Smallholders play a critical role in the palm oil industry in Indonesia. Indonesian smallholder farmers account for more than 40% of the total oil palm area and are present in all of Indonesia’s palm oil producing provinces.
PT Tolan Tiga Indonesia currently works with a total of 6 369 oil palm, rubber and tea smallholders in Indonesia. For palm oil production, the company works with 5 513 smallholder members through four different programmes: company managed smallholders, village smallholders (Kebun Masyarakat Desa—KMD), associated buy/sell smallholders and associated seedling smallholders.
Company Managed program
The company managed smallholder programme follows a model traditionally set by the government-originated plasma schemes in Indonesia. Under this programme, PT Tolan Tiga is in full control of all aspects of the management and production of the crops. The company develops and plants the land, and carries out all operational inputs and management up to and including harvesting and crop recovery. A purchase agreement is set in place for the fresh fruit bunches (FFB) at market prices. The company managed programme covers 1 943 smallholder members.
Out of the total number of smallholders in this programme, 17% are currently certified in accordance with the Roundtable on Sustainable Palm Oil (RSPO) standard. Although all of these smallholders are managed as per RSPO requirements from the start, certification progress is dependent on the process of the company obtaining or renewing final concession rights agreements (Hak Guna Usaha - HGU), which can take several years.
In addition, the government also requires that companies include an equivalent of 20% of any new concession rights agreement areas (HGU areas) to be registered to smallholders for each particular supply base. In order to comply, PT Tolan Tiga Indonesia has added and engaged with new smallholders, for which it will take time to integrate and include in its certified supply base. All newly engaged smallholders under the company managed programme follow all requirements set by the RSPO and will be certified within the coming years.
Village Smallholders - Kebun Masyarakat Desa (KMD)
Another type of plasma smallholder programme which the company employs is the village smallholder programme. Through the Agro Muko operation, they work with surrounding villages to develop small oil palm blocks called KMD (Kebun Masyarakat Desa – villagers’ estates), which are either fully or partially managed by PT Tolan Tiga Indonesia’s plantations. The Agro Muko KMD smallholders programme consist of 304 members and is fully RSPO certified.
Similar to the approach with the other plasma smallholders, PT Tolan Tiga Indonesia pre-finances the development of the plots and later buys the production at market prices with an agreed upon deduction to pay off the low interest loan. The village cooperatives can enjoy significant additional revenue, which can be used for the maintenance and development of communal facilities. Monthly accounts are communicated to the community cooperatives, and the amounts paid by PT Tolan Tiga Indonesia are published in the local newspapers.
Associated Buy/Sell Smallholders
Under this programme, farmers typically manage their own smaller parcels of land. They are not locked into any formal company partnerships and are technically free agents to sell their FFB to whomever they choose. However, they are encouraged to sell their FFB to the company, which agrees to purchase the FFB on the basis of a transparent and published formula. The company endeavours to buy FFB at higher prices than the regional agents to attract members, and uniquely, payments are made directly to the individual smallholders’ bank accounts.
PT Tolan Tiga Indonesia currently works with 31 certified associated smallholder members who supply the Umbul Mas Wisesa palm oil mill. These smallholders have been RSPO certified since 2018.
The company has since 2018 expanded its engagement to include 2 407 additional associated smallholders. Although these additional members do not currently supply the company’s own mills, PT Tolan Tiga Indonesia has employed selection criteria that ensures they are in a good position to comply with SIPEF’s policies. Through continuous improvement, the aim is for them to eventually be integrated in the certified supply base.
PT Tolan Tiga Indonesia checks that these smallholders are not located on peat, protected areas, steep slopes or within riparian zones. Further evaluations are conducted to ensure that they have a legally recognised land ownership document and that they are part of an existing cooperative.
Associated Seedling Smallholders
Associated seedling smallholders both own and have full management control of their production plots. PT Tolan Tiga Indonesia is engaging with these smallholders as part of its commitment to increase the number of smallholders in its supply chain. Currently PT Tolan Tiga Indonesia engages with 828 associated seedling smallholders. With the wide diversity of smallholder activities and systems across Indonesia, the complexity of the arrangements will mean these smallholders can choose to not be physically linked to the supply chain, and their integration will take time.
Risk management and RSPO certification
PT Tolan Tiga Indonesia is working on further developing its smallholder programmes and the company is on a journey to integrate all smallholders it engages with in its supply chain. This includes supporting smallholders in achieving RSPO certification where possible. To ensure the process is given due attention, a special smallholder department has been created in the Head Office in Indonesia to maintain oversight and to support the four smallholder programmes. In addition, PT Tolan Tiga Indonesia implements its Responsible Purchasing Policy to protect its Identity Preserved (IP) supply bases. The policy provides the framework for the stepwise approach towards 100% certified RSPO crop within five years.
More information on the implementation activities of the Responsible Purchasing Policy, and on how these activities support SIPEF’s growing smallholder programmes, can be found on the Traceability and Risk Management page of SIPEF’s website.