The Importance of National Sustainability Standards for Smallholder Farmers

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Solidaridad aspires to unlock the full potential of palm oil for the benefit of smallholder farmers, consumers, and the environment. Photo by: Solidaridad

SOLIDARIDAD – The second phase of the NISCOPS (National Initiative for Sustainable and Climate-smart Oil Palm Smallholders) project in Solidaridad is about landscapes where oil palms are grown and managed sustainably, and smallholders measurably benefit from their inclusion in oil palm markets.

It translates as environments characterized by the sustainable cultivation and management of oil palms, ensuring measurable advantages for smallholders through meaningful participation in the oil palm markets. Sustainable agriculture is a development solution that connects poverty, hunger, jobs, and the impacts of climate change.

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By making palm oil landscapes climate-resilient and sustainably managed, improving production and diversification, creating nurseries and mills managed by women and youth, and protecting forests and restoring degraded land, NISCOPS touches all of these issues to make a positive difference.

Indonesia is by far the world’s largest producer and consumer of palm oil and a major player in the international palm oil trade, providing about half the total palm oil imported by Europe. Based on the Ministry of Agriculture’s data, oil palm has been developed on about 15.08 million hectares in 2022, of which more than 40% is managed by smallholder farmers. In total, around 1.5 million smallholders are involved in oil palm production in Indonesia.

Seeking comprehensive mitigation measures

The swift expansion of oil palm plantations has incurred a substantial toll on deforestation, particularly in some of the most biodiverse regions globally. Despite the ongoing progress in international and domestic sustainability initiatives and standards, the palm oil sector continues to get linked to climate change.

This is primarily attributed to its adverse effects on peat and forest ecosystems, compounded by emissions from inputs and effluents. Additionally, the industry has been linked to land use change and human rights abuses, raising concerns about the social and environmental integrity of its production. This underscores the imperatives for more comprehensive and formal regulatory measures.

The convergence of heightened forest law enforcement and the adoption of ‘No Deforestation or Peat Exploitation’ (NDPE) policies by major purchasers, refineries, and investors has posed growing challenges for plantation companies seeking expansion into forested areas and marketing their palm oil. This difficulty persists even for companies not exporting to Europe.

The European Union Due Diligence Regulation (EUDR), centred on risk assessment and traceability, is poised to further intensify these challenges.  The expenses associated with sustainability have placed a disproportionate burden on smallholders, particularly when substantial additional investments are necessary.

Compliance with sustainability certification poses challenges for smallholders due to high transaction costs, with rewards limited to enhanced market access rather than tangible monetary gains through market uptake.

Many smallholder palm oil producers lack access to vital information on market demand, social and extension services, environmental regulations, certification standards requirements, and the global market.

Despite this, they are compelled to make decisions that significantly impact their livelihoods. Addressing these risks necessitates comprehensive mitigation measures and support for the most vulnerable segments of the supply chain.

Furthermore, the escalating threat of climate change poses additional challenges to the stability of smallholder incomes. Fluctuations in temperature extremes, intensified and prolonged rainfall, and the increased occurrence of severe weather events negatively affect oil yield and quality, consequently impacting Crude Palm Oil (CPO) prices.

For instance, during El Niño events, there has been an average increase of 13%–40% in monthly CPO prices. This underscores the urgency of addressing climate-related challenges and implementing measures to safeguard the economic well-being of smallholders.

National sustainability standards are the way forward

National standards have the potential to exert a pivotal role in driving sector transformation, as they can be mandated for the entire country, such as in the case of MSPO (Malaysian Sustainable Palm Oil) and ISPO (Indonesian Sustainable Palm Oil), in contrast to voluntary standards, which often covers only a fraction of the global palm oil market (only 19% in some cases).

Beyond securing land tenure, a crucial prerequisite for voluntary sustainability certification, national standards can serve as incentives for the widespread adoption of sustainable practices. MSPO and ISPO are influencing the formulation and acceptance of standards in prominent Asian markets, exemplified by the Indian Palm Oil Sustainability Framework (IPOS) and ASPCo, the national sustainable palm oil programme in Colombia.

National standards, by setting a baseline in the market, aim to elevate all palm oil producers to a minimum standard of sustainable practices. When combined with the impact of the European Union Due Diligence Regulation (EUDR), there is significant potential to enhance the motivation for implementing and adhering to national standards, thereby reducing the risk of non-compliance.

The commitment expressed by both Malaysian and Indonesian ministers to fortify their respective national standards and traceability systems to meet EUDR requirements is indicative of the substantial progress in this direction.

Notably, the success of NI-SCOPS Phase I carried out by Solidaridad is exemplified by its assistance to the Malaysian government in formulating a deforestation definition for MSPO.

In its second phase, the programme is meticulously designed to include improved yield, positive outcomes for smallholder farmers in the targeted nations, while simultaneously promoting climate resilience and environmental protection. NISCOPS-II aims to accomplish these through the implementation of regenerative agricultural practices to optimize land use, ensuring equitable market access for enhanced incomes, and facilitating traceability compliance for inclusive markets.

The project strategically addresses the challenges faced by smallholder farmers within the broader market and international policy landscape through its two-pronged approach—a bottom-up approach for field implementation and learning and a top-down approach to policy and market drivers.

This creates a constructive feedback loop between production practices and policy implementation. Activities conducted at the field, market, and policy levels are intricately designed to contribute to the scaling up of the positive social and environmental impacts within the palm oil sector. The ultimate goal is to exit the intervention when the market and regulatory drivers for zero deforestation and enhanced income are firmly established.

Moving ahead with NISCOPS Phase II

Attaining enduring sustainability in the palm oil sector constitutes the fundamental objective of the NISCOPS project. The aim is to bring about a comprehensive transformation across the entire oil palm value chain by addressing the systemic challenges outlined earlier.

Through the establishment of resilient institutions and collaborative relationships among diverse market participants, endorsing and executing innovative business practices, and ingraining the appropriate policies, methodologies, and perspectives.

Solidaridad aspires to unlock the full potential of palm oil for the benefit of smallholder farmers, consumers, and the environment. This holistic approach positions Solidaridad to achieve genuine sustainability within the palm oil sector.

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