It has been a long-term process born from the economies and cultures of Malaysia and Indonesia, dating back centuries. Malaysia and Indonesia are the top two producers of palm oil, having together owned more than 85% of the global market share since the first plantations began in Malaysia in the late 19th century.
Double Trouble provided by Oil Palm Plantations
Oil palm estate management often faces environmental problems concerning monoculture plantations, although its economic development is undeniable. Palm oil provides employment and generates income for millions on these plantations, which are a major export industry for both Malaysia and Indonesia.
The lifeblood of palm oil production is smallholder farmers
This is the case, for example, in Malaysia and Indonesia where smallholder farmers — 3.5 Million in Malaysia and 2.6 Million in Indonesia are driving palm oil production. Concurrently, farmers who manage plantations not greater than 5 hectares are also key contributors to the industry. They make a not-so-small impact on the socio-economic development of the locals too, turning Malaysia, which once had about 50% poverty rate in the 1960s, to less than 5% today.
Impact of RSPO and MSPO on Small Growers
Groups such as the Roundtable on Sustainable Palm Oil (RSPO) and the Malaysian Sustainable Palm Oil (MSPO) have made strides in improving the socio-economic state of smallholder farmers. The certification schemes provide training, support, and guaranteed improved access to the market; certified farmers have higher incomes and standards of living.
The MSPO Advantage
MSPO is popular because it is too inclusive and costs not so much for even the smallest plantations of farmers. However, by contrast with the RSPO, roughly 96 per cent of Malaysian oil palm plantations — many of which are smallholders — are now MSPO-certified. The scheme takes help from the state government in solving land issues and improving traceability in the supply chain.
Smallholder farmers suffer due to price uncertainties and fluctuating palm oil prices, competition with other oils, the need for environmentally friendly practices that confront them with environmental pressures requiring new strategies, the effects of global warming on production, and outbreaks of diseases. Nevertheless, the increase in demand for sustainable palm oil offers a new prospect. Certification: a greater ability to enter the market and a better product price.
Alongside varying palm oil prices, other factors that affect smallholder farmers are competition from other oils and environmental pressure, including climate change and diseases. However, the increasing need for sustainable palm oil is another avenue of growth. The goal of certification is to allow better access to the market and higher pricing for the product.
Role of Governments and Stakeholders in Supporting Smallholder Farmers
Governments and industry stakeholders committed to responsible sourcing should take this opportunity to continue supporting smallholder farmers in accessing land, credit, technology services, and certification.
Climate Change and Market Competition
Smallholders face a huge challenge due to climate change, which can destroy crops and reduce yields. They are also facing competition from other vegetable oils, which continues to put downward pressure on palm oil prices. Nevertheless, the growing global requirement for sustainable palm oil provides a window of opportunity for certified smallholders.
Conclusion: Smallholders for a Sustainable Future
The well-being of smallholder palm oil farmers is important not only to the palm industry but also to the wider socio-economy of Malaysia and Indonesia. Through adequate support and practices that are conducive to sustainability, they could remain active players in the sector, aiding both growth and environmental protection.
