New ISPO and a Momentum to Improve Palm Oil Smallholders

New ISPO and a Momentum to Improve Palm Oil Smallholders
29 June 2020

The pandemic period nearly has no impact to national palm oil industry. While most of the economic sector facing a lockdown period, the performance of this commodity is still shinning. In fact, its export value in the first quarter of 2020 grew 9.6 percent, making this commodity as the largest foreign exchange contributor. COVID-19 pandemic is indeed has not blown the production activities of both plantation and mills of palm oil in Indonesia.

The effort of Indonesian Government to rectify the governance of palm oil industry is also not altered by the presence of this pandemic. In March 2020 the President issued a regulation on Indonesian Sustainable Palm Oil Certification System, the so called ISPO. Presidential Regulation Number 44 of 2020 will amend Agriculture Minister Regulation Number 44 of 2015, as its preceding regulation. State administration wise, the new ISPO regulation is leveling up, from Ministerial to Presidential degree, in which is aimed to revamp ISPO rules and regulation.

ISPO is a new hope to address all disputes in governance of palm oil industry, which always been blamed with negatives issues from various corners. Global market, especially the European Union always shapes a stigma of unsustainable palm oil of Indonesia, palm oil as a driver of deforestation and climate change. Needless to say, new ISPO is built to answer this negative stigma.

New ISPO certification system oblige all businesses to fulfill principles of sustainable palm oil governance, including the independent smallholders. Smallholders are required to enter this certification system, albeit it will still be unbinding for the next five years. After 2025, there will be no smallholders without ISPO certificates in hand, as cited in the new ISPO regulation.

Despite the criticism from smallholders, this policy brings great ambition to development of smallholder plantation. These days, we have observed market discrimination to smallholders. Despite the fact that both smallholders and companies produce the same product, smallholders often earn lower prices. The argument is, there is no legality guarantee from smallholders plantation.

It is undoubtedly that the main challenge for smallholders development is legality. There are two indicators which cannot be fulfilled namely land legality and plants legality. A study by Jelsma et al (2017) discovered that plenty of independent smallholders is likely unable to conform to land legality standards. Ownership of freehold title (Sertifikat Hak Milik – SHM) is very minimum, and most of smallholders only own indigenous land title (Surat Keterangan Tanah) and girik or Letter C title. In several locations, plantations are located within forest area (Bakhtiar et al, 2019).

A study conducted by Saputra et al (2018) also found most of smallholders plantation which have been planted have no plant legality of seed certificate issued by the government.  In accordance with regulation, every business who cultivates oil palm has to plant a certified seedlings. Land and illegal plants has led to a low market acceptance of smallholders, and thus new ISPO is envisaged as a ray of hope to enforce legality issues.

Waiting for Government’s Action

There is still five years to prepare the independent smallholders to be “installed” in the ISPO certification system. This is not a long time, because preparing independent smallholders to meet ISPO principles and criteria requires extra time and energy. The issue of legality certainly requires a long solution considering its complexity.

The complexity itself is mainly due to legal uncertainty and the inability of smallholders to access the land legality service system. We certainly want all independent smallholders to have freehold title in hand, nonetheless, it is not easy. First, there are still many independent smallholders’ palm oil plantations identified in the forest area. Data from the Indonesian Biodiversity Trust Fund (Yayasan KEHATI) in 2019 states that out of 1.9 million hectares of independent palm oil plantations (according to statutory provisions, the definition is independently managed by smallholders with an area of less than 25 hectares), around 38% are in forest areas. By all means, this needs the resolution of the land status.

Secondly, the independent palm oil plantation outside the forest area, which should have been able to improve its legality, has never received this improvement. In fact, since the last five years, various land certification programs have been intensively carried out by the government. Unfortunately, the program has not yet reached them.

In business as usual mode, efforts to improve the legality of this land have been pursued by various parties, both by the smallholders themselves or assisted by non-governmental organizations (NGOs). However, this effort can only cover a small amount of smallholders. We need a massive movement to accelerate this legality, because we are in a race with only five years of this time. Therefore, government support is needed. The support is not only in the form of policies, but also program and funding, because both of them are bottlenecking, why this problem cannot be resolved in the field.

It stands to reason that new ISPO can be the bridge. The government must design a program scheme and long-term financing to prepare independent smallholders to meet ISPO criteria. The land certification program, which has been running thus far, can target independent smallholders, especially those whose land is clean and clear. This plantation must immediately be granted with freehold title (SHM). For plantations that are in conflict with a forest area, there is no more effective and efficient way than providing amnesty, except if it is in a conservation area and a protected forest. This is an effective way, because so far the settlement has been through various programs, such as social forestry, agrarian reform and agrarian resolution in a forest area leads to a “dead-end”. Even worse, these models actually add the problems and cause conflicts at the community level. It needs to be ensured that land amnesty must provide protection and legal certainty for small farmers not for mafia and large capital owners.

In addition, ISPO is a bridge to strengthen the legality of plants. Most of the plantations of independent smallholders are aging and have low productivity. The government needs to improve and accelerate the implementation of the oil palm replanting program for smallholders (Peremajaan Sawit Rakyat). This program has been in existence since 2015 through the palm oil fund distribution program by the Indonesia Oil Palm Plantations Fund Management Agency (Badan Pengelola Dana Perkebunan Kelapa Sawit). The problem is, until now, the realization of the program is still minimal. In fact, replanting program is a momentum to meet the ISPO criteria for smallholders. With replanting program, all replanted plantations are guaranteed to be planted with certified and superior palm seedlings. Besides fulfilling the requirements for seed certificates, their productivity has also increased. Therefore, to realize Good Agriculture Practices that are in line with the new ISPO criteria will be easily fulfilled by the smallholders.

All policies, programs and financing proposed above, must be immediately initiated and revamped by the government. One ambition is needed, in the next five years, there will be no independent smallholders which not meet the new ISPO principles and criteria. If that can be realized, then the market acceptance of independent smallholders will increase. The implication is that the welfare of farmers is boosted and that can accelerate the transformation of rural development.

In the end, Indonesia's fortune in owning the palm oil industry, which has proven to be a savior of the economy during this pandemic, must be respected by continuing to improve it. The new ISPO is the right momentum to improve it. Equality between business actors is key to the sustainability of the industry going forward. Smallholders must be the backbone to support the governance of sustainable palm oil plantations in Indonesia.**

By Irfan Bakhtiar, Director of SPOS Indonesia