Explaining the “Certification Gap” for Different Types of Oil Palm Smallholders in Riau Province,Indonesia

Abstract

Indonesia is the world’s largest producer of palm oil, and its smallholder oil palm plantations involve more than 2.3 million farmers. The rapid expansion of the oil palm area, and resulting negative environmental and social impacts, has increased the demand for sustainability certification for palm oil products. This study investigates whether different types of smallholders face different barriers in complying with certification standards. The study uses survey data from 829 smallholders in Riau, Sumatra. First, an assessment is made of the gap between current management practices and practices required by Roundtable on Sustainable Palm Oil standards for different types of smallholders. Second, the article explores explanations for the gap between current and required practices. Finally, an investigation is made of the different starting points of different types of smallholders. Results indicate that the diversity between smallholders affects their prospects for certification. To date, this diversity in smallholders has not been taken into account in the application of Roundtable on Sustainable Palm Oil standards. This can help to explain the limited success of smallholder certifications in Indonesia.

Keywords

oil palm certification RSPO scheme smallholders independent smallholders

Oil palm cultivation has boomed in tropical areas in recent years. In Indonesia and Malaysia, this expansion has largely happened on forest land and peatland, leading to severe environmental effects such as deforestation, loss in biodiversity, increased greenhouse gas emissions, and haze pollution (Anggraini & Grundmann, 2013; Austin et al., 2017; Fitzherbert et al., 2008; Goldstein, 2016; Khatun, Reza, Moniruzzaman, & Yaakob, 2017; Koh & Wilcove, 2007, 2008; McCarthy & Zen, 2010; Pirker, Mosnier, Kraxner, Havlik, & Obersteiner, 2016; Prabowo, Maryudi, Senawi, & Imron, 2017; Setiawan, Maryudi, Purwanto, & Lele, 2016; Sumarga, Hein, Hooijer, & Vernimmen, 2016; Varkkey, 2012). These developments have promoted demands for more sustainable oil palm production, and as a result, certification schemes focusing on sustainability have surged (Padfield et al., 2016; Pirker et al., 2016; Richardson, 2015; Ruysschaert & Salles, 2016; Wijaya & Glasbergen, 2016).

In Indonesia, the expansion of smallholder production has contributed significantly to the rise in oil palm cultivation (Euler, Krishna, Schwarze, Siregar, & Qaim, 2017; Euler, Schwarze, Siregar, & Qaim, 2016). It is therefore worrying that engagement of smallholders in sustainable oil palm production and related certification schemes remains limited (Azhar, Saadun, Prideaux, & Lindenmayer, 2017; Brandi et al., 2015; Martin, Rieple, Chang, Boniface, & Ahmed, 2015; Saadun et al., 2018). Several articles have investigated the barriers to certification for smallholders (Glasbergen, 2018; Hutabarat, Slingerland, Rietberg, & Dries, 2018; Rietberg & Slingerland, 2016a, 2016b). These barriers relate to the extent of record-keeping, the lack of adequate knowledge and skills, difficulties in getting access to the necessary financial means to improve practices, and uncertainty about the benefits of certification. However, with few exceptions, limited attention has been given so far to the heterogeneity among smallholders and how this may affect the adoption and effect of certification (Hidayat, Glasbergen, & Offemans, 2015; Jelsma, Schoneveld, Zoomers, & van Westen, 2017a).

Indonesian oil palm smallholders can be distinguished as scheme smallholders and independent smallholders. In the late 1960s, the Indonesian government started with the development of oil palm plantations on government-owned estates as part of rural development projects (Zen, Barlow, & Gondowarsito, 2006). These programs typically included the establishment of a so-called nucleus estate, that is, a large-scale plantation with a central oil palm processing facility or mill, and surrounding scheme smallholders from which oil palm was sourced and for whom the nucleus provided and prepared the land, planted seedlings, and carried out maintenance until the trees started to produce fruits. Scheme smallholders have to manage the plantation under the nucleus’ supervision and must sell their oil palm fruits to the nucleus’ mill (Manggabarani, 2009; Pahan, 2012). Inspired by the increasing income levels of the scheme smallholders, farmers and communities around the nucleus estate gradually also started to grow palm trees (Belcher, Rujehan, Imang, & Achdiawan, 2005; Rahadian, 2013) or converted other crops to oil palm trees (Feintrenie, Chong, & Levang, 2010; Susanti & Burgers, 2012). These farmers, who cultivated palm trees without the support of nucleus estates or other parties, are known as independent smallholders.

Certification of palm oil production is said to promote better environmental, social, and economic performance of actors in the supply chain and their communities. Certification was initially directed to palm oil companies and mills. However, there are more than 2 million smallholders in Indonesia involved in this business that account for about 40% of the total production area (Directorate General of Estate Crop, 2015). Therefore, smallholders should also receive attention in the certification process (Brandi et al., 2015). However, since the initiation of Roundtable on Sustainable Palm Oil (RSPO) certification for smallholders (RSPO, 2009, 2010), fewer than 3,500 farmers in three farmer groups have been certified in Indonesia, that is, Asosiasi Amanah (346 farmers), Gapoktan Tanjung Sehati (227 farmers), and Gapoktan Sapta Tunggal Mandiri (2,716 farmers). At the moment of the current research, there are only three other farmer groups in the process of certification, that is, Forum Petani Swadaya Merlung Renah (174 farmers), Asosiasi Petani Sawit Swadaya Mandiri (120 farmers), and Gapoktan Kopau Jaya (29 farmers). Other farmer associations such as Asosiasi Anugerah and Asosiasi Mekar Sari have taken the first step by creating farmer groups, but they are unable to apply for RSPO certification because of land conflicts. Hence, the number of RSPO-certified smallholders is far below the total number of 2.3 million smallholder oil palm farmers in Indonesia. Having a better understanding of the barriers faced by smallholders to meet certification standards and the heterogeneity of smallholders in being able to address these barriers is therefore important.

Moreover, recognizing the heterogeneity among smallholders is important because differences in starting positions can influence the likelihood of participation in certification schemes as well as the potential benefits for smallholders (Euler et al., 2017; Jelsma, Slingerland, Giller, & Bijman, 2017b; Krishna, Euler, Siregar, & Qaim, 2017; Soda, Kato, & Hon, 2016). A recent document published by the RSPO, a public consultation report detailing potential strategies for improved smallholder inclusion in the RSPO system, concurs with this point of view (RSPO, 2018). The report identifies different types of smallholders and makes suggestions such as a stepwise approach toward certification for smallholders. The recommendations in the report are still to be discussed and ratified by the RSPO Board of Governance. Improved insights into the implications of the heterogeneity of smallholders for RSPO certification can support this discussion and the decisions to be made.

The palm oil sector is also under tight scrutiny in the European Union (EU), and the credibility of the sustainability claims of the RSPO is crucial for its continued support by EU consumers and policy makers. Specifically, a recent study funded by the European Commission linked oil palm production to the highest levels of indirect greenhouse gas emissions among all crops used for biofuels because of its effects on deforestation and the drainage of peatlands (Valin et al., 2015). These insights were incorporated in the revised EU Renewable Energy Directive (RED II), which states that biofuels from crops with a high risk of expansion into land with a high carbon stock (e.g., peatlands and forest land) should be phased out by 2030. Moreover, the ban on palm oil may not end there if consumers’ sustainability concerns are not adequately addressed. Such concerns have already led to a ban on palm oil for own-brand products in a European supermarket chain (British Broadcasting Corporation, 2018). In light of these developments, improved insights in the extent to which different types of smallholders can be credibly incorporated in sustainability certification will be crucial to allow continued exports of palm oil from Indonesia to the EU.

To make valuable contributions to these debates, the objective of this study is to assess the challenges and the prospects that different types of smallholders have in meeting RSPO certification. First, an assessment is made for different types of smallholders of the gap between current agricultural and management practices and the practices that are required under the RSPO standards. For this purpose, the next section provides details about the RSPO standard, its principles, and the criteria that need to be complied with. The Data and Methodology section explains the methodology that is used in the different parts of the analysis. Next, this methodology is used to explore the potential barriers that help to explain the gap between current and required agricultural and management practices. Finally, an investigation is made of the different starting points of different types of smallholders in closing the gap.

On one hand, the current article adds to the debates described earlier by highlighting the difficulties that smallholders have in fulfilling the requirements of RSPO certification. On the other hand, improving smallholder inclusion in the RSPO may also hold dangers for the credibility of the sustainability claims of RSPO because the heterogeneity of smallholders will require different approaches and controls and hence may obscure the transparency of the standard and its processes.

RSPO Certification

This section gives an overview of the current RSPO system and its requirements. This overview will show that RSPO already includes several requirements that are specific to smallholders, but the distinction in these requirements for different types of smallholders or the acknowledgment of differences in starting conditions is limited.

The RSPO standard contains 8 principles, 39 criteria, 139 indicators for companies and mills, and 90 indicators for smallholders (RSPO, 2009, 2012). RSPO principles consist of (a) commitment to transparency, (b) compliance with applicable laws and regulations, (c) commitment to long-term economic and financial viability, (d) use of appropriate best practices by growers and millers, (e) environmental responsibility and conservation of natural resources and biodiversity, (f) responsible consideration of employees and of individuals and communities affected by growers and mills, (g) responsible development of new plantings, and (h) commitment to continuous improvement in key areas of activities (RSPO, 2009, 2010). Each principle contains a number of criteria. Smallholders must comply with each of the 8 principles, but only 35 out of the 39 criteria were applicable to smallholders at the moment of this study. In addition, there are three basic prerequisites for prospective smallholders that want to become certified: (a) their plantations are not located in high conservation-value forest, (b) their plantations have no disputes or social conflicts, and (c) smallholders have no problems related to labor use (Rahadian, 2013; RSPO, 2012).

RSPO distinguishes between two levels in the RSPO principles and criteria (P&C)—the individual smallholder level and the group level—because RSPO certification for smallholders requires smallholders to be organized in groups. Certification of the group standard is expected to assure that sustainability-related policies and regulations are implemented by the group administrators and the smallholders. The RSPO standards for agricultural practices are focused on sustainable oil palm cultivation practices that must be met by all the farmers who are included in the group certification. According to the RSPO Certification Protocol (RSPO, 2010), scheme smallholders should be certified along with the mill with which they are associated, while independent smallholders are to be certified independently of mills through smallholder group certification. The ability of independent farmers to obtain RSPO certification is determined by the ability of farmers’ associations to organize their members in applying the P&C demanded by the certification system.

Data and Methodology

This section provides details about the data and methods that will be used to study the gap between smallholder practices and RSPO requirements, the barriers in closing this gap, and the differences in starting positions of different types of smallholders. The study was conducted in two districts in Riau Province, Pelalawan District and Kampar District. The study focused on three different types of smallholders: transmigrant nucleus estate smallholders (Perkebunan Inti Rakyat/PIR-TRANS), the Primary Cooperative Credit for Members (Koperasi Kredit Primer Anggota/PIR-KKPA) smallholders, and independent smallholders (Pekebun Kelapa Sawit Swadaya).

Riau province is the main oil palm producing area in Indonesia and has witnessed a rapid increase in oil palm development since the 1990s. It accounts for 23% of Indonesia’s total mature oil palm acreage and houses 30% of all Indonesian oil palm smallholders. The share of total oil palm area under smallholder cultivation is around 58% in Riau province, with 4% and 38% cultivated by state-owned and private companies, respectively (Jelsma et al., 2017a). While Riau province holds a dominant position in the oil palm sector in Indonesia, several characteristics make it an interesting case for gaining insights that are also relevant for other oil palm producing regions around the world. For instance, other provinces on Sumatra (e.g., South Sumatra and Jambi) and Kalimantan islands also have large oil palm areas, high shares of smallholder production, and low shares of smallholders that have achieved RSPO certification. The same holds for Malaysia—after Indonesia, the second-largest oil palm producer in the world (Cramb & McCarthy, 2016).

The first PIR projects were established in the late 1970s with a state-owned company as the nucleus and local farmers as the scheme smallholders, also called “plasma.” Farmers received 2 ha of land for estate crops and 0.5 ha for their house and garden. A contract existed between the nucleus and the scheme farmer (Molenaar et al., 2010). The nucleus provided the land for the scheme, implemented land preparation, planted seedlings, and carried out plantation maintenance until responsibility for management of the land was handed over to the farmers at the moment that the trees started to produce fruits. Farmers had to manage the plantation under the supervision of the nucleus and were obliged to sell the Fresh Fruit Bunches (FFBs) to the nucleus’ mill after they gained responsibility over the land. The repayment of the farmers’ debt was deducted from the revenue of each harvest or each month (Manggabarani, 2009; Pahan, 2012). In 1986, the PIR-TRANS scheme commenced involving transmigration farmers from Java Island. The state provided access to land and credit to transmigrants, and new settlements were established in areas surrounding plantations (Budidarsono, Susanti, & Zoomers, 2013; McCarthy, 2010).

In the 1990s, the Indonesian government started to withdraw its support to the PIR schemes, and more responsibility was required from plantation companies to interact directly with landholders or settlers (Cramb & McCarthy, 2016). In 1996, the PIR-KKPA scheme was launched. This scheme involved a more direct private—community partnership model with the plantation firm being responsible for most of the project, providing support to farmers to resolve land issues, and providing training and extension services (Budidarsono et al., 2013). Farmers involved in the scheme were locals, not transmigrants, and were forced to form a cooperative (KKPA) to manage the land and receive credit (Cramb & McCarthy, 2016). Landholders allocated plots of land for the company to develop and received a proportion of the developed land back for their own use. The rest of the land remained under the management of the nucleus estate (Cramb & McCarthy, 2016). All costs of investment, maintenance, management, and debt repayment were deducted from the farmers’ sales revenue (Feintrenie et al., 2010). PIR-KKPA schemes relied on private companies that often did not have experience in dealing with smallholder cooperatives, and early schemes were found to suffer from significant delays (Cramb & McCarthy, 2016).

From 1990 onward, local people have also started to grow oil palm trees without any support from other parties. They spread out from nucleus estates or just started planting oil palm trees on their land (Cramb & McCarthy, 2016). These smallholders are independent farmers who are free to choose the cultivation system and plant materials, and they can sell to any middleman or mill. There is no contract between independent smallholders and mills or cooperatives.

Primary data were gathered through a survey among different types of smallholders using structured questionnaires. The survey used two standard sampling methods, random sampling for scheme smallholders (PIR-TRANS and PIR-KKPA) based on the list of smallholders provided by the respective mills, and snowball sampling for independent smallholders. Although random sampling is preferred to minimize potential biases in sample selection, this method could not be used for the independent smallholders because for this type of smallholders, no comprehensive lists were available. For each type of smallholder, both RSPO-certified and noncertified smallholders have been included in the sample (Table 1). The total sample included 829 smallholders, of which 270 are PIR-TRANS (110 certified), 243 are PIR-KKPA (85 certified), and 316 are independent smallholders (102 certified). Additional primary information was gathered using semistructured questionnaires with smallholders and other stakeholders (such as middlemen, cooperatives, agricultural extension services, banks, microfinance providers, and government agencies), group discussions, field visits, and a validation workshop with the key actors in the sector. Secondary quantitative data were derived from the records held by companies, cooperatives, government agencies, and nongovernment actors and include yields, prices, and other quantitative data.

Table 1.

Smallholder Types and Sample Size.

Smallholder types		Location	Certification	#
PIR-TRANS (n = 270)
CPIR1	PIR of PT. Inti Indosawit Subur	Ukui	RSPO-certified	110
PIR2	PIR of PT. Sari Lembah Subur	Kerumutan	Noncertified	80
PIR3	PIR of PT. Surya Bratasena	Meranti	Noncertified	80
PIR-KKPA (n = 243)
CKKPA1	KKPA of PT. Ramajaya Pramukti	Kampar	RSPO-certified	85
KKPA2	KKPA of PT. Perkebunan Nusantara V	Kampar Kiri	Noncertified	80
KKPA3	KKPA of PT. Peputra Masterindo	Kampar	Noncertified	78
Independent smallholders (n = 316)
CIND1	Amanah Association	Ukui	RSPO-certified	102
IND2	Independent farmers at Ukui	Ukui	Noncertified	83
IND3	Independent farmers at Kerumutan	Kerumutan	Noncertified	70
IND4	Independent farmers at Bangkinang	Bangkinang	Noncertified	61
Total				829

Note. RSPO = Roundtable on Sustainable Palm Oil; PIR-TRANS = Perkebunan Inti Rakyat; CPIR = certified PIR-TRANS smallholders; KKPA = Koperasi Kredit Primer Anggota; CKKPA = certified KKPA smallholders; CIND1 = group of certified independent smallholders; IND2 = Group 2 of independent smallholders; IND3 = Group 3 of independent smallholders; IND4 = Group 4 of independent smallholders.

The gap between smallholders’ current practices and RSPO standard practices is assessed for the 8 principles and 35 criteria of the RSPO standard. First, compliance with each of the criteria was scored between 0% (no compliance) and 100% (full compliance) for each smallholder in the sample. Next, smallholders were grouped in smallholder types (see Table 1), and for each smallholder type, the average level of compliance with each of the 8 principles and each of the 35 criteria was calculated. Equation 1 shows how the average level of compliance with criterion k ( ${\bar{X}}_{k}$ ) was calculated; Equation 2 shows how the average level of compliance with principle p ( ${\bar{X}}_{p}$ ) is calculated by summing the average levels of compliance for all the criteria within principle p; Equation 3 shows how the total average level of compliance ( $\bar{X}$ ) is calculated by summing average compliance levels over all criteria

{\bar{X}}_{k} = \frac{\sum_{s = 1}^{n} X_{ks}}{n}

(1)

{\bar{X}}_{p} = \sum_{k = 1}^{r} [\frac{\sum_{s = 1}^{n} X_{ks}}{n}]

(2)

\bar{X} = \sum_{k = 1}^{q} [\frac{\sum_{s = 1}^{n} X_{ks}}{n}],

(3)

where k is the number of the criterion, s is the number of the smallholder, n is the total number of smallholders per smallholder type, r is the total number of criteria in principle p, q is the total number of criteria over all principles in the RSPO standard, and

X_{ks}

is the compliance rate for criterion k of smallholder s.

In terms of barriers to closing the gap in current practices and RSPO requirements, the study also assesses farmers’ access to various resources such as access to information, inputs, markets, financial resources, and infrastructure. Respondents to the questionnaire were asked to assess their access to resources. The response scale had three levels: 1 (low) to 2 (medium) and 3 (high). Low means that farmers do not have access to the resource, high indicates that there are no obstacles in accessing the resource, and medium indicates that resources can be accessed partly (see Appendix 1).

Finally, the determinants of yield differences between smallholders are analyzed using ordinary least squares regression models. The focus on yields provides important insights because improved agricultural and management practices—as required by the RSPO—have the potential to improve yields of smallholders (Soliman, Lim, Lee, & Carrasco, 2016). The dependent variable is calculated as the annual yield per hectare. The independent variables include plant-technical factors (e.g., quality of planting material and tree age), variables of managerial practices relating to fertilizer use and harvesting, farmer characteristics, and whether the farm has been RSPO certified. A variable of special attention addresses the smallholder type. One model examines yield differences between scheme and nonscheme smallholders; a second model tests for differences among farmer groups of independent smallholders. Details on the variables that are used in the analysis can be found in Appendix 2.

Results and Analysis

Smallholders’ Current Practices Compared With the RSPO P&C

Following the methodology described in the Data and Methodology section, we identify the gap between smallholders’ current practices and the RSPO-required practices, for different types of smallholders. PIR-TRANS smallholders on average have the highest score of compliance with the RSPO standard, followed by the PIR-KKPA and independent smallholders (Figure 1, based on Equation 1). Certified smallholders have a higher level of compliance with the RSPO standard than noncertified smallholders for each type of smallholder. In general, RSPO-certified smallholders comply with about 70% of the standards. Independent smallholders have the largest gap between current practices and RSPO standards compared with other smallholder types.

Figure 1.

Degree of compliance of different smallholder types and groups with the RSPO certification standard.

The low level of compliance that we find for RSPO-certified smallholders may be surprising, but it is in line with findings from other studies. Lord and Durman (2013) analyzed 114 RSPO certification and surveillance audits of smallholders around the world and found a total of 394 major nonconformances and 674 minor nonconformances. Rietberg and Slingerland (2016b) found 56 compliance issues in only 10 (re)certification reports of independent smallholders. Principle 2 (laws and regulations), Principle 4 (environment and conservation), and Principle 6 (employees and communities) have been identified by these studies as major challenges for smallholders. These observations raise questions about the suitability of the RSPO’s P&C for smallholders. Improvements in the P&C for smallholders and their implementation and auditing on the ground may be needed to achieve the RSPO’s sustainability potential (Meijaard, 2017)

Figure 2 shows the level of compliance of different types of smallholders for each of the eight RSPO principles (Equation 2). Certified smallholders in each type have the highest compliance with each of the principles in the RSPO standard. Noncertified PIR-TRANS and PIR-KKPA smallholders have high scores for Principles 2 and 3, the principles that relate to compliance with applicable laws and regulations and commitment to long-term economic and financial viability, respectively. PIR-TRANS and PIR-KKPA smallholders usually comply with laws and regulations as they are organized by a cooperative or supervised by a nucleus company. On the other hand, PIR-TRANS and PIR-KKPA smallholders have relatively low scores on Principles 6 (responsible consideration of employees and of individuals and communities affected by growers and mills), 7 (responsible development of new plantings), and 8 (commitment to continuous improvement in key areas of activities). The latter result may not be surprising given the ambiguous management jargon that is used in the principles.

Figure 2.

Degree of compliance of different smallholder types with RSPO principles.

Noncertified independent smallholders on average have low scores for every RSPO principle. First, they cannot comply with RSPO standards applied to farmer groups (Principles 1, 2, 3, 6, 7, and 8). Independent farmers are not associated to any cooperative or nucleus estate. However, RSPO standards were constructed with a vision of group-based certification. Therefore, independent smallholders need to establish an organization or association to become certified. Second, their compliance to the standard of agricultural practices (Principles 4 and 5) is also low due to a lack of access to agricultural inputs. In the next section, we elaborate further on the potential barriers to compliance for different smallholder types. We do this by comparing the characteristics of the different smallholder types. Differences in smallholder characteristics point to different starting positions of smallholders when they apply for certification and therefore require attention to improve smallholder inclusion into the RSPO system.

Heterogeneity of Smallholders—Different Characteristics, Different Challenges

This section investigates if different smallholder types also have different characteristics that can affect their ability to change from traditional practices to the RSPO-required practices. If such differences exist and persist, then certain smallholder types may become excluded from sustainability certification altogether.

Farmer characteristics

The average age of farmers (n = 829) was 41 years old, while average formal education was equivalent to elementary school. Results from t tests show that the average age of independent smallholders (30 years) is significantly lower than that of PIR-TRANS or PIR-KKPA smallholders (respectively 49 and 47 years on average). The average age of certified smallholders (33 years) is also significantly lower than the age of noncertified smallholders. The average level of education of smallholders does not differ significantly between different smallholder types.

Plantation performance

PIR-TRANS smallholders have the oldest oil palm plantations. The plantations have been cultivated between 15 and 27 years, and average tree age is 24 ± 2.6 years. The old age of palm trees is reflected in low annual yields per hectare for PIR-TRANS smallholders. PIR-KKPA palm trees are on average 17.8 ± 3.3 years old, that is, a variation between 14 and 22 years. Independent farmers have large variations in tree age, between 3 and 20 years with an average tree age of 13 ± 3.4 years. Statistical tests show that the differences in average tree ages are significant for different types of smallholders. Agricultural practices in PIR-TRANS and PIR-KKPA are relatively similar because both types have a partnership with a plantation/mill. In the survey, the overall average size of smallholder plantations is 2.1 ± 0.6 ha: PIR-TRANS (2.0 ± 0.0 ha), PIR-KKPA (1.9 ± 0.2 ha), and independent smallholders (2.2 ± 1.0 ha). The differences in average farm size between smallholder types are statistically significant.

The average annual yield per hectare of oil palm smallholders in our sample is 16.1 ± 6.1 tons ha⁻¹yr⁻¹. Statistical tests confirm that average yields are significantly different for different smallholder types. For PIR-TRANS smallholders, the average yield is 11.8 ± 5.9 tons ha⁻¹yr⁻¹; for KKPA smallholders, this is 20.4 ± 4.7 tons ha⁻¹yr⁻¹; and for independent smallholders, it is 16.3 ± 4.8 tons ha⁻¹yr⁻¹. The average yield of independent smallholders is slightly higher than yields that were found by other authors, for example, both Molenaar, Persch-Orth, Lord, Taylor, and Harms (2013) and Soliman et al. (2016) found average yields for independent smallholders of around 13 tons ha⁻¹. The same authors report average yields of scheme smallholders of around 15 tons ha⁻¹ and 21 tons ha⁻¹, respectively. The mills set the oil extraction rate between 20% and 22% for the scheme (PIR-TRANS and PIR-KKPA) and 15% to 17% for the independent smallholders.

Access to seeds, fertilizers, and the market

The ability of farmers to change from traditional practices to RSPO-required practices is determined not only by farm- and farmer-related characteristics but also by smallholders’ ability to get access to technology, inputs, markets, supporting institutions, and infrastructure. Certified smallholders in all types have high access to resources, while noncertified smallholders have medium to low access. Noncertified independent smallholders have the lowest access to all of the resources (see Appendix 1 for further details).

Access to good-quality plant material is important as it determines future oil palm yields. Most of the scheme smallholders are expected to use good plant material particularly from Pusat Penelitian Kelapa Sawit (PPKS) Marihat. Table 2 shows that independent smallholders also have access to good planting material either PPKS or non-PPKS. A large proportion of the smallholders that were interviewed did not know the quality of their planting material.

Table 2.

Quality of Plant Material Used (in Percentage, n = 829).

	High-quality PPKS	High-quality non-PPKS	Low-quality plant material	Do not know
Type of groups
Independent	60	9	5	25	100
PIR scheme	68	2	1	29	100
KKPA scheme	35	0	0	65	100
Total	56	4	2	38	100

Source. Own calculations based on survey.

Note. PIR = Perkebunan Inti Rakyat; KKPA = Koperasi Kredit Primer Anggota; PPKS = Pusat Penelitian Kelapa Sawit.

Table 3 shows that the use of fertilizers by independent smallholders is slightly higher than that of PIR-TRANS farmers. Because independent smallholders have no leaf analysis on their plantations, they tend to imitate what the scheme farmers apply on their plantations. Scheme smallholders are informed on fertilizer use by the cooperative or mill that they belong to, but independent smallholders need to access information about fertilizers from other farmers or traders. As PIR-TRANS plantations are old and yields are declining, it makes sense to use less fertilizers than PIR-KKPA plantations with trees in a more productive age. Fertilizer distributors sell fertilizers only to registered agents, and the agents sell it to registered middlemen and farmers. Fertilizers have to be ordered 6 months before delivery. The scheme cooperative is considered as a formal agent, and the cooperative plans the use of fertilizers annually. In contrast, independent farmers have no planning in their plantations and usually buy a small quantity of fertilizer whenever they have money.

Table 3.

Fertilizer Use by Different Smallholder Types.

Fertilizer use	Units	PIR-TRANS	PIR-KKPA	Independent
Urea	kg/ha/year	278 ± 96	364 ± 81	283 ± 92
SPS-36	kg/ha/year	131 ± 48	170 ± 58	167 ± 68
Muriate of potash	kg/ha/year	241 ± 83	325 ± 83	255 ± 95
Kieserite/dolomite	kg/ha/year	159 ± 58	234 ± 114	155 ± 61

Source. Own calculations based on survey.

Note. PIR-TRANS = Perkebunan Inti Rakyat; KKPA = Koperasi Kredit Primer Anggota.

The capability to sell FFBs varies among different types of smallholders. Scheme smallholders who joined village cooperatives have better access to mills than independent smallholders. When the scheme smallholders have completed their contract with the mill, they can face a change in treatment depending on the mutual commitment to continue the business. Independent smallholders with small volumes of FFBs can only get access to a mill through cooperatives, middlemen and traders who can assure a minimum volume to the mill.

Oil palm plantations are usually developed in remote areas that lack roads and other transportation infrastructure. Particularly during the rainy season, access to plantations is difficult. Access problems affect transport of FFBs that have to be delivered to the mill within 24 hours after being harvested. The quality of fruits declines significantly after harvesting, which leads to a decrease in price. The survey shows that scheme smallholders have better access to infrastructure than independent smallholders because their infrastructure was developed and maintained by a nucleus company. However, some scheme smallholders’ access deteriorates when their contract ends because the mill no longer has the responsibility to maintain and develop infrastructure when there is no business link anymore. Independent smallholders depend largely on local government that usually does not have enough budget to develop roads and other infrastructures in rural and remote areas. Moreover, plantations of independent smallholders are not clustered in one location, and the very large distances between them form an additional barrier to be served by government-funded infrastructure.

Household income

Smallholders’ household income consists of income from oil palm plantations, non-oil palm agricultural activities (e.g., rubber and rice), and nonagricultural activities (e.g., trade and paid labor). Oil palm income for smallholders is on average 182 ± 108 euro month⁻¹. The share of oil palm revenues in the total household income is 70.2% on average, while income from other agricultural products and income from nonagricultural activities is on average 6.3% and 22.6%, respectively (Table 4). PIR-KKPA farmers have the highest share of their household income from oil palm compared with independent and PIR farmers. With an average share of about 70%, income from oil palm is very important in the total household income for all types of smallholders. Statistical tests show that differences in household income sources between smallholder types are significant at least at the 5% level. However, the total income of independent smallholders is not significantly different from that of PIR-KKPA smallholders.

Table 4.

Smallholders’ Household Income (Euro per Month).

	Oil palm income (euro/month)	Agricultural non-oil palm income (euro/month)	Nonagricultural income (euro/month)	Total income (euro/month)
PIR-TRANS
M	118	3	53	174
SD	83	17	122	142
%	67.9	0.8	27.4	100.0
PIR-KKPA
M	227	28	59	314
SD	73	56	105	129
%	72.3	8.9	18.8	100.0
Independent
M	203	20	68	291
SD	123	72	166	234
%	69.7	7.0	23.3	100.0
Total
M	182	16	59	260
SD	108	56	137	189
%	70.2	6.3	22.6	100.0

Source. Own calculations based on the survey.

Note. PIR-TRANS = Perkebunan Inti Rakyat; KKPA = Koperasi Kredit Primer Anggota.

Determinants of Yield Differences

Household income from oil palm depends on yield and FFB price. RSPO certification has the potential to affect both: Yields are expected to increase as a result of introducing agricultural and management practices to comply with RSPO P&C; FFB prices can increase if a premium price is paid for RSPO-certified oil palm fruits.¹ However, especially the potential for yield increases due to certification will depend heavily on initial starting conditions, and these may differ significantly between different smallholder types. In this section, we therefore analyze the determinants of yields, paying special attention to the differences between smallholder types. Two models are estimated; the first focuses on differences in yields between scheme smallholders and independent smallholders; the second analyses differences in yields between different groups of independent smallholders. Table 5 presents the results for both models (see Appendix 2 for variable descriptions).

Table 5.

Results of the Analysis of Yield Differences.

	Model 1			Model 2
	Coeff.	t value	Sign.	Coeff.	t value	Sign.
IND2	–			−1542.3	−2.884	***
IND3	–			2486.9	3.716	***
IND4	–			−816.3	−1.252
PIR	62.0	0.086		–
KKPA	2550.1	5.214	***	–
CERT	3479.7	6.537	***	–
AGE	26.4	1.780	*	40.1	2.064	**
EDU	135.5	2.740	***	62.7	0.900
INCOME	0.0	2.160	**	0.0	2.430	**
TREE AGE	1967.6	11.190	***	1590.2	5.001	***
(TREE AGE)²	−70.4	−12.491	***	−58.6	−4.515	***
SOIL	2451.5	7.941	***	1654.7	3.877	***
FOREST	−78.4	−0.233		−645.7	−1.452
PLANT	2874.4	6.745	***	3714.2	8.950	***
FERTILIZER	2.2	1.381		2.173	0.899
HARVEST	2572.5	7.767	***	3338.3	6.294	***
Constant	−4751.5	−2.980	***	−2320.0	−0.967
Adj. R²	0.579			0.560
F value	88.661			31.778
Observations	829			316

Note. IND2 = Group 2 of independent smallholders; IND3 = Group 3 of independent smallholders; IND4 = Group 4 of independent smallholders; PIR = Perkebunan Inti Rakyat; KKPA = Koperasi Kredit Primer Anggota. Significance levels: *** at 1%; ** at 5%; * at 10%

Results for Model 1 show that KKPA smallholders have a higher annual yield compared with independent smallholders, while annual yields of the PIR-TRANS group do not significantly differ from that of independent smallholders. RSPO-certified smallholders have a higher annual yield per hectare than noncertified smallholders. Other yield-determining factors include having a plantation on mineral soil, good-quality plant material, good harvesting practices, average tree age, and formal education of the smallholder. Variables that have no significant effect on yields are fertilizer use, previous land use (forest area), and smallholders’ age.

Model 2 results show that there is substantial diversity also within the sample of independent smallholders. The comparison group of smallholders (IND1) is the group of RSPO-certified independent smallholders that are member of the Amanah Association. Table 5 shows that annual yields of certified smallholders are significantly higher than that of the IND2 group, significantly lower than yields of the IND3 group and not significantly different from yields of the IND4 group of independent smallholders. On one hand, this provides evidence of the heterogeneity across smallholders; on the other, it also shows that certified smallholders do not necessarily outperform noncertified smallholders (at least in terms of yield performance). Other factors that are significantly, and positively, related to yields of smallholders are tree age, plantation on mineral soils, use of good plant material, and applying good harvesting practice.

Discussion

This section puts the results from the foregoing section into the light of differences between smallholders’ barriers to certification. First, we point out an important distinction between smallholder certification and smallholder use of sustainable practices. Next, we focus on the requirements for individual smallholders and how heterogeneity between smallholders will lead to differences in the barriers to certification. Finally, we discuss the RSPO group certification standard. Because smallholders can only become RSPO certified through a group application, this requirement creates additional barriers to becoming certified, especially for independent smallholders.

RSPO Certification and Implications for Sustainability Performance

It is important to point out that the data that were used in this study do not allow to assess whether certification of smallholders led to improvements in sustainability performance. We have therefore focused on assessing the barriers to RSPO certification and do not derive implications for sustainability. This may be seen as a limitation of the study, and we refer to other authors who have investigated the impact of RSPO certification on different dimensions of sustainability. In general, quantitative assessments of the link between RSPO certification and sustainability are scarce, and the few studies that exist show ambiguous results (Carlson et al., 2018; Cattau, Marlier, & DeFries, 2016; Meijaard, 2017; Morgans et al., 2018). For instance, Carlson et al. (2018) evaluate different dimensions of sustainability and find a positive impact of RSPO certification on economic sustainability metrics but no impact on social or environmental aspects of sustainability. Other studies have focused on the environmental dimension of sustainability and found only marginal or no impact of certification (Cattau et al., 2016; Meijaard, 2017; Morgans et al., 2018). These authors conclude that RSPO certification offers opportunities for sustainability improvements but that further improvements in the P&C of the RSPO and especially their implementation and auditing on the ground may be needed to achieve this potential (Meijaard, 2017). Further research is warranted to substantiate these claims and to offer insights into the necessary adjustments that may strengthen the connections between certification and sustainability.

Brandi (2017) offers another perspective on the relation between RSPO certification and sustainability performance. She claims that important trade-offs may exist between environmental sustainability on one hand and inclusive development on the other. For example, improving environmental sustainability may undermine economic benefits for smallholders and hence reduce the attractiveness of certification for smallholders. As a result, only small-scale environmental benefits such as the reduced usage of agrochemicals may prove realistic in certification projects. Loopholes in implementation and control challenges of RSPO may reduce the effectiveness and environmental impact of certification even further. The latter was also evidenced in the Smallholders’ Current Practices Compared With the RSPO P&C section that showed the relatively low level of compliance with RSPO P&C by the certified smallholders in our sample.

Challenges to RSPO Certification for Smallholders

Even if we assume that RSPO certification would lead to the adoption of sustainable agricultural practices by smallholders, the environmental impact of certification will only be achieved if a significant share of smallholders becomes certified. Hidayat et al. (2015) claim that financial effects are the main reason for smallholders to join or not to join RSPO certification. Some studies have found beneficial financial effects of certification as a result of increased yields from improved agricultural practices and premium fees (e.g., Hidayat et al., 2015; Morgans et al., 2018). However, changing agricultural practices to fulfill certification requirements also involves additional costs for inputs. Lee, Rist, Obidzinski, Ghazoul, and Koh (2011) identified the cost of implementing good agricultural practices as the main obstacle to smallholder certification. Hutabarat et al. (2018) also found that the increase in costs of certification was higher than the financial benefits in terms of increased farm sales value for oil palm smallholders in Indonesia. This negative net result would become even more limiting to smallholder certification if smallholders would also have to bear initial certification costs, which are currently often borne by nongovernmental organizations, foundations, or the RSPO smallholder support fund (Hutabarat et al., 2018).

Moreover, as shown in the Results and Analysis section, different farmers will already have differences in input use prior to certification, different initial wealth levels, and hence a different potential to achieve positive financial effects from certification. In addition, heterogeneity among farmers can be found in their level of education and age. These personal characteristics can affect living styles, attitudes, and way of working (Rahadian, 2013) and hence also the likelihood and ease of adopting new, sustainable practices. Transforming traditional management practices to modern practices may be challenging for smallholders that have no tradition to record the activities in their farm business. For scheme smallholders, this transformation toward more formalized monitoring practices may be less driven by personal constraints because the mill or the cooperative generally oblige them to comply with the RSPO principles as long as they want to keep selling their FFB to the mill/cooperative.

The Need for Group Certification

As opposed to the individual requirements discussed in the previous section, the RSPO standard for group certification must be complied with by a farmer group (RSPO, 2010, 2012). The organization of smallholder farmers in associations, cooperatives, or company-community partnerships is a common goal in many rural development programs. The assumption is that group formation can lead to a number of benefits that are otherwise hard to achieve for individual smallholders, for example, economies of scale in group purchases of inputs and technological support for plantation management, group assembly, and transport of FFB, leading to reduced costs and risk and higher prices for deliveries (Cramb & McCarthy, 2016; Cramb & Sujang, 2013; Hutabarat et al., 2018). Such benefits of smallholder organization can be achieved also without RSPO certification.

Before applying for RSPO certification, smallholders must establish a farmer group that organizes farmers in the production process, maintenance, marketing, and administration. Individual farmers cannot apply for RSPO certification. Establishing a farmer group is therefore a crucial step toward RSPO certification for smallholders (Bitzer, Glasbergen, & Arts, 2013; Hellin, Lundy, & Meijer, 2009; Markelova, Meinzen-Dick, Hellin, & Dohrn, 2009). This prerequisite might not be a barrier for PIR and KKPA scheme smallholders because both types of smallholders are already organized through the scheme (Manggabarani, 2009; Molenaar et al., 2013). However, there are a large number of independent farmers who are not associated to any farmer groups or associations (Rahadian, 2013). Principles 3, 6, 7, and 8 of the RSPO standard are based on the assessment of the group certification; consequently, the degree of compliance of noncertified independent smallholders will be much lower than that of noncertified scheme smallholders (RSPO, 2010).

Moreover, many independent smallholders do not have the appropriate title to their land for oil palm plantation, almost none of the independent smallholders register their oil palm business, and most do not have a statement of environmental monitoring and management. Because these documents are basic requirements to become a member of a group certification (Principles 2 and 4), the absence of these documents will exclude independent smallholders from group certification (RSPO, 2012). In addition, the RSPO certification system applies a collective responsibility system, which means that if one member of the group cannot meet the standards, then the whole group cannot be certified (Rahadian, 2013). A survey of the members of the Amanah Association, the first RSPO-certified independent smallholders in Indonesia, confirmed some of the difficulties in obtaining the necessary documents. All the documents can be applied for at local government agencies at district level: the National Land Agency (land title), the local estate crops agency (business registration), and the local environmental agency (statement of environmental monitoring and management). Major constraints were found to be the lack of capacity, knowledge, and information of the local agencies’ staff and the bureaucratic system of local agencies. Chalil (2012) found that access to these documents for scheme smallholders is easier than for independent farmers because of the support from the already, registered company or mill.

Other barriers to establish farmer groups among independent smallholders are due to heterogeneity in land size and quality, wealth, access to labor, education, type of seedlings, distance to the mill, distance between oil palm plantations, old age of palm trees, and access to information (Lee et al., 2011). Experience from two farmer groups in the process of certification shows that more variation within a group causes more difficulties in the process of certification. The Amanah Association in Riau Province has less variation compared with the Gapoktan Tanjung Sehati in Jambi Province. Farmers in the Amanah Association have an almost similar land size, age of palm trees, and distance to the mills (PT. BSI Group, 2014), while in Gapoktan Tanjung Sehati in Jambi, the variations are larger (TUV Rheinland, 2014). These differences influence the capability of farmer groups to manage their members to meet the standard of RSPO (Rahadian, 2013).

Conclusion

Certification is promoted as an instrument for sustainable oil palm production and cooperation among actors throughout the supply chain. The majority of smallholders engaged in oil palm production in Indonesia has a plantation size of less than or equal to 2 ha, and about 70% of their household income comes from oil palm production. Should certification be successful in improving sustainability (in its different dimensions), then from a poverty alleviation perspective, it would make sense that smallholders are prioritized for certification. The RSPO standards allow for smallholder certification, but there is large variation between smallholder types (scheme and independent), and the variation is even larger within the group of independent smallholders. This results in different starting points for different smallholders in the process of certification. Scheme smallholders are considered to have less difficulties to meet the certification requirements because by design they are supported by the nucleus and other institutions. However, certification puts independent smallholders in a less advantageous situation given limited economies of scale, agronomic constraints, and institutional barriers. The heterogeneity in the extent to which barriers to certification affect different types of smallholders requires further attention.

A recent public consultation report (RSPO, 2018) confirms this need and recommends a more elaborate distinction between independent smallholder types as well as a stepwise approach in the certification process to gradually overcome barriers to certification. The report introduces a

revised RSPO Standard for Certification of Smallholders that will include a separate set of principles and criteria exclusively for smallholders, taking into account the reality of the smallholders’ context and their needs. The simplified approach includes easier entry, simpler processes for reaching and verifying compliance, and support (provided from RSPO and from mills and markets) while progressing. (RSPO, 2018)

This can be an important development to improve smallholder certification.

Our study also has some limitations. First, we evaluate the challenges faced by smallholders to become RSPO certified. However, the data do not allow us to assess the implications of certification for the sustainability of smallholder production. The extent to which RSPO certification leads to a higher sustainability performance is still heavily debated. It goes beyond the scope of this article to contribute to this contentious debate. Second, RSPO certification may be neither a necessary nor a sufficient condition for improving smallholder performance. Some of the factors that can limit smallholders’ success in the certification process (e.g., low access to inputs, bad infrastructure, or low-quality planting material) concern barriers to improved smallholder performance regardless of certification. Improvements in these factors are therefore warranted for all smallholders whether or not they aim for RSPO certification.

Finally, we should note that our results provide insights in the differences between certified and noncertified smallholders, but the data do not allow us to fully assess the actual effect of certification due to the lack of a suitable counterfactual. On one hand, we do not have historical information, so we cannot assess the situation before certification and compare it with the changes that resulted from certification. On the other hand, the comparison of certified versus noncertified smallholders may also not provide sufficient evidence of the impact of certification. For instance, differences between certified and noncertified smallholders may result from differences in initial conditions (one of the main arguments of the article) or other factors than certification can affect farmers’ practices. This may be especially the case for the independent smallholders. Certification requires that smallholders are organized in groups, which may lead to certain benefits that are not available to independent smallholders who are not organized. Our data do not allow us to disentangle the effects of group formation from the effects of certification because all certified smallholders are members of farmer groups.

Footnotes

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 research was conducted under the SUSPENSE program funded by the interdisciplinary research and education fund of Wageningen University, the Netherlands, and the Socially and Environmentally Sustainable Oil Palm Research (SEnSOR) program funded by RSPO.

Note

Sakti Hutabarat is combining a position as assistant professor in the Department of Agribusiness at the University of Riau, Indonesia with PhD research at Wageningen University, the Netherlands. His research interests focus on the oil palm sector in Indonesia, with special attention to the topics of externalities, certification and smallholders.

Maja Slingerland is associate professor at the Department of Plant Production Systems, Wageningen University, the Netherlands. She holds a PhD in mixed farming systems in West Africa also from Wageningen University. Her current research focuses on oil palm and cocoa production from an agronomic and socio-economic perspective.

Liesbeth Dries holds a PhD in economics from K.U. Leuven, Belgium. She has been a lecturer of agribusiness at Lincoln University, New Zealand and currently holds a position as associate professor at Wageningen University, the Netherlands. Her research focuses on the organisation of agri-food supply chains and contractual arrangements targeting sustainable practices.

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