The Jakarta Post
A long-term partnership commitment between Asian Agri and smallholders is key to sustainable palm oil business.
Thanks to partnership initiatives, palm oil communities in Indonesia ' including in North Sumatra, Riau and Jambi, where Asian Agri operates ' have developed well economically and socially.
To achieve such a development level is a long and arduous journey that required the government, local smallholders and other partnered stakeholders to face many challenges together.
Several decades ago when oil palm plantations had yet to develop as today's have, a majority of oil palm farmers were transmigrants from Java under the New Order government's transmigration program, which intensified between 1979 and 1984. The program was aimed at alleviating poverty and rebalancing and redistributing the population as well as social prosperity throughout Indonesia.
To ensure the program's success, the government launched Perkebunan Inti Rakyat Transmigrasi, or PIR-Trans, in 1986, which brought together established plantation owners with transmigrated smallholders. Under the program, each settler was entitled to two hectares of empty land for palm oil cultivation.
However, most transmigrants were unfamiliar with oil palm farming. In addition, palm oil was not yet a popular industry.
Asian Agri, established in 1979, was among the first companies involved in the PIR-Trans program. The corporation, one of RGE's groups of companies, pioneered a palm oil system through a 'plasma smallholder' scheme (dependent smallholder)
The company developed PIR-Trans plantation and facilitated necessary training and infrastructure to raise and sustain the standards of smallholding operations.
The company assisted settlers not only in the development phase but also in the productive phase. 'During the development phase, settlers were employed for plantation maintenance while alsoreceive training to cultivate and manage the plantation,' said the company's general manager, Freddy Widjaya.
'When the palm trees enter the productive phase and start bearing fruits, which is typically four years later after planting, the plantation land was handed over to the smallholders. But we continue to provide agronomic support,' he said.
Asian Agri has processing facilities, located near both owned and plasma smallholder plantations. 'These facilities purchase and process fresh fruit bunch (FFB) harvested from the plantations.
'The FFB uptake from the company is guaranteed and the selling price, while based on government regulations, is set weekly by multiple stakeholders that include the government, company and smallholders cooperatives.
'Quality is also incentivized and these has thus created a reliable and timely source of income to smallholders,' Freddy added.
Best practices in palm oil cultivation
According to the company, best practices for the continued success of palm oil cultivation include the provision of quality seeds and support, dedicated support teams of experts, daily engagement and the continuing empowerment and formation of smallholders cooperatives.
On daily engagement and continuous empowerment, for instance, the smallholder management team engages the plasma smallholders on a daily basis, providing a wide range of support and assistance, technical and non-technical.
'This approach not only provides the team with oversight on the latest concerns and challenges smallholders face, but also the necessary interactions to discuss and quickly resolve them at the working level,' the company said.
As time goes on, palm oil has become a lucrative business, with demand booming. Like other oil palm plantation companies, Asian Agri also faces challenges in keeping the sustainability of the palm oil business as it relates to the economy, land, environment and other social aspects. Meanwhile, the increasingly lucrative palm oil business has lured more farmers to own and operate oil palm plantations.
To devise breakthrough solutions to ensure its sustainability benefits partnered parties, Asian Agri employs its concept of Creating Shared value (CSV), which was proposed by Michael E. Porter and Mark R. Kramer in 2011.
The CSV, which relates social and economic development, is defined as operational policies or practices that boost a company's competitive edge, and the social and economic condition of communities living around the company's operational site. The CSV is focused on the process of identifying and developing relationships between social and economic progress.
Asian Agri embarked on several breakthroughs by redefining and re-managing productivity in the value chain and creating a supportive business environment ' crucial and relevant actions to comply with the CSV concept.
Building partnership with independent smallholders is one of the key solutions that Asian Agri has found under the CSV schemes. Another challenge regarding the partnership is the quantity and quality of the yield as the farmers were unable to operate their plantation optimally due to poor fertilizer, poor cultivation techniques, limited access to pesticides and inadequate discipline.
Despite these challenges, Asian Agri has a strong commitment in the partnership with the independent smallholders and has been able to create an environment conducive to sustainability with the potential to supply raw materials into the future.
The company used its successful experience with the plasma smallholder scheme as the basis of independent smallholders scheme program, which emphasizes the aforementioned best practices as the key to continued success for palm oil cultivation.
'The partnership model has been developed by palm oil companies in Indonesia. Through the partnership, smallholders are given transparent access to the process of price setting and therefore avoid any price discrimination. In addition, smallholders also receive trainings on good planting management. Through a good partnership model, the national economy can receive the stimulus it needs to keep growing,' said Bustanul Arifin, the head of PERHEPI, professor of agriculture in UNILA and a senior economist at INDEF.
Role model for sustainable palm oil management
Asian Agri is one of the companies that have successfully developed a partnership program with smallholders. Currently, it boasts a total oil palm plantation of 160,000 hectares, comprising 100,000 hectares of owned (also referred to as inti or nucleus) plantations. Around 60,000 hectares of plantation area, spanning three provinces in North Sumatra, Riau and Jambi, is was developed in collaboration with smallholders. It supports 29,000 smallholders and their families.
Asian Agri general manager Freddy Wijaya explained that through partnership, the company has been providing trainings on sustainable plantation management, such as training on how to manage palm oil plantation sustainably to optimize production, how to use fertilizer effectively and efficiently, and entrepreneurship skills to gain additional income outside of their plantation.
'Inti-plasma partnership scheme has been successful in increasing the welfare and living condition of smallholders and their families. At the same time, this partnership which puts emphasis on the environment also bring business advantage due to better quality of farmer's production results that are well accepted in the international market,' said Freddy.
Indonesia Agribusiness Association head Suharno, also a lecturer at IPB, said that the partnership program by Asian Agri was a business model applicable in other sectors.
Meanwhile, the global palm oil market scene has been shifting, especially since the release of a report by the World Commission on Environment and Development, titled 'Our Common Future'.
The report defines sustainable development as a change in the process of taking advantage of resources, investment goals and technological development orientations. Under the sustainable development concept, today's development activities should not be conducted at the expense of the future.
In the area of palm oil, farmers (smallholders) are encouraged to hold a Roundtable on Sustainable Palm Oil (RSOP) certificate, which means that in cultivating palm oil, smallholders are obliged to take environmental aspects into consideration.
The biggest hindrance facing independent smallholders to sustainable palm oil management is the lack of information and the understanding of agricultural technology. With the CSV approach, independent farmers that have joined the partnership program with Asian Agri are able to cope with the hindrance and, most importantly, earn the RSOP RSPO certificate.
Amanah Palm Oil Independent Smallholders Association was the first independent smallholder group to receive the RSPO certificate in Indonesia. The group, comprising 349 smallholders with 763 hectares of land, obtained the certificate in 2013.
'WWF Indonesia sees independent smallholders as a vital part of the palm oil industry in Indonesia. We are hopeful that the RSPO certification program run by the Amanah Association can be more widely adopted and thus, serve a role model for sustainable palm oil management for other independent smallholders in Indonesia,' said CEO of WWF-Indonesia Efransjah in Jakarta.
The collaboration between Asian Agri and the independent smallholders has also led to the partnership winning 'Gold' in the CSR Awards 2014.