Indonesian smallholder oil palm farmers own and manage at least 3.1 million ha of oil palm. This accounts for more than 40% of the total global palm oil production, making them a significant contributor towards a sustainable oil palm industry (source RSPO). Smallholder farmers are present in all of Indonesia’s palm oil growing provinces, with significant areas of smallholder-managed farms in at least 18 provinces.

The needs of smallholder farmers vary tremendously with localized conditions, but in general most farmers experience five main challenges to some degree, including: organizational, productivity, financial, legal and sustainability challenges (source Daemeter).

Overcoming these challenges could improve the livelihoods of these farmers, however these improvements do not translate directly to more sustainable outcomes. Rather than reducing the impact on the environment, improving farmer productivity could lead to farm expansion into forested areas for increased profits. These forms of smallholder interventions need to be carefully designed, and the larger context of the system needs to be understood to avoid undesired outcomes.

The Indonesian oil palm sector consists of various types of smallholders and are determined by their relationship to the production and marketing of FFB. Smallholders in Indonesia are mostly separated into two categories, tied smallholders (alternatively called scheme, plasma, dependent or affiliated) and independent smallholders.

Tied Smallholders

Tied smallholders are structurally bound by contract. Farmers transfer a portion of their land to a particular CPO mill or estate plantation. They are often organised, supervised or directly managed by the managers of the mill, but is retained as individual smallholdings by the farmers also known as “plasma”. Tied smallholders supply their produce to the plantation company’s palm oil mill. Their relationship is based on a contract, while the plantation company retains responsibility for technical assistance and marketing.

Independent Smallholders

In contrast independent smallholders are not tied or contractually bound to an estate or CPO mill. They have the freedom to choose how to utilize their lands and can to sell to any buyer. In practice, if independent smallholders do not have their own means of logistics, they end up relying exclusively on one particular trader or on the closest mill. The development of independent smallholders was facilitated by the emergence of independent mills, offering them new market channels outside the tied arrangements of estate mills.