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Jakarta Post

Working with smallholders

  • Editorial Board

    The Jakarta Post

Jakarta   /   Fri, December 28, 2018   /   08:23 am
Working with smallholders According to Agriculture Ministry data in 2015, total oil palm plantation area is 11.24 million hectares. (Shutterstock/File)

Two separate seminars on plantations in Jakarta recently chose smallholder development as one of the main topics of discussions, notably the implementation of the 2014 Plantation Law that requires plantation companies to help develop smallholders through commercially viable partnerships.

But the seminars, led by former senior officials of the Plantation Directorate General, oil palm smallholder associations and plantation companies, found that almost five years after the enactment of the law, the rules requiring plantation companies to develop smallholders have hardly been implemented because of the absence of implementation regulations and overlapping as well as conflicting rules of other ministries. 

The law specifically stipulates that plantation firms shall implement partnership arrangements with smallholders living around their estates to enable them to have better access to technical, marketing and financial assistance. The partnership, called the nucleus estate and smallholder (NES) scheme, was successful in the 1970s and 1980s under World Bank loan programs, whereby state-owned plantation firms served as development agents providing technical and marketing assistance to improve the productivity of neighboring farmers or smallholders.

The NES program has indeed contributed greatly to reducing poverty and economic inequality in rural areas, because the partnerships bridged the yield gap between smallholders and big estates with crops such as oil palm. 

But after the World Bank loan programs to the plantation sector were stopped, and following the massive expansion of private investors notably in oil palm plantations, the NES program seemed to have slowed down sharply. It seems that estate companies no longer consider NES partnerships to be compulsory, treating them only as market-driven commercial deals with smallholders founded entirely on mutual benefit. But without clear-cut rules as those enforced by state plantation firms under World Bank programs, smallholders often experience unfair treatment because of their weak bargaining power. 

The problem though, as the two seminars found, is that even though the 2014 Plantation Law specifically sets the target area of smallholders at a minimum of 20 percent of the total acreage of the nucleus estates (companies), this provision cannot yet be fully enforced due to the absence of government regulations on the technical details on NES partnerships. 

Without comprehensive regulations on technical details, there has been legal uncertainty as to the identification of the smallholder target, the standard contract for the NES and other issues related to the land titles of smallholders and permits from local administrations.

It is therefore imperative that the central government and local administrations use the three-year moratorium on new oil palm estate licensing, which was imposed last September, to conduct a massive review of the whole licensing process and data on the palm oil estates of smallholders and companies.

Before the government enacts a regulation to implement the compulsory NES partnership and to realign the licensing process, it should first have complete information on the numerous permits needed for opening new oil palm plantations and complete data on the real acreage of plantations owned by smallholders and companies as well as the status of their land titles.