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he Indonesian Chamber of Commerce and Industry (Kadin) last week launched with a big bang what it called an innovative financing concept to help oil palm smallholders improve their productivity through a management linkage with plantation companies.

Kadin'€™s deputy chairman for agribusiness development Franky Widjaja, who elaborated on the concept before five economics ministers at the Kadin national conference in Riau, explained that the management cooperation would provide smallholders with access to bank financing, technology (good seedling) and processing and marketing of oil palm fruit bunches.  

There is actually nothing new in the concept because this scheme had been developed since the mid-1970s under the nucleus estate and smallholder (NES) program with generous loans provided by the World Bank.

Theoretically, the NES concept is good for plantation development because smallholders who join the program can plant or replant their small oil palm estates (usually 2 hectares) under the technical guidance and financial assistance of big plantations located nearby.           

Strangely, the Oil Palm Smallholders Union immediately rejected the Kadin program as a new subterfuge to trap smallholders under the management control of big plantation companies, pointing out that most big plantations that currently implement such management partnerships or linkages (NES) are embroiled in conflicts with their smallholders.

The government and Kadin should learn good lessons from our rubber industry. Indonesia is the world'€™s second largest producer after Thailand with an annual production of over 3 million tons a year, yet rubber plantations remain controlled by smallholders, while rubber processing into crumb rubber is controlled by big companies.

Big rubber processing companies have been living harmoniously with rubber smallholders under a mutually beneficial partnership program even though they do not always call the program an NES scheme. Big processors and smallholders strongly depend on each other for their survival.  

For example, Kirana Megatara. This rubber sub-holding of the Triputra Group has become the largest rubber processor in the country with an annual capacity of almost 800,000 tons, yet its plantations are only around 30,000 hectares. In stark contrast, the whole palm oil processing industry and over 60 percent of the 9 million hectares of oil palm plantations are controlled by big companies.

A harmonious and mutually-beneficial cooperation between big estate companies and smallholders is the most effective way of expanding tree-crop plantations such as oil palm and rubber without widening inequality in land holdings.

The fear is that if the expansion of oil palm plantations by big companies remains at its current rate (over 150,000 hectares a year) mounting problems of inequality could threaten the long-term sustainability of the palm oil industry, already the largest in the world with an annual output of 27 million tons.