Inclusive Smallholders Program: Realizing a Sustainable Palm Oil Supply Chain

Inclusive Smallholders Program: Realizing a Sustainable Palm Oil Supply Chain

The Evolution of Supporting Smallholders for a More Inclusive Future

Over three million smallholders, including those in Indonesia, depend on the palm oil sector for their livelihoods. They produce around 40% of global palm oil. However, land legality issues and limited market access often prevent them from adopting more sustainable practices.

As a solution, Inovasi Digital (ID), with our implementation partner, Earthqualizer (EQ), launched the Inclusive Smallholders Program (ISH). This program aims to enhance smallholders’ inclusion in a sustainable palm oil supply chain, while promoting a fairer and more transparent business model. 

Addressing Challenges and Seizing Opportunities

One of the biggest challenges for smallholders in Indonesia is land legality. According to EQ/ID’s research, until 2022, only 48% of the total 7.9 million hectares of smallholder land has been officially registered. Meanwhile, approximately 3.3 million hectares are located within forest areas, conflicting with the No Deforestation, No Peat, No Exploitation (NDPE) policy.

However, opportunities remain open. The PPTPKH (Forest Area Release for Community Plantation Crops) program enables smallholders to obtain land ownership security and transparency, enabling them to better integrate into a sustainable palm oil supply chain.

Inclusive Smallholders Program Initiatives

1. Promoting Land Legality

Objectives:

• Assist smallholders in obtaining land legality as an initial step toward RSPO certification.
• Ensure that smallholders are not involved in deforestation practices.

Challenges:

• Many smallholders lack official land ownership documents.
• Limited understanding of land ownership rights and restricted access to legal assistance.

Approach:
EQ/ID supports land legalisation through spatial analysis and facilitates programs such as TORA (Agrarian Reform Land Object Program), which aims to provide ownership certificates for smallholders.

The Inclusive Smallholders Program focuses on promoting land legality as a foundational step toward RSPO certification and sustainable palm oil production. One of its key objectives is to help smallholders obtain legal documentation for their land, which is essential for formal recognition and participation in certified supply chains. Ensuring land legality also helps reduce the risk of smallholders being involved in deforestation activities, supporting broader environmental goals.

Despite its importance, many smallholders face significant obstacles in securing land rights. These include the absence of official land ownership documents, limited knowledge of land tenure systems, and inadequate access to legal support. To overcome these challenges, EQ/ID provides spatial analysis to support land legalisation and facilitates participation in government initiatives such as the TORA (Agrarian Reform Land Object) programme, which aims to issue land ownership certificates to smallholders.

2. Palm Oil Dealer (POD) Survey for Market Transparency

Most smallholders rely on Palm Oil Dealers (PODs) to sell their Fresh Fruit Bunches (FFB), yet the critical role PODs play in the palm oil supply chain is often overlooked.

PODs not only influence the price received by smallholders but also affect grading standards and delivery logistics. However, due to the informal nature of these relationships, smallholders often lack bargaining power or transparency over how their produce is valued.

Objectives:

• Enhance supply chain transparency by understanding the role of PODs.
• Promote a better traceability system for smallholders.

EQ/ID supports the POD survey to improve the traceability of palm oil products sourced from independent smallholders. Smallholders can connect more fairly with global markets with a more transparent system.

Most smallholders depend on Palm Oil Dealers (PODs) to sell their Fresh Fruit Bunches (FFB), yet the critical role PODs play in the palm oil supply chain is often overlooked. To enhance transparency and improve traceability within the supply chain, EQ/ID supports surveys that examine the role of PODs. By gaining a clearer understanding of how PODs operate, the initiative aims to strengthen traceability systems for independent smallholders. A more transparent supply chain not only boosts accountability but also helps smallholders engage more fairly with global markets.

3. Stakeholder Engagement

Field verification indicates that most smallholders are not part of cooperatives or operate through inactive cooperatives. As a result, they prefer to sell their harvests directly to PODs.

Field verification reveals that most smallholders are not part of cooperatives or are linked to inactive ones, leading them to sell their Fresh Fruit Bunches (FFB) directly to Palm Oil Dealers (PODs). To improve their inclusion in the supply chain and enhance access to global markets, the initiative seeks to connect smallholders with active cooperatives, local governments, and palm oil mills, fostering stronger integration and support for sustainable practices.

ISH Program Achievements 2019-2024

To measure the program’s impact, EQ/ID has recorded several key achievements up to 2024:

1. 1. Land Legality
      
      
      
   2. Stakeholder Capacity Building
      Number of Beneficiaries: 890 individuals (including extension workers, local government officials, cooperative managers, etc.)
      Provinces: West Kalimantan and Aceh
      Intervention Programs:
      • Training on sustainable agricultural practices based on Good Agricultural Practices (GAP) and NDPE
      • Accelerating Indonesian Sustainable Palm Oil (ISPO) and RSPO certification competencies
      • Training on spatial data analysis

   3. Stakeholder Engagement
      
      • MoU with Local Government: Collaboration with district governments to implement the Smallholder Landscape Program in Aceh Singkil and Sambas Regencies.
      • MoU with Palm Oil Mills: Supporting mills in reporting Traceability to Plantation.

       

Lessons Learned

• Land Legalization Process: The critical bottleneck in land legality is the lack of knowledge and access to legal support for smallholders. EQ/ID’s spatial analysis and engagement process h collaboration with TORA has proven effective in simplifying the process, but there’s still a need for better access to legal guidance at the grassroots level.
• Market Transparency: Lack of transparency in the supply chain can result in unfair pricing for smallholders. The POD survey has highlighted the need for more structured relationships between smallholders and PODs, pushing for better traceability and pricing standards.
• Cooperative Strengthening: Engaging smallholders in cooperatives is key to improving their bargaining power. The challenges faced in building strong cooperatives have revealed the need for tailored approaches to meet the specific needs of different regions.

Carbon Neutral: The Future of Smallholders in the Palm Oil Industry

Independent smallholders are essential players in the palm oil sector, contributing a significant share of global production and serving as stewards of vast landscapes across Indonesia. Yet, their potential to contribute to climate goals and sustainable supply chains remains largely untapped, often due to limited access to premium markets, complex land legality issues, and the absence of financial mechanisms that reward their conservation efforts. 

To address this gap, EQ/ID is currently developing a concept designed to recognise and incentivise smallholders who actively protect forests and adopt regenerative agricultural practices by linking their sustainable production of Fresh Fruit Bunches (FFB) to premium pricing opportunities in global markets.

This initiative aims to create a carbon-neutral product sourced directly from independent smallholders who manage or reside near community-managed village forests. While many of these forests are actively protected by local communities, including smallholders, participation in global carbon markets remains challenging due to complex international audit and certification requirements.

This concept offers an alternative pathway—connecting conservation outcomes directly to palm oil supply chains and generating value through fairer, more transparent trade systems.