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Impacts of sustainability certification. Palm oil value chain in Indonesia. Value chain for Development (VC4D)
Abstract
Looking at sustainability certification in oil palm value chains (VC) in Indonesia, this analysis is based on four framing questions: 1) What is the contribution of the VC to economic growth? 2) Is this economic growth inclusive? 3) Is this VC socially sustainable? 4) Is the VC environmentally sustainable? and the specific question: What is or what could be the influence of (new) certification schemes or equivalent means of proof on these questions?
Sustainability certification - hereafter referred to as certification - is not normally included in VC4D analysis by Agrinatura. However it is included here as a separate chapter because of its perceived prevalence and cross cutting nature, covering economics (including governance), social aspects, and the environment (including forestry). Sustainability certification is distinguished in this study from other forms of certification, such as the International Standards Organisation ISO quality standard 1400; HACCP certified food safety certification; seedling quality certification by IOPRI; Plantation Business Registration Certification (Surat Tanda Daftar Usaha Perkebunan Untuk Budidaya, STDB).
The scope of this analysis focuses on a range of actors engaging in sustainability certification schemes – shown in Table 1 – for which two main certification schemes standards dominate in Indonesia: ISPO and RSPO.
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Environmental policies that impose restrictions within one location may be undermined or reinforced by ‘spillover effects,’ the movement of actors, processes, or knowledge to other locations. Such spillovers are an important consideration in the design of interventions seeking to reduce commodity driven deforestation. In these settings, global markets and mobile actors can move deforestation and conservation behaviors over large distances, complicating efforts to measure and manage spillovers. Here we quantify forest loss and conservation spillovers from the Roundtable on Sustainable Palm Oil (RSPO) certification system in Indonesian Borneo (Kalimantan). We examine whether spillovers from certification are transmitted through corporate groups (i.e. to non-certified, RSPO member-held plantations) or local agricultural markets (i.e. to lands near certified mills). We find that, from 2009 to 2016, spillovers from RSPO certification reduced deforestation within Indonesia’s forest estate, but increased deforestation in areas zoned for agricultural use. The private RSPO certification system has complemented public conservation by aligning de facto land cover with central government land zoning policy. Despite these benefits, aggregate avoided deforestation attributed to direct and spillover effects was statistically and substantively insignificant when compared to the total deforestation occurring inside all of Kalimantan’s oil palm concessions. While certification has reduced illegal deforestation, stronger sector-wide action appears necessary to ensure that oil palm production is no longer a driver of forest loss.
Enhancing smallholder compliance with sustainability standards and good agricultural practices features prominently on the global sustainability agenda. Operating in a sector that bears intense public scrutiny, Indonesia’s oil palm smallholders are especially confronted by pressures to enhance their environmental performance. Because smallholders experience differentiated compliance barriers however, it is widely recognized that for the purpose of more effectively prioritizing and targeting the necessary intervention support, smallholder heterogeneity needs to be better understood. This is especially the case for independent – in contrast to ‘plasma’ - oil palm smallholders, for whom corporate technical, input and financial support is comparatively inaccessible. Through multivariate analysis, this article contributes to these needs by developing a typology of independent oil palm smallholders in Indonesian Borneo. We subsequently model the predicted probabilities of different types of smallholders complying with Indonesia’s major national sustainability standard and select indicators of good agricultural practice. This analysis reveals structural compliance gaps, which threatens to restrict smallholder access to formal markets in future. In showing that intervention strategies to resolve these compliance gaps can be more impactful when these are adapted to smallholder livelihood assets, portfolios and strategies, this article points to the importance of more explicitly accounting for socio-economic differentiation when addressing contemporary smallholder upgrading challenges. With results however revealing how local entrepreneurs and elites complicit in regulatory evasion and illegal land encroachments play a significant role in the sub-sector, local political resistance to initiatives that aim to bring the sub-sector above board can be anticipated. This highlights how institutional building needs to be more explicitly incorporated into the design of smallholder-centric intervention strategies; through, for example, the adoption of more integrative landscape-level planning approaches.
To tackle the multiple challenges facing the cocoa sector, voluntary sustainability standards and corporate initiatives, largely focusing on farm and farmer group scale, are often implemented by public–private–civil society partnerships of stakeholders further in the value chain. This paper looks at the social, economic, and environmental effects of such initiatives, based on empirical evidence from large-scale, mixed-method studies using a suite of socioeconomic, agronomic, and environmental indicators to compare the situation of UTZ certified with non-certified farmers in 2012 and 2015 in Ghana, and 2013 and 2017 in Ivory Coast. The results show that, on average, outcomes are mixed and generally modest. However, significant cocoa productivity and income increases were experienced by certified farmers receiving a full package of services. However, the type and intensity of services has changed over time, decreasing for half of the farmers, and productivity and income increases are levelling off. These findings suggest that whilst partnerships have created new governance arrangements with an increased focus on sustainable value chains, initiatives which result in a living income and optimise productivity, whilst limiting environmental impacts, require sectoral transformation, continued partnerships, plus a range of other policy instruments to address the persistent, wicked problems in cocoa production.
Sustainable certification schemes have surged in recent years. The introduction of these schemes poses serious challenges to smallholders. One such certification scheme is the Roundtable on Sustainable Palm Oil (RSPO), which uses certification to increase equitable and sustainable production of palm oil. This study calculates upfront and recurrent costs and monetary benefits of RSPO certification for the Amanah Independent Oil Palm Smallholders Association in Ukui District, Indonesia. Survey and interview data was collected between 2013 and 2015. Results show that upfront costs of certification were 86 euro per hectare. Furthermore, despite generating up to 21% higher revenues from sales, certification created up to an 8% loss of net income per hectare on average per smallholder in the first year after certification, compared to the situation prior to certification. To motivate smallholders for RSPO certification, the economic performance of certified oil palm smallholders should be improved. This can result from further yield increases, a guaranteed premium price or the sales of GreenPalm certificates to provide additional income.
Certification becomes a prerequisite for tradable products to get legality and access to global market. Each tradable product can choose certificate according to its market destination. However, it will be a dilemma between RSPO and ISPO certification for palm oil producers in Indonesia. Oil palm plantation companies, smallholders and palm oil mills that are operated in Indonesia must have ISPO certification while majority of Indonesian palm oil are exported to global market which applied RSPO or ISCC, a voluntary certification. The objective of this study is to assess capacity of oil palm independent smallholders to meet the standard of ISPO certification. How large is the gap between current practices and ISPO standard? What are factors that affect adoption of ISPO certification? Does ISPO deliver more access to market for oil palm smallholders? These questions have been assessed and discussed in this paper to find answer and alternative way out for smallholders to meet the ISPO standard. This study was conducted in Pelalawan District, Riau Province using a survey method. The result shows that a number of barrier are faced by smallholders to obtain ISPO certification while the opportunity to get better access to local and global market is still uncertain.
Significance
Demand for agricultural commodities is the leading driver of tropical deforestation. Many corporations have pledged to eliminate forest loss from their supply chains by purchasing only certified “sustainable” products. To evaluate whether certification fulfills such pledges, we applied statistical analyses to satellite-based estimates of tree cover loss to infer the causal impact of a third-party certification system on deforestation and fire within Indonesian oil palm plantations. We found that certification significantly reduced deforestation, but not fire or peatland clearance, among participating plantations. Moreover, certification was mostly adopted in older plantations that contained little remaining forest. Broader adoption by oil palm growers is likely needed for certification to have a large impact on total forest area lost to oil palm expansion.
Palm oil production is currently the focus of contentious debate. On the one hand, it yields positive socio-economic impacts and can be a powerful engine for rural development. On the other hand, it can generate severe negative impacts regarding ecological and social sustainability. Sustainability concerns have spurred numerous efforts to introduce standards and certification schemes for palm oil, including ISPO (Indonesian Sustainable Palm Oil) and RSPO (Roundtable on Sustainable Palm Oil). Yet, potential large-scale ecological benefits of sustainability standards concerning reduced deforestation and greenhouse gas emissions are difficult to achieve. In order to make the palm oil sector more sustainable, it is essential to include the important group of smallholders in certification schemes. At the same time, smallholder certification is especially challenging as it demands capacities that smallholders often lack.
This study presents findings from a research project on sustainability standards for smallholders in the Indonesian palm oil sector – focussing on the challenges and gaps of smallholder certification and the benefits that can be gained. It offers baseline data on smallholder certification, insights into and lessons-learnt from ongoing certification projects and input for closing existing research gaps, especially regarding challenges on the ground.
Processes of globalization have generated new opportunities for smallholders to participate in profitable global agro-commodity markets. This participation however is increasingly being shaped by differentiated capabilities to comply with emerging public and private quality and safety standards. The dynamics within Indonesia’s oil palm sector illustrate well the types of competitive challenges smallholders face in their integration into global agro-commodity chains. Because of public concern over the poor social and environmental performance of the sector, many governments, companies and consumers are attempting to clean up the value chain through selfregulatory commitments, certification and public regulation. As a result, many of Indonesia’s oil palm smallholders face compliance barriers due to informality and poor production practices, and threaten to become alienated from formal markets, which could in turn lead to a bifurcation of the oil palm sector. Recognizing that many oil palm smallholders lack compliance capacity, myriad public and private actors have begun designing initiatives to address compliance barriers and enhance smallholder competitiveness. However, failure to properly account for the heterogeneity of the smallholder oil palm sector will undermine the effectiveness and scalability of such initiatives. By developing a typology of independent smallholder oil palm farmers in Rokan Hulu district, Riau province, this article reveals the wide diversity of actors that compose Indonesia’s smallholder oil palm economy, the types of compliance barriers they face and the sustainable development challenges they pose. In doing so, this article illustrates how global agro-commodity chains can drive agrarian differentiation and offer new insights into the complex dynamics of agricultural frontier expansion.
This brief presents preliminary findings of research on sustainability, legality and productivity challenges arising from independent smallholder oil palm expansion in Riau, Central Kalimantan and West Kalimantan. Research demonstrates how frontier expansion is often driven by larger out-of-province and absentee farmers that engage in oil palm for investment purposes rather than by smaller farmers (e.g. less than 3 ha) dependent primarily on household labor. Findings show how smallholder legality issues – faced especially by smallholders whose oil palm operations more closely resemble that of businesses – constitute the most significant compliance challenge.
This paper is motivated by the observation that Southern governments start to take responsibility for a more sustainable production of agricultural commodities as a response to earlier private initiatives by businesses and non-governmental organizations (NGOs). Indonesia is one of the leading countries in this respect, with new public sustainability regulations on coffee, cocoa and palm oil. Based on the concept of governance capacity, the paper develops an evaluation tool to answer the question whether the new public regulation on sustainable palm oil (ISPO) may become a viable alternative to private regulation. ISPO embraces a tremendous governance challenge as thousands of companies and millions of smallholder farmers are expected to participate. It is concluded that, although ISPO has initiated a process of change, it has not yet developed its full potential. The main reason regards ISPO’s rather loose problem definition, weak authority of the implementing organization, and the fact that the reliability of ISPO is still too low to convince (parts) of the global market. ISPO may therefore face difficulties in meeting its own targets and solving palm-oil related problems, such as deforestation, biodiversity loss, greenhouse gas emissions, and social conflicts between big plantations and local communities. The main governance challenge regards combining a more authoritative implementation mechanism with a convincing balance between sustainability objectives and economic interests of the sector.
Growing concerns in the major importing countries on the socio-environmental sustainability of oil palm farming may affect the import demand of palm oil and hence the economy of the exporting countries. This paper develops a comparative static, partial equilibrium model to examine the impact of potential reductions in EU imports of Indonesia’s palm oil on palm oil output, prices, factor markets, trade, deforestation, and peatland conversion in Indonesia. Results suggest that there would be only small impacts on the major environment-economic variables in Indonesia in a scenario with a moderate reduction EU import demand, for example, due to sustainability concerns. However, the impacts would be more profound if sustainability concerns also affect other import regions and trigger a similar decline in import demand in other markets. The way forward for Indonesia and other palm oil producers and exporters is to adopt a common set of sustainability criteria, encompassing the elements of transparency, regulatory compliance, best agricultural practices, environmental responsibility, the livelihood of small farmers, as well as human and community rights.
Oil palm is one of the most rapidly expanding crops throughout the humid tropics. In Indonesia, the expansion is largely driven by smallholder farmers. While recent research has studied effects for the environment and climate change, socioeconomic impacts in the small farm sector have hardly been analyzed. Here, we address this research gap by analyzing effects of oil palm adoption on farm household living standards and nutrition in Sumatra. Using survey data and econometric models, we estimate average impacts, impact pathways, and impact heterogeneity. Results show that oil palm adoption improves household living standards and nutrition. Mean impacts on food and non-food expenditures, as well as on calorie consumption and dietary quality, are all positive and significant. A sizeable part of the total effects is attributable to oil palm adopters expanding their farm size rather than realizing higher profits per hectare. Oil palm has lower labor requirements than alternative crops (especially rubber), so that adopting farmers are able to manage larger land areas. Labor saved through switching from rubber to oil palm is also used to increase off-farm incomes. Impact heterogeneity is analyzed with quantile regressions. We find positive effects of oil palm adoption across the entire expenditure distribution. However, the absolute gains in total expenditures and non-food expenditures are larger for the better-off, suggesting that oil palm may contribute to rising inequality.
Multi-stakeholder roundtables offering certification programs are promising voluntary governance mechanisms to address sustainability issues associated with international agricultural supply chains. Yet, little is known about whether roundtable certifications confer additionality, the benefits of certification beyond what would be expected from policies and practices currently in place. Here, we examine the potential additionality of the Round table on Responsible Soybeans (RTRS) and the Roundtable on Sustainable Palm Oil (RSPO) in mitigating conversion of native vegetation to cropland. We develop a metric of additionality based on business as usual land cover change dynamics and roundtable standard stringency relative to existing policies. We apply this metric to all countries with RTRS ( n = 8) and RSPO ( n = 12) certified production in 2013–2014, as well as countries that have no certified production but are among the top ten global producers in terms of soy ( n = 2) and oil palm ( n = 2). We find RSPO and RTRS both have substantially higher levels of stringency than existing national policies except in Brazil and Uruguay. In regions where these certification standards are adopted, the mean estimated rate of tree cover conversion to the target crop is similar for both standards. RTRS has higher mean relative stringency than the RSPO, yet RSPO countries have slightly higher enforcement levels. Therefore, mean potential additionality of RTRS and RSPO is similar across regions. Notably, countries with the highest levels of additionality have some adoption. However, with extremely low adoption rates (0.41% of 2014 global harvested area), RTRS likely has lower impact than RSPO (14%). Like most certification programs, neither roundtable is effectively targeting smallholder producers. To improve natural ecosystem protection, roundtables could target adoption to regions with low levels of environmental governance and high rates of forest-to-cropland conversion.
Evolving international sustainability norms demand greater environmental and social responsibility from business across global commodity chains – from countries of origin to countries of consumption. Conventional command-and-control regulation has had limited success in addressing negative environmental and social impacts. As a result, advocacy groups and NGOs have championed a diversity of market-based and multi-stakeholder governance approaches aimed at shifting the private sector towards delivering more sustainable business models.
Multiple non-state, market-driven social and environmental standards have emerged for palm oil. Through interviews with growers and key stakeholders in the Indonesian palm oil industry this occasional paper explores the motivations driving the uptake of sustainability standards, as well as the factors supporting and preventing implementation of sustainability standards, and asks, what model of sustainable oil palm agriculture is ultimately being built?
Five key themes emerged:
- Business risk drives change, whether associated with access to market, operational risks associated with local communities or lack of clarity related to government regulations.
- Shareholder self-interest is the key to commitments and determines the priority that sustainability gets within the firm.
- Interactions between motivations, as well as between motivations and context-dependent variables, are complex, but understanding these interactions can help develop meaningful incentives and disincentives for growers to adopt sustainability standards.
- The diversity of the producer supply base in Indonesia presents a challenge for private and public standards as producers respond differently to incentives and disincentives.
- Government will need to play a role in facilitating uptake of sustainability standards and engage in multi-stakeholder sustainability processes. Currently capacity, and in some cases willingness, to move toward evolving norms of sustainable agriculture is limited among government ministries.
This article investigates the integration of smallholders into voluntary certification schemes, exemplified by smallholder certification under the Roundtable on Sustainable Palm Oil in Indonesia (RSPO). It identifies the main barriers to the adoption of standards by smallholders and the specific compliance challenge in the context of RSPO smallholder certification, thereby contributing to the growing literature on the effectiveness of voluntary sustainability standards. It discusses findings on smallholder certification, focusing on antecedent variables as potential adoption determinants at the level of smallholders, smallholder organization, and the institutional context. The empirical findings suggest that smallholders, and specifically independent smallholders, often lack both the information and the degree of organization that certification demands. The article also identifies the most important compliance challenges for independent smallholders in relation to land titles, seedlings, pesticide usage, fertilization, and documentation and outlines how smallholders can be supported so that they can be included in certification schemes.
The Roundtable on Sustainable Palm Oil (RSPO) is responsible for the certification of palm oil producers that comply with sustainability standards. However, it is not known whether RSPO-certified plantations are effective in maintaining biodiversity. Focusing on Peninsular Malaysia, we show that both RSPO-certified plantations and uncertified large-scale plantations are characterized by very low levels of landscape heterogeneity. By contrast, heterogeneity measures were many times higher in palm oil producing smallholdings, despite their lack of RSPO certification. The low heterogeneity of large-scale oil palm plantations, including those certified by the RSPO, is likely to severely limit their value for biodiversity conservation. Uncertified smallholdings, in contrast, are much more heterogeneous and therefore hold substantially greater promise for the integration of palm oil production and biodiversity conservation than large-scale plantations. With oil palm agriculture further expanding, certification schemes should mandate producers to improve biodiversity conservation through landscape management that promotes greater landscape heterogeneity.
Available at: http://www.iisd.org/pdf/2014/ssi_2014.pdf
The State of Sustainability Initiatives Review 2014 represents one small effort toward strengthening our understanding of how voluntary sustainability standards are developing over time, both in terms of the systems they deploy and the market impacts that they have. It is hoped that the SSI data and analysis, when read in conjunction with the growing body of field-level impact data, will allow supply chain decision-makers to strengthen their own strategic decision-making processes in ways that provide optimal sustainable development impact.
The biodiversity and climate consequences of oil palm (Elaeis guineensis) expansion across South East Asia have received considerable attention. The human side of the issue, highlighted with reports
of negative livelihood outcomes and rights abuses by oil palm companies, has also led to controversy. Oil palm related conflicts
have been widely documented in Indonesia yet uptake by farmers has also been extensive. An assessment of the livelihood impacts
of oil palm development, including sources of conflict, is needed to shed light on the apparent contradiction between these
reports and the evident enthusiasm of farmers to join the oil palm craze thereby informing future expansion. We assessed the
impact of oil palm development on the economic wellbeing of rural farmers in Indonesia. We found that many smallholders have
benefited substantially from the higher returns to land and labour afforded by oil palm but district authorities and smallholder
cooperatives play key roles in the realisation of benefits. Conflicts between communities and companies have resulted almost
entirely from lack of transparency, the absence of free, prior, and informed consent and unequal benefit sharing, and have
been exacerbated by the absence of clear land rights. We make specific recommendations to improve the present situation and
foster the establishment of smallholder friendly production regimes. Oil palm expansion in Indonesia is set to continue. If
environmental standards can be raised and policy interventions targeted at the broader social impacts of land development
this expansion may be achieved to the significant benefit of large numbers of rural smallholders.
KeywordsAgriculture-Agroforestry-
Elaeis guineensis
-Income-Land tenure-Livelihood-Oil palm-Rubber-Rural development-Shifting cultivation
Indonesia is the world’s largest producer of palm oil, and its smallholder oil palm plantations involve more than 2.3 million farmers. The rapid expansion of the oil palm area, and resulting negative environmental and social impacts, has increased the demand for sustainability certification for palm oil products. This study investigates whether different types of smallholders face different barriers in complying with certification standards. The study uses survey data from 829 smallholders in Riau, Sumatra. First, an assessment is made of the gap between current management practices and practices required by Roundtable on Sustainable Palm Oil standards for different types of smallholders. Second, the article explores explanations for the gap between current and required practices. Finally, an investigation is made of the different starting points of different types of smallholders. Results indicate that the diversity between smallholders affects their prospects for certification. To date, this diversity in smallholders has not been taken into account in the application of Roundtable on Sustainable Palm Oil standards. This can help to explain the limited success of smallholder certifications in Indonesia.
The significant increase in oil palm areas has led to concerns about the sustainability of the associated farming practices. To address these issues, the Roundtable Sustainable Palm Oil (RSPO) organization formulated principles and criteria (P&C) for sustainable practices for members of the oil palm industry. Initially, only big companies applied for RSPO's certificate of sustainable product. However, with the growing proportion of smallholders, they are strongly suggested to get involved. Currently, only a few smallholders have obtained the certificate. One possible reason is that the RSPO P&C might be too complicated for smallholders. Using a descriptive and correlation method, this study found that lack of information, cost of adoption and incompability with the stage of farm development, social values and farming conditions, inadequate managerial skills, and profitability explain the barriers for smallholders to adopt the RSPO's P&C. These barriers need to be addressed in order to improve the adoption of sustainable practices among oil palm smallholders.
Most sustainability certifications in Indonesia are developed by Northern-based businesses and NGOs to regulate the production of agricultural commodities in the South. However, research still shows a lot of uncertainty about what sustainability certifications imply for the livelihood of smallholder farmers. Given these uncertainties, this paper explores the potential of certifications to improve the livelihood of smallholder farmers. To achieve this objective we developed an amended livelihood framework applied to an exploratory study of Indonesian smallholders who participate in the Roundtable of Sustainable Palm Oil (RSPO). Although access to markets and vulnerability are not improved through certification, indirect effects through organizational changes increase productivity. If certification schemes are weakly institutionalized, farmers will easily shift to a more profitable way of production. Further analysis is needed to discover the balance between the ethical aspects of certification while improving economic profitability for participating smallholders.
In recent years, new forms of transnational regulation have emerged, filling the void created by the failure of governments and international institutions to effectively regulate transnational corporations. Among the variety of initiatives addressing social and environmental problems, a growing number of certification systems have appeared in various sectors, particularly agrifood. Most initiatives rely on independent third-party certification to verify compliance with a standard, as it is seen as the most credible route for certification. The effects of third-party audits, however, still need to be empirically investigated. This article provides a critical assessment of the notion of ‘evidence’ which is at the heart of auditing practices. It focuses on the case of the Roundtable on Sustainable Palm Oil (RSPO) and fieldwork carried out in Indonesia, the world’s largest producer of palm oil. In this country, some non-governmental organizations decided to participate in the RSPO in order to use this platform to tackle the issue of land conflicts. They managed to include important clauses regarding indigenous and land rights in the RSPO standard. In practice, however, auditors rarely recognize as valid evidence the forms of proof put forward by local communities. As a result, the whole process risks compounding local power imbalances.
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