Fair Partnership e-book - spks-nasional.org · Picture cover : Asdani – SPKS Kuansing - Riau Province A Publica on of ... 5 h p://eprints.unsri.ac.id/1746/2/ISI_DISERTASI_(LAILA_2007_).pdf

Fair Partnership by Oil Palm

Smallholders, Indonesia

ISBN 978-602-14610-1-3

Fair Partnership by Oil Palm Smallholders, Indonesia

Author : Mansuetus Alsy Hanu Foreword : Andiko Sutan Mancayo

i

Published bySPKS – The Oil Palm Smallholders Union

2015



Author :Mansuetus Alsy Hanu;

Email : [email protected]

Foreword : Andiko Sutan Mancayo


Financial :Marlina Sadjli


Data and Informa�on Sources :Saut Benny Rickson Sinaga


Swisto Uwin Email : [email protected]

Distribu�on : Marselinus Andry


Picture cover : Asdani – SPKS Kuansing - Riau Province

A Publica�on of SPKS – The Oil Palm Smallholders Union

Office:Perumahan Sinbad Green Residence Blok B1 No 11, Jln Bubulak-Bogor West Java Email : [email protected]; Website : www.spks.or.id

Fair Partnership by Oil Palm Smallholders, Indonesiaii

PREFACE

This publica�on aims to compensate current development of few oil palm stakeholders who are commi�ed to make the Sustainable Palm

Oil prac�ces come true. While awai�ng the result of this pledge, oil palm smallholders look forward to seeing a Fair Partnership between the small-holders and companies as key mark of respect to the human rights as well as resolu�on to the social conflicts involving smallholders and planta�on companies.

SPKS – Oil Plam Smallholders Union is of the view that conflicts in palm oil planta�on are not only rooted in land tenure and involve customary groups; con�nuous conflicts between smallholders, members of a cooper-a�ve, against planta�on company is also considered fundamental because of recurring partnership problems and mostly not justly resolved. The partnership problem will never be resolved if the palm oil stakeholders are not genuinely commi�ed to a Fair Partnership prac�ce consistently.

Fair Partnership is vital to close the gap between sustainability and field prac�ces of palm oil planta�on. Fair Partnership shall complement oth-er sustainability approaches because it takes business rela�ons largely into account between smallholders and oil palm planta�on company as a founda�on of mutual benefit in the palm oil industry. Provided that weak government policy on the partnership between smallholders and planta�on company genuine ini�a�ves transpire independently to guide towards harmoniza�on of the rights and obliga�on of the smallholders and oil palm planta�on company. When the rights of smallholders are respected and business rela�ons between smallholders and planta�on companies are mutually advantageous, real sustainable palm oil is wholly in place.

Oil palm smallholders look forward to to witnessing real implementa�on of sustainability commitment of business players in the local, regional and global fora.

Bogor, February 2015

Fair Partnership by Oil Palm Smallholders, Indonesia iii

Foreword

Fair Partnership and the Partnership in the Planta�on Act No. 39 of 2014

By Andiko Sutan Mancayo1

1. The Journey of Partnership in the Planta�on

Business partnership is business rela�onship between various par�es who collaborate synergis�cly, voluntary, and based on the principle of interdependence, mutual support, mutually reinforcing and mutually beneficial. Partnership is conducted on the basis of moral responsibility and business ethics, in accordance with economic democracy. Partnership can only take place in an effec�ve and sustainable ways. Partnership runs in the framework of economic development, and not merely a social concept that is based on compassion or generosity mo�ves. 2

Partnership in the planta�on has long relied on coopera�ve as manifesta-�on of social economy. This economy is characterized by democracy, to-getherness, family, and openness.

“Na�onal act 1945, specifically Ar�cle 33 paragraph (1) states that the Indonesian economy is structured as a joint venture based on family principles. Further explana�on of Ar�cle 33, among others, states that the prosperity of society that is preferred and not the prosperity of individuals or companies; the spirit is strongly entrenched in coopera�ve. Elucida�on of Ar�cle 33 put Coopera�ve both in posi�on as a pillar of the na�onal economy as well as an integral part of na�onal economic order. Having regard to the posi�on of the Coopera�ve as men�oned above, the role of coopera�ve is very important in growing and developing the social economic poten�al in order to realize the economic democracy that have the characteris�cs of democra�c, togetherness, family, and openness. In such economy a coopera�ve

1 Senior Lawyer at AsM Law Office

2 Kartasasmita, Ginandjar. 1996. Empowerment of People’s Economy through Partnerships to Achieve Na�onal Economic and Independency. Paper presented at the Na�onal Seminar on Small and Medium Entrepreneurs and Coopera�ve Development Ins�tute, Jakarta, 7 November 1996.

iv Fair Partnership by Oil Palm Smallholders, Indonesia

should have the space and extensive business opportuni�es concerning the interests of the people’s economy.” 3

According to Saptana and Ansari, partnership in planta�on is run for the purpose of 1) increasing agricultural produc�on in a moderate, stable, and sustainable way, 2) increase the income and welfare of smallholders, 3) al-levia�ng poverty and reducing rural unemployment, 4) Improve equity and social jus�ce, 5) Create employment and enterpreneurships, 6) Improve the efficient use of natural resources and the environment, 7) Increase par-�cipa�on and empowerment of smallholders and actors in agribusiness, and 8) preserve environmental quality and support sustainable develop-ment. 4

Along with the history of planta�on in Indonesia, partnership models between smallholders, landowners, and the planta�ons were developed. One of them is Nucleus Estate Smallholders (NES) or Perusahaan In� Rakyat (PIR). NES is a system of partnership between large planta�ons (as a medium or large enterpreneurs) and smallholders (as small businesses) so called plasma – nucleus partnership. This partnership is expected to close the gaps of technical issues (technology transfer) and non-technical (financial, management) and serve for mutual benefit of both partnering par�es, namely the smallholders as suppliers of Fresh Fruit Bunches (FFB) and large planta�on companies as the buyer of FFBs and crude palm oil producer.

PIR project actually previously completed by other countries was under the name Nucleus Estate Smallholders Scheme (NESS); it was first introduced in Indonesia by World Bank and based on FELDA experience in Malaysia. A number of government agencies and officials were involved in this project, including the Minister of Agriculture up to local government leaders (governor, regent or mayor). This showed that NESS project is a government-owned project seriously managed. PIR has undergone many improvements, not coun�ng the diverse resources used among others from abroad (World Bank); it was called Assisted PIR program, such as PIR-Bun, NESS or domes�c program (funded by na�onal/local budget) called

3 General Explana�on of the Law of the Republic of Indonesia No. 25 /1992 on Coopera�ve

4 Saptana and Anshari, 2007. Sustainable agriculture development through business partnership, R&D the Ministry of Agriculture

vFair Partnership by Oil Palm Smallholders, Indonesia

Self-funded PIR including Special PIR (PIR-Sus) and PIR-Local. In addi�on, in order to improve the distribu�on of welfare of the popula�on, PIR projects involve all residents of both locals and migrants (transmigra�on), so that the PIR is known as PIR-local if the majority of par�cipants are local residents, and PIR-Transmigra�on (PIR-Trans) if some major par�cipants are transmigrants or homesteader. 5

2006, the government issued the Regula�on of the Minister of Agriculture No. 33/Permentan/OT.140/7/2006 concerning planta�on development through revitaliza�on program of the planta�on. It introduces a new format of partnership which is popularly called the “centralized management”.

In the implementa�on, the planta�on development through revitaliza�on program aims to build smallholders using the following development approach:

a. Development of smallholder planta�ons through partnerships, both PIR (Nucleus Estates Smallholders) and others. For areas with no available partners, the planta�on development is made possible directly by the smallholders or through coopera�ve with the coaching from the Ministry of Agriculture and the respec�ve agencies at the Provincial and District levels;

b. Each loca�on of planta�on development is intended to the realiza�on of a compact site and meet the economic scale;

c. Land area of each par�cipa�ng smallholders of the Revitaliza�on Program is 2-4 ha/household, except for special areas to be s�pulated by the Minister of Agriculture;

d. To provide business assurance and sustainability, planta�on development involving business partners can be conducted through the one-stop management of planta�ons (centralized management) in the dura�on of 1 (one) plan�ng cycle;

e. Credit interest granted to the smallholders is 10%, while the credit interest is subsidized by the government for the difference of prevailing market rates for similar loans versus the interest paid by par�cipa�ng smallholders. Subsidy is granted un�l the oil palms start producing (in the case of palm oil, up to 5 years). The amount of the interest rate paid a�er

5 h�p://eprints.unsri.ac.id/1746/2/ISI_DISERTASI_(LAILA_2007_).pdf

vi Fair Partnership by Oil Palm Smallholders, Indonesia

vii

the grace period is in accordance with applicable provisions of the banks (without interest subsidies). 6

Below is a simple chart that illustrates the development of partnership journey:


Period Development

Pelita7 II: 1977 NES of State-owned Enterprises (SOE)by the Government and the World Bank (rubber in

North and South Sumatra) Pelita III : 1978 – 1983 Con�nued NES in the new loca�ons/regions NES

Transmigra�on (1986) Pelita IV : 1983 – 1988 Con�nued NEW in new loca�ons/regionsPelita V : 1988 – 1993 Con�nued NES Transmigra�on Partnership-NES

(funded by KKPA)1999 (SK Menhutbun No.107/KptsII/1999)

Minister of Agriculture Decree Number: 33/Permentan/Ot.140/7/2006 On planta�on development through revitaliza�on of planta�on

5 types of planta�on development: I : Planta�on Coopera�ve (100% coopera�ve

shares) II : Joint Coopera�ve and Investor (65% co

opera�ve shares) III : Joint Investor and Coopera�ve (20% co

opera�ve shares) IV : BOT (Build, Opera�on, Transfer) V : BTN (Bank Tabungan Negara or Na�onal

Savings Bank) Planta�on Revitaliza�on is government pro-gram to accelerate the development small-holders through expansion, renova�on and rehabilita�on of oil palm planta�ons funded by banking credits and subsidized interest of government investment involving planta�on companies as partners in the development of planta�ons, processing and marke�ng of the yields.

6 h�p://repository.usu.ac.id/bitstream/123456789/33895/4/Chapter%20II.pdf, accessed on 14/1/2014, page 6-7

7 Pelita = every five years na�onal development plan

2. Partnership problems on Planta�on

Throughout the course of the development of partnership planta�ons in Indonesia, in addi�on to showing some success, there is a lot of cri�cism that appears. The cri�cism related to land issues and the rela�onship be-tween the nucleus and the scheme smallholdings both managed by plan-ta�on company.

According to Sutrisno Badri, Sumargana, who have researched on the NES-Smallholdings; this partnership indicates a strong dependence of nucleus company on FFBs processing sourced from smallholders; so that bargaining posi�on between smallholders organiza�on and the nucleus is unequal.

Limited capacity of palm oil mills (PPKS)

Payment of the FFB purchase and processing by the planta�on company is one month later pending the pricing set by the local pricing commi�ee; this kind of delayed payment does not help the smallholders get fresh money.

No independent ins�tu�on for supervision assortment of FFB

Assortment of FFBs produced by smallholders is not transparent and smallholders are only shared reports on the number of CPO produc�on of the mill.

Access to market

The core company has access to export markets, while smallholders have very limited knowledge about CPO price in the foreign market. Following inequal knowledge and informa�on on the CPO market price, planta�on company buy FFB from smallholders with local Indonesian price (Rupiah), while the company will sell the CPO to overseas markets at a US Dollar price, resul�ng in adverse price disparity to the smallholders. 8

8 Sutrisno Badri, Sumargana, Analisis Sistem Agroindustri Kelapa Sawit (Solusi Untuk Meningkatkan Posisi Tawar Petani Plasma), Seminar Nasional IENACO 2014 ISSN: 2337-4349, Hlm 488

viii Fair Partnership by Oil Palm Smallholders, Indonesia

Meanwhile, in a posi�on paper the Business Compe��on Supervisory Commission (KPPU) provide an assessment of Partnership Enterprises in the oil palm planta�on as follows:

a. Although smallholdings are only 33% of the total na�onal oil palm planta�ons, but they are highly dependent on the palm oil processing industry. Oligopolis�c structure in palm oil processing industry led to the level of market equilibrium controlled by the demand side (em-ployers palm FFB processing) rather than the supply side (mill com-pany);

b. The performance of NES partnership so far shows planters unequal bargaining power of smallholders and company. Scheme smallholders are o�en disadvantaged in terms of mass of the yield and or price. Partnership thus poten�ally resul�ng monopsony prac�ces and or closed agreement prohibited by law No. 5/1999 on the Prohibi�on of Monopolis�c Prac�ces and Unfair Compe��on;

c. The exis�ng partnership model in the planta�on sector should not be used as an argument to jus�fy the prac�ce or the facilita�on of policy instruments to inhibit the growth and development of planta�on cul-�va�on and processing of the yields. Partnership will con�nue when transac�onal rela�onship between the two sides in partnership con-ducted in a reasonable and mutually beneficial ways.9

When the revitaliza�on program started, the partnership between Nucle-us company and the scheme smallholders was developed by the central-ized management approach. However, according to Sawit Watch, since 2006 the government developed a one-stop or centralized management scheme for smallholders. Reference hereto is the Minister of Agriculture decree no. 33 of 2006 which set one management type of partnership.

The centralized management scheme is a kind of company’s monopoly over the produc�on of smallholders, ranging from maintenance, planta�on man-agement to produc�on and management aspects are undertaken by planta-�on company. Monopoly is also related to the bank credit for planta�on. Bank credit will be disbursed to the company and not to smallholders. In this cen-tralized management, profit-sharing scheme in the centralized management were found in SPKS Sanggau. From the overall yields produced in 2 ha land by

9 Komisi Pengawas Persaingan Usaha (KPPU), Evaluasi Kebijakan Kelapa Sawit, Posi�on Paper, hlm 27.

ixFair Partnership by Oil Palm Smallholders, Indonesia

smallholders, 50% of their yields revenue is used by company to conduct mainte-nance such as planta�on maintenance, contract labors and transport of FFBs. A total of 30% earmarked for the payment of the bank loan interest automa�cally cut by company and smallholders only get 20% of the total FFB produc�on. If smallholders want to earn more income, they have to work as labors recruited by the company, just as the other contracted labors, home-based workers involving children and wife without clear workscope. Informal labor recruitment raises the issue of labor protec�on, not only in terms of the protec�on of wages, but also job security, health and other basic rights. 10

3. Oil Palm Smallholders Union (SPKS) and Fair Partnership

Depar�ng from experiences of aforemen�oned partnership, the Smallhold-ers Union (SPKS) is developing a partnership model called Fair Partnership. Fair Partnership is defined as respect to the rights of oil palm smallholders who have been long neglected in the development of the palm oil business. The responsible approach aims at business development and decision-mak-ing, and support the independence of smallholders. Fair Partnership is em-phasized because there is a gap between expecta�ons and prac�ce and a lack of trac�on of important substance in the policy. In addi�on, today’s sustainability approach has not been able to bring a sense of jus�ce in a partnership toward smallholders. S�ll there is a gap between vision and implementa�on; and the most important thing is the many commitments coming from large companies but s�ll not too friendly in the partnership with the oil palm smallholders.

Principles of Fair Parnership include:

a. Honest: Do not hide an interest which affecct other par�es and it is deliv-ered openly;

b. Fair: Building rela�onships and roles equitably so that fundamental rights can be fulfilled. None of the par�es s�gma�zed or disrespected in the development process;

c. Parallel or equivalent: Both sides have the same status and posi�on and parallel;

d. Independence: The public has a right to choose freely and without pres-sure;

x Fair Partnership by Oil Palm Smallholders, Indonesia

10 Tandan Sawit, 8th edi�on | December 2014 | 3

e. Respec�ng the rights and choices: Any party in rela�on with society in a development process upholds the rights for op�ons of the community;

f. Transparent and accountable: Informa�on communicated openly and re-sponsible for what was done;

g. Consistent and con�nuing: There are no restric�ons in the commitment and improvement is carried out con�nuously.

4. Partnership in the Planta�on Act

By the end of 2014, the government issued Law Nr. 39 of 2014 about Plan-ta�on, in lieu of the old Planta�on Act. Based on the new Planta�on Act, the development of planta�ons in Indonesia is placed in the following basic principles: a) sovereignty; b) independence; c) usefulness; d) sustainability e) integra�on; f) togetherness; g) openness; h) jus�ce-efficiency; i) local wis-dom; and j) preserva�on of the environment (Ar�cle 2)

The principle of unity then described as an organiza�on of planta�on busi-ness with open partnership approach, which leads to synergis�cal inter-connectedness and interdependence between planta�on business players. (Le�er f).

Furthermore, Ar�cle 3 states that the implementa�on of the planta�on aims to:

a. improve the welfare and prosperity of the people;b. increase the source of foreign exchange;c. provide employment and business opportuni�es;d. increase produc�on, produc�vity, quality, value added, compe��veness,

and market shares;e. improve and meet the needs of domes�c consumer and industrial raw

materials in the country;f. provide protec�on to the planta�on business society and communi�es;g. manage and develop planta�on resources op�mally, responsibly, and

sustainably; andh. increase the u�liza�on of planta�on services.

At this founda�on of the principles and objec�ves of the partnership in the planta�on is built and arranged. Planta�on Business Empowerment set out in Ar�cle 57 includes:

xiFair Partnership by Oil Palm Smallholders, Indonesia

(1) For the empowerment of Planta�on, Planta�on Company establishes Planta�on Business partnerships in a mutually beneficial, respect-ful, responsible, and mutually reinforcing and interdependent with smallholders, employees and labors, and communi�es around the planta�on;

(2) Business Partnership Planta�ons can be either: a. provision of produc�on means; b. produc�on; c. processing and marke�ng; d. shareholding; and e. Other support services.(3) Further provision on the planta�on business partnerships is s�pu-

lated in Government Regula�ons.

Furthermore, Ar�cle 58 regulates the obliga�ons of the company to facilitate the development of smallholdings as follows:

(1) Planta�on companies with planta�on business licenses or permits for cul�va�on must facilitate the development of smallholdings for the surrounding community at least of 20% (twenty percent) of the total area of planta�ons managed by planta�on companies;

(2) Facilita�on of the development of smallholdings is achievable through bank loan, profit sharing, or any other fundings agreed upon in accor-dance with the provisions of the legisla�on;

(3) The obliga�on to facilitate the construc�on of the smallholdings should be implemented within a period of at least three (3) years from the land �tle (HGU);

(4) Facilita�on ac�vi�es of the smallholdings development must be re-ported to the Central Government and Local Government in accor-dance with its authority;

Ar�cle 60 sets penal�es for planta�on companies viola�ng the provi-sions of empowerment:

(1) Planta�on Company in viola�on of the provisions referred to in Ar�cle 58 subject to administra�ve sanc�ons;

xii Fair Partnership by Oil Palm Smallholders, Indonesia

(2) Administra�ve sanc�ons include: a. fines; b. temporary termina�on of planta�on business ac�vi�es; and / or c. Revoca�on of planta�on pusiness license revoca�on.

(3) Further provisions on the type, the amount of fines, and procedures for the imposi�on of sanc�ons are s�pulated in Government Regula�on.

5. Notes on the Partnership in the Planta�on Act

The above descrip�ons give us an idea of how the new Planta�on Act nr. 39/2014 provides answers to the problems of exis�ng partnerships up to the date this law was born.

Since the beginning, the changes made in the Planta�on Act were con-ducted in closed process, especially for communi�es who are directly involved or affected by the planta�on industry. Since the discussion process the new planta�on was closed, poli�cal ra�onale of the plan-ta�on developed during discussion was not traceable from either of the documents exis�ng processes.

Depar�ng from such process, and if deliberated further, in general the poli�c of planta�on remain to relying on large-scale planta�on compa-ny. Ar�cle 51 is set that the government must empower actors of plan-ta�on business, but the smallholders only on rather passive posi�on.

Law makers do not have a plan or idea to transform the large-scale planta�on to community-based planta�on so that the Indonesian plan-ta�on business in future relies largely on the coopera�ves.

Partnership in the new Planta�on Act is conducted under the principle of unity, where the implementa�on of the partnership is transparently in order to build synergis�cal interconnectedness and interdependence between planta�on business actors. In this context dependency is meant by work dependency betweensmallholders and the nucleus company.

The new Planta�on Act mandates a dependency that is placed in a syn-ergis�c rela�onship between the nucleus company with smallholders. Then what is meant by the synergis�c?

xiiiFair Partnership by Oil Palm Smallholders, Indonesia

According Deardorff and Williams (2006) Synergy is a process where the interac�on of two or more agents or forces combined effect is greater than the sum of their individual effects. According Deardorff and Williams (2006) synergy is not what our hands can hold but a term that means mul�plier effect that allows the energy of individual works or services mul�plied exponen�ally through joint efforts. Group syn-ergy is described as an ac�on hat develops and flows from a group of people working together in sync with each other so that they can move and think as one. This synergy ac�ons run by ins�nct, posi�ve, empow-ering, and use the resources of the group as a whole. 11

If the defini�on of synergy is used to analyze the principles of partnership in the new Planta�on Act by using partnership cases related to planta�on, then factually the synergy is difficult to do in a balanced posi�on of the nucleus company and smallholders. Recogni�on of land ownership and the government protec�on is needed to come to the equivalent posi�on.

If you look further, a law is born with idealism that is o�en perceived as if it does not consider the field situa�on where the law will work. Field situ-a�on just placed as an object of change for the desired legal and poli�cal ideals of planta�on. Exis�ng facts or field issues that must be tailored to the poli�c of policies developed by the new law, the transi�onal rules will contain a number of provisions that could bridge the problem.

Planta�on Act does not recognize the field problems concerning partner-ship between the nucleus and scheme smallholders as important issue to be resolved sooner than the new Planta�on Act is effec�ve. In fact, the transi�onal rules do not include the issue of partnership between companies and smallholders to be completed first in a certain period of �me as a prerequisite for the opera�on of the whole substance of the new Planta�on Act.

Moreover, SPKS develops the concept “Fair Partnership” with a number of important principles. In fact the Fair Partnership principles are not spe-cifically and clearly regulated in a number of general principles set out in

xiv Fair Partnership by Oil Palm Smallholders, Indonesia

11 Dale S. Deardorff DM dan Greg Williams, 2006, Synergy Leadership in Quantum Orga-niza�ons, Fesserdorff Consultants dalam Iqbal Islami, Sinergi dan Organisasi Kuantum, h�p://www.bppk.depkeu.go.id/webpegawai/a�achments/617_Sinergi_dan_Organ-isasi_Kuantum_Iqbal.pdf

the new Planta�on Act. Likewise are the special provisions that directly concern on the partnership.

In the end, the partnership is only one component that complements the development of a planta�on industry truly relies on a large scale com-pany. At this point, the partnership serves only as an op�on to an�cipate the social problems that stem from economic jealousy alone, as many analyses and repor�ng done so far.

Another very important issue is how the partnership func�ons amid in-equality of mastery and resilience convulsions of smallholders’ house-holds affected by the planta�on development that changes the landscape of countryside and op�mum spa�al exploita�on.

The new law comes from the assump�on that people s�ll have another homeland to grow their life. More awful, partnership is assumed to help meet all the needs of rural households or smallholders communal groups.

As we know, the lawmaker of the new planta�on act derived from the macro assump�ons, namely s�ll pu�ng the partnership at at least 20%. These legislators did not learn from the severe facts on the ground that the macro assump�on like this does not answer various specific problems in each locality.

6. What about Fair Partnership?

Fair Partnership as a milestone introduced by SPKS to place an equitable rela�onship between smallholders and companies will be opera�onal if it were embedded in an appropriate legal framework.

Ar�cle 57, paragraph (3), which orders the establishment of further provi-sions regarding planta�on business partnership that will be set in govern-ment regula�on is the arena to sign over the concept onto legisla�on as a guideline. Besides, market acceptance of the Fair Partnership principles will provide strong impetus to the forma�on of the policy.

However, the Fair Partnership principles aim to improve exis�ng partner-ship condi�on must be sharpened further in order to be able to answer the problem in the field.

xvFair Partnership by Oil Palm Smallholders, Indonesia

INTRODUCTION

The Principle of Fair Partnership

Basic principles of Fair Partnership must be integrated in the develop-ment and in the process of implementa�on. The principles of Fair Part-nership consist of:

• Sincerity: sincere, reliable, and accurate prac�ces that do not veil any concern that might affect any other par�es.

• Jus�ce: share the rights and obliga�ons impar�ally and create mutual rela�ons and roles of involved par�es. A development process must not leave out and ignore any party.

• Fair or unbiased: both par�es are counterparts and own equivalent posi�ons to each other.

• Independent and free: Communi�es have the rights to decide unre-servedly and free from any pressures.

• Value the rights and op�ons: actors of the development must respect the civil rights to the op�ons and alterna�ves and must provide as many op�ons and alterna�ves as possible for mutual benefit.

• Transparancy and Accountability: open and transparent communica-�on prac�ce that is accountable.

• Consistency: boundless commitment towards con�nous improvement.

xvi Fair Partnership by Oil Palm Smallholders, Indonesia

The Vision of Fair Partnership

The founda�ons of the oil palm planta�on development within the context of respect to human rights and sustainability principle can be

wholly implemented; in par�cular the social aspects of the investment rela�ons between planta�on companies and oil palm smallholders that is to closing the gap between what is expected by the smallholders and prevailing planta�on policies as well as facilita�ng the transforma�on of accepted wisdom of the emerging market. Therefore Fair Partnership is open for implementa�on by all stakeholders, in par�cular oil palm plan-ta�on companies, financial ins�tu�ons, and the government. All stake-holders can contribute to improve exis�ng regula�ons and partnership arrangements that have been passing by the smallholders so far.

Fair Partnership in the palm oil planta�on will increase produc�vity and profits of both companies and smallholders. With ac�ve par�cipa�on of the smallholders, they will value the collabora�on and partnership with the companies and the sense of belonging to the shared business devel-opment. A planta�on development using Fair Partnership as best man-agement prac�ce will lead to high recogni�on to the yields. Markets care for full implementa�on of sustainability; this means value the environ-ment and the planet, value the people including the smallholders, and value the profits of the palm oil business for mutual benefit.

Fair Partnership shall not be considered as an ini�a�ve or verbal com-mitment because it is not bound within specific law and regula�on. Fair Partnership between smallholders and planta�on companies must be in-corporated in the companies’ vision and mission, embedded in company policies to be implemented in every respect.

xviiFair Partnership by Oil Palm Smallholders, Indonesia

CONTENT

Preface …………………………………………………………………………………….......... iiiForeword ............................................................................................. ivIntroduc�on : The Principles of Fair Partnership ………………..................... xviVision of Fair Partnership ……………………………………………...................... xviiContents ………………………………………………………………………….....……..…… xviiiChapter I : The Policy to Strengthening The Oil Palm Smallholders .......... 11.1 Government Regula�on on Planta�on…………………………. 21.2 Policy Analysis of the Smallholders Empowerment…………… 8Chapter II : the Challenges of Fair Partnership ……………………………… 112.1 Why Fair Partnership?............................................................... 122.2 Challenges and Barriers……………………………………............….…… 13 Chapter III : Fair Partnership with the Smallholders ……….......……… 163.1 Implemen�ng Fair Partnership ……………………………………………… 163.2 Building the Smallholdings………………......…………………………….… 223.3 Maintenance……………………………………………………………………….... 243.4 Conversion and Assessment of Oil Palms…………………..………… 24 3.5 Audit of the Construc�on of the Scheme Smallholdings ……....… 25 3.6 Alterna�ve Oil Palm Planta�on Management by the Coopera�ve…............................................................................. 26Chapter IV : RSPO, ISPO and Fair Partnership …………………..…………… 274.1 RSPO and Fair Partnership…………………………………….......………… 274.2 ISPO and Fair Partnership………………………………….............……… 33Chapter V : Fair Partnership in the Sustainability ……………….......…… 34

xviii Fair Partnership by Oil Palm Smallholders, Indonesia

Chapter I The Policy to Strengthening the Oil Palm Smallholders

Palm oil is inseparable to the economic development of Indonesia. It began in the 80s when the partnership between nucleus (state-owned

planta�on company) and smallhodlers (communi�es) were introduced. The first partnership was located in Sanggau, West Kalimantan and Paser, East Kalimantan; they were funded by Wrold Bank. Eventually the Indo-nesian communi�es learn about economic perspec�ve of oil palms; they have independently developed their own oil palm planta�on and expand-ed to other provinces in Indonesia.

From the independent expansion, smallholders have become poten�al and significant actors in the palm oil business. About 43% of 12.5 million hectares of oil palm planta�on in Indonesia owned by smallholders (Sawit Watch & SPKS). This makes Indonesia the biggest palm oil producers in the world.

Smallholders play at the moment a very important role in the sustainable palm oil supply. They are required to exercise Good Agriculture Prac�ces (GAP) towards sustainable palm oil produc�on to be compliant with na�on-al and global market standards. In Thailand for instance, oil palm smallhold-ers are now RSPO cer�fied; likewise a number of smallholders in Indone-sia and Malaysia. Although there are s�ll a small number of RSPO cer�fied smallholders, it proves that smallholders can compete wit other stakehold-ers and managed to fulfill global standard and market requirements. It fol-lows that customers of crude palm oil (CPO) in RSPO make a great effort to get the supply of sustainable palm oil produced by smallholders.

Indonesian oil palm smallholders are regarded less compe��ve in the global market. Even though this does not represent the whole picture of Indonesian oil palm smallholders, this is one of the challenges to be met by Indonesian oil palm stakeholders to strengthen the smallholders’ liveli-hood and planta�on management capacity. Sound and suppor�ve poli-cies and condi�ons as well as infrastructure and agriculture inputs will help smallholders manage their planta�on be�er.

1Fair Partnership by Oil Palm Smallholders, Indonesia

The government and private sectors are very aware of the concealed po-ten�al of the smallholders such as deserted land property and a strong so-cial system of the communi�es that serve as social investment in the palm oil business. While large planta�on companies are accused for deforesta-�on and land grabbing and therefore face challenges to expor�ng to the markets of the developed countries, smallholders use their deserted land property and hardly involved in deforesta�on. This does not only keep the business away from social conflicts; the prac�ce regarded as community-based ini�a�ve that needs to be supported by the government with rel-evant innova�ve policies. 1.1 Government Regula�on on Planta�on

Government policy is fundamental in the empowerment of oil palm small-holders. Several government agencies deal with palm oil; however the Min-istry of Agriculture is major counterpart for upstream affairs including the agribusiness partnership between smallholders and planta�on companies. Trade-related is supervised by the Ministry of Trade, such as trade disputes and market access. The Ministry of Coopera�ve also deals with the partner-ship and financial support; and agrarian ministry –which used to be land agency (BPN)- supervises all technical issues concerning land tenure.

The directorate general of planta�on of the Ministry of Agriculture is tasked to support yield improvement, improved produc�vity and sustainable quality of cash crops in order to enhance the welfare of the farmers. Its mission is to facilitate the realiza�on of these objec�ves, including provision of produc�on inputs such as good- quality seeds, produc�on infrastructure, safeguard of the crops from diseases and from violence to the business, development of palm oil business as well as flourishing partnership mechanism between smallhold-ers and private sectors, prospering smallholders groups, increasing the com-muni�es’ par�cipa�on to create harmonious rela�onship between economy, soal, and ecology.in addi�on, the Director General must help with the prepara-�on prior to business establishment planning, policy advocacy, during palm oil development and monitoring in coordina�on with other technical services of the government.

The strategy of oil palm development in Indonesia includes 8 prac�cal steps: 1) Improvement of yield, produc�vity, and the quality of sustainable palm oil; 2) Development of palm oil commodity;

2 Fair Partnership by Oil Palm Smallholders, Indonesia

3) Increased support to the na�onal food security;4) Increased investment in palm oil business;5) Development of planta�on informa�on management system;6) The empowerment of human resources in planta�on;7) Development of smallholders organiza�on and business partnership;8) Increasing support to the environmental and natural resources man-

agement.

Key in the planta�on development is the resource and environmental-based development that is focused on the CPO produc�vity. The planta-�on development strategy has 11 implemen�ng regula�on rooted in the yield improvement towards transparent and sustainable palm oil develop-ment, which includes: (i) development and empowerment of smallholders’ oil palm planta�on through a revitaliza�on of planta�on, (ii) yield and pro-duc�vity improvement (iii) applica�on and distribu�on of premium seeds variety, (iv) integrated management of crops diseases, (v) human resource development, (vi) waste management, (vii) infrastructure development, (viii) business development, (ix) business partnership development, (x) implementa�on of sustainable palm oil development, and (xi) informa�on management system development.

Smallholders

The programs concerning palm oil development will be linked with current regula�ons, such as Minister of Agriculture’s decree no. 33/2006 on Re-vitaliza�on of Planta�on and no. 98/2013 on Planta�on Business License, Planta�on Act no. 39/2014, and Minister of Finance’s decree no. 117/2007 and Smallholders Protec�on and Empowerment Act no. 19/2013.

In the planta�on act no. 39/2014, smallholders empowerment is assigned to the central and local governments. In detail it is men�oned in ar�cle 54: “Central and local governments have the obliga�on to facilitate the empowerment of smallholders, smallholders group, coopera�ve, and smallholders associa�on to develop planta�on business.”

The planta�on business men�oned in the ar�cle means in par�cular the oil palm smallholders. This is a result of regional autonomy where local government is delegated with the empowerment of communi�es. A plan-ta�on business development in the Ar�cle 51, Paragraph 3 covers:


a. Organize educa�on and training on planta�on for human resource de-velopment;

b. Facilitate financial and investment sources; c. Prevent any unregulated cost;d. Facilitate exporta�on of the yields; e. Priori�ze domes�c agriculture produc�on to sa�sfy local consump-

�ons and industrial raw materials;f. Manage the na�onal profits and ou�low of the planta�on; g. Facilitate an access to know-how, technology and informa�on; h. Facilitate distribu�on of informa�on and applica�on of premium seeds

variety; i. Facilitate the empowerment of smallholders organiza�on; and/orj. Facilitate networking of partnership among planta�on business actors.

The oil palm smallholder in the 2014 planta�on act (Ar�cle 45, Paragraph 2) is managed through a partnership with planta�on companies. Support for independent smallholders is managed through coopera�on with palm oil processing mill with CPO supply composi�on of 80% from indepen-dent smallholders and 20% from its own planta�on.

Some of the policies of the minister of agriculture, inter alia the decree no. 33/Permentan/OT.140/7/2006 on planta�on has not specifically touched the independent smallholders. The planta�on decree is only concerned on the expansion, replan�ng and rehabilita�on of oil palms. The decree regulates nucleus-plasma rela�ons under the new partnership scheme that replaced KKPA (primary credit for coopera�ve members) scheme and Nucleus Estate Smallholders (NES) from the earlier period.

Regula�on no. 33/2006 regulates a centralized planta�on management or one roof management. A centralized management covers the plant-ing of oil palm, maintenance, and management of planta�on including produc�on, harves�ng; the whole process is conducted by the partnering company. The policy involves a subsidy of interest, which is the difference between commercial interest and the interest applied to smallholders paid by the government under the revitaliza�on of planta�on.

In centralized management, financial access to smallholders’ organiza�on is made possible only through partnership with planta�on companies, which means indirect funding. The funds granted for the smallholders


will be used by the company to build plasma planta�on for par�cipa�ng smallholders. When the oil palms are producing yields, smallholders are en�tled to se�le the credit payment for the construc�on of the plasma planta�on.

According to the regula�on, independent smallholders may par�cipate in revitaliza�on program; however they have to be bound under the central-ized planta�on management including credit payment. When the planta-�on of these independent smallholders is producing yields but they want to par�cipate in the revitaliza�on, the planta�on must be rehabilitated and replanted.

2013 the Indonesian government accomplished the revision of the Min-ister of Agriculture’s decree no. 26 year 2007 on planta�on business li-cense. The revised policy is �tled Decree no. 98 from the year 2013. Ar-�cle 14 of the decree no. 98 is giving the opportunity for the smallholders to own the shareholding of the palm oil processing mills as part of their credit payment. It says: “The palm oil processing mill cooperates with the coopera�ve of smallholders as men�oned in ar�cle 1, paragraph 3; in the 5th year it is obliged to allocate the minimum of 5% shares of the mill for local smallholders’ coopera�ve, and gradually 30% of the shares in the 15th year.”

The shareholding arrangement is very important to the smallholders be-cause ethey have been contribu�ng to the sustainable opera�on of the processing mill through the so-called “Index-K” as mandated in the palm oil pricing mechanism (reference hereto is the Minister of Agriculture’s decree no. 17 on palm oil pricing mechanism). This aims to enhance the bargaining posi�on of the smallholders toward the processing mill.

Beside the shareholding mechanism, the revised regula�on also regulates in the 20% or 0% investment of palm oil mill. The earlier policy stated that the shareholding for a palm oil processing mill investment consists of 80% company and 20% smallholders’. This is entrenched in ar�cle 13, paragraph 1 as follows: In terms of independent smallholders’ planta�on without any exis�ng processin mill in the vicinity and minimum 20% of the yields to be produced by the smallholders’ planta�on is not available, the planta�on company may establish a processing mill industry.


The shareholding mechanism is aimed to create a win-win status of the smallholders and the smallholders, where a planta�on company provides a mill and the FFB suuply comes from the indepent smallholder. The share-holding mechanism is to tackle the condi�on where the mill produces its own FFBs so that the smallholders’ posi�on before the mill becomes less important. These are solu�ons to the investment of a processing mill if a planta�on company owns no land to build the mill upon.

Coopera�ve / Smallholders Organiza�on

Smallholders’ organiza�on or coopera�ve in the decree no. 98/2013 has equal posi�on as the other agency such as state-owned or regional en-terprises, or large companies without limited landbank. Coopera�ve can play the role of large-scale business enterprise, as stated in the ar�cle 17, paragraph 3 of decree no. 98/2013:

The most extensive size referred to in paragraph (1) and (2) does not apply to State-Owned Enterprises, Regional Enterprise, Coopera�ves and planta�on companies with the status of a publicly listed company (go public), which is majority owned by the community.

The coopera�ve in the ar�cle is very weak represented; it has no warranty to financial access as previously regulated in the decree no. 33/2006. The con-tradic�on starts here when the coopera�ve is given the widest opportunity to develop the enterprise together with its members, but the state does not grant any financial access to the organiza�on. It is open conclusion that the coopera�ve in the new regula�on no. 98 is more an object rather than the subject of a partnership with a company because financial support to coop-era�ve can only be accessed though large planta�on company.

2013 the government issued a regula�on on the protec�on and empow-erment of smallholders that is law no. 19 year 2013. The law was passed on account of civil organiza�ons and non-governmental organiza�ons jointly with the farmers and communi�es, who appealed the govern-ment to protect and empower the farmers as fundamental supports to the country’s lives. The law entails the following:a. realize sovereignty of smallholders and to increase the wellbeing and

living quality; b. provide agriculture’s infrastructure needed for smallholders’ business

development;


c. provide security to agribusiness; d. protect the smallholders from fluctua�ng prices, high-cost agribusi-

ness, and failure of harves�ng; e. improve the smallholders’ capacity and organiza�onal management

to be produc�ve, modern, progressive, and sustainable; andf. allow the smallholders’ financial support agency to support the farm

business.

The law’s defini�on for empowerment of smallholders is any capacity assistance to the farmers both agronomy and social-economy through educa�on and training, supervision and assistance, development of dis-tribu�on system and infrastructure of agribusiness, consolida�on and as-surance of the agriculture land area, simple access to the knowledge, in-forma�on technology, and strengthening the smallholders’ organiza�on.

The government is requested to provide assistance to empower the farmers. The law discussed the smallholders’ empowerment strategy as follows: a. educa�on and training; b. counseling and assis�ng; c. development of the system and infrastructure of yields distribu�on; d. consolida�on and assurance of the size of land for agriculture; e. provision of financial and investment facility; f. easier access to informa�on, technology and competence; and g. Strengthening of smallholders’ organiza�on.

The new specific law on the empowerment of smallholders may not the one-stop solu�on of the many problems faced by the oil palm smallhold-ers; although the subject of the law includes smallholders in the planta-�on sector. However, a smallholder in the planta�on is defined with maxi-mum 2 hectares land ownership; while an oil palm smallholder is limited up to 25 hectares land ownership.

In contrast, smallholders empowerment men�oned in the law involves financial access and counseling services and any other types of empow-erment following related to regula�ons as contained in other Minister of Agriculture’s decree on palm oil management. The planta�on act con-cerns more on the partnership model rather than the smallhodlers them-selves as independent en�ty. Conversely, smallholders’ empowerment in the planta�on act has not secured the issue of legality or land tenure of


the smallholders because it requires a synchroniza�on of some regula-�ons respec�vely. In addi�on, to get the land cer�ficate from the land agency costs the smallholders quite a lot of money.

1.2 Policy Analysis of Smallholders Empowerment

The majority of the regula�ons on planta�ons put more pressure on the planta�on business with partnership scheme, namely with large planta�on companies. The law on the empowerment and protec�on of smallholders has a defini�on of the roles of local governments in the efforts for em-powering and protec�ng the smallholders through preferred partnership scheme. However, the local government extends the mandate of small-holders’ empowerment to large companies, including counseling, develop-ment of smallholders’ organiza�on and financial business. This is too incor-porated in the planta�on act.

Legality of land ownership, inter alia the land cer�ficate and produc�vity are not widely discussed in the exis�ng regula�ons. Technically, the smallholders obtain land cer�ficate issued by the Na�onal Land Agency (BPN) which re-quires some funds for the boundary checking up to the issuance of land cer�f-icate. Meanwhile, produc�vity is emphasized more on the supply of fer�lizers and agriculture innova�on including the capacity of the smallholders.

From �me to �me smallholders are challenged with best quality fer�lizers to increase the oil palm produc�vity. The supply of subsidized fer�lizers is mostly through a lengthy supply chain that the oil palm smallholders may not be able to buy the best quality products. In this regard, the govern-ment has set up a system called RDKK or defini�ve plan of each group’s necessity); however the RDKK is not separated from the fer�lizers supply to a region. It happens that the RDKK is high but the supply is low. On the other hand, the oil palm seeds supplied from North Sumatera are also not well distributed to Kalimantan or Sulawesi. Addi�onally, the subsidy for oil palm seeds is not independent from the budget situa�on of local government (APBD) which has to cover many other commodi�es.

Next to the organiza�onal and financial aspects, the oil palm smallholders’ or-ganiza�on is hereto very relevant to the development of a strong community-based agribusiness. The smallholders’ organiza�on has been so far affected by the capital interven�on, through which smallholders’ organiza�on is more


shaped to the partnership scheme. In the end, the independency of the small-holders’ organiza�on is put on ques�on; it tends even more to take side on the planta�on companies rather than its own members. In view of that a lot of smallholders’ organiza�on faces internal challenges within the organiza�on and between the management of the members.

In any case the supply of fer�lizers, seedlings, road infrastructure and the smallholders’ organiza�on require huge finances. The planta�on act and the Minister of Agricuture decree no. 33 require a partnership between smalllholders and PT SMART prior to the granted credit to the bank. The financial support to the smallholders will therefore only be transferred to the planta�on company. The financial support is completed indirectly or has to go through the company, which will help construct the plasma smallholders’ planta�on. Credit payment will be effec�ve following the whole construc�on of the partnering company.

According to the law no. 19 on the empowerment of smallholders, finan-cial support to the smallholders must be organized by local government or state-owned or regional ins�tu�on though a banking system or any other funding agency. The law s�pulates that all banks establish a special unit for agribusiness. Funding agency and or bank must set up less onerous access for financial to the smallholders and facilitate them to meet the credit re-quirement. Nevertheless should the law be a�uned to the financial aspects of the planta�on law no. 39/2014, the financial access for the smallholders or smallholders’ organiza�on would only be available through a partnership scheme with large planta�on company under a centralized management system s�pulated in the Minister of Agriculture’s decree no. 33/2006.

In order to strengthen the oil palm smallholders’ capacity, the government has the responsibility to take over the counseling role to the smallholders and smallholders’ organiza�on. Unfortunately this ac�vity depends on the na�onal and or local budget plan. For those local governments with very small budget as such, they will face many challenges to conduct the counseling regularly or in a wider area. Moreover, the same counseling assistance must be extended to the food crops farmers as well as other hor�culture farmers.

The laws and respec�ve technical regula�ons mostly hinge on the local govern-ments within their limited authority. While ever since the regional autonomy is in force, the governments tend to concern more on the infrastructure, eco-


nomic growth and employment. This gives big investment a good opportunity to help speed up growth and economic development in the regions.

The government’s a�en�on on the large investment of palm oil has some bearing on the government’s approach of the smallholders. By involving large planta�on company to invest in the planta�on business the gov-ernment hands over the responsibility for counseling and smallholders’ empowerment to the private sectors through the so-called partnership scheme. However, what about the independent smallhodlers?

There have been a number of policies on the planta�on, nothing has really discussed about independent smallholders. Meanwhile the independent smallholders face a lot of challenges, such as produc�vity, uncer�fied palm oil seeds, land tenure issue, planta�on management or agronomy, organi-za�onal structure, know-how or the capacity up to the distribu�on of FFBs to the middleman. Furthermore, the policy no. 33/2006 requires the farm-ers to leave behind their natural farming tradi�ons to enter into the central-ized planta�on management and credit program through rehabilita�on of smallholders’ planta�on. Choosing this will certainly exert the smallholders themselves because the farming culture is against their nature.

The disputes on partnership scheme include inter alia accountability and transparency of planta�on and credit management, monopolis�c prac-�ce of the plasma planta�on and many more unfairness issues that lead to discrepancy of the partnership idealism. The independent smallhold-ers learn therefore to not bind themselves to this kind of partnership. Yet the government focuses more on the poor financial support from the budget in addi�on to the service they have to give for the smallholders’ empowerment. This is largely a dilemma both for the government and the smallhodlers, par�cularly independent smallholders.

It is expected that the new government of Indonesia will give more at-ten�on to the independent smallholder, who are poten�al factors in the sustainable produc�on of palm oil in Indonesia. The “Jokowi’s cabinet” during 2014-2019 shall be able to show their efforts to cause the small-holders be more prosperous, in an equal and independent posi�on in or-der to contribute to strengthening the country as biggest palm oil produc-ers in the world. More to the point, strengthening the smallholders’ role is the reality of a community-based economic model that is embedded in the Indonesian charter.


Chapter IIThe Challenges of Fair Partnership

The Indonesian law is not familiar with the idiom Fair Partnership as part of the planta�on management partnership scheme. Neverthe-

less, Fair Partnership seems to have a variety of defini�on in the partner-ship term. Neither planta�on act nor Minister’s decree do not specifically explain on what is actually Fair Partnership; however in general it is as-sociated with the planta�on business arrangement involving: • sovereignty;• independence;• usefulness;• sustainability;• integra�on;• togetherness;• openness;• efficiency & jus�ce;• local wisdom; and• preserva�on of the environment.

Some of the principles men�oned above are values that should be devel-oped by companies, the government and smallholders. Yet the weakness that o�en occurs is how to combine all of these values in a model of part-nership between the two sides to cooperate. So some of the values are not implemented in partnership scheme and even tend to overlook the opera-�onal principles of planta�on. Therefore, Fair Partnership aims to clarify the rela�onship between the two par�es (coopera�ves and companies) in the areas of specific coopera�on so that there is value and the same goal in organizing the planta�on. Fair Partnership is defined as a form of respect for the rights of palm oil smallholders who have long been neglected in the development of the palm oil business; the approach is accountable to business development and decision-making, and it support of the indepen-dence aspects of smallholders.

Fair Partnership is raised to clarify the func�on and posi�on of each party to be equally respec�ul and respected, and both par�es do not lie to each other or be harmed or feel cheated. To sustainability approach either by


the RSPO (Roundtable on Sustainable Palm Oil) or ISPO (Indonesian Sus-tainable Palm Oil), Fair Partnership seems not very a�rac�ve. A number of companies that have earned the RSPO cer�fica�on do not own good partnership with smallholders or coopera�ves. Therefore, SPKS wishes Fair Partnership must be inhibited in the sustainability guideline so that no social conflict will occur in the future implementa�on of the partner-ship scheme, and Fair Partnership can support and complement impor-tant values in the sustainable palm oil.

2.1 Why Fair Partnership?

Fair Partnership is emphasized because there have been gaps between what is expected and what is happening, and less severe government policy. In addi�on, sustainability done by many people today has not been able to bring jus�ce to the smallholders in a partnership. S�ll there is a gap between vision and implementa�on of a partnership, and most importantly there are numerous commitments of large companies but they are no-friendly partnership toward the oil palm smallholders.

Ini�ally smallholders had been sympathe�c to the diverse approaches to improve sustainability in the oil palm. However, the variety of ap-proaches has not touched at all the partnership between the small-holders and planta�on company. Further, even more smallholders and coopera�ves found in a number of conflicts with the company.

Oil palm smallholders need to suggest what needs to be done in a part-nership. Smallholders’ par�cipa�on to support sustainability should be appreciated because smallholders are important subject; they are field actors who experience the bi�er and sweet of the partnership. So as to reinforce the partnership scheme, smallholders need to shape sustain-ability prac�ces in the oil palm industry to substan�ate the role of small-holders.

In addi�on, the Fair Partnership idea is to influence dialogue rooms be-tween companies, smallholders and the markets as well as other in-terested par�es such as NGOs, the Bank and the Government. Various ini�a�ves to be conducted among par�es to encourage Fair Partnership but unfortunately s�ll replicate the ongoing prac�ces that contain many weaknesses, not aspira�onal and not put on the rights and obliga�ons of each party appropriately and parallel. The most important thing in


this context is how to build change from bad to be�er partnership so that palm oil development can be truly sustainable.2.2 Challenges and Barriers

a) 20% of the planta�on for the communi�es

One of challenges in building a Fair Partnership derived from the policy. The government’s policy on planta�ons o�en undermines the posi�on of oil palm smallholders and limits their access to basic needs such as financial and agriculture inputs such as fer�lizer and seeds.

SPKS’ iden�fica�on concerning the policy challenges and obstacles to build Fair Partnerships is related to 20% land alloca�on for the com-munity. Although it is men�oned as just the minimum limit but in fact 20% is the maximum limit during implementa�on. The interpreta�on of 20% allocated for community estates also considered vague and un-clear. The ambiguity is for instance the size of planta�on alloca�on for each smallholder. At this �me, a lot of par�cipa�ng smallholders in the partnership own only less than 2 ha estate.

Besides the problem above there is also another issue that is the loca-

�on of the 20% planta�on for smallholders. Some�mes, the companies freely move the loca�on of the land for the smallholder’s future plan-ta�on into other land area not on the smallholder’s property. In the Indonesian government policy, the 20% is located outside IUP of the nucleus. Thus, for the companies to build the other 20% smallholders’ planta�on, the par�cipa�ng community is required to relinquish their addi�onal food crops estate or any other land area to the company.

Of all the problems men�oned above, important ques�on is what

would be the company’s contribu�on to the community if the land for the 20% plasma actually comes from the par�cipa�ng community too? This ques�on may not be answered well but the fact should give us a clear picture of what to do for an ideal Fair Partnership.

b) The Partnership in Planta�on Business

Since 2006 the government requires that oil palm partnership is conducted under central management (decree no. 33). Centralized management in-structs different partnership than PIR Transmigra�on where smallholding


estates were managed by the smallholders themselves. Independent small-holders’ planta�on management during PIR Transmigra�on was conducted in the 48th month post the construc�on. Prior to hand over to the small-holders, an assessment process involving planta�on companies, banks and governments must be completed. Theoil palms are assessed in reference to the physical condi�on, whether it meets the standards of development or not. This is due to the fact that physical condi�on of smallholdings will affect the credit unit of construc�on cost (outstanding principal) to be charged to smallholders.

In centralized partnership scheme, the whole smallholdings will be ful-ly managed by the planta�on company. SPKS found out in some loca-�ons, co-opera�ve commonly does not play significant role to ensure the planta�on management were conducted properly. The role of co-opera�ves in the centralized planta�on management is more adminis-tra�ve, such as to distribute the revenue of the yields to the smallhold-ers (receive transfers from partnering company and distribute further to members). Ambiguity in the coopera�ve role in this partnership has an impact on the ongoing social conflict in the partnership

c) Smallholders Organiza�on

In a partnership scheme an ins�tu�on is principal to put the arrange-ments right and accommodate the interests of members. The challenge occurs when a planta�on company wants to build an oil palm planta-�on but at the same �me also establish a coopera�ve rela�onship with the coopera�ve. It is actually unfair if a newly formed smallholders’ organiza�on with minimum experience and knowledge sign a partner-ship agreement with a company that has a lot of experience.

To realize the parallels between the two sides would be very difficult because they do not come from similar experience and knowledge. New smallholders organiza�on is usually not very solid in terms of organiza-�onal management as well as the management capacity is not adequate. From many experiences encountered, planta�on companies tend to im-pose an agreement with a newly formed coopera�ve. The coopera�ve itself has not been ready and has no experience but forced to sign a part-nership agreement. The outcome was an agreement between the two par�es that do not benefit the coopera�ve and its members at all.


d) Past Conflicts

Past conflict is a challenge to building a fair rela�onship. By and large, smallholders and the planta�on company have reputa�on to be taken note of. Past conflict will also be a stumbling stock in a partnership if there is no se�lement process beforehand. If not then the smallholders and the company will both not adhere to the agreement. Past conflicts need to be analized beforehand; when the conflicts between compa-nies and coopera�ves remains unresolved or not it must be declared and informed to both par�es, so that the planned Fair Partnerships will not be leveraged.

e) Smallholders are not Temporary Labourers

Na�onal regula�on put oil palm smallhodlers in the posi�on of contract laborers in a partnership scheme. It is considered contract laborers be-cause smallholders are recruited by partner companies as laborers to work on the 20% scheme smallholdings. This collabora�on is based on the partnership scheme in the centralized planta�on management of the revitaliza�on program. Almost all companies with oil palm con-struc�on in the 2000s apply this partnership principle.

Planta�on companies applying centralized planta�on management are undoubtedly recognizing the smallholders in the posi�on of laborers. Interes�ngly, the government and or the company claim that the man-agement of plasma smallholdings by planta�on companies and the em-ployment of smallholders as laborers aim to redouble the smallholders’ income in addi�on to the revenue sharing from the yields managed by the company too. But actually, this arrangement does not respect the rights of smallholders and affects substan�ally the community-based regional development. Why? The centralized planta�on management gives no assurance of be�er produc�vity and higher income to the small-holders than the smallholders’ independent planta�on management.

For that reason the centralized planta�on management is a serious challenge in the implementa�on of Fair Partnership. Planta�on com-panies that put Fair Partnership into prac�ce is required to restore the func�on and the role of oil palm smallholders than just contractual or temporary laborers.


Chapter IIIFair Partnership with the Smallholders

Along with the ini�a�ve of joint commitment for sustainability in oil palm planta�ons, Fair Partnership is regarded as a common commit-

ment of all par�es in order to found Fair Partnership scheme. As common commitment is the fundamental nature, then Fair Partnership must be a collabora�ve and mutual ac�on of both smallholders/coopera�ves and companies.

3.1 Implemen�ng Fair Partnership

a) Verifica�on of Scheme Smallholders

Scheme smallholders are mandated in the Minister of Agricul-ture’s decree no. 98/2013. However, some adjustments are nec-essary to bring along the local context at the village level follow-ing the Village Law No. 6/2014. Decree no. 98/2013 states that “scheme smallholders participants are subject to consideration of the plantation companies (article 15, paragraph 3, and decree no. 98/2013), including:• Land availability;• Number of par�cipa�ng families around the planta�on right and prop-

er to the program;• Agreement between planta�on companies and surrounding community,

copied to the head of the province or district in charge of planta�ons af-fairs.

People who are eligible to the scheme smallholdings to be constructed by partnering planta�on companies must meet the requirements as in the ar�cle 15, Paragraph 4 of decree no. 98/2013:• People who have relinquished their land for planta�on development

and of low income according to the regula�on.• Must reside within the loca�on IUP-B or IUP.• Own the capacity to manage the planta�on


However, the provisions of the regula�on must be synchronized with the community’s ra�onale of the village’s common conclusion. This is to avoid social conflicts between the communi�es at the village level, and in view of jus�ce, social, cultural and environmental aspects.

b) Clarifica�on of the amount of construc�on credit

In the context of the credit for the smallholdings’ construc�on, the coop-era�ve do not necessarily know the credit amount or which other con-struc�on ac�vi�es are considered smallholders’ mortgage. Coopera�ve tends to act passive because the informa�ons are quite limited; mot of the �mes the coopera�ve, on behalf of the smallholders, only signs the loan agreement prepared by the company. Subsequently, problems occur when several coopera�ves are not willing to pay for the credit because the amount is too large, and the smallholders are poor; and so the auto-ma�c monthly credit payment is too much that there is very li�le avail-able for the family to spare.

In the context of Fair Partnership, the credit amount and or construc-tion cost associated with the development of smallholdings should be agreed upon jointly or as proposed by the cooperative. The pro-posal from the cooperative is strategic to prevent manipulation in the preparation of the credit amount or unit costs as well as transparency building between the two parties. Besides, the cooperative will abide by the loan payment arrangement. The bank as funding agency and the government must ensure and monitor the implementation of the credit scheme relationship between the company and cooperative, because it will affect the credit payment or lending costs. On the oth-er hand, a plantation company simply accuses the cooperative when the loan is not paid; on the other hand companies do not seriously take the transparency and mutual agreement upon the partnership into account.

c) Agree on Smallholding Loca�on

In the Minister of Agriculture’s decree no. 98/2013 on Planta�on Busi-ness License, scheme smallholdings are minimum 20% and built outside the area of IUP (Planta�on Business License). However, should the com-munity require more than 20% because of the extensive area suitable for


oil palm planta�on, scheme planta�ons must be built more than 20% of IUP. It depends on the economic and environmental requirements of the local community.

The loca�on of the scheme smallholdings is agreed upon through com-munity village mee�ng. The village mee�ng is the decision making struc-ture to decide on the par�cipa�ng villagers and or village in a partner-ship with planta�on company. Should the mee�ng approve the scheme partnership, subsequently the process will also determine the scheme smalholdings loca�on, to whom the area belongs, and put a figure on the site too. Following public iden�fica�on of poten�al land for the construc-�on of the scheme smallholdings, next step will be village mee�ng in-volving respec�ve landowners, other communi�es, village heads, village administrators (BPD) and different elements of the society. This forum will decide on most appropriate land area considering the impact and po-ten�al or development suitability for scheme smallholdings. A�erward, the coopera�ve and or village government will recommend the elected names of par�cipant and land area to the sub-district head or the regent, and the company.

The following is the decision making structure of the village mee�ng on the development of scheme smallholdings under a partnership with a planta�on company.


Village

Investment Plan

Village Forum

Land mapping to be integrated into scheme planta� on

(loca� on & size)

Accept the � tle and loca� on of

the land for scheme planta� on

Land evalua� on and monitoring & issue land tenure cer� fi cate (SKT).

Create land criteria in referrence to village

policies -if any- or en-vironmental criteria

of the village

Decide on the loca-� on & land � tle

and hand over to sub-district head,

company, and district head

Accept proposal for plasma planta� on & for partnership, then decided by the local govt.

Assisted by company, par� cipatory mapping

of HCV/HCS area of communi� es’ land

Communi� es Coopera� ve Village Govt Village forum - Coopera� ve

Company, Sub-district head & local

Yes No

Decision making structure in the development of scheme smallholding

Picture 1: Decision making structure of the village levels on the develop-ment of scheme smallholding


d) Dra�ing the Memorandum of Understanding (MoU)

The MoU dra�ing process involving the company and smallholders tends to be monopolized by the company. The company already designed the MoU and just asks the consent of the coopera�ve. The coopera�ve was not given a chance or more space for studying the MoU or ask for opinions from others who are more experienced. The capacity of the coopera�ve is the most important issue in ques�on to decide whether the MoU needs to be completed or revised in line with the smallholders’ interests.

Problems around the partnership scheme are usually linked to the MoU, which tends not to benefit the smallholders as scheme members of co-opera�ve. On the other hand, planta�on company claims to act properly because the partnership is rooted in the MoU which has been approved by both par�es. Meanwhile, the smallholders and or the coopera�ve be-lieve they have been tricked or treated unfairly. It happens too that the coopera�ve plays solo and not supported by its members. Here is internal conflict between the coopera�ve’s management and its members poten-�al. To avoid, par�cipatory dra�ing of the MoU needs to be conducted by both par�es prior to the signing of the partnership agreement.

An alterna�ve par�cipatory dra�ing of the MoU is also workable if the company and coopera�ve jointly discuss on fundamental points of the MoU. The joint forum shall involve the company, coopera�ve, coopera-�ve’s regulatory bodies and representa�ves of members. Following the agreement upon the principles, the team jointly dra�s the MoU to be disseminated by the coopera�ve to its members. The members will pro-vide input related to the content of the dra� MoU. In this process, the coopera�ve may organize a “lessons learned” from other par�es; it may invite other coopera�ves or any competent third party to evaluate the MoU partnership. When all coopera�ve’s members give their consent, the management shall submit the proposal of the partnership MoU to the company for mutual implementa�on. Before the two par�es come into agreement, it is important to first agree the coopera�on coverage. Decree no. 98/2013 explicates the coverage of a partnership, including:a. Provision of produc�on means;b. Produc�on;c. Processing and marke�ng;d. Transporta�on;


e. Opera� ons;f. Shareholding; and / org. Other suppor� ng services.

The coopera� ve is authorized to only take the coverage par� ally or wholly. It proves that the partnership may be conducted as one package of coop-era� on or specifi c, in which all development ac� vi� es shape the partner-ship model and boundary.

The Dra� ing Process of Memorandum of Understanding for Scheme Partnership

Picture 2: The Dra� ing Process of Memorandum of Understanding for Scheme Partnership

Agree upon one full package or all activities in a partnership mechanism

Third Party: Get inputs from others (academi-

cians, other cooperatives

Membership Forum: cooperative, commissioner,

members.

Joint Forum (cooperative, company & members’ represen-tatives) Content & draft of MoU Cooperative /

membersCLEAR

Company & Coop-erative make decision witnessed by govern-ment representatives

Company

Some partnership activities to be executed following joint decision of both parties:a) Supply of production inputs;b) Production;c) Processing & Marketing;d) Transportation;e) Operations;f) Shares of ownership;g) Other supporting services.

Outcome of members’ forum discussion & third party – accepted bt company


3.2 Building the Smallholdings

The details on the oil palm smallholdings development must be relevant to the MoU between the two par�es. The MoU must specify the party to build the planta�on and each role of the coopera�ve and company in the construc�on period. For a tangible development of smallholdings, it is important to involve the coopera�ve with specific responsibility or super-vision duty in accordance with its skill and capacity.

A newly established coopera�ve may difficultly play specific role or re-sponsibility. In general, during the smallholdings development the coop-era�ve will monitor the company’s performance. However, the coopera-�ve must have the capacity for surveillance, including what needs to be examined, whether the planta�on is built compliant with the technical standards set by the government.

Construc�on Period

The development of 20% smallholdings for the community must be com-pleted by the oil palm company as soon as its business license (IUP) is granted; thus within 3 years the company must have built the en�re smallholdings. Scheme planta�on can be developed gradually as long as it is completed within the 3 years. This is in line with the Minister of Agriculture’s decree no. 98 year 2013 on the planta�on business license. Consequently, the company is not allowed to build a smallholding later than 3 years a�er the IUP.

Social conflicts in a partnership scheme are also due to inclarity of the de-velopment period of the smallholdings. The community wait too long for their smallholdings following the relinquishment process is completed. To some extent bureaucra�c procedure may hinder the development. For instance, once the coopera�ve and the company agree to the relinquish-ment condi�ons, the company has not been granted the IUP and s�ll owns the principle approval licence. Processing period of the principle approval to the IUP can take 2 years.

Hence, to avoid social conflict the company must engage the community in dialogues to clarify that scheme smallholdings can only be built a�er the IUP is granted. Con�nuous consulta�on with smallholders concern-


ing the status of scheme smallholdings development may be conducted within the fi rst year, whereas the development itself may take place in the next two years. The company shall benefi t from the 1 year period to so� en the dialogue and sharpen the partnership scheme to be more fair and transparent. Planta� on company must not think about the passing schedule due to bureaucra� c issue; however it is important that the part-nership between the company and smallholders achieved in a transpar-ent, par� cipatory and accountable process.

Contras� ng Fair Partnership and Government Policy

Picture 3: Fair Partnership improves the Government Policy

Fair Partnership Ini� a� ve Government Policy

Pre IUP

3 years a� er IUP, scheme smallholding is 100%

Inform the community

IUP

FPICThe smallholdings development

process and condi� ons must be clarifi ed to the cooperatve and communi� es prior to IUP

gran� ng

HGUIn the planta� on act No.

39/2014, scheme smallhold-ing is built a� er the company

is granted HGU

Scheme smallholdings is fully constructed

Maximum within 3 years following HGU scheme smallholdings must be built. (Planta� on Act

No. 39/2014: Ar� cle 58, Para 3)

Set up Fair Partnership with thesmallholders and coopera� ve, then:a. First, build scheme smallhold-

ings;b. Build nucleus along with scheme

smallholdings.


3.3 Maintenance

Maintenance of the planta�on before produc�on (in the first 48 months) is conducted by the smallholders. However, the challenge is the central-ized management of the planta�on. The company recruits laborers; this allows the transfer of good agriculture knowledge to the smallholders. Addi�onally, smallholders are involved in the maintenance of planta�on in order to prevent conflicts because they must wait quite long before the fruits can be harvested and they s�ll get income in the mean�me. Small-holders recruited to maintain the planta�on are basically scheme small-holders and they are working in their old own land. It is also important that the company clarifies the land area of each smallholder, who owns how many hectares for relinquishment.

3.4 Conversion and Assessment of Oil Palms

Conversion of the oil palm planta�on is a term commonly used to shi� the management of scheme planta�on from the building party to the small-holders. Prior to the conversion the crops must be assessed. Assessment is usually carried out by company, coopera�ve, government and banks together as the funding agency of the construc�on of the smallholdings.

Assessment is key requirement of the government to be conducted in all planta�on companies that have scheme partnership. Assessment criteria include physical appearance of oil palm including the amount of trees, condi�on of infrastructure and overall condi�on of the planta�on. The result of the assessment will influence the credit to be paid by the small-holders. Should the planta�on be in poor condi�on (not appropriate) means unjus�fiable liability to the smallholders because they have to pay the expense of the construc�on of the planta�on that does not meet the government’s technical standard.

Principally, if the planta�on is found in poor physical condi�on, thereupon shall be corrected by the company; likewise, if the planta�on meets the requirements it must be handed over to the smallholders through the coopera�ve for further management. It is important to note that the revi-taliza�on must not be burdened to the smallholders, because this shows that the company was not serious in building the scheme smallholdings.


Main challenge in the conversion is the centralized planta�on manage-ment. It does not allow the coopera�ve to manage the smallholdings dur-ing produc�on period. The centralized management contract usually ex-tends to one-plan�ng period, which is 25 years. Nevertheless, should the company and coopera�ve build mutual beneficial commitment and Fair Partnership ini�a�ve the conversion can be arranged by the contrac�ng par�es.

3.5 Audit of the Construc�on of the Scheme Smallholdings

One important step to realize Fair Partnership is to audit the construc�on of smallholdings. Audit includes the total costs (real cost) for building the scheme smallholdings by comparing the physical condi�on of oil palms subsequent to assessment.

A�er the audit on scheme planta�on, both par�es (the coopera�ve and the company) will agree upon the real cost of the smallholdings’ construc-�on. The audit is conducted on the planta�on with 48 months oil palms or prior to conversion. When both par�es get the clarity on the real cost of the construc�on, they must agree on the credit amount incurred by the coopera�ve to revise, amend and or create a new partnership agree-ment. However, this amendment clause must be included in the earlier MoU prior to the development of scheme smallholdings.


Plantation Development

Plantation Assessment

Plantation managed by companies for 25 years. In actual fact, 50% of the yields are deducted for the companies’ management fee at once,

30% credit payment, and 20% transferred to the cooperative.Replanting

Centralized management = not fair, not respecting the rights of smallhold-ers, not transparent and

not accountable

Company employs the participating smallholders for maintenance - transfer of knowledge & training for smallholders (Good Agricul-

tural Practices and training on cooperative management).

After 48 months and having passed the plantation assessment, the management of oil palm plantation is handed over to the cooperative / smallholder. This is

widely known as ‘transfer of plantation’ or ‘conversion’

Audit to the smallholders’ plantation development (plasma) to check the

real cost

Plantation management by cooperative/smallholders

The “Fair, Accountable, Transparent, Participa-tory, and Strengthening”

Partnership

Managed by the cooperative and its members

Pledged to credit payment and FFBs supply as set in the

Memorandum of Understanding

Cooperative and its members apply GAP for production

increase of FFBs

25

25

0 4

4

3.6 Alterna� ve Oil Palm Planta� on Management by the Coopera� ve

Picture 4: Coopera� ve as key actor in the Fair Partnership


Chapter IV RSPO, ISPO and Fair Partnership

This chapter will elaborate on the RSPO, ISPO and the linkages to the Fair Partnership by analyzing and pick up some principles, criteria and

indicators of the organiza�ons.

4.1 RSPO and Fair Partnership

RSPO is the guideline to all par�es to implement a fair and responsible prac�ce of planta�on management. One of the many concerns of RSPO is the rights of the smallholders, both scheme and independent, as well as improved partnership scheme between the planta�on company and the smallholders. A number of RSPO principles and criteria assure the respect to the rights of the smallholders and fair rela�onship in a partnership ar-rangement. Although it is not perfect procedures because the RSPO prin-ciples and criteria do not specifically aim to building a more equitable partnership, it is expected that this Fair Partnership ini�a�ve can be a reference in the implementa�on of the smallholdings development and recommenda�ons for improvement of the RSPO principles and criteria in the future.

What are the RSPO related Principle and Criteria? Terdapat beberapa prinsip dan kriteria yang terkait untuk mendukung pelaksanaan Fair Partnership antara perusahaan dan petani dalam prinsip RSPO antara lain :

Principle 1.1 Growers and millers provide adequate informa�on to rel-evant stakeholders on environmental, social and legal issues relevant to RSPO Criteria, in appropriate languages and forms to allow for effec-�ve par�cipa�on in decision making.

Principle 1.1 encourages plantation business to provide information openly, including to the smallholders to participate and input from the smallholders concerning the information provided by the com-pany. One of related aspects to Fair Partnership is inter alia the part-


nership building with the smallholders. The company must provide relevant information openly about the cooperation scheme, models of plantation management by the smallholders or cooperative, and the percentage of land area managed by the company and the small-holders. This is crucial to explain to the smallholders in order to avoid misleading information and to gather inputs from the smallholders for the joint decision-making. There will be no effective participation if the company does not disclose information in detail and transpar-ently.

Principle 1.2 Management documents are publicly available, except where this is prevented by commercial confiden�ality or where disclo-sure of informa�on would result in nega�ve environmental or social outcomes.

Principle 1.2 is too restricted because it concerns the company’s confiden-�ality that can not be opened to the public. The “public” defini�on is un-clear whether the smallholders or the coopera�ve is considered “public”? However, the smallholders and coopera�ve are important actors because both the company and the coopera�ve are building the coopera�on. Fi-nancial related documents such as credit amount, contract agreement, funding agency must be informed to the smallholders transparently.

Principle 1.3 provides direc�on on the implementa�on of the principles 1.1 and 1.2 as follows:

Principle 1.3 Growers and millers commit to ethical conduct in all busi-ness opera�ons and transac�ons.

If principles 1.1 and 1.2 would like to encourage company to conduct transparent and open communica�on prac�ce, the principle 1.3 would like to encourage company to perform these processes in a responsible way, to adhere to the principle of reasonable business or abide by code of conduct of planta�on business, such as no corrup�on and bribery and fraud in the execu�on of budget.

Principle 1.3 is key to building a partnership with the coopera�ve. It is concerning the use of development funds for smallholdings whereby the smallholders, who are creditors, are most likely not informed of the cost


of the transac�on process with financial ins�tu�ons or banks. Common devia�ons include:

a. The smallholdings’ development cost increases unexpectedly without clear and concrete ra�onale to be held accountable to the coopera-�ve;

b. Increased development cost is charged back to the coopera�ve; c. Transac�on process between the bank and the company is not known

by the coopera�ve; this is inter alia the amount of approved funding transferred to the company. There is no control mechanism or supervi-sion of the coopera�ve in the transac�on process;

d. Exis�ng gap between the credit amount for scheme smallholdings’ de-velopment costs (also under coopera�ve) and the credits for construc-�on cost unit.

A number of aforementioned problems are the good reason to build Fair Partnerships to implementing the principles 1.1, 1.2 and 1.3. Should the Company not conduct transparency practices, no effective participation of smallholders is presented and violation to principle 1.3 is very likely.

Principle 2.2 The right to use the land is demonstrated, and is not legi�-mately contested by local people who can demonstrate that they have legal, customary or user rights.

Principle 2.3 Use of the land for oil palm does not diminish the legal, cus-tomary or user rights of other users without their free, prior and informed consent.

In terms of the land’s legality, oil palm company requires to apply prin-ciples 2.2 and 2.3 concerning the rights of other stakeholders. Planta�on company tends to take charge of prospec�ve scheme smallholders who own the land area and persuades them to relinquish more than 2 ha land if they want to get the 2 ha scheme planta�on in return. The extra relin-quished land is declared to building the infrastructure and nucleus planta-�on. Principles 2.2 and 2.3 oblige the companies to conduct FPIC and en-sure that no conflict occurs or local communi�es and prospec�ve scheme smallholders give their full consent.


RSPO Principles 2.2 and 2.3 are very important because the decree No. 98/2013 on Planta�on Business License gives direc�ons that scheme smallholdings are posi�oned outside the IUP. This would be a good rea-son for the compulsory addi�onal land relinquishment because according to the company, the poten�al scheme smallholders have no contribu�on to the nucles planta�on development within the IUP. These issues are oc-curring in many districts in West Kalimantan.

Principle 4: Use of Appropriate Best Prac�ces by Growers and Millers.

For the smallholdings with poor condi�ons or not mee�ng the Best Man-agement Prac�ces (BMP), both oil palm companies and coopera�ves can refer to the principles 4.1 up to 4.8. It is of our knowledge that the scheme smallholdings are built by the nucleus company within 48 months period. Prior to the produc�on, the smallholdings built by the company must go through an assessment in accordance with technical standard set by the government. The en�re principle 4 aims at the overall good quality of the oil palm planta�on, mee�ng the requirements of sustainable, environ-mental, and economic procedures, par�cularly with regard to increased produc�vity based on Good Agriculture Prac�ces.

Some of Good Prac�ces recommended by the principle 4 include:

a. Standard Opera�ng Procedure (SOP) on the maintenance of the oil palm planta�on;

b. SOPs are prac�ced consistently;c. Applica�on of Best Management Prac�ces;d. The Management of Soil Fer�lity;e. Assurance to the op�mal and sustainable yields;f. Recogni�on to the long term or con�nuing soil fer�lity;g. The use of organic materials;h. Control of erosion and land degrada�on;i. Applica�on of IPM - Integrated Pest Management;j. Capacity building for farmers and workers.

When building the Fair Partnership between the company and coopera-�ve, it is important to hold public consulta�on, and set up complaints and grievance mechanism. The RSPO principles 6.2, 6.3 and 6.4 give the following guidelines:


Principle 6.2 There are open and transparent methods for communica�on and consulta�on between growers and/or millers, local communi�es and other affected or interested par�es.

Principle 6.3 There is a mutually agreed and documented system for deal-ing with complaints and grievances, which is implemented and accepted by all affected par�es.

Principle 6.4 Any nego�a�ons concerning compensa�on for loss of legal, customary or user rights are dealt with through a documented system that enables indigenous peoples, local communi�es and other stakeholders to express their views through their own representa�ve in-s�tu�ons.

These principles are beneficial to the coopera�ve on the following basis:

a. The coopera�ve may undertake public consulta�on to get inputs from its members or other relevant par�es such as NGOs or academicians on the partnership scheme with the planta�on company. This ac�vity aims to establish a mutual beneficial agreement to smallholders or co-opera�ve and the company;

b. The coopera�ve may call for aspira�ons of the smallholders concerning essen�al principles of the MoU with the planta�on company;

c. Gather inputs from the coopera�ve’s members on their management area;

d. Conduct nego�a�ons on the credit amount, the coverage of partner-ship, and the land area extent;

e. Conduct a study on any partnership model elsewhere, call for inputs from NGOs or academicians concerning Fair Partnership;

f. Submit complaints over dissa�sfac�on.

The more specific principle related to the partnership agreement or coop-era�on contract is embedded in principle 6:10

Principle 6.10 Growers and millers deal fairly and transparently with smallholders and other local businesses.


Principle 6.10 is one of main pillars of Fair Partnership; however, the indi-cator describes specifically on the FFB price. As previously informed, the FFB price is only the smallest problems of oil palm smallholders beside the other crucial ma�ers in the planta�on partnership scheme. Indicator 6.10.3 says: “Evidence shall be available that all par�es understand the contractual agreements they enter into, and that contracts are fair, legal and transparent.”

Challenges in the design of partnership agreement include:

a. The coopera�ve ‘is given’ the partnership agreement dra�ed by plan-ta�on company;

b. There is not enough �me to consult with the members or other par-�es;

c. The partnership contract is not prepared tegother by both par�es; d. The coopera�ve is newly formed and insufficient personal capacity;

therefore there must be enough �me available to help the coopera�ve understand the content of the agreement;

e. The coopera�ve does not get any assistance from a third party to de-velop Fair Partnership;

f. The signing is done too quickly and the coopera�ve seems to be forced to sign the agreement;

g. The coopera�ve must only follow the planta�on company’s interest and preference. The coopera�ve or smallholders’ par�cipa�on is o�en overlooked;

h. The 20% determination for smallholdings is always made by the company. In the government regulations, 20% is the minimum stan-dard. There should be negotiations and invitation for the small-holders’ participation to decide upon the extent of smallholdings’ management.

The FFb price is closely related to the principle 6:10; it depends highly on the market mechanism that is the interna�onal CPO price and ‘index-K’. Therefore, the principle 6:10 indicators must be revised and improved by transparently determining the “index-K” involving coopera�ves at the planta�on level. In addi�on to the “index-K”, the sor�ng of smallholders’ FFBs is o�enly with no par�cular standard or guideline. The personnel capacity in the mills must be improved too to prevent the free sor�ng process of the smallholders’ yields.


On top of the partnership agreement, FFBs price and improvident sorting, challenges to be worked up in the principle 6:10 include de-termination of credit amount, type of partnership, and assessment to the scheme smallholdings. Cooperative tends to be powerless be-fore the company to determine the credit amount or to strategically reduce the credit for the construction of the scheme smallholdings. Cooperative may have other options that require funding such as the land opening, fertilizers and seeds supply, and road construction. Nevertheless, company tends to monopolize all activities financed by the credits to be conducted by the company solely. Hence, smallhold-ers must have monitoring capacity to be able to observe etical behav-ior of the construction of scheme plantation. Likewise the oil palm assessment before handed over to the smallholders or cooperative for further maintenance. Key to the principle 6:10 is that the planta-tion management must evolve in the FPIC or Free Prior Informed Con-sent (principle 7.5 and 2.3). Cooperative must be given options that the management and maintenance of the scheme smallholdings are conducted by the cooperative or the smallholders themselves rather than by the company. Hereto legalized MoU will empower the role play of all contracting parties.

Support or protec�on to the smallholders in establishing Fair Partnership is founded on the principle 6:13.

Principle 6.13 Growers and millers respect human rights.

The en�re Fair Partnership approach between coopera�ve or smallhold-ers and planta�on company is based on the principle of respect to human rights. The rights of the smallholders and coopera�ve are respected by planta�on company and vice versa.

4.2 ISPO and Fair Partnership

ISPO is one of palm oil cer�fica�on bodies driven by the Indonesian govern-ment through the Ministry of Agriculture. ISPO legality is embedded in the decree of the Minister of Agriculture No. 19/Permentan/OT.140/3/2011 on Guidelines for Sustainable Palm Oil.


ISPO principles are not iden�cal to the RSPO. Sustainability principles are based on na�onal regula�ons on planta�on. None of the principles dis-cuss the development of be�er Partnership that is fair and mutually ben-eficial to the coopera�ve or smallholders and the company. In spite of this, respec�ve principles 5.1 and 5.1.2 point out:

Principle 5.1 Social commitment to the local community

Principle 5.1.2 Improving the welfare of the community around the plan-ta�on through partnership.

These two principles contain general rules as set forth in the policy of both Minister of Agriculture’s decree No. 98/2013 and the Planta�on Act No. 39/2014. The policies however can not explain the process and basic principles of Fair Partnership.

Some basic principles of Fair Partnership such as respect to smallhold-ers’ rights, FPIC and consistent applica�on of code of conducts are not of ISPO’s concerns; however, crea�ng Fair Partnership through ISPO does not necessarily resolve the challenges of partnership scheme between planta�on company and smallholders or coopera�ve.

Fair Partnership by Oil Palm Smallholders, Indonesia34

Chapter V Fair Partnership in the Sustainability

No Indicators1 Transparency of the loan2 Transparency of the licensing3 Transparency of the partnership scheme 4 Smallholders par�cipa�on in dra�ing the MoU 5 Smallholders par�cipa�on in determining credit amount 6 Smallholders par�cipa�on in the assessment of oil palms 7 Socializa�on of the partnership scheme 8 Respect the agreemenet 9 Scheme smallholdings are built in �me10 Smallholdings considered appropriate in accordance with technical

requirements of the planta�on 11 Cooperate with independent smallholders in FFBs management 12 Improve the smallholders’ capacity 13 The decision of the coopera�ve must be respected and managed

consistently 14 Existence of the Human Rights policy 15 Supervision by the smallholders and respect the complaint mecha-

nism 16 An independent audit process by coopera�ve on the credit used for

the development of smallholdings 17 The planta�on of smallholders are defined according to the commu-

nity’s aspira�on


Fair Partnership by Oil Palm Smallholders, Indonesia36

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Fair Partnership by Oil Palm

Smallholders, Indonesia

ISBN 978-602-14610-1-3

Documents

Fair Partnership e-book - spks-nasional.org · Picture cover : Asdani – SPKS Kuansing - Riau Province A Publica on of ... 5 h p://eprints.unsri.ac.id/1746/2/ISI_DISERTASI_(LAILA_2007_).pdf