SMALLHOLDER PARTNERSHIPSOil 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 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 engages with smallholder farmers in the surrounding communities by way of three smallholder schemes: through a programme known as “Program Pemberdayaan Masyarakyat Desa” (PPMD), through so-called plasma schemes and by purchasing FFB directly from independent smallholders. Smallholder schemes and purchasing FFB from oil palm smallholders creates mutually beneficial business relationships, increases employment and offers opportunities to educate local farmers in more sustainable agricultural practices.
REA purchases approximately 170,000 tonnes of FFB from plasma, PPMD and independent smallholders, which provides local farmers with an income of approximately US$17 million per annum.
To improve the practices of the smallholders within the group’s supply chain who manage their own land, REA has collaborated with the international development NGO SNV. Since this component of REA’s supply chain comprises over 2,000 farmers cultivating some 7,000 hectares of oil palm, a ‘train-the-trainer’ approach has been adopted. Initially, this involved training REA’s smallholder team and the management teams from five 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 fruit these farmers produce, which accounted for some 20% of the FFB processed in REA’s mills. The business case for investing in this training is clear: it will increase both the farmers’ income and the profitability of REA’s palm oil mills.
Over the last few years, NGOs and certiﬁcation schemes involved in improving the sustainability of palm oil have sought to enhance the traceability of whole supply chains. Supply chain traceability is important for the industry and end users of palm oil products as it increases the visibility of supply chains to buyers and identiﬁes illegal or unsustainable practices within supply chains. For our own supply base, tracing all fruit purchased 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 a constant process of mapping and gathering information relating to smallholder plantings associated with REA’s mills, resulting in traceable FFB supply chain to the mills.
The group has been working with smallholders since 2001 under the ‘Smallholder Farmers Program’ which became the PPMD scheme in 2005. Under this scheme, the group assisted cooperatives of local people with access to land to cultivate oil palm by providing them with oil palm seedlings, fertilisers, herbicides and technical assistance. The costs of the inputs provided are repaid by the members of these cooperatives, interest free, through deductions made when their FFB is sold to the group’s palm oil mills. In 2018, the group provided technical training on oil palm cultivation and gave regular assistance through visits to smallholders’ farms in 14 different PPMD cooperatives.
Plasma smallholder schemes are established for the benefit of the communities that are surrounding 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 that were established prior to 2007 but, in the interests of equitable treatment, the group has committed to develop plasma cooperatives for villages whose land overlaps with the group’s location permit obtained from the government.
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.
Location of Plasma Smallholders
Mapping and support of Independent smallholders
The group has mapped all independent smallholders that are delivering FFB to the mills to create a comprehensive database of all smallholder land within the group’s supply base in order to improve traceability of the FFB supply chain. The volume of FFB purchased by the group is verified against the farmer’s registered details. Regular assistance is provided to each independent smallholders’ cooperative with a direct visit to the farmer"s farm, as well as training in oil palm cultivation.