SMALLHOLDER PARTNERSHIPS

Oil palm is well suited to cultivation by smallholders because its long lifecycle and high yields mean that cultivation of a few hectares of land can provide a family with a reliable source of income for around twenty years. REA’s first company funded PPMD smallholder scheme was established in 2000 and the development of plasma smallholder schemes remains a significant focus of the group’s expansion programme.

The group recognises that smallholder schemes are one of the most effective ways to share the economic benefits of its operations with the surrounding communities. This can help to engender the support of these communities for the smooth running of the group’s operations.

The group supports oil palm smallholders in the surrounding communities by way of three smallholder schemes: “Program Pemberdayaan Masyarakyat Desa” (PPMD), plasma and independent smallholders. These schemes, and the purchase by the group of FFB from smallholder cooperatives, create mutually beneficial relationships, contribute to local employment and are supported by training in better, more sustainable, agricultural practices.

There are more than 2,000 independent oil palm smallholders, all grouped in village cooperatives, who cultivate over 9,000 hectares of land within the group’s supply chain. As part of the strategy to help improve smallholder productivity and profitability REA has collaborated with the international development organisation SNV Netherlands Development Organisation (SNV) to run smallholder training workshops. Given the large number of smallholders involved a ‘train-the-trainer’ programme has been adopted. Initially, this involved training REA’s smallholder team and the management teams from five smallholder cooperatives in the course content and techniques necessary to provide effective training in best agricultural practices and cooperative management. Once these master trainers proved their ability to convey the training materials to others effectively, they then trained others to become trainers. The ultimate aim of the training is to improve the yield and quality of the FFB that the smallholders produce which represents around 20% of the FFB processed in REA’s mills. There is a clear business case for investing in this training as improvements in smallholder yields and FFB quality will increase both the farmers’ income and the profitability of REA’s palm oil mills.

Traceability

The group has also continued to address the traceability of its FFB supply chain to ensure traceability to source for external for external FFB that is processed in the group’s mills.

Supply chain traceability is important for the industry and end users of palm oil products as it increases the visibility of suppy chains to buyers and allows for the identification of illegal or unsustainable practices within supply chains. For the REA supply chain, tracing all fruit purcahsed from smallholders back to a specific plot of land, in conjunction with the fruit grading system at our mills, allows us to monitor the effectiveness and progress of our efforts to improve the sustainable practices of our PPMD and independent smallholders. There is an ongoing process of mapping and data gathering relating to smallholder plantings associated with REA’s mills, resulting in a fully traceable FFB supply chain.

 

PPMD scheme

The group started working with smallholders in 2001 under the ‘Smallholder Farmers Program’ which became the PPMD scheme in 2005. Under this scheme, the group assisted cooperatives of local people, who had access to land, to cultivate oil palm by supporting them with oil palm seedlings, fertilisers, herbicides and technical assistance. The costs of the inputs provided are repaid by members of these cooperatives, interest free, through deductions made when their FFB is sold to the group’s palm oil mills. The group has provided technical field training on oil palm cultivation, cooperative management training and other assistance through visits to smallholders’ farms in 14 different PPMD cooperatives, although training had to be curtailed in 2020 due to Covid-19 travel restrictions and lockdown periods. Six of these PPMD cooperative have interest-free loans from the group.

Plasma scheme

Plasma smallholder schemes are established for the benefit of the communities that surround the group’s plantations, as part of the group’s obligation to responsible development of new land for oil palm, in accordance with regulations introduced by the Indonesian government in 2007. Plasma schemes are not required for the group’s estates which were established prior to 200 but, in the interests of equitable treatment, the group has committed to develop plasma cooperatives for villages whose land overlaps with the group’s land allocations developed prior to 2007.

Plasma schemes differ from PPMD in their financing and management. Plasma schemes established to date have been financed by loans to the cooperatives from the group and local development banks. The cooperatives themselves are not responsible for, or involved in, the management of the plasma plantations, but rather the group manages these areas in return for a pre-agreed management fee. The cooperatives, therefore, receive an income based on the value of FFB harvested minus loan repayments and management fees in accordance with government regulations. The development of oil palm plantations under the plasma scheme can take longer to organise than the development of PPMD or group-owned estates, due to the more complex nature of the funding, legal aspects and management of these areas. Before development begins, it is critical that members of each cooperative fully understand how plasma schemes work, including the cost of cultivating oil palm, the terms of the financial agreements with the group or bankers to the schemes and the predicted income over time to the members of each cooperative. The group currently works together with seven plasma cooperatives, which are now receiving a regular monthly income from sales of FFB to the group.

Total smallholder areas amounted to 15,088 hectares at 31 December 2020, equivalent to 42 per cent of the planted areas of the group’s own estates of 35,964 hectares.

Smallholder plantings (hectares) 2020 2019
Plasma 4,034 3,762
Independent smallholders 9,523 9,523
PPMD 1,531 1,531
Total 15,088 14,816

Location of Plasma Smallholders

Mapping and support of Independent smallholders

Mapping of smallholdings supplying FFB to the group’s mills has been completed and the group now has a database of all smallholder land within the group’s supply base. FFB suppliers are registered through their local cooperatives and each delivery to the group’s mills is recorded and its origin verified. This data is also used for analysis in connection with the group’s programme of support to local farmers with field and management training in a drive to improve their productivity, fruit quality and sustainable practices.

The group currently purchases FFB from 14 PPMD cooperatives, 7 plasma scheme cooperatives and 10 independent smallholder cooperatives. Together they accounted for some 20 per cent of the FFB processed in the group’s mills and provided revenue to the cooperatives equivalent in total to some $23.1 million in 2020.

FBB purchased (tonnes) 2020 2019
Plasma 43,318 42,155
Independent smallholders and PPMD 142,156 146,326
Total 185,474 188,481
Revenue ($ milion) 23,1 19,3

The Satelligence system, which generates bi-weekly updates and is used to monitor the status of forest cover and land clearing activities within and around the group’s estates, was recently upgraded to an online platform that is readily accessible by the group’s conservation, survey and sustainability departments. This facilitates rapid investigation of illegal activities within the estates and smallholder areas that may be damaging to the environment.