The demand for palm oil is rising. Production has doubled over the past ten years, and is set to double again in the next decade. Smallholder producers could meet this demand, whilst ensuring that the sector is environmentally and socially sustainable.

Smallholders play a significant role in oil palm production, accounting for as much as 33 percent of palm oil output in Indonesia and Malaysia. Research from the International Institute for Environment and Development in the UK examines the challenges to independent smallholders and those supported directly by either the government or the private sector. The researchers also examine some of the emerging solutions.

Smallholders face significant challenges:

• The main constraints are unclear land ownership, a lack of financial capital to start operations, and limited access to information on markets and legal rights.
• Further constrains include vulnerability to the volatile price of palm oil and balancing food crops with cash crops.

Smallholders with access to modern technology have demonstrated their ability to operate as efficiently as large-scale plantations, increasing their annual yields whilst keeping input costs low. Furthermore, market trends offer increasing opportunities for smallholders. For example, the increasing demand for biofuel crops, combined with clear policy incentives, is creating new markets specifically for smallholders.

The challenge now is to share good practice more widely. This has already started; the Roundtable on Sustainable Palm Oil (RSPO) includes a dedicated Smallholder Task Force to help smallholders meet RSPO principles and criteria. Wider progress will require action from smallholders and their associations, government agencies, plantation and milling companies, traders and retailers, and key third parties such as non-governmental organisations, banks, insurance agencies.

Policy support to smallholders could:

• provide systems for distributing information on markets, legal issues and technical issues to smallholders
• promote transparent mill-gate pricing systems
• invest in providing high quality planting stock
• pilot a range of promising incentive mechanisms for smallholders, such as share-based ownership of plantation assets, group certification, cooperative mills and local procurement
• establish loan facilities with flexible terms for collateral and repayment
• extend tax credits to investors and processors that work with smallholders
• support smallholder organisations to participate in private sector and public sector policy forums
• collect evidence to assess the environmental and social impacts of palm oil smallholdings compared to large plantations.

Source(s):
‘Towards better practice in smallholder palm oil production’, Natural Resource Issues Series No 5, International Institute for Environment and Development, London, by Sonja Vermeulen and Nathalie Goad, 2006 (PDF) Full document.

Funded by: Netherlands Ministry of Foreign Affairs

id21 Research Highlight: 27 April 2007

Further Information:
Sonja Vermeulen
International Institute for Environment and Development
3 Endsleigh Street
London, WC1H ODD
UK

Tel: +44 (0)207 3882117
Fax: +44 (0)207 3882826
Contact the contributor: sonja.vermeulen@iied.org

International Institute for Environment and Development

Other related links:
'Improving microfinance services for small-scale forest enterprises'

'Connecting conservation and the sustainable use of biodiversity with poverty reduction'

'Smallholder production: More pro-poor than commercial farming?'

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See id21's links for forestry