankers & Loconto, 2014). These sets of variables will affect the adoption of standards and the outcomes of the use of standards, which can potentially facilitate or restrain costs and benefits, as well as influence when and how smallholders participate in certified markets. This article puts the spotlight on a number of standards systems and antecedent variables that will influence the adoption of the RSPO by smallholders and the compliance challenges they are likely to encounter. The adoption determinants and the compliance challenges in turn affect the certification costs and benefits of smallholders.

Which antecedent factors may shape smallholder challenges in the context of RSPO certification at the level of individual smallholders, smallholder organizations, and at the level of the institutional context? As mentioned earlier, three types of antecedent variables have been identified in the literature: first, variables at the smallholder or farm level; second, at the level of the value chain, above all with a view to smallholder organization in groups; and, third, at the level of the institutional context. This article puts a particular focus on the first and second level of antecedent variables, above all the importance of smallholder groups.

First, at the level of individual smallholders, for example, the literature discusses knowledge and access to finance as relevant antecedent variables but also farm size or household wealth. While no conclusive generalizations can be drawn, the review of existing empirical data to date suggests that certified smallholders tend to have more assets (cf. Dankers & Loconto, 2014), for instance, larger farms (e.g., Asfaw, Mithöfer, & Waibel, 2010).

Second, the organization of smallholders into larger groups is identified as an important antecedent variable for the effective adoption of standards. Individual certification of smallholders is not a viable option, and membership of a group is de facto mandatory for smallholder participation in certified markets. Smallholder organizations generate economies of scale, which can reduce compliance costs by dividing the costs among various smallholders, and play an essential role in ensuring and monitoring the compliance of individual smallholders with respect to the certified standards. A number of studies find that membership of a group is positively correlated with certification (Cubbage, Moore, Henderson, & Araujo, 2009; de Battisti, Mcgregor, & Graffham, 2009; Dolan & Humphrey, 2000; Food and Agriculture Organization of the United Nations, 2011; Henson & Humphrey, 2009; Maertens & Swinnen, 2009; Mausch, Mithofer, Asfaw, & Waibel, 2009; Melo & Wolf, 2007). At the same time, establishing effective smallholder organizations requires considerable investment, time, training, and capacities (Jelsma, Giller, & Fairhurst, 2009; Lee et al., 2011; Vermeulen & Goad, 2006). Smallholders can gain access to certification according to two main organizational models: through smallholder organizations that manage an Internal Control System for certification, in the case of independent smallholders, or through the plantation company or the buyer organizing the Internal Control System, in the case of scheme smallholders and contract farming. While this article puts the emphasis on the first approach in the context of the certification of independent palm oil smallholders, it does shed light on both models, which have, so far, not been fully addressed in the literature (cf. Dankers & Loconto, 2014).⁸

Third, the relationship between standards systems and the adoption determinants at the level of smallholders and smallholder organization is mediated by institutional contexts (Dankers & Loconto, 2014). Recent studies have started to take account of the institutional contexts, for instance at local, national, international levels, within which voluntary standards are used, acknowledging the existence of many more relevant variables than is often taken for granted in impact studies. For example, public infrastructure and services may play a key role at the macro and sector levels, above all for small-scale producers, who have limited resources to address potential constraints at that level (Aloui & Kenny, 2004; Organisation for Economic Co-operation and Development, 2007). Overall, the general finding is that smallholders need assistance from both private and public actors in order to flourish in certified markets (Dankers & Loconto, 2014). For instance, national subsidy programs (e.g., Barham et al., 2011) or donor-funded projects assist smallholders in making the initial compliance investments (Asfaw et al., 2010; Damiani, 2003; de Battisti et al., 2009; Giovannucci, 2005; Naqvi & Echeverría, 2010). While a few studies have begun to investigate when and how these contexts can be a barrier to or conducive to the situation of smallholders and their inclusion in certification schemes, this type of research is still at an early stage.

While the variables set out in this section—and different aspects of smallholder certification more generally—have been subject to assessment in other contexts, so far, as mentioned earlier, there has been very little research on certifying smallholders in the palm oil sector. There are a few reports on experiences with smallholder certification in the palm oil sector in Indonesia (van Opijnen, Brinkmann, & Meekers, 2013) and in Thailand (Beall, 2012), mostly relying on a number of expert interviews. But while there are notable exceptions (e.g., Pichler, 2013), there is also a lack of more rigorous research on the challenges of smallholder certification in the palm oil sector, especially with a view to independent smallholders. In light of this, and as a second empirical focus in addition to the findings regarding the mentioned standard scheme and antecedent variables for smallholder certification, this article presents specific compliance challenges for independent smallholders under the RSPO: If smallholders do seek to adopt the RSPO, which requirements are the most challenging ones to comply with? While there are exceptions, such as a recent diagnostic study on Indonesian smallholders (IFC, 2013), current knowledge on the situation of independent palm oil smallholders in Indonesia is still limited, especially with a view to the particular compliance problems they are likely to face in the context of smallholder certification.

Method

Against this background, this article seeks to identify the main barriers to the adoption of the RSPO by smallholders and the compliance challenge in the context of RSPO smallholder certification by combining secondary sources with primary data collected through a smallholder survey as well as interviews with various stakeholders. To collect the data, field research was conducted in 2012 within the context of four RSPO smallholder certification projects in four different provinces in Sumatra, comprising both independent and scheme smallholders.⁹ Already certified scheme smallholders were interviewed as well as independent smallholders who were in the process of preparation for certification. In South Sumatra, 21 scheme smallholders were surveyed and eight semistructured interviews were conducted with the staff of smallholder groups and the plantation company. In Riau, eight semistructured interviews were conducted with smallholder group or cooperative staff as well as with field staff of the NGO in support of the smallholder certification project. The survey was predominantly conducted with independent smallholders in North Sumatra and Jambi who were part of RSPO pilot projects. Correspondingly, most of the data collected originate from these two provinces. This comprises data from a survey that was conducted with 196 independent smallholders as well as from 71 semistructured interviews with smallholders, heads of small smallholder groups, mill and plantation company staff, and experts. In North Sumatra, 111 independent smallholders were surveyed; in Jambi, the survey was conducted with 85 independent smallholders.¹⁰

North Sumatra comprises one of the main production regions for palm oil in Indonesia. In 2010, it contributed 18% of the national palm oil production (Badan Pusat Statistik Indonesia/Directorate General of Estate Crops, 2010) and hosts one of the few designated oleochemical industrial clusters in Indonesia. In North Sumatra, the survey and interviews were conducted with independent smallholders who were preparing for RSPO certification as part of an RSPO pilot project for independent smallholder certification. Data collection was conducted in six villages in the districts Simalungun and Asahan. All together, the pilot project aims at eventually certifying about 3,000 independent smallholders, covering an oil palm cultivation area of about 10,000 ha. Preparations for RSPO smallholder certification began in 2011. The main supporter of the pilot project in North Sumatra is PT Perkebunan Nusantara III, one of the largest Indonesian state-owned palm oil plantation companies, which plans to certify all its nucleus plantations, its scheme smallholders, and the independent smallholders of its oil palm supply base in North Sumatra under the RSPO. For the plantation company, the prospects of independent smallholder certification include closer ties with its independent smallholders of its supply base, improved yield and quality of smallholders' palm oil fruits, access to markets for sustainable palm oil, and reputational benefits.¹¹

In Jambi, the oil palm is cultivated on an estimated 578,000 ha, constituting around 7% of national palm oil production (Badan Pusat Statistik Indonesia/Directorate General of Estate Crops, 2010). Smallholders play a particularly important role, contributing 51% of the province's total production of palm oil. In Jambi, the field research was conducted in three villages in Merangin regency, where independent smallholders were preparing for certification within the context of an RSPO pilot project that aims to certify about 300 smallholders with a cultivation area of approximately 400 ha. The local NGO Setara has been supporting the independent smallholders who are now part of the RSPO pilot project, focusing particularly on the organization of smallholder groups.

Findings: Barriers to Smallholder Adoption and Standard Compliance

This section presents the empirical findings on RSPO smallholder certification. It outlines, first, the RSPO's approach to smallholder certification and briefly presents important standards system variables in that context before it turns to the discussion of key antecedent variables that influence RSPO adoption by smallholders: What are the main challenges for RSPO certification at the level of individual smallholders, smallholder organization, and the institutional context? Next, this section presents the empirical findings regarding specific RSPO requirements that, in light of current practices, will be especially challenging with a view to standard compliance: If smallholders do seek to adopt the RSPO, which requirements are the most challenging ones to comply with?

The RSPO Approach to Smallholder Certification

Important RSPO standard system variables, as set out in the literature review, include technical requirements, organizational demands, and standards scheme support.

Technical requirements

By now, the RSPO has developed specific P&C for smallholders, which the RSPO defines as family-based enterprises cultivating oil palm on less than 50 ha of land (RSPO, 2007).¹² In 2005, the RSPO established a Task Force on Smallholders (TFS), later superseded by the Smallholder Working Group formed in 2012, to adapt the existing RSPO P&C and indicators (RSPO, 2007) to different groups of smallholders. Currently, there are various RSPO documents on smallholder certification, including the Guidance for Schemed Smallholders (RSPO, 2009) and the RSPO Guidance for Independent Smallholders under Group Certification (RSPO, 2011), as well as a number of national interpretations of the RSPO P&C, including for Indonesia (RSPO, 2010a). As a comparison between the relevant RSPO Guidance for Independent Smallholders (RSPO, 2011) and the general RSPO P&C (RSPO, 2007) reveals, the requirements—above all the relevant indicators—for independent smallholders have been adjusted and are less detailed and demanding than the general ones, which lowers the barriers to the attainability of the standard for these small-scale producers and facilitates their inclusion into the RSPO certification scheme. For instance, in contrast to the general P&C and indicators, the RSPO version for independent smallholders does, under certain conditions, allow the use of fire during the preparation of new plantings (Criterion 7.7). Although the TFS tested the implementation of some indicators on the ground during the drafting period of its key documents, only the practical experience during current and future smallholder certification processes can show whether the system envisaged by the TFS, and especially the adapted indicators, is working in practice.

Organizational demands

The RSPO TFS decided to create a system of group certification that allows smallholders, and especially independent smallholders, to share the costs of the certification process and to be certified under a single certificate. The compliance of the whole group with RSPO standards is assessed by certification bodies, which are authorized to assign and to withdraw certificates (RSPO, 2010b). In the context of RSPO certification of independent smallholders, two kinds of groups have to be distinguished: First, the certification group and its manager, whose existence is a requirement stipulated by the RSPO and who is responsible for preparing the smallholders for certification and for ensuring their standard compliance via an Internal Control System, and second, smallholder organizations (bigger ones, i.e., kelompok or cooperatives, as well as smaller ones, i.e., gapoktan) that are not a formal requirement for RSPO certification (RSPO, 2010b) but are nonetheless essential for a successful certification process.

Standards scheme services

When the first RSPO smallholder certifications took place, and during the field research phase, there were no RSPO support services for smallholder certification. By now, the RSPO provides funding to support smallholders in gaining certification, for instance, through the RSPO Smallholders Support Fund and its mechanism, whereby 10% of income generated from trading in certified sustainable palm oil is allocated to smallholders (RSPO, 2015).

Antecedent Variables for Smallholder Certification

In the following, the findings regarding three types of relevant antecedent variables for smallholder certification are discussed: at the level of individual smallholders, smallholder organizations, and, briefly, at the institutional level.

Smallholder level

At the smallholder or farm level, two types of antecedent variables are essential: knowledge and finance. First, the empirical findings of the conducted survey and interviews underline that independent smallholders often lack the knowledge to apply good agricultural practices, which represents a key challenge for certification. In comparison, the scheme smallholders interviewed were able to cope better with certification challenges, above all because they received knowledge transfer and technical and organizational assistance from the affiliated company.¹³ In contrast, the independent smallholders in the sample were often found to have only limited knowledge of good agricultural practices, which reduced their yields and can be a compliance challenge (see also the next section) and thus a barrier to certification. This knowledge gap is partly attributable to the severe lack of training in the past. Indeed, 57% of the independent smallholders (n = 194) in the sample had never received any training or extension services; those who received training often received it only once, or very irregularly Brandi et al., (2013).¹⁴ Moreover, the independent smallholders surveyed were frequently found to lack essential information about the certification process. For instance, 74% of the respondents (n = 191) had never heard of the RSPO, despite living and working in the target area of RSPO pilot projects Brandi et al., (2013).

Second, in order to close the knowledge gap described earlier, intensive preparations for certification are necessary—but smallholders often lack the financial means to shoulder these costs without financial support. Improving agronomic practices and complying with other certification requirements often generate additional costs for smallholders, for example, because smallholders might need more expensive inputs, such as high-quality seedlings, or additional equipment, such as clearing machines, that needs to be bought or rented. Moreover, because it is typically the case that the costs of certification exceed the financial capital of smallholders, as many stakeholders and experts emphasized, the cost factor can severely hinder the inclusion of smallholders.¹⁵ Even if certification costs can be regarded as investments that may later pay off due to higher yields, the initial financing needs still have to be covered and financial support will be needed. However, whether the main problem is a lack of funds or a reluctance to invest in good agricultural practices is an open question. Most of the independent smallholders surveyed (95%, n = 194) stated that they had accessed, or could access, loans, mostly bank loans (73%, n = 163; Brandi et al., 2013). Yet, while there thus seems to be at least short-term access to finance in the regions where the field research was conducted, this does not necessarily contradict financial constraints in terms of midterm or long-term loans that are needed for plantation establishment or replanting. According to a study by the IFC (2013), independent farmers hardly ever have access to longer term loans, with almost half the farmers surveyed lacking a bank account or a formal land title, which often prevent financial institutions from granting such loans. At the same time, adequate access to finance is essential, not least because it improves smallholders' fertilizer use, the use of hybrid planting material, and yields (IFC, 2013). In sum, the findings and interviews with stakeholders and experts suggest that both the lack of knowledge and the lack of financial resources are significant barriers to the successful certification of independent smallholders.

Smallholder organization

The second important antecedent variable under investigation concerns the organization of smallholders into groups. According to many stakeholders and experts interviewed, lack organization is the most essential barrier to independent smallholder certification.¹⁶ At the same time, merely 44% of the independent smallholders surveyed (n = 193) were members of smaller kelompoks, and a larger gapoktan existed in only one of the villages studied (Brandi et al., 2013). The lack of bigger groups, that is, gapoktans or cooperatives, constitutes an especially critical barrier to smallholder certification: Although kelompoks can provide some services and activities to their members, their lack of human and financial capacities limits the portfolio of activities they can pursue on a viable scale, whereas cooperatives or gapoktans offer better opportunities to develop economies of scale, for example, through establishing specialized units for the activities provided to all smaller kelompoks that they encompass.

In the case of the scheme smallholders studied, the situation was very different, with smallholders being organized into well-functioning groups, that is, cooperatives, playing an important role in the smallholders' palm oil activities and within the certification process. The certification of the scheme smallholders was organized under a group certification scheme, in which the cooperative manager was responsible for ensuring that all smallholder members were in compliance with the RSPO P&C. The groups also coordinated harvesting and management of contractors for the collection and transport of fresh fruit bunches and ensured the maintenance of the relevant roads.¹⁷ Furthermore, collective documentation, for example, of the yield harvested was carried out by the cooperatives, and some cooperatives even had a specialized labor division and carried out certain activities for the farmers, for instance, in the case of specialized cooperative units that were responsible for pesticide application on all member plots.

In contrast, the interviews with independent smallholders and staff of independent smallholder groups underlined the lack of organization and revealed several problems concerning the establishment and functioning of groups.¹⁸ First, the establishment and support of smallholder groups generates costs, and until these groups are able to generate enough revenue to cover their own costs—for instance through administrative fees for certain activities such as for fresh fruit bunches marketing or input procurement—external financial support is needed to cover the high kickoff costs, such as for trainings or the payment of professional staff. Second, staff recruitment and participation can be a challenge: It is often difficult to recruit staff for the groups and to ensure continuous participation of all members in the group activities. Several independent smallholders interviewed mentioned that they had quit kelompok staff positions or did not want to become part of the group staff—especially in the head position—because creating groups, recruiting members, and running the groups were challenging and required additional work. Some smallholders interviewed said that there had been mismanagement in cooperatives in the past and that the cooperatives finally became inactive. In the survey, of 83 respondents that were kelompok members, only 59% always participated in group meetings; the rest either just participated sometimes (28%) or never (13%) (Brandi et al., 2013). Overall, the field research identified just one kelompok with an internal rule that made attending meetings obligatory.

Institutional context

The institutional context represents a third relevant set of antecedent variables for smallholder certification. While a detailed discussion of the broader institutional context is beyond the scope of this article, the empirical findings of the survey and the interviews conducted are in line with the more general results regarding research on smallholder certification, for example, in the review of existing studies provided by Dankers and Loconto (2014), which has underlined that smallholders require institutional support in order to thrive in certified markets.

Compliance Challenges

This section turns to specific compliance challenges and addresses the question, If independent smallholders do decide to adopt the RSPO, which requirements are the most challenging ones to comply with? The field research revealed five RSPO requirements that will be difficult to achieve for independent smallholders in view of current practices concerning land titles, seedlings, pesticide usage, fertilization, and documentation.¹⁹

First, one of the key challenges to smallholder certification in the Indonesian palm oil sector concerns land titles. While the majority of smallholders in the sample possess adequate land titles, for those who do not, this major must of the RSPO constitutes a major problem for certification because in order to become certified, independent smallholders have to be able to demonstrate legal ownership of their land or their land-use rights. Within the sample, 75% (n = 194) possessed an adequate land title that is accepted by the RSPO.²⁰ For those without an adequate land title, certification will be challenging.²¹ They will need to apply for a land certificate, which is both a lengthy and costly process in Indonesia.

Second, the use of low-quality planting material can be a major challenge for independent smallholders because using inferior planting material is in conflict with the government regulation on seeds and reduces yields considerably. High-quality seeds and seedlings can be acquired from official seed suppliers and plantation companies and are always accompanied by a certificate of origin. Especially in the absence of nearby distribution points of such certified planting material or in response to the price of such material, farmers may search for alternative and noncertified sources, for example, their own field-planted plants (even though half of the seed will not be hybrid and will have poor yield), salesmen, or informal nurseries (IFC, 2013). Indeed, most independent smallholders interviewed (n = 189%) stated that they bought their seedlings from salesmen (23%), neighbours and friends (22%), or informal nurseries (15%), implying that their origin and respective quality are unknown (Brandi et al., 2013). The farmers surveyed indicated that the most important reasons for resorting to these sources, rather than the official suppliers of certified planting material, were convenience, price, or lack of knowledge about reliable sources of such high-quality seedlings.²² Other studies also find that access to certified hybrid planting material for independent smallholders is limited and that the knowledge on the importance of hybrid seedlings can be improved (IFC, 2013).

Third, an additional problem is the use of pesticides. According to the RSPO, agrochemicals should not be used in a way that endangers health or the environment. Yet, the empirical findings of the survey and the interviews suggest that smallholder practices with respect to pesticide storage, application, and empty container disposal often do not adequately consider the health and environmental risks associated with hazardous chemicals. For example, 20% of respondents that use chemicals (n = 146) stated that they stored these chemicals in their house without a separate storage room. In addition, almost two thirds of the smallholders that used chemicals indicated that they applied pesticides without wearing appropriate protection such as gloves and masks. Moreover, after emptying the containers, many of them simply dumped them on the plot. Others stated that they washed and resold the containers, while a few respondents indicated that they threw the empty containers into the river. Instead the RSPO requires—according to current Indonesian regulation—that farmers return their pesticide containers to the pesticide trader, who should then adequately handle the containers in line with national regulations. Furthermore, another critical finding concerns the large amount of pesticides used: For example, unselective spraying of the whole plot was practiced by more than half of the respondents who use chemicals (57% of n = 146). To save cost and time, as many smallholders stated, they also sprayed the circle around the palm tree instead of doing manual circle weeding, thereby potentially damaging the roots of the palms and thereby also reducing potential yield, and generating negative environmental consequences.²³

Fourth, fertilizing also represents a key challenge. While the RSPO requires practices that maintain or improve the soil fertility and ensure optimal and sustained yields, the standard does not make concrete prescriptions about fertilizer application. Instead, the RSPO suggests that the information on appropriate fertilizing may come from government extension services or companies that buy the smallholders' fresh fruit bunches from smallholder groups. Yet, the field work revealed that this information transfer is currently not adequately taking place and that independent smallholders mostly lacked the knowledge, the financial means, and sometimes also sufficient access to fertilizers in order to effectively fertilize their plot.²⁴

Last but not least, documentation represents a major compliance challenge for independent smallholders. The RSPO requires smallholders to document certain activities related to their palm oil plot, for instance, fertilizer application, pesticide use, and yield. However, in contrast to RSPO requirements, many of the independent smallholders interviewed did not document their farming activities: 87% of the smallholders questioned (n = 191) did not keep any records at all and often also did not see the need for it.

In sum, independent smallholders are facing considerable barriers to participation in certification schemes. Compliance with administrative and reporting standards for third-party verification in the context of the RSPO and other certification schemes necessitates a high level of knowledge and financial resources as well as organization,²⁵ which is what makes independent smallholder certification specifically challenging insofar as these requirements are by and large not met and, as outlined earlier, generate a number of significant gaps between standard requirements and practices on the ground that undercut successful RSPO certification. In the case of the scheme smallholders studied, overall, the situation in terms of the potential gap between the RSPO requirements and practices on the ground was very different. Due to the strong support by the company, the agricultural practices of these smallholders were already good before the certification process began, and the step to certification was not as large as in the case of independent smallholders.²⁶

Conclusion

While it is central to include smallholders in certification schemes, smallholder certification is particularly challenging. The empirical findings presented in this article underline that smallholders, and above all independent smallholders, often lack the information, the requisite financial resources, and the degree of organization that is required for successful smallholder certification under the RSPO and that they require support in order to become certified. Moreover, the empirical findings analyzed in this article have revealed five major gaps between specific standard requirements and current independent smallholder practices that concern land titles, seedlings, pesticide usage, fertilizing, and documentation.

The barriers to the inclusion of smallholders into certification schemes, outlined earlier, can undermine the effectiveness of sustainability standards both from an environmental and from an economic perspective. Against this background and in order to foster the participation of smallholders in the RSPO certification scheme, both the underlying barriers to the adoption of this sustainability standard as well as the aforementioned compliance challenges should be addressed, especially with a view to independent smallholders. For example, the survey showed that access to certified planting material for independent smallholders should be improved, for instance by increasing the number of official nurseries or promoting smallholder groups to set up collective nurseries with high-quality seedlings. Moreover, in order to address the identified barriers and compliance gaps, extensive and well-structured training should be provided. Smallholders perceive training to be very useful. The survey conducted emphasizes that there is a high demand for (more) training (89%, n = 181) and that many (71%, n = 116) are willing to pay for it, as the price is reasonable. The training should be complemented and supported by the organization of smallholders in groups. As emphasized earlier, organizing smallholders into groups is necessary for a successful certification process. The empirical findings regarding the scheme and the independent smallholders support this recommendation. Group certification makes certification more accessible and feasible for smallholders. Moreover, smallholder organizations serve as essential instruments for a systematic knowledge transfer. In addition to their relevance for certification, smallholder organizations can also offer their members a wide array of other benefits. For example, they can improve the bargaining position of smallholders toward mills, they can help to provide support and training, and they can engage in beneficial activities such as marketing the members' fresh fruit bunches (paying a higher price than middlemen), providing better access to inputs (also subsidized ones), and organizing savings plans for inputs and replanting.

Implementing these measures in turn is only possible with external support. Preparation and compliance costs in the context of smallholder certification are substantial and in most cases exceed the financial capacities of smallholders. Although part of the costs can be considered as investments that are likely to payoff later in terms of better farming practices and higher yield, initial costs need to be covered, for instance in the context of national subsidy schemes or donor- or company-funded smallholder certification projects.

While the focus of this article has been on the barriers to smallholder certification and on compliance challenges rather than on the potential benefits of the certification of smallholders, the relevant literature and first insights into RSPO smallholder certification projects investigated in the context of this study suggest that the participation in certification schemes can contribute to creating socioeconomic benefits for smallholders. Moreover, smallholder certification can contribute to making the palm oil sector more sustainable, for example, by reducing the use of agrochemicals. At the same time, large-scale environmental benefits focussing on deforestation and greenhouse gas emissions are more difficult to achieve. On the whole, more research on the benefits of RSPO smallholder certification is required—both in Indonesia and beyond.

Footnotes

Acknowledgments

The authors are very grateful to the editors of this journal, the three anonymous reviewers, and for the helpful comments on earlier drafts of this article. The authors are also very grateful for the help and the logistical support received from the Indonesian Ministry of Agriculture, the RSPO Indonesia Liaison Office, and the United Nations Development Programme in Indonesia.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work was supported by the German Federal Ministry for Economic Cooperation and Development (BMZ).

Notes

Author Biographies

Clara Brandi, PhD, is a Senior Researcher at the German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE). She received her PhD from the European University Institute, her Master in economics from the University of Freiburg, and her MPhil in politics from the University of Oxford.

Tobia Cabani works for the United Nations Environment Programme (UNEP), New York. He studied geography and sociology and was specialized in integrated management of natural resources and environmental policy.

Christoph Hosang works in business development in the digital sector. He received his BSc in International Business from the University Maastricht and his MSc in Political Economy from the University London.

Sonja Schirmbeck, PhD, works for the Friedrich-Ebert-Stiftung. She completed her PhD on international norms at the Goethe University in Frankfurt, majoring in international relations.

Lotte Westermann is a project manager at KfW Development Bank. She holds a diploma in international economics from the University of Tübingen.

Hannah Wiese is a project manager at KfW Development Bank. She studied economics at the University of Konstanz with a focus on international economic relations.

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