Smallholders are vital to the oil palm production landscape, accounting for almost 40% of the entire industry’s production.
Typically, smallholders grow subsistence, or food, crops for their personal and family consumption alongside oil palm. They also rely on the plantations, mills, and traders they supply to ensure their economic growth and improve their livelihoods. For these reasons, companies like SDP must actively support the inclusion of smallholders in our supply chain.
Smallholder volumes make up 20% of SDP’s supply base. In 2021, we sourced over 1.6 million tonnes of FFB from over 64,000 schemes and independent smallholders across Indonesia, Malaysia, and Papua New Guinea (PNG) and Solomon Islands. This volume includes direct supply from smallholders and indirect supply from traders, particularly in Malaysia.
Smallholder support programmes[GRI 3-3, 305-1, 305-2, 305-4, 305-5]
All smallholders must adhere to the same Responsible Sourcing Guidelines criteria we impose on all FFB suppliers. However, we recognise that many smallholders may have difficulty meeting these criteria despite making commitments because they lack capacity, know-how, and access to financial resources. Given the significant volumes produced by smallholders, supporting their transition to sustainable practices is crucial to transforming the industry and ensuring that SDP achieves our NDPE ambitions. Our goal is to ensure 100% of all supply sourced is NDPE-compliant by 2025, including smallholder supply.
Therefore, we have developed programmes across our upstream operations to support scheme and independent smallholder certification as a gateway to sustainable production. These programmes build capacity and train smallholders to improve production efficiency and secure higher yields. They also reduce barriers to market access and provide support to meet certification requirements.
In 2020 and 2021, there was little progress on smallholder programmes. We faced difficulties travelling into the field, carrying out in-person training, meeting with smallholders currently engaged in our programme, and connecting with new ones, due to COVID-19 restrictions. Nevertheless, we have continued to pursue our programmes where possible and engage smallholders in every way we can.
As of December 2021, a total of 28,305 Indonesian scheme smallholders are covered by one of two programmes, making up 100% of all scheme smallholders that supply to our mills. A total of 23,951 independent smallholders in Malaysia and PNG and Solomon Islands are also covered by a certification programme, making up 72% of the independent smallholders that supply to us.
Climate change is a key component of smallholder programmes
A major component of our programmes is helping farmers understand how climate change can impact their livelihoods and adopting climate-smart agriculture approaches. Our programme modules include responsible land use and conservation planning, adopting good agricultural practices on fertiliser application and moisture retention, and maintaining riparian buffer zones as part of flood mitigation. Smallholders in our supply chain can also potentially access planting material that is more climate-resilient. Transitioning smallholders to climate-smart agricultural practices is critical to SDP’s climate strategies and intricately linked to meeting our No Deforestation and No Peat requirements.
Certification status of smallholders
As of December 2021, 50% of the smallholders that supply to us are RSPO certified through their participation in our certification support programmes. In 2021, they collectively sold over 961,000 tonnes of certified FFB to SDP mills.
Whilst smallholders in Indonesia and Papua New Guinea (PNG) and Solomon Islands focus exclusively on obtaining RSPO certification, smallholders in Malaysia aim to comply with their country's mandatory national certification standard first by achieving Malaysian Sustainable Palm Oil (MSPO) certification. In Malaysia, 9% of smallholders are MSPO certified, independently or through programmes supported by SDP. We also know that less than 1% of the independent smallholders we source from in Malaysia are RSPO-certified.
Overview of smallholder programmes and certification by region 2021
|Country||Type of smallholder||Smallholders supplying to SDP (no.)||Smallholders covered by programmes (no.)||Smallholders covered by programmes (%)||Smallholders RSPO certified|
|PNG and Solomon Islands||Independent||17,167||17,167||100%||100%|
Note: Smallholders in PNG and Solomon Islands are categorised scheme smallholders for the purposes of SDP’s RSPO Annual Communication of Progress (ACOP) submissions.
Sourcing from 16,137 smallholders
524,036 MT FFB supplied in 2021, 10% of supply in Malaysia
100% independent smallholders
97% indirectly soured through FFB traders
9% MSPO certified
< 1% RSPO certified
In Malaysia, our mills source from independent smallholders, i.e. suppliers who are not contractually bound to any mill. Certification uptake amongst smallholders in Malaysia is slow, including against the mandatory national MSPO certification scheme. Most smallholders need support on providing land deeds to prove ownership, which is a basic requirement of the certification process. Many lack a license to trade FFB, and many do not have the financial capacity to pay for the improvements needed for the certification process.
Because 97% of the FFB supply we source comes indirectly from traders, traceability to plantation and assisting these smallholders can be more challenging than when dealing with them directly. Smallholder numbers also tend to fluctuate year-to-year due to this indirect relationship and yearly FFB purchase requirements. Nevertheless, we started mapping the locations of our smallholder suppliers in Malaysia, where possible, in 2019. In 2021, we engaged with 121 FFB traders supplying to 18 of our mills and accounting for 10% of our total volumes in 2021. As of December 2021, a total of 3,495 smallholders have been mapped.
By knowing the locations of these smallholders, we can roll out certification support programmes. In 2019, we piloted a small-scale support programme for smallholders that indirectly supplied to our Sungai Dingin mill in Kedah, specifically from Kulim, Sungai Petani, and Kuala Ketil districts. It was conducted in partnership with the Malaysian Palm Oil Board and the traders involved, and a Malaysian agricultural financial institution (Agrobank). SDP teams provided on-the-ground support such as verifying land titles and licensing documents and confirming location coordinates, estate boundaries, and shapefiles to establish a formal record of smallholders’ operations. As a result of this programme, a total of 1,439 smallholders were successfully MSPO certified by the end of 2021.
As of 2021, some 1,439 smallholders, representing 9% of the smallholders that supply to our Malaysian mills, are MSPO certified, independently or through programmes supported by SDP. We are developing strategies and pilot projects to expand MSPO certification to all independent smallholders who supply to us. Whilst we initially targeted 100% certification by 2023, we have revised this date to 2025 due to programme delays caused by COVID-19 restrictions. The new date also accounts for the time required by FFB dealers to seek MSPO certification per new regulations announced in 2022.
SOURCING FROM 30,907 SMALLHOLDERS
590,217 MT FFB SUPPLIED IN 2021, 19% OF SUPPLY IN INDONESIA
92% SCHEME SMALLHOLDERS; 8% INDEPENDENT SMALLHOLDERS
100% DIRECTLY SOURCED
52% SCHEME SMALLHOLDERS RSPO CERTIFIED
Our Indonesian operations, Minamas, support scheme smallholders through two programmes: the Kredit Koperasi Primer Anggota (KKPA) and plasma schemes. Whilst SDP manages KKPA landholdings, smallholders participating in the KKPA programme are allocated share certificates for oil palm cultivation on their concessions. In exchange, they are given employment opportunities and earn income from the profits generated on their land. On the other hand, SDP develops the land under plasma schemes, which is then handed over to smallholders to manage after it reaches maturity. In exchange, these smallholders sell FFB to our mills at a mutually agreed upon price. Plasma schemes originated in the Indonesian Government's 1987 Plasma Transmigration Program.
SDP is supporting smallholders’ efforts to become RSPO certified through these programmes. In 2014, the first group of KPPA smallholders in Indonesia achieved certification. As of December 2021, some 14,768 scheme smallholders, representing 52% of our scheme smallholders, are RSPO certified. This number has increased slightly in recent years, and our efforts were hampered by challenges in obtaining land titles and meeting the associated regulatory requirements. However, SDP is committed to supporting scheme landholders, aiming at 100% certification by June 2023.
Papua New Guinea and Solomon Islands
Sourcing from 17,167 smallholder blocks
557,174 MT FFB supplied in 2021, 23% of supply in PNG/ Solomon Islands
100% independent smallholders
100% directly sourced
196 RA SAS certified
New Britain Palm Oil Limited (NBPOL) operates in unique landscapes in Papua New Guinea and Solomon Islands that are nothing like those in Indonesia and Malaysia. In principle, we source from independent smallholders that belong to collective production schemes known as blocks. These smallholders retain legal authority over their land and farming system choices without any mandatory or contractual obligations to a mill. However, based on their geographical location, these smallholders are functionally tied to our mills. Recognising their dependence on our mills for their livelihoods, we place tremendous importance on supporting smallholders in PNG.
100% independent smallholders are RSPO certified in PNG and Solomon Islands
NBPOL either sources from our own estates or smallholders, and we consider RSPO compliance as the minimum purchasing requirement in this region. Since 2012, NBPOL has rolled out support programmes and structured certification processes to support and certify each of our smallholder suppliers. This approach means we have operated a fully segregated and fully traceable palm oil supply chain since establishing ourselves here. It also means all existing and newly established smallholder suppliers are compliant with NBPOL and RSPO requirements.
A key NBPOL initiative is ensuring all our smallholders receive a substantial premium for supplying RSPO-certified fruit because of the increased value of selling fully segregated oil to our markets. We strive to ensure the premiums received are significant and used for the benefits of the smallholder community. Premiums given are based on published RSPO premiums and premiums we receive on the sale of Certified Sustainable Palm Oil (CSPO) converted to FFB equivalents. In 2021, smallholders earned collective premiums of 7,214,973 PGK (or USD 2.06 million). The premium paid to each smallholder is based on their production with no administrative charges or other deductions.
Rainforest Alliance Sustainable Agriculture Standard (RA SAS) certification
SDP has also supported the certification of smallholders at our West New Britain (WNB) operations against the Rainforest Alliance Sustainable Agriculture Standard (SAS). In 2018, we expanded this initiative to cover smallholders supplying to WNB. To date, 196 smallholders have been certified to the SAS. Initial plans to roll out certification support programmes for smallholders at other sites have temporarily been put on hold due to COVID-19 restrictions.
Supporting smallholders through financial literacy
Aside from certification, our NBPOL sites carry out programmes with local communities on land use planning, gender empowerment, and sharing best practices to help farmers obtain the skills and knowledge they need to manage their oil palm blocks and improve their livelihoods. One such programme provides financial literacy support to smallholders and landowner groups through a train-the-trainer model that covers topics such as budgeting, financial planning, sound financial practices, and banking. We also facilitate the opening of personal bank accounts for interested members.
Improving the socioeconomic status of smallholders
Low productivity caused by social and economic factors is the main challenge facing oil palm smallholders. NBPOL is collaborating with the PNG Oil Palm Research Association’s (PNGOPRA) Smallholder and Socioeconomic Research Division to conduct extensive research and provide technical advisory services to smallholders. This includes conducting research on fertiliser programmes that best maximise yields for smallholders, understanding the effectiveness of smallholder training on best management practices provided by SDP, and understanding smallholders’ income and expenditure patterns. Through this research, we aim to better understand these social and economic factors and improve our programmes to address smallholder productivity and strengthen the country’s economic, environmental, and social well-being.