Report from Solidaridad highlights the critical role of smallholders in the sustainable palm oil supply chain, yet their interests are overlooked in public debate; emphasises the need for governments and businesses to make smallholder inclusion part of their sustainability agenda.

The first global Palm Oil Barometer, released by Solidaridad and smallholder producer organisations in Asia, Africa and Latin-America in September 2022, offers a new perspective on the largely negative public debate around palm oil in western countries. The controversial crop presents more issues and more opportunities than many people realise.

The report spotlights the crucial role of smallholders in the palm oil sector – smallholders currently contribute around 30% of global production, and yet they are often overlooked in the sustainability agenda, as policies tend to focus on large industrial plantations. While smallholder palm oil farmers risk living in poverty, the USD282 billion palm oil industry creates huge profits for companies.

With their contribution to palm oil production expected to grow, smallholders play an increasingly central role in rural economic development and preserving biodiversity. Supply chain-wide smallholder inclusion is crucial for sustainable palm oil production.

Highlights of the report are as follows:

Deforestation and poverty are interlinked

The production of palm oil features prominently in the media as a cause of deforestation, biodiversity loss and climate change. However, by isolating its impact on the environment from the poverty crisis, to which it is directly linked, it’s easy to overlook the vital role smallholders play in palm oil production.

Although the image of large companies growing vast expanses of oil palms as a monoculture holds true, more than seven million smallholders and their families produce roughly 30% of the world’s palm oil. Furthermore, a multitude of workers find jobs in oil palm production. In Indonesia alone, there are around 16 million workers in the palm oil sector, the majority of which are employed by smallholders. The contribution of smallholders in the overall supply of palm oil is only expected to increase, as industrial scale companies are forced to limit expansion due to zero-deforestation commitments.

“Smallholders produce not even 2% of certified sustainable palm oil on the market, while contributing 30% of the world’s supply. Governments and businesses must make smallholder inclusion part of their sustainability criteria,” said Shatadru Chattopadhayay, Managing Director, Solidaridad Asia.

Smallholder farmers do not get their fair share

Smallholders generated USD17 billion of the palm oil industry’s USD282 billion turnover in 2020, yet many did not earn enough to cover their families’ essential living costs. Despite this, many smallholders prefer growing oil palm to other crops, like rubber or coffee, because they earn a higher and more consistent income throughout the year. For many smallholder farmers, growing oil palm gives them better prospects.

Multiple factors can influence a farms’ profitability, including its size, labour and fertiliser costs, market access, and prices. Volatile market prices squeeze smallholder margins that are already narrow.

“It’s getting more and more difficult for farmers with all these changes in the prices. Some feel as if 50% of their livelihood has been lost as the prices of the fresh fruit bunches have been slashed and, at the same time, the price of fertilisers and pesticides have risen by more than 100%,” said Valens Andi, head of a farmers’ cooperative in West Kalimantan, Indonesia, to Al-Jazeera.

Faced with these conditions, many smallholders are unable to invest in farm-level innovations or adhere to sustainability standards. By 2030, Indonesian smallholder plantations will account for around 60% of the country’s oil palm area.

Fair value distribution is at the heart of sustainable palm oil production

While smallholders struggle to make ends meet, downstream actors such as food manufacturers, consumer goods companies and retail take 66% of the gross profits on palm oil in food, household, and body care products.

The focus on cost-cutting to optimise profits contrasts starkly with individual companies’ sustainability commitments, as well as the global climate and UN’s Sustainable Development Goal agendas. The concern is that global palm oil buyers show little willingness to compensate small producers for operating sustainably, for example, by paying a fair price and investing in long-term trading relationships. A fairer value and risk distribution across the palm oil value chain enables farmers to both produce sustainably and make an income that sustains their family’s livelihood.

Bring smallholder voices to the fore

Farmers’ organisations should play a key role in the debate on the future of palm oil farming. Focusing on fair value distribution and minimising environmental degradation is key. The private sector and governments need to move from technical assistance to programmes that address the structural disadvantages at smallholder farm level.

Heske Verburg, Managing Director, Solidaridad Europe recommends that “companies and governments in consuming and producing regions must include smallholders’ interests when developing and implementing policies. The EU should ensure that smallholders will be supported to meet the requirements of the EU regulation on deforestation-free products​​ and in partnership with producing countries to tackle the root causes of deforestation, including poverty.”

Stop the boycott, start investing in good palm oil production

Smallholder interests are not only overlooked in the value chain, their role and interests are also ignored in the public debate. Campaigns by NGOs and commercial brands call for a palm oil boycott to combat biodiversity loss. Many academics and conservation organisations agree that banning palm oil would simply shift the problem elsewhere, threatening other habitats and species.

Oil palm is far more productive than any other vegetable oil crop; on average, it’s five times more productive than soy. Replacing palm oil with alternatives would intensify the battle for scarce farmland. Instead of boycotting palm oil, the industry should invest in sustainable palm oil production by smallholders.

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