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  • Financial products should be adjusted to better meet needs of community forest enterprises

Financial products should be adjusted to better meet needs of community forest enterprises

Workers select Ramón seeds at Melchor de Mencos. Photo by ACOFOP.
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Continuing a series of interviews on inclusive landscape finance, three members of the Association of Forest Communities of the Peten (ACOFOP) share their insights with Bas Louman of Tropenbos International.

Founded in 1997 to strengthen the position and user rights of communities in the Peten Mayan Biosphere Reserve, Guatemala, ACOFOP comprises 24 associated community organizations. Nine of these manage their forests under concessionary contracts covering more than 400,000 hectares.

In 2003, members created a commercial community enterprise (FORESCOM) to provide drying and molding services, technical advice on commercialization and financial services. They now generate USD 5 million annually, some of which is invested in social benefits such as local health and education services.

Some funds are used for reinvestments in protection and control of the forests and prevention and control of forest fires. National Geographic and the New York Times have reported their successes in integrated and sustainable forest management.  

ACOFOP member, Teresita Chinchilla; administrative advisor for member organizations, Elmer Mendez; and Mario Rivas of the productive and commercial area of FORESCOM share their views.

How do you define ‘inclusiveness’ and why should it be addressed by financial institutions?

Mario Rivas of ACOFOP at the plant of Laborantes del Bosque. Photo by D. Stoian

We have not really thought about the topic as such. ACOFOP and FORESCOM work with private banks and receive income from product sales. As access to loans is not easy, we also rely, in part, on international cooperation, for example for technical assistance. For example, the purchase of equipment for use by members was partially financed by international cooperation and after several years these were bought by the organizations.

In addition, it is a challenge to make efficient use of the harvesting season. Despite organizations always paying back loans, the topic of forestry has still not been able to generate enough trust with banks regarding the administrative procedures needed for applying for operational loans, given that they continue to ask for collateral while the organizations work on state land. As such, some of the organizations set aside their own funds for harvesting, or make arrangements with buyers, making payments in the form of timber.

Read also: Scaling up sustainable forestry projects key to attracting finance

What are the structural barriers to financing smallholders and small- and medium-sized enterprises (SMEs)?

First of all, it is difficult to build the trust required to allow loan applications to be processed more rapidly. Another barrier is the need to provide guarantees, especially when most communities do not own the land or property where they harvest the trees and only have concessions over the use of state forests.

Also, loans are usually for one year, and the timing of disbursements and demands for repayments are not adapted to natural harvesting cycles. In general, financial products need to be adjusted to better meet the needs of community forest enterprises, and loan negotiations are made more difficult because credit agents are not aware of the specific needs of forestry businesses.

Workers process wood at the sawmill of Laborantes del Bosque. D. Stoian

Finally, the costs of borrowing are high at 16-24 percent per year, although ACOFOP has been able to negotiate 12 percent in some cases.

Other barriers are related to smallholders’ own experience in running commercial operations. This sometimes creates problems in product delivery and cash flow. Non-timber forest products also face the same barriers, such as with the leaves of the xate palm (Chamaedorea sp.).

Most are sold to US customers with payment upon delivery, causing problems for harvesters especially when payments are delayed. As such, harvesters now demand advance payments from the organization. Others shift towards more opportunistic buyers, selling xate leaves at lower prices but receiving payment more quickly.

How is your organization addressing the financing needs of smallholders and SMEs, and what have you learnt from that?

Members of ACOFOP worked together to solve several structural barriers. In 2004, for example, we founded FORESCOM as a commercial company, contracting qualified personnel for the provision of technical support in forest management, business administration and marketing. Together, we have received international funding which allowed us to invest directly in community enterprises.

More recently, FORESCOM, with the support of ACOFOP, community enterprises and the Agricultural Research and Higher Education Center (CATIE), established a new finance mechanism to provide loans to member organizations at lower interest rates (9 percent) and with greater flexibility regarding the documentation required.

Usefully, loans have a payback period of three years, instead of the usual one year for commercial bank loans. The fund is still small, but we seek to increase it during the coming years. ACOFOP and FORESCOM have also assisted their members in seeking partnerships for financing.

Read also: More dialogue needed between farmers, forest enterprises and finance providers

What examples do you have of successful or promising financial innovations that promote environmentally sound and socially inclusive investments?

We consider ourselves a good example of progress towards sustainable use of natural resources within our landscape, leading to socio-economic benefits for the local population. From our experience, we have learnt that this requires an integrated approach, within which financial innovations are a key component. And these financial innovations have come more from within our local organizations as there has been limited access to private banks and other financial institutions for our members.

We felt the need to create our own fund that allows our members to obtain loans more appropriate to their needs, at lower interest rates, with more flexible repayment periods, and more flexible documentation and guarantee requirements. For example, community management plans and their annual harvesting authorizations form the basis of the loan applications.

Sawn wood, stamped with the FSC logo, is transported by truck. Photo by A. Rodas

A second internal innovation is increasing financial literacy. Community enterprises were supported to formalize themselves as not-for-profit organizations or as for-profit organizations, the main difference between these two being the distribution of benefits.

With both, they decided that 30 percent of net income should be reinvested in forest operations. As a not-for-profit enterprise, the rest is invested in social or productive projects that benefit communities. In the for-profit enterprises, most net income is invested in other projects not necessarily within the community, or is distributed among the community owners of the enterprise.

A third innovation that we are working on is the creation of a fund that can provide advance payments to organizations that trade in palm leaves. The idea is that this fund will grow from a charge on buyers and will be managed by a trust fund and the commercial operations of FORESCOM.

It was felt necessary to create such a fund because payments for palm leaves shipped to buyers are often delayed for months, putting the palm leaf collectors under economic stress. Access to this fund would allow collectors to continue their normal activities, while repayment to FORESCOM is guaranteed once buyers have confirmed the quantity of products received.

Finally, ACOFOP considers it important that community organizations participate in the formation of national financial mechanisms that aim to capture climate finance, to ensure it reaches the communities directly, or through intermediary organizations.

Part of the current problem is that much of this fund stays at the institutional level rather than being used for actions on the ground that benefit local people. ACOFOP is working on this at the moment, but so far it has only had limited responses from governmental institutions. We consider that national mechanisms need to be more open to inputs from community-based organizations.

Read more about ACOFOP operations here.

By Bas Louman, Tropenbos International.

This interview has also been published on the Tropenbos International website.


This article was produced by Tropenbos International (TBI) and the Center for International Forestry Research (CIFOR) as part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.

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  • Achieving sustainable cultivation of cocoa

Achieving sustainable cultivation of cocoa

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There is a growing demand for cocoa. However, cultivation is dependent on ageing trees with low yields and increasing vulnerability to disease. There is growing concern about the environmental impact of cultivation in areas soil health and biodiversity. There is therefore an urgent need to make cocoa cultivation more efficient and sustainable to ensure a successful future. These challenges are addressed in Achieving sustainable cultivation of cocoa.

Part 1 reviews genetic resources and developments in breeding. Part 2 discusses optimising cultivation techniques to make the most of new varieties. Part 3 summaries the latest research on understanding and combatting the major fungal and viral diseases affecting cocoa. Part 4 covers safety and quality issues whilst the final part of the book looks at ways of improving sustainability, including the role of agroforestry, organic cultivation and ways of supporting smallholders. With its distinguished editor and international range of expert authors – including a number from CGIAR Research Program on Forests, Trees and Agroforestry (FTA) scientists – this collection will be a standard reference for cocoa scientists, growers and processors.

Part 1 Genetic resources and breeding

1. Taxonomy and classification of cacao: Ranjana Bhattacharjee, International Institute of Tropical Agriculture (IITA), Nigeria; and Malachy Akoroda, Cocoa Research Institute of Nigeria, Nigeria;
2. Conserving and exploiting cocoa genetic resources: the key challenges: Brigitte Laliberté, Bioversity International, Italy; Michelle End, INGENIC (The International Group for Genetic Improvement of Cocoa), UK; Nicholas Cryer, Mondelez International, UK; Andrew Daymond, University of Reading, UK; Jan Engels, Bioversity International, Italy; Albertus Bernardus Eskes, formerly CIRAD and Bioversity International, France; Martin Gilmour, Barry Callebaut, USA; Philippe Lachenaud, Centre de coopération internationale en recherche agronomique pour le développement, France; Wilbert Phillips-Mora, Center for Tropical Agriculture Research and Education, Costa Rica; Chris Turnbull, Cocoa Research Association Ltd., UK; Pathmanathan Umaharan, Cocoa Research Centre, The University of the West Indies, Trinidad and Tobago; Dapeng Zhang, USDA-ARS, USA; and Stephan Weise, Bioversity International, Italy;
3. The role of gene banks in preserving the genetic diversity of cacao: Lambert A. Motilal, The University of the West Indies, Trinidad and Tobago;
4. Safe handling and movement of cocoa germplasm for breeding: Andrew Daymond, University of Reading, UK;
5. Developments in cacao breeding programmes in Africa and the Americas: Dário Ahnert, Universidade Estadual de Santa Cruz, Brazil; and Albertus Bernardus Eskes, formerly CIRAD and Bioversity International, France;

Part 2 Cultivation techniques

6. Cocoa plant propagation techniques to supply farmers with improved planting materials: Michelle End, INGENIC (The International Group for Genetic Improvement of Cocoa), UK; Brigitte Laliberté, Bioversity International, Italy; Rob Lockwood, Consultant, UK; Augusto Roberto Sena Gomes, Consultant, Brazil; George Andrade Sodré, CEPLAC/CEPEC, Brazil; and Mark Guiltinan and Siela Maximova, The Pennsylvania State University, USA;
7. The potential of somatic embryogenesis for commercial-scale propagation of elite cacao varieties: Siela N. Maximova and Mark J. Guiltinan, The Pennsylvania State University, USA;
8. Good agronomic practices in cocoa cultivation: rehabilitating cocoa farms: Richard Asare, International Institute of Tropical Agriculture (IITA), Ghana; Victor Afari-Sefa, World Vegetable Center, Benin; Sander Muilerman, Wageningen University, The Netherlands; and Gilbert J. Anim-Kwapong, Cocoa Research Institute of Ghana, Ghana;
9. Improving soil and nutrient management for cacao cultivation: Didier Snoeck and Bernard Dubos, CIRAD, UR Systèmes de pérennes, France;

Part 3 Diseases and pests

10. Cocoa diseases: witches’ broom: Jorge Teodoro De Souza, Federal University of Lavras, Brazil; Fernando Pereira Monteiro, Federal University of Lavras and UNIVAG Centro Universitário, Brazil; Maria Alves Ferreira, Federal University of Lavras, Brazil; and Karina Peres Gramacho and Edna Dora Martins Newman Luz, Comissão Executiva do Plano da Lavoura Cacaueira (CEPLAC), Brazil;
11. Frosty pod rot, caused by Moniliophthora roreri: Ulrike Krauss, Palm Integrated Services and Solutions (PISS) Ltd., Saint Lucia;
12. Cocoa diseases: vascular-streak dieback: David I. Guest, University of Sydney, Australia; and Philip J. Keane, LaTrobe University, Australia;
13. Insect pests affecting cacao: Leïla Bagny Beilhe, Régis Babin and Martijn ten Hoopen, CIRAD, France;
14. Nematode pests of cocoa: Samuel Orisajo, Cocoa Research Institute of Nigeria, Nigeria;
15. Advances in pest- and disease-resistant cocoa varieties: Christian Cilas and Olivier Sounigo, CIRAD, France; Bruno Efombagn and Salomon Nyassé, Institute of Agricultural Research for Development (IRAD), Cameroon; Mathias Tahi, CNRA, Côte d’Ivoire; and Sarah M. Bharath, Meridian Cacao, USA;

Part 4 Safety and sensory quality

16. Improving best practice with regard to pesticide use in cocoa: M. A. Rutherford, J. Crozier and J. Flood, CABI, UK; and S. Sastroutomo, CABI-SEA, Malaysia
17. Mycotoxins in cocoa: causes, detection and control: Mary A. Egbuta, Southern Cross University, Australia;
18. Analysing sensory and processing quality of cocoa: Darin A. Sukha and Naailah A. Ali, The University of the West Indies, Trinidad and Tobago;

Part 5 Sustainability

19. Climate change and cocoa cultivation: Christian Bunn, Fabio Castro and Mark Lundy, International Center for Tropical Agriculture (CIAT), Colombia; and Peter Läderach, International Center for Tropical Agriculture (CIAT), Vietnam;
20. Analysis and design of the shade canopy of cocoa-based agroforestry systems:Eduardo Somarriba, CATIE, Costa Rica; Luis Orozco-Aguilar, University of Melbourne, Australia; Rolando Cerda, CATIE, Costa Rica; and Arlene López-Sampson, James Cook University, Australia;
21. Organic cocoa cultivation: Amanda Berlan, De Montfort University, UK;
22. Cocoa sustainability initiatives: the impacts of cocoa sustainability initiatives in West Africa: Verina Ingram, Yuca Waarts and Fedes van Rijn, Wageningen University, The Netherlands;
23. Supporting smallholders in achieving more sustainable cocoa cultivation: the case of West Africa: Paul Macek, World Cocoa Foundation, USA; Upoma Husain and Krystal Werner, Georgetown University, USA.

This book is available for order from the publisher, Burleigh Dodds Science Publishing.

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  • Good investments in agriculture and forestry can benefit smallholders and landscapes

Good investments in agriculture and forestry can benefit smallholders and landscapes

The finance pavilion stands beside the indigenous people's pavilion at the GLF Bonn 2017. Photo by Pilar Valbuena/GLF
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With companies increasingly being seen as key partners in scaling-up efforts to achieve sustainable landscapes, a growing number of private actors are moving from ‘do no harm’ to a ‘do good’ approach.

In light of this, Tropenbos International (TBI) – along with the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), the Netherlands Development Organization (SNV), Finance Alliance for Sustainable Trade (FAST) and the Forests and Farm Facility – organized a well-attended panel discussion titled “Inclusive Finance and Business Models – Actions for Upscaling” at the recent Global Landscapes Forum (GLF) in Bonn, Germany.

Held in the Finance Pavilion, where FTA and TBI also shared a booth showcasing their work and research, around 40 participants came together to hear from five panelists, share ideas about what a do-good approach means in practice, and consider how it can be scaled up.

Watch: Inclusive Finance and Business Models – Actions for Upscaling

In opening the discussion, TBI Director René Boot said: “There’s a growing need for companies and for investors to basically upgrade their corporate social and environmental responsibility policy. We think it is time to move from ‘do no harm’ to ‘do good’.”

Boot pointed out that in order to make that step, it is important to know how to build businesses that are both profitable and can contribute to livelihoods, secure land rights, and make use of the entrepreneurial qualities of smallholders and small and medium enterprises. “Do we have enough information, do we have enough examples, to scale up?” he asked.

Attendees peruse the materials available at the finance pavilion. Photo by Pilar Valbuena/GLF

The first speaker, Herman Savenije of TBI, presented the findings of a working paper titled Improving the positive impacts of investments on smallholder livelihoods and the landscapes they live in, a joint effort from the Dutch Development Bank (FMO), TBI, Dutch organization for development HIVOS and the Royal Tropical Institute (KIT).

The report “developed some key points for the do-good approach for investment and business,” Savenije explained. The points in the report were divided into three categories: recognizing rights; active engagement; and “think landscapes” – which is also an overarching focus of the GLF. An increasing number of business cases show that the approach is feasible, but requires thinking, acting and partnering beyond a business-as-usual approach, he added.

Savenije suggested that mainstream investments and businesses often ignore and underestimate land governance, land rights and livelihoods issues, but failing to properly address the issues could lead to business and reputational risks. “So strengthening the position of smallholders and communities within value chains, within landscapes, makes business sense,” he said.

Carina van der Laan of SNV then discussed access to finance for smallholders in oil palm plantations in Indonesia, while Marcelo Cardozo of the Bolivian forest producer organization MINGA provided perspectives from indigenous producers on accessing finance for integrated territorial management, Francesca Nugnes shared FAST’s experiences in supporting small- and medium-scale enterprises on building workable, sustainable business models, and Paul Hol of Sustainable Forestry Investments (SFI) discussed investments in tree plantations in Ghana and Tanzania.

Aspects of the session echoed a discussion organized by TBI in September, which showed that a growing number of investors want to have a greater positive impact on people’s rights and livelihoods in areas where they do business.

Read more: Getting down to business: Seminar promotes shift toward inclusive investment

The finance pavilion stands beside the indigenous people’s pavilion at the GLF Bonn 2017. Photo by Pilar Valbuena/GLF

Following the panel discussion at GLF, TBI and FTA produced a report outlining its outcomes.

“In the context of agricultural and forestry production, a do-good approach means that commercial investments simultaneously improve the environmental integrity of the landscape and the livelihoods of the people living there, while making a profit,” the report read.

“This requires long-term thinking and investments, including investing in stakeholder engagement and building relationships. Initially, this may result in higher opportunity costs, which makes such investments risky for the private sector. How then can a do-good approach be operationalized on the ground?”

Finding ways to operationalize this approach should be one of the main goals of related research – to advance understanding not only on which business models have greater potential for sustainability and social inclusion, but also on the most effective ways for financial institutions to support scaling-up efforts – which is embraced by FTA’s work on innovative finance, said Pablo Pacheco, a Center for International Forestry Research (CIFOR) scientist leading the work.

Those involved are convinced about the need to team up to reach scale. The success of a do-good approach, thus, is considered to be largely dependent on collaboration and connections. The panel discussion was another step forward in contributing to these efforts.

Read more:

By Hannah Maddison-Harris, FTA Communication and Editorial Coordinator


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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  • Livelihood systems

Livelihood systems

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The extent and management of tree and forest cover on farms and across landscapes impacts the resilience, productivity and income of smallholders. This research theme harnesses the transformative power of trees, through developing and promoting innovations in management, markets and policies to reduce poverty, and increases the food and nutrition security of smallholders. Better tree management contributes to these livelihood goals while protecting the environment, enhancing natural capital and strengthening people’s capacity to adapt to climate change.

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  • The significance of planted teak for smallholders

The significance of planted teak for smallholders

Mixed teak system. Photo by P. Manalu/ICRAF/CIFOR
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Shared learning at a farmer’s demonstration site. Photo by JM Roshetko/ICRAF

Teak is one of the most sought-after hardwoods in the world. A substantial amount is grown by smallholders in Latin America, Africa and Asia, who need help to improve production.

CGIAR Research Program on Forests, Trees and Agroforestry (FTA) scientists James M. Roshetko and Aulia Perdana of the World Forestry Centre (ICRAF) Indonesia made a presentation on the range and complexities of teak farming by smallholders at the TEAKNET partner event during the 27th session of the Asia-Pacific Forestry Commission held in Colombo, Sri Lanka, on Oct. 23-27, 2017.

“Smallholders likely first became involved with growing teak from working on plantations,” explained Roshetko.

The famous taungya system was first established by the British in Myanmar (then Burma) in 1856 and then in Indonesia through to the 1880s. The system allowed farmers to grow annual crops in tree plantations while the trees were young. The weeding and fertilization helped the teak seedlings become well established and off-set establishment costs for the companies and farmers who also adopted the system on their own land.

As demand increased, smallholders’ teak plantations became common since the 1960s in many countries, including Bangladesh, Benin, Costa Rica, India, Indonesia, Lao PDR, Nigeria, Panama, Philippines, Solomon Islands, Thailand and Togo. Globally, there is a minimum 4.3 million hectares of teak plantations, 21 percent of which is managed by smallholders. Eighty-three percent of teak is grown in Asia, mainly in India, Indonesia and Myanmar.

Read more: Money grows on clove trees in Sulawesi

Smallholders’ teak in Indonesia

Approximately 1.5 million farm families grow teak on the island of Java in Indonesia. In the country as a whole, around 3.1 million hectares of farmland produce teak. Eighty percent (80 percent) of the teak logs used by small-to-medium-sized enterprises to produce furniture for domestic and international markets is grown by smallholders. In the provinces of Central and East Java in 2011, smallholders produced 14 times more timber (logs of all species) than the state-owned forestry company, 2,080,130 m3 compared to 146,420 m3, making them the dominant source of teak in Indonesia.

Indonesian farmers plant teak for a number of reasons. One of these is to serve as a long-term investment that constitutes family savings, like a living bank account. A tree is only harvested when funds are needed. According to Roshetko and Perdana’s research, a substantial percentage of smallholders (23 percent) claim they grow teak because it is part of their cultural heritage. Only 15 percent grow it to maximize market opportunities.

Smallholders teak in Indonesia. Source: Elissa Dwiyanti

In Indonesia, most smallholders (managing 0.5-3 hectares; average 1 hectare) prefer farming systems that mix different species of trees, annual crops and livestock — rather than exclusively monocultural teak plantations — to spread risks, increase the diversity of products available for domestic use and sale, improve their surrounding environment and sustain traditional practices. In Central Java, farmers who grow teak usually devote 30-50 percent of their land to it, of which, perhaps 10 percent could be monocultural woodlots.

In Thailand and Lao PDR, smallholders also prefer mixed systems that enable off-farm opportunities, including temporary migration. In dry areas, such as Benin, Togo and Nigeria in Africa, teak competes with crops for land and labor yet smallholders seek to restore degraded land using teak. In Central and South America, farmers prefer monocultural teak plantations.

Read more: The role of agroforestry in climate-change adaptation in Southeast Asia

Farmers everywhere report that they know they need to improve their tree management skills, use higher quality seeds and seedlings, access better market information and expand their use of intercropping to make the land more productive. ICRAF promotes demonstration trials to help farmers improve their skills and gain technical knowledge in management of teak.

A trial typically features farmers volunteering the use of some of their land for research and training purposes. At the trial sites, farmers learn how to prepare a planting area, how to intercrop teak with annual crops, how to manage young trees, and how to thin and prune trees. They also learning how to establish tree nurseries to produce high-quality seedlings. The trials and nurseries serves as a learning center for neighboring farmers, who often replicate the model on their own land once they see success.

ICRAF also assists smallholders improve their marketing because usually a farmer simply produces the timber, which is taken from the farm by middlemen who sell it to other traders or directly to manufacturers. Smallholders who aggregate into cooperatives or other business entities typically enjoy higher prices.

Mixed teak system. Photo by P. Manalu/ICRAF/CIFOR

Recommendations

According to Roshetko and Perdana, smallholders’ systems are not industrial teak plantations but rather more complex socioeconomic systems in which the use of trees as a living savings account is a valid approach. However, farmers need to improve their management. To do that, government and other support agencies can facilitate adoption of better silvicultural practices through well-informed extension and training, provision of practical manuals and news bulletins and through the wider use of farmers’ demonstration trials.

Specifically, the aim of improved management would be the production of larger diameter, better quality logs, which is what the markets want. Such knowledge stems from improved market positions by accessing information, developing links between teak farmers and industries, engaging in group marketing to decrease transaction costs, providing farmers with log grading and pricing systems that are used by the timber industry, and promoting more suitable and simplified government regulations that minimize transaction costs and make farm teak markets more efficient.

By Robert Finlayson, originally published at ICRAF’s Agroforestry World


This work is linked to the CGIAR Research Program on Forests, Trees and Agroforestry. ICRAF is one of 15 members of the CGIAR, a global partnership for a food-secure future. We thank all donors who support research in development through their contributions to the CGIAR Fund.

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  • The significance of planted teak for smallholders

The significance of planted teak for smallholders

Mixed teak system. Photo by P. Manalu/ICRAF/CIFOR
Posted by

FTA COMMUNICATIONS TEAM

Shared learning at a farmer’s demonstration site. Photo by JM Roshetko/ICRAF

Teak is one of the most sought-after hardwoods in the world. A substantial amount is grown by smallholders in Latin America, Africa and Asia, who need help to improve production.

CGIAR Research Program on Forests, Trees and Agroforestry (FTA) scientists James M. Roshetko and Aulia Perdana of the World Forestry Centre (ICRAF) Indonesia made a presentation on the range and complexities of teak farming by smallholders at the TEAKNET partner event during the 27th session of the Asia-Pacific Forestry Commission held in Colombo, Sri Lanka, on Oct. 23-27, 2017.

“Smallholders likely first became involved with growing teak from working on plantations,” explained Roshetko.

The famous taungya system was first established by the British in Myanmar (then Burma) in 1856 and then in Indonesia through to the 1880s. The system allowed farmers to grow annual crops in tree plantations while the trees were young. The weeding and fertilization helped the teak seedlings become well established and off-set establishment costs for the companies and farmers who also adopted the system on their own land.

As demand increased, smallholders’ teak plantations became common since the 1960s in many countries, including Bangladesh, Benin, Costa Rica, India, Indonesia, Lao PDR, Nigeria, Panama, Philippines, Solomon Islands, Thailand and Togo. Globally, there is a minimum 4.3 million hectares of teak plantations, 21 percent of which is managed by smallholders. Eighty-three percent of teak is grown in Asia, mainly in India, Indonesia and Myanmar.

Read more: Money grows on clove trees in Sulawesi

Smallholders’ teak in Indonesia

Approximately 1.5 million farm families grow teak on the island of Java in Indonesia. In the country as a whole, around 3.1 million hectares of farmland produce teak. Eighty percent (80 percent) of the teak logs used by small-to-medium-sized enterprises to produce furniture for domestic and international markets is grown by smallholders. In the provinces of Central and East Java in 2011, smallholders produced 14 times more timber (logs of all species) than the state-owned forestry company, 2,080,130 m3 compared to 146,420 m3, making them the dominant source of teak in Indonesia.

Indonesian farmers plant teak for a number of reasons. One of these is to serve as a long-term investment that constitutes family savings, like a living bank account. A tree is only harvested when funds are needed. According to Roshetko and Perdana’s research, a substantial percentage of smallholders (23 percent) claim they grow teak because it is part of their cultural heritage. Only 15 percent grow it to maximize market opportunities.

Smallholders teak in Indonesia. Source: Elissa Dwiyanti

In Indonesia, most smallholders (managing 0.5-3 hectares; average 1 hectare) prefer farming systems that mix different species of trees, annual crops and livestock — rather than exclusively monocultural teak plantations — to spread risks, increase the diversity of products available for domestic use and sale, improve their surrounding environment and sustain traditional practices. In Central Java, farmers who grow teak usually devote 30-50 percent of their land to it, of which, perhaps 10 percent could be monocultural woodlots.

In Thailand and Lao PDR, smallholders also prefer mixed systems that enable off-farm opportunities, including temporary migration. In dry areas, such as Benin, Togo and Nigeria in Africa, teak competes with crops for land and labor yet smallholders seek to restore degraded land using teak. In Central and South America, farmers prefer monocultural teak plantations.

Read more: The role of agroforestry in climate-change adaptation in Southeast Asia

Farmers everywhere report that they know they need to improve their tree management skills, use higher quality seeds and seedlings, access better market information and expand their use of intercropping to make the land more productive. ICRAF promotes demonstration trials to help farmers improve their skills and gain technical knowledge in management of teak.

A trial typically features farmers volunteering the use of some of their land for research and training purposes. At the trial sites, farmers learn how to prepare a planting area, how to intercrop teak with annual crops, how to manage young trees, and how to thin and prune trees. They also learning how to establish tree nurseries to produce high-quality seedlings. The trials and nurseries serves as a learning center for neighboring farmers, who often replicate the model on their own land once they see success.

ICRAF also assists smallholders improve their marketing because usually a farmer simply produces the timber, which is taken from the farm by middlemen who sell it to other traders or directly to manufacturers. Smallholders who aggregate into cooperatives or other business entities typically enjoy higher prices.

Mixed teak system. Photo by P. Manalu/ICRAF/CIFOR

Recommendations

According to Roshetko and Perdana, smallholders’ systems are not industrial teak plantations but rather more complex socioeconomic systems in which the use of trees as a living savings account is a valid approach. However, farmers need to improve their management. To do that, government and other support agencies can facilitate adoption of better silvicultural practices through well-informed extension and training, provision of practical manuals and news bulletins and through the wider use of farmers’ demonstration trials.

Specifically, the aim of improved management would be the production of larger diameter, better quality logs, which is what the markets want. Such knowledge stems from improved market positions by accessing information, developing links between teak farmers and industries, engaging in group marketing to decrease transaction costs, providing farmers with log grading and pricing systems that are used by the timber industry, and promoting more suitable and simplified government regulations that minimize transaction costs and make farm teak markets more efficient.

By Robert Finlayson, originally published at ICRAF’s Agroforestry World


This work is linked to the CGIAR Research Program on Forests, Trees and Agroforestry. ICRAF is one of 15 members of the CGIAR, a global partnership for a food-secure future. We thank all donors who support research in development through their contributions to the CGIAR Fund.

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  • Financing farmers: Can funds for oil palm help save our forests?

Financing farmers: Can funds for oil palm help save our forests?

A worker wheels a barrow of oil palm fruit. Photo by Icaro Cooke Vieira/CIFOR
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Oil palm fruits in Jambi, Indonesia. Photo by Iddy Farmer/CIFOR

Palm oil: people love it, hate it or maybe just use it without even knowing. The controversial vegetable oil is found in thousands of consumer products from soap to lipstick, frozen pizza, ice cream and even fuel.

World demand continues to increase rapidly and is placing pressure on forests, mainly in Indonesia. But, for now, the profitable commodity is here to stay. So what can be done to reduce the pressure on forests?

Efforts are ongoing to stop the rapid destruction of tropical forests through more sustainable business practices. In 2004, the Roundtable on Sustainable Palm Oil (RSPO) was launched with the vision to “transform markets to make sustainable oil palm the norm”. Pressure from activists on big corporations that use palm oil in their products has also had some impact, leading them to make commitments to sustainable supply and zero deforestation.

Most action to date has focused on how large palm oil companies do business but increasingly, concerns comprise what the implications are for smallholders, and how smallholders can capture greater benefits from engaging in palm oil supply chains.

In Indonesia — one of the biggest palm oil producing countries alongside Malaysia — up to 40 percent of the land used to grow oil palm is cultivated by smallholders who farm, on average, just 2 hectares each.

The sustainability of the palm oil sector has also triggered Indonesian government efforts to improve the policy environment for inclusion of smallholders, and channeling resources for them to improve practices in management and replanting. There is also an ongoing effort to strengthening the national standards for sustainable palm oil (ISPO).

Read more: Towards responsible and inclusive financing of the palm oil sector

Three teams of researchers from the Center for International Forestry Research (CIFOR) as part of its work under the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) and from partner institutions have produced a series of infobriefs looking at how smallholders can improve their lives and, at the same time, protect remaining forests. The major challenge, according to their findings? Money.

“Oil palm provides more economic benefits to smallholders than other crops, and it’s expanding,” says Pablo Pacheco, a Principal Scientist at CIFOR. “Yet smallholders have to adopt more sustainable practices. Research has to contribute to this, and identify options for them to improve their practices, as well as identify what resources are needed to make that change happen.”

“That’s where financing comes in, and becomes an important key resource for smallholders to be able to access,” he adds.

THE REPLANTING CHALLENGE

A worker wheels a barrow of oil palm fruit. Photo by Icaro Cooke Vieira/CIFOR

The Indonesian government estimates that a total of 175,000 hectares of oil palm farmed by smallholders needs to be replanted each year, and this alone creates major challenges for farmers. 

Hans Harmen Smit, global coordinator for palm oil at the Netherlands Development Organization (SNV), one of the partner organizations, was part of the team that examined current finance practices. Their focus was on Indonesia and Malaysia, which together account for about 85 percent of total global palm oil production. Smit says that without proper financing, farmers only replant when they can afford to.

“The problem is, once they replant, they have to wait three years at least for the new plantation to become productive, and during that time they have no income,” he says.

Smallholder income from oil palm varies. On average, smallholders with around two hectares of land can earn a gross monthly income of US$290 to US$400.

Researchers say that without financial support, farmers do not have the resources to replant year after year on the same plot, and so they tend to move to peatlands and forested areas, “slash and burn” the land, and plant the only crops available to them, which are often low-quality varieties.

Smit points out that in Malaysia, the sector has better systems in place for replanting, and smallholders can more easily obtain financial support. In Indonesia, there is the Crude Palm Oil (CPO) Fund that supplies replanting loans, but it is often difficult to access, especially for smallholder farmers with limited funding.

“The lesson learned here is that saving for replanting is often not done as it should be. The government needs to engage more and manage programs to help farmers save for replanting,” says Smit.

He adds that one of the main problems is a lack of available information for financial service providers (FSPs) to evaluate the lending risks and set appropriate interest rates. He says the loans are often too small on an individual level, and this makes the loan origination costs too high compared to their value.

“We need to start by supporting better data collection on the cash flows of smallholders. Once this data is available, we can create investible portfolios for investors,” says Smit.

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

FUNDING THE GAPS

A couple works together on a plantation. Photo by Icaro Cooke Vieira/CIFOR

The researchers also identified major gaps between existing credit schemes and what farmers actually need. Addressing this could pave the way for more sustainable palm oil for smallholders.

One key finding was that lenders who do offer credit only provide it in the short term. But what smallholders actually need is both working capital and credit in the long term for replanting and financing other management practices.

“Most lenders also don’t have schemes that take into account the fact that oil palm farmers don’t make any money in the first three or four years, so they can’t make payments at this time unless they find additional sources of income, which is difficult,” says Pacheco.

Another issue is repayment of loans. When ‘tied’ farmers, who are under contract with oil palm plantations, access funds through a cooperative, profits from their harvest are used to pay back their loans. But when individual farmers seek loans, they have to pay back in cash.

Smallholders trying to access loans also face major challenges when trying to meet the requirements of most FSPs.

“Sometimes they don’t have savings accounts or own the land, so they can’t provide collateral,” says Pacheco.

Pricing of the fresh fruit bunches (FFB) produced by oil palm can also be a challenge for farmers. FFB prices are set by governments and oil palm companies, and tied farmers are paid more than independent farmers.

But there are ways to help smallholders overcome these challenges. Incentives and technical support to meet sustainability requirements, land tenure security, and support for FSPs to assess and manage risks, and build the capacity of smallholder organizations, could all have an impact, the research finds.

FINDING SUSTAINABLE FINANCE

Most of the financing for major palm oil companies comes from FSPs based in Asian countries like Japan, Malaysia, Indonesia and Singapore. And on the whole, these do not employ adequate environmental, social and governance (ESG) policies, the research suggests.

“American- and European-based FSPs’ policies are more advanced, but even they don’t fully address how financial resources can be better channeled to smallholders,” says Pacheco.

He warns that there is the danger of a two-tier marketplace developing: one in Asia, where there is less consumer pressure for sustainable palm oil, and a second focusing on US and European markets that have adopted more sustainable practices.

INVESTING IN PEOPLE

Pacheco says the future of smallholders holds a real dilemma. If they become more integrated into the existing supply chain, more productive, use better practices and have access to good financing and markets, they are likely to become more and more dependent on supply chains and companies for their livelihoods.

“You want smallholders to improve system practices, their knowledge of fertilizers, harvesting and so on, but without losing their freedom,” says Pacheco.

It all comes down to how farmers are empowered to negotiate prices, conditions with companies and so on, he adds.

“For me, social empowerment is critical, and I think that needs to be included in the debate. Up to now, the focus has been on efficiency, sustainability, less impact on forests — and not enough attention has been given to empowering these important players, the smallholders, who are trying to reap as much benefit as possible in the market,” he concludes.

By Suzanna Dayne, originally published at CIFOR’s Forest News

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


This research was conducted by CIFOR in partnership with Profundo, the International Center for Applied Finance and Economics (InterCafe) at the Bogor Agricultural University (IPB), the Netherlands Development Organization (SNV) and Financial Access (FA).

This research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry, which is supported by CGIAR Fund Donors

This research was supported by the United States Agency for International Development (USAID) through the project “The Role of Finance in Integrating Oil Palm Smallholders into Sustainable Supply Chains.”

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  • Financing farmers: Can funds for oil palm help save our forests?

Financing farmers: Can funds for oil palm help save our forests?

A worker wheels a barrow of oil palm fruit. Photo by Icaro Cooke Vieira/CIFOR
Posted by

FTA COMMUNICATIONS TEAM

Oil palm fruits in Jambi, Indonesia. Photo by Iddy Farmer/CIFOR

Palm oil: people love it, hate it or maybe just use it without even knowing. The controversial vegetable oil is found in thousands of consumer products from soap to lipstick, frozen pizza, ice cream and even fuel.

World demand continues to increase rapidly and is placing pressure on forests, mainly in Indonesia. But, for now, the profitable commodity is here to stay. So what can be done to reduce the pressure on forests?

Efforts are ongoing to stop the rapid destruction of tropical forests through more sustainable business practices. In 2004, the Roundtable on Sustainable Palm Oil (RSPO) was launched with the vision to “transform markets to make sustainable oil palm the norm”. Pressure from activists on big corporations that use palm oil in their products has also had some impact, leading them to make commitments to sustainable supply and zero deforestation.

Most action to date has focused on how large palm oil companies do business but increasingly, concerns comprise what the implications are for smallholders, and how smallholders can capture greater benefits from engaging in palm oil supply chains.

In Indonesia — one of the biggest palm oil producing countries alongside Malaysia — up to 40 percent of the land used to grow oil palm is cultivated by smallholders who farm, on average, just 2 hectares each.

The sustainability of the palm oil sector has also triggered Indonesian government efforts to improve the policy environment for inclusion of smallholders, and channeling resources for them to improve practices in management and replanting. There is also an ongoing effort to strengthening the national standards for sustainable palm oil (ISPO).

Read more: Towards responsible and inclusive financing of the palm oil sector

Three teams of researchers from the Center for International Forestry Research (CIFOR) as part of its work under the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) and from partner institutions have produced a series of infobriefs looking at how smallholders can improve their lives and, at the same time, protect remaining forests. The major challenge, according to their findings? Money.

“Oil palm provides more economic benefits to smallholders than other crops, and it’s expanding,” says Pablo Pacheco, a Principal Scientist at CIFOR. “Yet smallholders have to adopt more sustainable practices. Research has to contribute to this, and identify options for them to improve their practices, as well as identify what resources are needed to make that change happen.”

“That’s where financing comes in, and becomes an important key resource for smallholders to be able to access,” he adds.

THE REPLANTING CHALLENGE

A worker wheels a barrow of oil palm fruit. Photo by Icaro Cooke Vieira/CIFOR

The Indonesian government estimates that a total of 175,000 hectares of oil palm farmed by smallholders needs to be replanted each year, and this alone creates major challenges for farmers. 

Hans Harmen Smit, global coordinator for palm oil at the Netherlands Development Organization (SNV), one of the partner organizations, was part of the team that examined current finance practices. Their focus was on Indonesia and Malaysia, which together account for about 85 percent of total global palm oil production. Smit says that without proper financing, farmers only replant when they can afford to.

“The problem is, once they replant, they have to wait three years at least for the new plantation to become productive, and during that time they have no income,” he says.

Smallholder income from oil palm varies. On average, smallholders with around two hectares of land can earn a gross monthly income of US$290 to US$400.

Researchers say that without financial support, farmers do not have the resources to replant year after year on the same plot, and so they tend to move to peatlands and forested areas, “slash and burn” the land, and plant the only crops available to them, which are often low-quality varieties.

Smit points out that in Malaysia, the sector has better systems in place for replanting, and smallholders can more easily obtain financial support. In Indonesia, there is the Crude Palm Oil (CPO) Fund that supplies replanting loans, but it is often difficult to access, especially for smallholder farmers with limited funding.

“The lesson learned here is that saving for replanting is often not done as it should be. The government needs to engage more and manage programs to help farmers save for replanting,” says Smit.

He adds that one of the main problems is a lack of available information for financial service providers (FSPs) to evaluate the lending risks and set appropriate interest rates. He says the loans are often too small on an individual level, and this makes the loan origination costs too high compared to their value.

“We need to start by supporting better data collection on the cash flows of smallholders. Once this data is available, we can create investible portfolios for investors,” says Smit.

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

FUNDING THE GAPS

A couple works together on a plantation. Photo by Icaro Cooke Vieira/CIFOR

The researchers also identified major gaps between existing credit schemes and what farmers actually need. Addressing this could pave the way for more sustainable palm oil for smallholders.

One key finding was that lenders who do offer credit only provide it in the short term. But what smallholders actually need is both working capital and credit in the long term for replanting and financing other management practices.

“Most lenders also don’t have schemes that take into account the fact that oil palm farmers don’t make any money in the first three or four years, so they can’t make payments at this time unless they find additional sources of income, which is difficult,” says Pacheco.

Another issue is repayment of loans. When ‘tied’ farmers, who are under contract with oil palm plantations, access funds through a cooperative, profits from their harvest are used to pay back their loans. But when individual farmers seek loans, they have to pay back in cash.

Smallholders trying to access loans also face major challenges when trying to meet the requirements of most FSPs.

“Sometimes they don’t have savings accounts or own the land, so they can’t provide collateral,” says Pacheco.

Pricing of the fresh fruit bunches (FFB) produced by oil palm can also be a challenge for farmers. FFB prices are set by governments and oil palm companies, and tied farmers are paid more than independent farmers.

But there are ways to help smallholders overcome these challenges. Incentives and technical support to meet sustainability requirements, land tenure security, and support for FSPs to assess and manage risks, and build the capacity of smallholder organizations, could all have an impact, the research finds.

FINDING SUSTAINABLE FINANCE

Most of the financing for major palm oil companies comes from FSPs based in Asian countries like Japan, Malaysia, Indonesia and Singapore. And on the whole, these do not employ adequate environmental, social and governance (ESG) policies, the research suggests.

“American- and European-based FSPs’ policies are more advanced, but even they don’t fully address how financial resources can be better channeled to smallholders,” says Pacheco.

He warns that there is the danger of a two-tier marketplace developing: one in Asia, where there is less consumer pressure for sustainable palm oil, and a second focusing on US and European markets that have adopted more sustainable practices.

INVESTING IN PEOPLE

Pacheco says the future of smallholders holds a real dilemma. If they become more integrated into the existing supply chain, more productive, use better practices and have access to good financing and markets, they are likely to become more and more dependent on supply chains and companies for their livelihoods.

“You want smallholders to improve system practices, their knowledge of fertilizers, harvesting and so on, but without losing their freedom,” says Pacheco.

It all comes down to how farmers are empowered to negotiate prices, conditions with companies and so on, he adds.

“For me, social empowerment is critical, and I think that needs to be included in the debate. Up to now, the focus has been on efficiency, sustainability, less impact on forests — and not enough attention has been given to empowering these important players, the smallholders, who are trying to reap as much benefit as possible in the market,” he concludes.

By Suzanna Dayne, originally published at CIFOR’s Forest News

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


This research was conducted by CIFOR in partnership with Profundo, the International Center for Applied Finance and Economics (InterCafe) at the Bogor Agricultural University (IPB), the Netherlands Development Organization (SNV) and Financial Access (FA).

This research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry, which is supported by CGIAR Fund Donors

This research was supported by the United States Agency for International Development (USAID) through the project “The Role of Finance in Integrating Oil Palm Smallholders into Sustainable Supply Chains.”

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  • Local tree knowledge can fast-track agroforestry recommendations for coffee smallholders along a climate gradient in Mount Elgon, Uganda

Local tree knowledge can fast-track agroforestry recommendations for coffee smallholders along a climate gradient in Mount Elgon, Uganda

Posted by

FTA COMMUNICATIONS TEAM

Arabica coffee (Coffea arabica) is economically important for many smallholder farmers in the Mount Elgon region of East Uganda, but its production is increasingly threatened by climate change. However, ecosystem services (ES) provided by companion trees in coffee agroforestry systems (AFS) can help farmers adapt to climate change.

The objectives of this research were to develop agroforestry species recommendations and tailor these to the farmers’ needs and local context, taking into consideration gender. Local knowledge of agroforestry species and ES preferences was collected through farmer interviews and rankings. Using the Bradley-Terry approach, analysis was done along an altitudinal gradient in order to study different climate change scenarios for coffee suitability. Farmers had different needs in terms of ES and tree species at different altitudes, e.g. at low altitude they need a relatively larger set of ES to sustain their coffee production and livelihood. Local knowledge is found to be gender blind as no differences were observed in the rankings of species and ES by men and women.

Ranking species by ES and ranking ES by preference is a useful method to help scientists and extension agents to use local knowledge for the development of recommendations on companion trees in AFS for smallholder farmers.

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  • The long and winding road to sustainable palm oil

The long and winding road to sustainable palm oil

A worker collects oil palm fruit. Photo by I. Cooke Vieira/CIFOR
Posted by

FTA COMMUNICATIONS TEAM

A worker collects oil palm fruit. Photo by I. Cooke Vieira/CIFOR

Finding a way forward for profits, people and the planet.

The polemic around the expansion of oil palm plantations in the tropics continues, and increasingly involves consumers concerned with sustainability. At the core of the debate is the matter of hard trade-offs between conservation and development. Reconciling such trade-offs is still the major challenge facing governments and companies.

Available evidence suggests that palm oil production has contradictory impacts. It has positive impacts on both local and national economic growth, and in alleviating rural poverty. Yet plantations also drive social conflict in their development, and bring detriment to forests and peatlands as they expand, leading to negative impacts due to biodiversity loss and greenhouse gas (GHG) emissions.

The palm oil sector suffers from three performance issues, namely: land conflicts between local villagers and companies as well as immigrants, differences in yields between independent smallholders and industrial plantations, and a large carbon debt resulting from oil palm expansion into forestlands and peatlands. The challenge now is to find a way to ensure sustainable palm oil supply chains, in order to sustain economic gains while supporting conservation and climate action.

Employees drive to work on a plantation. Photo by I. Cooke Vieira/CIFOR

AIMING FOR CHANGE

Efforts are being made by governments, companies and civil society organizations on different fronts and at different levels to enhance the palm oil sector’s performance. Commitments to sustainability made by major palm oil companies have been accompanied by a more aggressive sustainability discourse by governments, and many civil society organizations have begun to play a new role as facilitators in the implementation of standards by companies, or as intermediaries between private and public actors.

In Indonesia, the previous government made important efforts to respond to the global climate change agenda, resulting in a moratorium on new licenses to develop primary forest or peatlands, which unfortunately in practice had limited impacts on reducing deforestation. The major corporate groups, through the Indonesian Palm Oil Pledge (IPOP) brought some new perspectives to halting deforestation through supply chain interventions, yet interestingly that triggered a strong political response from the government on the primacy of state regulations.

Two new fronts have since emerged. On one front, efforts are being made to enhance mandatory standards for sustainability by strengthening Indonesian Sustainable Palm Oil (ISPO) certification, accompanied by regulations on peatland intervention and restoration. On another front are efforts to safeguard the economic performance of the palm oil sector by expanding the domestic biodiesel market and applying subsidies to incentivize less competitive biodiesel production. In spite of strong arguments being made in favor of a social agenda, investments to support smallholders remain minimal.

An interesting turn of events has been the approval of an EU resolution suggesting that stronger constraints should apply to palm oil imports. This is not necessarily an opinion shared by some actors in Indonesia, who emphasize the importance of relying on national regulations. Signals have emerged that the government will be making the necessary steps to more fully embrace a sustainability framework. So far, the instrument for that seems to be a strengthened ISPO, with independent oversight. However, questions remain over the likely implementation costs, and institutional readiness at the local level.

Read also: Sustainable Palm Oil Production project synthesis: Understanding and anticipating global challenges

A young woman carries a bucket of harvested oil palm fruit. Photo by I. Cooke Vieira/CIFOR

WHOSE SUSTAINABILITY?

The dispute over which rules to follow, whether it be international private sustainability standards and/or methods toward zero deforestation, or mandatory national standards has brought to light competing notions of sustainability, how to achieve progress, and who should be taking the lead.

A policy network analysis of the palm oil sector in Indonesia suggests that standards and initiatives for sustainability have contrasting visibility and impact among stakeholders, for example among governments, the corporate sector and NGOs. The Roundtable on Sustainable Palm Oil (RSPO), stands as a reference, while efforts by the Indonesian government to promote its own standard with ISPO have yet to gain traction. Hopes remain that it could benefit from an emerging multi-stakeholder group.

Overall, the lack of progress in the uptake of sustainable palm oil practices on the ground, in the view of different stakeholders, appears to be caused more by political and legal barriers than by technical challenges or concerns for economic losses. The fact is that the palm oil sector, particularly in relation to land allocation and regulatory controls, is dominated by a complex and ambiguous layer of regulations. When we add vested local interests in profiting from plantation expansion, we are left with a difficult puzzle indeed.

The situation also calls for increased efforts to enforce regional initiatives on High Conservation Value (HCV) assessments to guide decisions on land-use planning, as well as efforts to support smallholders within wider landscapes. This is all the more important when considering proposals for limiting the expansion of concessions across the country without addressing existing concessions (‘land banks’) that are partially covered by standing natural forests, and placing little regulatory control on the additional pressures of smallholders on forest conversion.

A young man uses a contraption to harvest fruit from the oil palms. Photo by I. Cooke Vieira/CIFOR

Clearly, improvements are needed in communication and transparency among stakeholders, not only to raise the bar of sustainability beyond existing ISPO requirements and to provide a more conducive environment for corporate commitments, but also to enhance the rule of law and improve governance. Legality and law enforcement are absolute prerequisites for cleaning the sector of its worst players and practices.

THE COMPLEXITIES OF PALM OIL GOVERNANCE

Governance of the palm oil sector is becoming more complex over time. In addition to national regulations, it involves a transnational regime in the form of RSPO standards, which are widely accepted by the private sector as the benchmark criteria for sustainability, at least by players downstream the supply chain. Different initiatives by financial institutions and governments in consumer countries, grouped under the Amsterdam Declaration, as well the industry-led European Sustainable Palm Oil initiative (ESPO), are endorsing RSPO as a way to ensure uptake of sustainable practices.

Major corporate groups have also adopted individual and collective commitments to sustainability. Some of these commitments rely on RSPO as the privileged system to demonstrate achievements. Commitments to zero deforestation tend to make explicit their own criteria, targets and timeframes, which in some cases are rather ambiguous. In the palm oil sector, they often make use of High Carbon Stocks (HCS) as the approach to identifying forests to be protected.

As mentioned, the Indonesian government has embarked on a mission of strengthening ISPO, which originally emerged as a bundle of existing public regulations on palm oil production grouped under one instrument. However, doubts over ISPO’s effectiveness and slow implementation have forced the government to put in place a process to improve the scheme’s legitimacy, such as by drawing on a multi-stakeholder group, and conducting an ongoing consultation process to overcome the main design shortcomings. Much of the credibility of ISPO will nonetheless rely on how far it manages to closes the gaps with RSPO, particularly with regards to HCV and FPIC (Free, Prior and Informed Consent).

Due to the growing complexity of palm oil governance, what we have now are three simultaneous processes for moving toward sustainable palm oil that intersect, but in different ways. One is interested in “sustainable supply”, triggered by RSPO, another is interested in “clean supply”, motivated by private commitments to zero deforestation, and the third aims to achieve “legal supply”, supported by government through a strengthened ISPO. This creates some confusion, and it is not clear what the implications are of each on the move toward sustainability.

Read also: What will it take to make sustainable palm oil the norm?

Bunches of oil palm fruit await transportation in a wheelbarrow. Photo by I. Cooke Vieira/CIFOR

THE CHALLENGE OF INCLUDING SMALLHOLDERS

In this order of things, many independent oil palm smallholders are threatened with becoming alienated from formal markets because they lack the technical capacity and/or resources to comply with public and private sustainability standards. Thus, a major challenge is to find ways to improve conditions for smallholders in accessing finance and technical services.

Since resolving compliance barriers will require targeted interventions, it is becoming increasingly important to better understand the types of barriers faced by different types of smallholders. Research conducted in Riau, and in Central and West Kalimantan, highlights the sustainability, legality and productivity challenges arising from independent smallholder oil palm expansion. Gendered impacts of oil palm development also deserve special consideration, given the additional burden on women.

Understanding who smallholders are is important, since it has become the case that frontier expansion is often driven by larger, out-of-province and absentee farmers who engage in oil palm for investment purposes, rather than by smaller farmers (for example, with plots less than three hectares in area) who are dependent primarily on household labor. Some of this expansion is associated with land speculation, as a way to appropriate economic rents under the expectation of a future increase in the commercial value of cleared lands.

Tenure legality issues – faced especially by smallholders whose oil palm operations more closely resemble that of businesses – constitute the most significant compliance challenge. There is an ongoing debate over how to deal with illegality and to channel financial resources and technical support, not only to regulate oil palm expansion, but to enhance the performance of smallholders.

ADDRESSING CRITICAL CHALLENGES

Different and complementary initiatives are emerging to address performance issues in the sector. These embrace three broad objectives, namely: to implement traceability systems while overcoming challenges to involve smallholders; to refine and harmonize sustainability standards and tools; and to reconcile supply chain and landscape management approaches.

Enhancing traceability and smallholder inclusion

Major corporate groups in the palm oil sector are developing traceability systems to monitor and verify their performance with respect to their commitments to zero deforestation. Given the challenges to smallholder inclusion in this context, a number of companies and NGOs are collaborating to develop new business models and value chain strategies to support the inclusion of smallholders and enhance their compliance capacity. This is a work in progress.

Refining and harmonizing sustainability standards and tools

The most relevant process in this regard has been the HCS Convergence Agreement, which harmonizes methodologies to estimate high carbon stocks, and complements HCV with HCS. Other ongoing initiatives include RSPO Next, which is a set of advanced, add-on criteria for palm-oil growers seeking to comply with the aims of “no deforestation, no fire, no planting on peat, reduction of GHGs, and respect for human rights and transparency”, as well as efforts to strengthen ISPO. A major issue is how to implement on-the-ground standards that are increasingly demanding technically, and for which there are no institutional conditions, such as legality.

Reconciling supply chain interventions and landscape management

The private sector and NGOs are increasingly acknowledging that progress will only be piecemeal if underlying structural issues affecting the palm oil sector are not comprehensively addressed. Supporting efforts in specific jurisdictions to identify and register smallholder lands, and to promote district-level monitoring, reporting and verification of land-use change, are being undertaken as part of wider jurisdictional-based initiatives, emerging as a way to scale up innovations and solutions. These approaches may have potential, but have yet to prove their effectiveness.

Watch: Sustainable development of Cameroon’s palm oil

Workers take before fertilizing the next line of trees. Photo by I. Cooke Vieira/CIFOR

LIKELY FUTURES OF OIL PALM EXPANSION

Different futures are possible for oil palm expansion, with diverse consequences for development and conservation and their trade-offs. All depends on how far the government and the private sector will go in embracing their sustainability policies, and how effectively they are implemented and monitored.

The most likely scenarios are: 1) a business-as-usual scenario, in which oil palm plantations continue to expand at the current rate; 2) a moratorium scenario, in which the government applies increasing constraints to development on primary and secondary forests and peatlands; 3) a zero-deforestation scenario, in which deforestation is completely stopped in oil palm concessions; and 4) a sustainable intensification scenario, in which expansion continues on suitable lands, with greater social inclusion.

Emerging findings from scenario analysis in Central Kalimantan, when looking at the impacts of oil palm expansion on ecosystem services (comprising carbon stock and storage, habitat quality, water yield and palm oil production), suggest that the zero-deforestation scenario is the most desirable option. This scenario, however, requires a review of the forest moratorium that should encompass all forest types, as well as a clear land-use policy, strategy and detailed land-use plan involving all jurisdictions and stakeholders. The next most desirable scenario is sustainable intensification that would avoid the release of carbon, while continuing to contribute to increased palm oil supply resulting from enhanced yields.

When looking at Indonesia as a whole, scenario research suggests that zero-deforestation commitments and the moratorium on large-scale oil palm plantation expansion could reduce deforestation by 25% and 28%, respectively. These measures could also cut GHG emissions from land-use change by 13% and 16%, respectively, over the period 2010–2030. Even under the zero-deforestation and moratorium scenarios, Indonesia is projected to increase palm oil supply between 97% to 124% over 2010–2030, partly due to higher production originating from smallholders. Both measures – zero-deforestation commitments and a moratorium on large-scale expansion – would limit future deforestation in Indonesia, while maintaining the country’s leading role in the global palm oil market.

Foresight analysis is key in the debate on sustainable palm oil development. It can provide data and information to allow for evidence-based policy making. Public and private decision-makers, and multi-stakeholder initiatives should pay more attention to likely futures analysis to guide their decisions on action to reduce deforestation and GHG emissions, while finding options to improve productivity, legality and inclusion in the palm oil sector, with solutions that are acceptable to all stakeholders, and the wider society.

By Pablo Pacheco, originally published at CIFOR’s Forests News

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


This research is supported by USAID funding for CIFOR’s Governing Oil Palm Landscapes for Sustainability (GOLS) project, and this work is partly funded by the United Kingdom’s Department for International Development KNOWFOR Program Grant to CIFOR.

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


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