T

he palm oil industry in Indonesia plays strategic roles both in the national and sub-national economy, as well as in the global supply chain of edible oil.

Indonesia has been the world’s top palm oil producer since 2005, producing more than a half of global palm oil output in 2015/2016. The industry is responsible for 4.5 percent of the national gross domestic product (GDP) in 2010 and was the top contributor (12.3 percent) to national exports in 2016.

For natural resource-dependent regions like East Kalimantan, it is the prime candidate to replace unsustainable fossil fuels that have dominated the local economy for decades. Without palm oil, the world would either need much more land or be unable to meet global demand on edible oil.

Despite its vital role, the industry needs to improve sustainability. It has been identified as one of the major sources of deforestation and emissions of greenhouse gasses (GHG). The first biennial update report of Indonesia under the United Nations Framework Convention on Climate Change (UNFCCC) shows that most of the 2012 GHG emissions (47.8 percent) came from land use, land use change and forestry, including peat fire. Two peer-reviewed studies conclude that 56 percent and 53.8 percent of palm oil development in 1990 to 2005 and 1989 to 2013, respectively, were linked to deforestation.

While the national average of palm oil yield (3.8 tons of CPO per hectare a year) is 16 percent higher than the global average, it is still lower compared to the average yield of Malaysia (4.2-4.5 tons) or RSPO certified estates (5.1 tons) and way below the potential level (8.9 tons).

The performance of smallholders is even lower: its average yield is 28 percent below that of large-scale plantations. An increase of 1 ton of CPO per hectare a year on current oil palm areas at present level of yield is equal to output from 3 million hectares of new oil palm development.

Since demand for palm oil — both for edible and non-edible application — is expected to continue increasing in the years to come, palm oil development will continue causing deforestation unless coordinated measures are carried out to facilitate a transformation of the sector.  

I argue that promoting high-yield smallholding oil palm on lands with low carbon stock (degraded land) is the key strategy to breaking the link between palm oil development and deforestation.

Compared to large-scale plantations, smallholdings have a higher possibility to absorb the local labor force through family labor or recruitment of local people. In fact, a study by the Center for International Forestry Research (CIFOR) in Riau shows that smallholdings with an average size of between 2 to 7 hectares involve household members in 40 percent to 86 percent of their labor activities. Combined with the higher yield effect, the strategy will lower the need for new development.

Targeting degraded land for oil palm development is technically and financially feasible for smallholdings. Utilization of degraded land on mineral soil for palm oil development is economically attractive for smallholders.

A research conducted by the World Wildlife Fund (WWF) shows that oil palm development on mineral soil with Imperata grass (Imperata cylindrical) is estimated to gain a higher infiltration of rain and irrigation water (IRR) into the soil than that with secondary forests. Another research by the World Agroforestry Center (ICRAF) concludes that oil palm on mineral soil is 25 percent more profitable than that developed on peat. The typical characteristic of degraded land is small areas and fragmented, which does not fit for large-scale plantations but is suitable for smallholders.

In fact, most of smallholders in Sumatra have developed oil palm on degraded land. Another study by CIFOR shows that smallholders — who share 50.9 percent of the developed oil palm areas — were only responsible for 10.7 percent of deforestation caused by palm oil development in Sumatra in 2000 to 2010.

Considering the rising inequality in Indonesia (partly caused by inequality in land ownership), it is time for the government to be decisive by ending new plantation permits for large oil palm plantations and relying more on smallholdings oil palm on degraded land for new development.

This policy is particularly urgent in regions dominated by large scale plantation. In East Kalimantan, for example, 77 percent of the 3.2 million hectares of land allocated for plantation were granted to 199 plantation permit holders in 2014. If local governments (mainly districts) had stopped providing more plantation permits in 2015, the maximum size of smallholdings would only one third of the total plantation area.

Nevertheless, supporting sustainable and high-yielding small-scale oil palm plantations requires local leadership in facilitating transformation in the palm oil sector. District governments, local communities, smallholder associations, as well as other economic actors operating within the landscape need to cooperate in designing a land use plan to guide them in achieving multiple objectives in economic, environmental and social aspects.  

District governments and the Land Administration Agency (BPN) should deliberately support local communities and smallholders in identifying and legalizing land rights that not only accommodate individuals but also communal land rights.

Effective coordination and facilitation are also required to establish tailor-made supply chain model according to the local characteristics. The supply chain system needs to cover not only output, but also agricultural input and services. Smallholders — through associations or cooperatives — need to have a fair and transparent contract with palm oil mills to gain the best prices for their fruit.

The government or the market need to make professional extension services available for smallholders. In particular areas, smallholders may need services for activities such as landscaping (mainly for water management and road/trail network), fertilizing, pest control or harvesting. Smallholders need to have access to affordable and good quality inputs, particularly seeds and fertilizers. Their commitment to avoid using harmful agrochemical substances need to be effectively governed. Lastly, access to low-cost financing is also urgent, not only for new development but also for (early) replanting.

As a top palm oil producer, Indonesia could strengthen its credibility in influencing global market policy by showing a true commitment for sustainability. Promoting the cultivation of sustainable high yielding, small-scale oil palm on degraded land is a key strategy to transforming the sector to meet international sustainability standards.   

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The writer is the team leader for the Capacity Development Component at Green Economy Locally Appropriate Mitigation Action in Indonesia. The views expressed are his own.