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  • Getting to the bottom of illegal plantations on Indonesia’s state-owned forests

Getting to the bottom of illegal plantations on Indonesia’s state-owned forests

A man examines oil palm fruit at a research site in Indonesia. Photo by D. Ramsay/CIFOR
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Palm oil is used locally in cooking, and internationally in commercial food and personal care products. Photo by M. Pinheiro/CIFOR

In an ideal world, palm oil production would cause no deforestation, and have a transparent and fair supply chain. In reality, the impacts of the sector have been the cause of ethical concerns worldwide.

Palm oil is Indonesia’s most important commodity. In 2017 the country produced 37.8 million tonnes of crude palm oil (CPO) and exported over 80 percent of it, with a value of $31.8 billion. Indonesia is the world’s biggest palm oil producer, and its biggest exporter too.

The strong market demand of palm oil has led to a vast expansion of plantations. Currently smallholders make up around 40 percent of the production market, and around one-third of these do not have the correct land tenure permits. In some cases, the smallholders have moved into state-owned forest areas and in many cases, this occupancy creates conflict.

In 2017, the Ministry of Agriculture’s Directorate General of Plantations found that of the 2.5 million hectares of oil palm plantations on state-owned forests, 70 percent of these were controlled by smallholders.

To get to the bottom of why oil palm plantations continue to encroach into state forest areas, Center for International Forestry Research (CIFOR) organized a workshop in collaboration with Center for Research and Development on Social, Economics, Policy and Climate Change (P3SEPKI): ‘Linking science to policy: the role of research in the effort to accelerate solution of tenurial problems in oil palm plantation in forest areas.’

Read also: Comparative study of local nutrition and diet examines expansion of oil palm plantations into forest areas

Solving conflicts by understanding the underlying cause

In his presentation, Ismatul Hakim,  senior researcher at P3SEPKI, says that complex tenure conflicts can’t be resolved without understanding why oil palm plantations are encroaching into state forest areas. He believes assessing how different types of farmers take control of lands, what strategies they use, and most importantly, the motivations of the farmers, is needed before long-lasting resolution is achieved.

According to Hakim’s research, this can be segregated into four categories:

The first is maladministration, where a lack of coordination leads to disputes as it is unclear who legally manages the forest areas – is it the Ministry of Environment and Forestry or the local government?

Second, incomplete forest area gazettements- a legal declaration that announces state ownership- coupled with a lack of clarity and communication on where the gazetted boundaries lay, have caused local people, in need for income, to expand their plantations into unmarked forest areas.

Third, inequality of power and land ownership has caused people to encroach. Local people have watched big investors and corporations take control of and transform their ancestral land, and store land for the future (known as ‘landbanking’).

And finally, the ineffective implementation of policies for forest area release and land swap- where the government gives areas of new land to plantations in exchange for restoring degraded land. To add, he says, this is further hampered by the slow pace of conflict resolution.

Drawing from his research, Bayu Eka Yulian from Bogor Agricultural University (IPB) added “Oil palm plantations have expanded rapidly in East Kalimantan, particularly those smallholders in a silence mode.” He argued while corporations might generally adhere to tighter regulations, small holder farmers, including those with access to more capital and information, appear to expand their plantations at a scale from 0.5 to 3 hectares of land or even more, without restraint.

The attendees agreed that the situation  will keep perpetuating itself without intervention. Rapid expansion is causing damaging changes to the landscape, but farmers are also becoming trapped- as they become highly dependent on a monoculture crop, and get trapped on a single source of income.

Read also: The long and winding road to sustainable palm oil

A man examines oil palm fruit at a research site in Indonesia. Photo by D. Ramsay/CIFOR

Solving tenure issues through better governance

In September 2018, the Indonesian government issued a three-year moratorium on new oil palm plantation permits and devised attempts to increase productivity, expressed in Presidential Instruction (Inpres) No. 8/2018. Along with other prevailing policies, this moratorium offers an excellent opportunity to resolve tenure issues.

However, it was feared that the temporary halt might simply not be enough.

“It was generally agreed by the workshop participants that regulations should be clear and not create legal uncertainties,” said CIFOR scientist Heru Komarudin, adding that plantations that are currently operating on state forests should be given enough time to either relocate or have their land status legally changed to non-forest areas.

He similarly believes that smallholder plantations already illegally on state forests should be given the chance to confirm their land status through agrarian reform or social forestry schemes that are already in place.

“Priority should be given to those committed to practising ethical agriculture – by preventing further deforestation and promoting fair trade working rights,” said Komarudin. To create policies that work, the “heterogeneous typology” of smallholders, and the impact of plantations on local people need to be taken into account, he adds.

Furthermore, there is opportunity to raise state funds by getting tenure issues right. Legislating and governing the use and rental of state forest can then be further propped up by compensation payments by companies who have illegally encroached. While strict law enforcement could be used to police the tenure issues, granting land amnesty to those that depend heavily on these lands may be a breakthrough.

Internationally, the European Union Renewable Energy Directive which plans to phase out the use of palm oil for biofuel by 2030, has put pressure on the Indonesian palm producers. In responding to this development, workshop attendees agreed that foreign diplomacy should be strengthened by consolidating the national position, which in turn would make the Indonesian Sustainable Palm Oil (ISPO) certification credible.

“Building solidarity with other producing countries to promote best practices and a sustainable and legal palm oil industry is essential,” says Maharani Hapsari, PhD and lecturer of international relations at Gadjah Mada University. “Indonesia should focus its diplomacy on palm oil global trade not only to strengthen authority, but also to enhance legitimacy of forest and oil palm governance by the broadest possible range of stakeholders.”

By Nabiha Shahab and Dominique Lyons, originally published at CIFOR’s Forests News.

For more information on this topic, please contact Heru Komarudin at [email protected].


This research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), which is supported by the CGIAR Trust Fund.

This research is part of the Governing Oil Palm Landscapes for Sustainability (GOLS) project, which is supported by the United States Agency for International Development (USAID). The GOLS project supports effective and equitable implementation of the New York Declaration on Forests commitments by helping to align public and private policies and actions, and by delivering targeted, research-based evidence to key stakeholders and practitioners.

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  • Making the grade: Challenges and prospects for sustainable smallholder oil palm in Indonesia

Making the grade: Challenges and prospects for sustainable smallholder oil palm in Indonesia

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“Making the Grade” looks at challenges and prospects for sustainable smallholder oil palm in Indonesia.

This video was first published by CIFOR.

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  • Multiple actors need to perform together on governing sustainable palm oil in Indonesia

Multiple actors need to perform together on governing sustainable palm oil in Indonesia

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Key players are seeing a moratorium on new oil palm concession permits in Indonesia as a significant step forward in improving governance in the sector.

During the three-year freeze, following Indonesian President Joko Widodo’s recent signing of the moratorium, the government will undertake a comprehensive nationwide review of oil palm licenses and develop efforts to enhance productivity – particularly for smallholders.

However, it remains to be seen whether the existing palm oil supply can be sustainable, and whether negative impacts on the environment can be reduced while the performance of smallholders linked to palm oil supply chains – who depend on the commodity for their livelihoods – is also improved.

Oil palms edge the forest in Sentabai, West Kalimantan, Indonesia. Photo by Nanang Sujana/CIFOR

Research conducted at the Center for International Forestry Research (CIFOR) led by senior associate Pablo Pacheco is examining how public regulations and private standards can address major performance gaps affecting the palm oil sector. The study was focused on the world’s largest palm oil producer, Indonesia.

“We looked at how the current policy regime complex can address three major gaps, specifically land conflicts and yield differences between companies and smallholders and carbon emissions arising from deforestation and peatland conversion,” Pacheco said.

“We identified opportunities for more effective governance of the palm oil value chain and supply landscapes by analyzing disconnects, complementarities and antagonisms between public regulations and private standards across global, national and subnational levels,” he added.

The scientists concluded that greater complementarities have emerged among transnational mechanisms, but found also that disconnects persist and antagonisms prevail between national state regulations and transnational private standards.

To improve the sector’s governance and address performance gaps, there is a need to overcome these disconnects and take steps to reconcile the antagonisms.

“The solutions for addressing the performance gaps need to be looked at in an integrated way and through adopting a multi-level approach,” Pacheco said. “In addition, the solutions have to involve both public regulations and private initiatives and efforts.”

Read also: Implementing sustainability commitments for palm oil in Indonesia: Governance arrangements of sustainability initiatives involving public and private actors

Oil palm fruit is numbered after harvesting. Photo by Icaro Cooke Vieira/CIFOR

GROWING SECTOR, GROWING ISSUES

Palm oil is used in thousands of products from food to cosmetics, cleaning products and biodiesel. This has created a growing global demand for the golden liquid.

“There is not a single sector that has grown as rapidly as palm oil,” Pacheco said. “However, these unresolved performance issues continue to follow this expansion.”

One of the key issues is the land used to grow oil palm. Land conflicts are difficult to solve and despite efforts to formalize tenure rights, encroachment on public lands continues to grow. Smallholders often rely on informal transactions to access land.

Smallholders produce around 40 percent of Indonesia’s oil palm, but yields are still less than they could be due to limited access to finance and services.

“Smallholders are unable to adopt best management practices and the use of substandard planting material remains widespread,” said Pacheco.

Reducing carbon emissions in the oil palm sector has been hampered by current regulations that allow the use of forested or high carbon stock areas for plantations, combined with poor use of degraded and less productive areas.

“Many companies prefer to establish their plantations in peatlands and forestland because of the reduced likelihood of land conflicts and the potential to cover the cost of establishing a plantation by selling timber cleared for these plantations,” Pacheco said.

“The result has been a significant carbon debt,” he added.

Read also: The long and winding road to sustainable palm oil

MIND THE GAPS

In an effort to overcome the palm oil sector’s performance gaps, a very complex governance architecture has emerged that brings together governments and the private sector, as well as multistakeholder platforms.

The Roundtable on Sustainable Palm Oil (RSPO) is perhaps the best-known sustainability standard, and has been embraced by European Union-related sustainability initiatives. This is the most relevant complementarity which has helped to reach some agreed sustainability criteria.

Yet Indonesia and Malaysia have also devised their own sustainability standards – known as ISPO and MSPO – to counteract the influence of external players. Despite efforts to strengthen these mandatory standards, the scientists say it remains to be seen whether they are going to support zero-deforestation commitments embraced by main corporate groups.

Additionally, they say that greater impact could likely be achieved by building a process to harmonize the RSPO with these national standards.

Read also: Governing sustainable palm oil supply: Disconnects, complementarities, and antagonisms between state regulations and private standards

A woman fertilizes soil in an oil palm plantation. Photo by Icaro Cooke Vieira/CIFOR

FOLLOW THE DISCONNECTS

Pacheco says for the palm oil sector to improve its performance, it is crucial to look at the implications and opportunities associated with the national fiscal incentives system, including those related to the use of the crude CPO Fund.

“For example, these funds should more actively link incentives for companies engaging in biodiesel supply with purchases from smallholders on condition they adhere to sustainability criteria,” he said, adding that this approach would help improve the environmental performance of smallholders while supporting the sustainable supply of palm oil for the domestic biodiesel market.

Another major disconnect is related to the fact that land regularization initiatives do not necessarily go hand-by-hand with those aiming at support sustainable palm oil supply, and improve the wellbeing of smallholders. This is a major bottleneck to overcome.

“Government efforts to implement agrarian reform along with social forestry to benefit local communities have not been fully effective in resolving these issues,” said Heru Komarudin, a researcher with CIFOR.

Another disconnect is linked to land use regulations. More and more buyers are looking for No Deforestation, No Peat, No Exploitation (NDPE) – suppliers, but critics say that although companies may have the policy in place, they do not always put those policies into action.

In some cases, laws and regulations do not support companies that opt to conserve areas with high carbon stock or high conservation value, Komarudin said.

“These areas are often seen as unused lands and are at risk of being taken over by the government, and used for new plantations, instead of being protected from local people who may try to encroach on these areas,” he added.

More and more local governments are also adopting policies to protect high conservation value forests, and governments have started to adopt essential ecosystem area principles although no legally-binding rules are in place yet.

MOVING FORWARD

The researchers note that different “experimentalist approaches” are emerging that address disconnects and antagonisms, while further exploiting existing complementarities.

These approaches are increasingly orchestrated by provincial level governors and facilitated by non-governmental organizations, which often tend to operate as intermediaries.

“There’s no silver bullet, no single solution. It’s clear we need an integrated approach to effectively govern the palm oil sector, one where all actors play key roles,” Pacheco said.

 

By Suzanna Dayne, originally published at CIFOR’s Forests News.

For more information on this topic, please contact Pablo Pacheco at [email protected] or Heru Komarudin at [email protected].


This research is supported by the United States Agency for International Development and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.

This research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), which is supported by the CGIAR Trust Fund.

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  • Greater inclusion of women is needed to optimally intensify cocoa value chains, researchers find

Greater inclusion of women is needed to optimally intensify cocoa value chains, researchers find

A woman carries a basket in Peru. Photo by ICRAF
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Researchers interview smallholder cocoa farmers in Peru. Photo by Trent Blare/ICRAF

Working with smallholders in the valley of the rivers Apurimac, Ene and Montaro (VRAEM), a region of Peru, is a challenging task.

The region produces approximately 70 percent of the country’s illicit coca and is home to the last remnants of the Shining Path, an armed group that fought against the state between the 1980s and early 2000s.

But the area is now also of importance to cocoa production in the country as governmental agencies, cocoa buyers and development programs have been seeking to help expand and intensify cocoa production. Smallholders who had abandoned their farms after many years of conflict have now returned and are seeking alternatives to coca production.

Researchers from the World Agroforestry Centre (ICRAF) have supported one of the alternative initiatives, a cocoa value-chain development project sponsored by Lutheran World Relief and Sumaqao, a Peruvian cocoa buyer. Sumaqao has a long history of purchasing cocoa in the VRAEM and working with smallholders throughout Peru on fair trade and sustainable production. ICRAF was asked to evaluate how the project could have a larger impact on smallholders’ livelihoods and what steps should be taken to ensure that value-chain development is gender inclusive.

It was an opportunity to examine how gender inequalities — including access to services, participation in cooperatives and decision-making in households — hindered value-chain development, as well as the implications of gender relations for development strategies in the Peruvian Amazon, an area that has received little attention.

The ICRAF team conducted four structured interviews within each of the sampled households — aimed at reducing the potential of bias and inaccuracies — to explore gender-based differences in cocoa participation.

The first set of interviews included female and male household heads together. Following the interviews, the team discussed the answers and considered any discrepancies pertinent to the next interviews. The second set was conducted separately with each household’s primary male and female, covering their productive activities, perceptions of their involvement in cocoa production and the project. Finally, women were interviewed on their use of time the day before, as well as their interest in, and barriers to, their participation in the cocoa value chain. Key informant interviews were also carried out with non-governmental organizations, cocoa buyers and governmental officials to verify and clarify the findings.

A woman carries a basket in Peru. Photo by ICRAF

The results revealed that cocoa intensification programs have greatly enhanced productivity and households’ incomes. Women played an important role in the transformation. They often carried out the same tasks as men, especially harvest and post-harvest activities, and were involved in making decisions on how the earnings from cocoa production were spent. However, women were excluded from making decisions about the marketing of cocoa and the purchase and sale of land and farm equipment.

Importantly, women’s increased participation in cocoa production had not been supported by a corresponding decrease in domestic work. About 30 percent of the interviewed women said that they were constrained by a lack of time to participate in training and cooperative meetings, even though they were interested in cocoa production. Women often felt uninformed about meetings, the provision of technical assistance and market conditions.

By looking at the impact of gender relations on intensification, relevant but nuanced and often neglected aspects of production and marketing that might determine the potential for value-chain development started to become more visible. One of them was the tension between women’s interest in participation in cocoa production and the time they had available for it. The gender dynamics around decision-making were also considered to be possibly related to their constraints in accessing information about markets, buyers and technical support.

Work to enhance cocoa production has had, and will likely continue to have, important impact on household incomes and wellbeing, suggesting that exploration should continue of gender dynamics, focusing on the gender responsiveness of value chains at various levels.

Recommendations for the development of a gender-inclusive value chain included sensitizing technicians to respond to the needs of women interested in cocoa production, testing diverse extension approaches that encouraged learning and exchange between men and women of different ages, as well as the use of alternative forms of communication technology that have a wider reach among different groups with varying literacy levels.

The results also suggested a need to move beyond the promotion of only cocoa to a “livelihoods approach”, which would include other economic activities that are also important for women and their household finances in the VRAEM.

Further, policies and programs promoting the intensification of cocoa production should also explore opportunities to transform gender relations that constrain women’s time, mobility and access to information instead of focusing on static or traditional gender roles that may already be changing because of male out-migration. The role of intersecting disadvantaging factors in creating barriers to deeper cocoa engagement also needs more examination. Further research will be needed to look at how factors like age and marital status influence these barriers at different stages of the value chain.

By Ana Maria Paez-Valencia and Trent Blare, originally published at ICRAF’s Agroforestry World.


This study forms part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) and CGIAR Research Program on Policies, Institutions and Markets (PIM), which are supported by CGIAR Fund Donors.

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  • Corporate commitments to zero deforestation: An evaluation of externality problems and implementation gaps

Corporate commitments to zero deforestation: An evaluation of externality problems and implementation gaps

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This research critically examines implementation gaps and externality problems associated with the recent proliferation of zero deforestation commitments (ZDC) by large commodity producers. By developing and employing a hierarchical framework, we evaluate the policies and strategies of 50 leading ZDC adopters in high forest-risk commodity sectors (soy, oil palm, cattle and wood). The analysis shows that while most ZDC adopters formulated strong ZDCs, there is significant room for further refining implementation mechanisms. Specifically, it finds that weak commitment to full transparency, notably disclosure of sourcing locations and suppliers, and to independent verification, undermines ZDCs’ transformative potential and ability to hold companies accountable for failure to comply with their ZDCs. Our analysis also reveals that most sampled companies do not explicitly account for the socially detrimental externalities that their ZDCs threaten to produce. Where this is acknowledged, it is acknowledged implicitly through standing commitments to full voluntary certification, especially in the wood and oil palm sector. As a result, issues related to free, prior and informed consent (FPIC) and protection of high conservation value (HVC) ecosystems are comparatively well addressed by adopters, but challenges faced by smallholders, food security risks, and indirect land use change issues are only minimally accounted for. Our results suggest that for ZDCs to contribute meaningfully to inclusive and sustainable development potential, complementarities between private and public regulatory initiatives need to be better leveraged.

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  • Silviculture techniques help farmers improve incomes, develop more productive agricultural systems

Silviculture techniques help farmers improve incomes, develop more productive agricultural systems

Staff measure timber volume in a demonstration plot in Gunung Kidul. Photo by Riyandoko/ICRAF
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Staff measure timber volume in a demonstration plot in Gunung Kidul. Photo by Riyandoko/ICRAF

Two new studies reveal the importance of silviculture for increasing farmers’ incomes in Java and East Nusa Tenggara, Indonesia.

Planting timber in agricultural systems is a common practice in Indonesia. Farmers often cultivate timber together with other crops to diversify and increase their incomes. Timber acts as a savings bank, only being harvested when large funds are needed. To ensure the best growth of timber, experts recommend that farmers practise silvicultural techniques, which, despite the numerous benefits, are still not widely adopted.

In Gunung Kidul in the province of Yogyakarta and in Sumbawa and South-central Timor in East Nusa Tenggara province, researchers in the Developing and Promoting Market-based Agroforestry Options and Integrated Landscape Management for Smallholder Forestry in Indonesia project explored the factors that encouraged farmers to adopt silvicultural techniques.

Their findings have been published in Agroforestry Systems: Adoption of silvicultural practices in smallholder timber and NTFPs production systems in Indonesia. The project is funded by the Australian Centre for International Agricultural Research and is linked to the CGIAR Research Program on Forests, Trees and Agroforestry (FTA).

“At the research sites, timber and non-timber forest products contributed significantly to the economy,” said Gerhard Manurung, research leader and agroforestry scientist with the World Agroforestry Centre (ICRAF) in Indonesia. “We found that the most important factors affecting whether farmers would use silvicultural techniques or not were ease of access to the knowledge found in forestry extension services and farmers’ groups, how well they understood government policies on timber and non-timber forest products [NTFPs], the number of land parcels held by each farmer, and the number of tree and other species that the farmer managed.”

He pointed out that most available research on silvicultural practices was usually done in the context of natural forests, whereas this study offered a fresh perspective because it focused on agroforestry systems, or trees on farms.

Silviculture helps farmers develop more productive systems and reap greater benefits. For example, pruning leads to knot-free timber, which attracts premium prices; thinning young trees so that the remaining trees do not have as much competition for light and nutrients generates the highest percentage of heartwood volume, meaning bigger trees for harvest and more timber to sell; and intercropping teak with nitrogen-fixing shrubs helps to increase the trees’ diameter while at the same time improving soil conditions, which facilitates faster and stronger growth and bigger trees.

A staff member prunes a teak tree. Photo by Riyandoko/ICRAF

Timber and NTFPs contributed more than 60 percent to household incomes at the three sites, which was greater than that from agricultural and plantation crops, yet the adoption of silviculture remained low. The researchers found that a lack of resources and access to information stopped farmers from adopting better practices. In Sumbawa and South-central Timor, when there was more access to forestry extension services and farmers’ groups where knowledge was exchanged, the likelihood of farmers adopting better silvicultural practices rose 2–4 times.

The researchers recommended that policymakers, researchers and extension providers should collaborate more robustly, using approaches that put farmers’ livelihoods at the forefront. Research and training should incorporate participatory techniques, which are renowned for their success in fostering problem-solving skills and speeding learning. Additionally, government research centres should provide on-farm support, such as demonstration plots, that allowed farmers to observe changes brought about by improved techniques.

In terms of policies, the researchers proposed that governments encourage intensification of smallholders’ tree products through intercropping, which escalates the rate of adoption. Regulations on the sale of tree products should be simplified and information provided about grading and pricing mechanisms.

The other study, The significance of planted teak for smallholder farmers, focused on Gunung Kidul, where teak is a valuable investment and an important part of cultural heritage. When grown together with other commercial crops, teak agroforestry systems in Gunung Kidul contributed 40 percent of household income.

Typically, teak produced by smallholders has a diameter of 30 centimeters, which is considered suboptimal by the industries in Jepara in Central Java that produce much of the nation’s teak furniture. Thinning trees helps to improve the size and quality of those that remain but often farmers are unwilling to thin because they fear they will lose income. Also, most farmers use wildlings, sourced from forests or natural regrowth on farms, instead of high-quality seedlings or seeds produced in nurseries. Wildlings typically do not grow as well as those produced by skilled nursery operators.

In Indonesia, the value chain for teak consists of smallholders, local traders, wholesalers and processors. Farmers typically sell logs at prices based on information from other farmers. There is a general lack of knowledge about market prices and grading systems, resulting in sales often below market value. Because traders bear the major risk in the transaction, they lower their offers to farmers so as to cover the cost of the risk.

Echoing Manurung and team’s findings, the researchers recommended the use of on-farm trials as a way of stimulating farmers’ interest in improvements. Further, silviculture needed to be aligned with farmers’ needs for short-, medium- and long-term income. For example, by thinning trees farmers could plant short-rotation tree species, which could be harvested in 5–8 years, in between the teak.

The researchers also urged the development of win-win partnerships between farmers and industry, with governments providing incentives and simplifying timber regulations. Information about price and quality needed to be widely disseminated along with silvicultural extension programs. Research centres and industries could provide access to high-quality seeds and seedlings.

By Enggar Paramita, originally published at ICRAF’s Agroforestry World


This work is linked to the CGIAR Research Program on Forests, Trees and Agroforestry, which is supported by CGIAR Fund Donors

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  • Forest policy reform to enhance smallholder participation in landscape restoration: The Peruvian case

Forest policy reform to enhance smallholder participation in landscape restoration: The Peruvian case

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  • Integrated natural resource management as pathway to poverty reduction: Innovating practices, institutions and policies

Integrated natural resource management as pathway to poverty reduction: Innovating practices, institutions and policies

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Poverty has many faces and poverty reduction many pathways in different contexts. Lack of food and income interact with lack of access to water, energy, protection from floods, voice, rights and recognition. Among the pathways by which agricultural research can increase rural prosperity, integrated natural resource management deals with a complex nexus of issues, with tradeoffs among issues that are in various stages of denial, recognition, analysis, innovation, scenario synthesis and creation of platforms for (policy) change.

Rather than on a portfolio of externally developed ‘solutions’ ready for adoption and use, the concept of sustainable development may primarily hinge on the strengths and weaknesses of local communities to observe, analyse, innovate, connect, organize collective action and become part of wider coalitions. ‘Boundary work’ supporting such efforts can help resolve issues in a polycentric governance context, especially where incomplete understanding and knowledge prevent potential win-win alternatives to current lose-lose conflicts to emerge. Integrated research-development approaches deal with context (‘theory of place’) and options (‘theory of change’) in multiple ways that vary from selecting sites for studying pre-defined issues to starting from whatever issue deserves prominence in a given location of interest.

A knowledge-to-action linkage typology recognizes three situations of increasing complexity. In Type I more knowledge can directly lead to action by a single decision maker; in Type II more knowledge can inform tradeoff decisions, while in Type III negotiation support of multiple knowledge + multiple decision maker settings deals with a higher level of complexity. Current impact quantification can deal with the first, is challenged in the second and inadequate in the third case, dealing with complex social-ecological systems. Impact-oriented funding may focus on Type I and miss the opportunities for the larger ultimate impact of Type II and III involvements.

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  • Towards responsible and inclusive financing of the palm oil sector

Towards responsible and inclusive financing of the palm oil sector

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The global palm oil sector faces ongoing threats to sustainability caused by deforestation, peatland development, labor rights violations and land right conflicts. Additionally, integrating smallholders into sustainable palm oil supply chains continues to be a challenge for the industry. Financial service providers (FSPs) could play a role in stimulating sustainability commitments from the palm oil companies they finance. Their potential influence stems from their capacity to set environmental, social and governance (ESG) conditions for financial services.

This research shows that European and US FSPs are further along than their counterparts in Asia in adopting policies that include ESG risk assessments as part of the process for providing financial services. However, attention to smallholder inclusion is insufficient in the policies of all FSPs included in this report. Differences between European and US versus Asian FSPs in adopting ESG standards, as well as the unique markets they finance, present a risk that two parallel but separate financial systems could emerge. Efforts by both government and nongovernmental organizations should emphasize the prevention of a two-tiered marketplace with different quality requirements for palm oil.

All actors in this sector still require a significant shift in thinking on the benefits of including ESG standards in cultivation and production processes. In palm oil producing countries, the lack of specific banking regulations emphasizing sustainability concerns regarding the sector forms a further hindrance to positive developments.

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  • Smallholder finance in the oil palm sector: Analyzing the gaps between existing credit schemes and smallholder realities

Smallholder finance in the oil palm sector: Analyzing the gaps between existing credit schemes and smallholder realities

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There are about 2 million smallholders cultivating 40% of Indonesia’s oil palm area. They require significant financing to establish, maintain and replant their oil palm plantations, in order to both increase productivity and improve the quality of the fresh fruit bunches. Their capacity to self-finance their plantation is limited. However, most of them are credit-constrained.

Since the late 1970s, the Government of Indonesia has introduced a number of credit schemes for oil palm smallholders. Banks and other formal institutions have also been offering various credit schemes in terms of the amount, grace period and requirements for smallholders, both individually or in groups.

Through interviews and focus group discussions in two districts, each in South Sumatra and Central Kalimantan, we found four gaps: (1) demand–-supply gaps; (2) maturity gaps; (3) risk-sharing gaps; and (4) legal gaps. Demand-–supply gaps exist where credit applications by oil palm smallholders were not approved because of issues related to collateral requirements, credit amounts, and crop gestation periods. Maturity gaps exist when only few financing schemes consider a grace period for smallholders to wait for the first harvest. Risk-sharing gaps refer to the volatility in production costs and palm oil prices that smallholders have to bear. Many smallholders do not hold proper documentation, which leads to the legal gaps that prevent them from using their land as collateral to access credit from banks.

These gaps reduce the possibility of smallholders accessing credit from formal institutions, which drives an informal local lending market with limited credit amounts and higher interest rates. The government and financial institutions must address these gaps in order to improve formal credit access for smallholder oil palm farmers.


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