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 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. 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 was selected. 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 therefore clear: it will increase both the farmers’ income and the profitability of REA’s palm oil mills.

PPMD scheme

PPMD is a voluntary scheme, which was started in 2000 to assist members of the local community with access to land to cultivate oil palm on it. Under this scheme, REA provides the cooperatives with oil palm seedlings, fertilisers and herbicides, as well as the technical assistance necessary for them to cultivate oil palm on their land. Cooperatives repay the cost of the inputs provided, interest free, through deductions made when they sell their FFB to REA’s mills. More than 2,000 hectares of oil palm had been planted by the PPMD cooperatives.

Although the 18 PPMD cooperatives established to date were awarded RSPO certification in June 2011, the group recently made the difficult decision to remove these cooperatives from the scope of REA’s RSPO certification. The primary reason for this decision was the number and nature of non-compliances with the RSPO standard identified during internal audits of these cooperatives. Whilst REA remains determined to improve these farmers’ practices as far as possible and is investing in training, this will take time. In the meantime, it is important that these farmers understand that they do not yet meet the RSPO standard so that they have an incentive to participate in training sessions and improve their practices. Furthermore, the RSPO secretariat has agreed that these cooperatives should not have been categorised as scheme smallholders because REA does not have sufficient leverage over their practices. Therefore, they are considered eligible to obtain RSPO certification against the RSPO standard for independent smallholders, which is a simplified version of the full RSPO Priciples & Criteria with which companies and scheme smallholders must comply.

Plasma scheme

Since 2007, Indonesian regulations have required companies who acquire new land for oil palm development to facilitate the establishment of plasma smallholder schemes for the benefit of the surrounding community. The area of oil palm developed under such schemes must be no less than 20% of the area developed for the benefit of the company.

In contrast to the PPMD schemes, the start-up costs for the plasma schemes established to date have been financed by loans to the cooperative from REAK or local development banks. A further difference is that members of the cooperative are not involved in managing the land cultivated with oil palm. Instead this is done by REA, in return for a pre-agreed management fee.

Location of Plasma Smallholders