Companies-Smallholders Partnership: Dillema to Decide Independent Smallholders FFB Price

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Illustration of Palm oil smallholder. Photo by: Sawit Fest 2021 / Khamidi setyobudi

PALMOILMAGAZINE, JAKARTA – In July 2023 Riau Province Plantation Agency conducted socialization to accelerate independent smallholders’ partnership. Defris Hatmaja, Head of Marketing explained that there were only 11 unions that cooperate with palm oil companies that laid on about 4.760 hectares. The numbers were so small to the independent smallholders’ palm oil plantation that laid on about 1,5 million hectares in Riau Province.

The socialization was conducted in every region/city in Riau with the hope to get new partnership. Smallholders’ partnership would get (fresh fruit bunch/FFB) price decision from the local plantation agency and they would be recommended into the price decision team. This meant, they would not be the object but also the subject to decide FFB price.

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2,7 million hectares of palm oil plantations are laid in Riau Province. The independent smallholders’ one laid on 1,76 million hectares (61,65%), 1,02 million hectares (35,72%) would be cultivated by big private companies, and 80.000 hectares (2,63%) belonged to the government’s companies. Palm oil plantations in Riau are the widest ones in Indonesia. The research of Anggraini (2018) mentioned that, in the short or long term, palm oil industries would positively contribute to the gross domestic product (GDP) in Riau.

Also Read: Accelerating ISPO Certification for Independent Oil Palm Smallholders through a Jurisdictional Approach

Afrila et al. (2022) did explained, palm oil plantations would socially deliver advantages, increase the people’s welfare, expand employment, contribute to development regionally, and escalate the economy in many villages.

On the other hand, the independent smallholders face many issues to get partnership. Most of them do not establish groups. This was the same with what Nggarang et al. (2021) founded that the implementation of FFB price decision that the Regulation of Minister of Agriculture Number 01/Permentan/Kb.120/1/2018 mandated, should be conducted by the unstable smallholders’ groups. In the root level, there have no many smallholders’ groups established. This means, in FFB price decision, the smallholders minimally get into FFB price decision in the province level.

Mills – Smallholders’ Partnership: The Key to Cut off The Long Commerce

In the Sub district of Rakit Kulim, Regency of Indragiri Hulu Riau Province, the common commerce was that the smallholders should sell their FFB to the middlemen. One of the middlemen is Syafi’i. He said that by purchasing the smallholders’ FFB, he got about 200 to 300 rupiah (per kilogram). Every middleman should get delivery order (DO) to supply FFB for the mills. Every kilogram FFB would be charged about 30 to 50 rupiah.

Ramto explained that to get DO, it should involve vendor to pay DO for the middlemen. The vendor is needed because the mills should pay FFB from DO every one week to once a month. On the other hand, the smallholders that sold their FFB to the bigger buyer, get cash. It means, the DO owners should get loans from the vendor. The service paid to the vendor would be about 30 to 50 rupiah.

Some research conducted in some other regions, revealed the same. According to Azkiah (2021) that researched in the Regency of Indragiri Hulu, Pratama et al., (2018) conducted research in the Regency of Bengkalis and Rahayu, et al., (2021) did research in Regency of Rokan Hulu, the three research showed that the independent smallholders sold their FFB to many middlemen.

FFB commerce that took long process caused the losses for smallholders. Marjilan, one smallholder in Rakit kulim said that in the middlemen level, FFB price disparity with FFB price decision for smallholders’ level could be about 400 to 500 rupiah. If it is added by paying the workers that lifted up FFB to the middlemen, every ton would spend 150 thousand rupiah and the harvest would cost 250 thousand rupiah. It means, the smallholders’ income would get less.

According to (Papilo et al. 2020), the smallholders’ distribution system would have the lowest additional value of the traders or middlemen and the mills, as follows, the independent smallholders get 18,6%, the traders or middlemen would get 20%, and the mills would get 28% (crude palm oil and kernel).

To describe FFB commercial issues, it needs to accelerate partnership between smallholders and mills. The regency or province should encourage to realize the partnership so that the smallholders would get the price as what the government decided.

The Roles of NGO to Reinforce Smallholders’ Institutions and Encoruage Partnership

Perkumpulan Karya Serumpun in the Sub district of Batang Gangsal, Regency of Indragiri Hulu accompanied 22 groups and 714 smallholders that got Roundtable on Sustainable Palm Oil (RSPO) within more than about 1400 hectares. Juliono Director of Perkumpulan Karya Serumpun said that they are in partnership with PT. Sumber Kencana Indo Palma (SKIP) about smallholders’ FFB trade.

The success of Perkumpulan Karya Serumpun in developing the smallholders had something to do with the roles of Widya Erti Indonesia (WEI) that has empowered them since 2017. The approach used is sekolah lapang kelapa sawit (SLKS) by conducting field practices and the smallholders would be easier to understand the issue in their plantations.

Sutoyo, project manager in Riau said that in 2022, WEI did empower (smallholders) in the Sub district of Keritang, Regency of Indragiri Hilir by establishing Tunas Karya Mandiri (TKM) and Asosiasi Sawit Asosiasi Sawit Gemilang Riau Indragiri (ASAGRI). TKM has got RSPO certificate in January 2024 while ASAGRI was having RSPO external audit in april 2024. The two are tracking cooperation with the mills.

The success of WEI, Karya Serumpun, ASAGRI, and TKM in empowering the smallholders would be the proofs that non-government organizations (NGO) would play the roles significantly to accelerate partnership between the smallholders and the mills. In the research of Hatmaja et al., (2024) it mentioned that NGO significantly played the roles to decide FFB price in Riau Province. NGO also significantly played the roles to get people’s empowerment and advocacy.

Sutoyo also mentioned that in 2024 WEI would develop (other smallholders) in the Sub district of Rakit Kulim and Lirik with the target, to get institutions in each location. He hoped the new institution would ease the smallholders to get RSPO certification process and partnership with the mills. Besides, the people would be easier to reach out helps from the government, particularly Palm Oil Plantation Fund Management Agency (PFMA). (*)

By: Muhamad Yazid Fauzi

Disclaimer: this article is personal opinion

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