5.2. Heterogeneity and Expansion amongst Oil Palm Smallholders
Starting on Sumatra’s east coast plantation belt, oil palm has been cultivated commercially in Indonesia since 1911 [
89]. Smallholders, however, were not involved in oil palm cultivation till the late 1970s, when the New Order regime assigned State-owned plantation companies to develop oil palm plantations that included smallholder farmers. This policy was directed to support the socio-economic development of new settlers and local people in Indonesia’s outer islands
1 and develop export commodities that reduce dependency on mineral oil exports. Whereas smallholders first appeared in oil palm statistics in 1979, covering a mere 3125 ha [
90], by 2018 their area covered an estimated 5.8 million hectares, which is equivalent to 40.6% of Indonesia’s palm oil area [
79]. Whereas oil palm smallholders are often categorized in national statistics as a single entity it is increasingly clear that this vast sub-sector is highly heterogeneous and there is a need for targeted policy measures to improve the environmental and socio-economic performance of the different types of smallholders [
91,
92]. A key differentiation amongst oil palm smallholders is the scheme vs. independent smallholder dichotomy [
93,
94].
Scheme smallholder plantations, often also referred to as plasma or ‘
kemitraan’, are smallholder plantations that have been developed by a plantation company and usually involve company credit for plantation establishment and other agro-inputs, knowledge sharing, and a take-off agreement between smallholders and partner company. Smallholders are usually allocated 2–3 hectares [
95]. However, partnership agreements can be highly diverse depending on the regulatory framework present at the time of partnership development, and the negotiations between stakeholders [
95,
96]. For example, early schemes allocated 60–80% of the plantation to smallholders, but under the influence of World Bank policies and to accommodate private sector investments, this shifted to 40% for smallholders in the late 1980s and 1990s [
97,
98]. In 2007 the new plantation law stipulated that companies needed to allocate 20% of their concession to smallholders within their concession boundary, and in 2013 this was changed to 20% for smallholders with land possibly outside the company concession [
68]. Many companies do not reach this target, however, and this requirement may well be deleted in the new ‘omnibus’ law that Indonesia is currently preparing [
99].
Whilst in some partnerships smallholders are strongly involved in plantation management decisions, participate in plantation labor, and may even outperform their partner company in terms of yields [
100], in other arrangements smallholder plantations are fully managed by the company. This last category is often referred to as one-roof management, in which smallholders are effectively mere shareholders [
96,
101]. Whereas production levels in schemes are generally close to company plantations and thus relatively high for smallholder producers, such schemes frequently suffer transparency issues and especially beneficial to companies [
68,
102]. Over time government policy regarding oil palm smallholders has increasingly shifted from being a poverty reduction strategy towards one that strengthens industry interests and requires minimal government investments.
Independent oil palm smallholders quickly emerged once the benefits of oil palm cultivation by scheme farmers became obvious. Mills started buying produce outside their plasma and own plantations, and basic infrastructure developed by logging, plantation, and mineral oil companies opened up lands that were previously uneconomic to develop [
103,
104]. Findings from Jambi indicate that direct economic profits of independent oil palm plantations were significantly higher than forests [
105]. Also, oil palm demands less labor compared to competitor cash-crops as rubber, thus allowing for more land to be cultivated or freeing time to engage in other economic activities [
106,
107]. Independent smallholders generally have no direct links to mills and do not receive extension services from the government or companies. Subsequently, independent smallholders generally have limited knowledge of good agricultural practices, use poor planting material, apply minimal and unbalanced fertilizer regimes, receive low prices for their produce, and suffer yields well below companies and plasma farmers [
96,
108,
109].
The independent oil palm smallholder sector is highly heterogeneous, with many different layers in society engaging in smallholder oil palm development. The independent oil palm smallholders sector includes small local farmers with a few dozen oil palms, migrants attracted by cheap land, oil palm company employees investing in nearby land, local government officials and shop owners looking for investment opportunities and purchasing 5–10 ha, local or urban elites that engage in semi-corporate oil palm plantations and everything in between [
93,
101]. Multiple typologies on independent oil palm smallholders in Indonesia have been developed [
93,
101,
110], showing presence and ratios between types of smallholders differ in different landscapes. For example, remote peat frontiers often involve relatively large investors whilst transmigration areas or traditionally relatively densely populated areas have a relatively large share of smaller farmers that converted their traditional land uses [
93,
101].
Whereas land rights and land ownership documentation are generally well arranged in plasma, this is often not the case amongst independent oil palm smallholders [
93]. Krishna et al. [
111] suggested that especially indigenous populations can obtain forested land and develop oil palm or cash crops in the forestry domain, but sales of such land are limited as it is undervalued due to lack of marketability. Although migrants often do not have nationally recognized land ownership, they require more security in land titles and pay higher prices for land. These authors [
111] therefore warn that land titling programs may well lead to the increasing value of land, indigenous people selling their land, claiming new land, and thereby triggering new deforestation [
112]. Purnomo et al. [
113] provide a detailed analysis of the stakeholders involved in the conversion of land into independent smallholder oil palm plantations in Riau and highlight the considerable profits that accrue to those involved at different stages of the land conversion, including the land mafia. It is increasingly clear that the diversity amongst smallholders and the different landscapes in which they operate needs to be acknowledged for developing adequate policies that foster more sustainable landscapes.
Although reliable current data on plasma vs. independent smallholder are not available, smallholders in plasma schemes were numerically overtaken in 2005 by ‘independent’ smallholders (including those in various partnership schemes) [
114]. Since then some existing plasma plantations have transformed into ‘independent’ smallholder plantations and oil palm sector growth rates between 2015 and 2018 show that private sector large-scale oil palm plantations grew by 1.91 million ha and that smallholder oil palm area increased by 1.28 million ha [
79]. If companies meet their plasma obligations, this would mean a 382,345 ha increase in plasma area and a 901,143 ha increase in independent smallholder area, highlighting that it is especially the independent smallholder sector that is expanding. Whereas companies and associated plasma smallholdings are relatively easy to identify, monitor, and sanction due to the size of their plantations and relative ease of targeting managements, this is not the case with independent smallholders. These independent smallholders are huge in the number of management units that occupy relatively small areas, making it highly complex to manage independent smallholder oil palm expansion. With limited external support and little monitoring, the independent smallholder oil palm has developed into a cheap buffer for the industry; this relates to setting sustainability standards as well as organizing a supply chain.