Indonesian Palm Oil Farmers Demand Fair Share of Biofuel Subsidies
The Indonesian farmers union, Serikat Petani Kelapa Sawit (SPKS) or Union of Palm Oil Farmers, which represents independent palm oil farmers of Indonesia are demanding their fair share of funds from the biofuels subsidies.
Indonesia introduced a subsidy for palm-based biofuels which imposed a tax of $50 per ton on Crude Palm Oil to bridge the price gap between fossil fuels and biofuels. As reported by Reuters the fund was supposed to reduce Indonesia’s import of fuels AND finance replanting programs for smallholders.
In 2018, smallholders, through the SPKS sued for a judicial review of how the funds were used as they for a bigger portion of the funds.
“Only 1 percent of last year’s fund went to small farmers in the form of funding for a state-run replanting program. By contrast, 89 percent of the funds collected by the BPDP-KS were channeled to 19 large companies as biodiesel subsidies. The rest of the money was used for human resources development, research, and promotion.”
Smallholders like those represented by SPKS are often touted as a keystone feature for sustainability in Indonesian palm oil but appear to have been excluded in reality.
Smallholders are frequently used as a selling point or argument against EU RED ll policies by ministries and companies who quote their inclusion for sustainability. Economic Coordinating Minister Airlangga Hartarto reiterated the importance of smallholders recently when he told CNBC that the program is aimed at supporting 17 million smallholders.
The government also sees the increased use of palm in biofuels as relief on foreign exchange in importing less fossil fuels and ability to support its palm oil industry. However, the increased use of palm oil in biofuels for Indonesia’s energy needs has resulted in a mere trickle of benefits. Some farmers have benefited but the majority remains unable to make a living as CPO prices fell.
A new report on the issues quoted SPKS spokesperson Darto Mansuetus as saying:
“Just check Wilmar International, which produces 2.3 million kiloliters [of biodiesel]. Most of them come from their own plantations, and the rest is sourced from affiliated plantations. So how does it benefit farmers?
Wilmar is the world’s biggest palm oil trader, and also the biggest recipient of Indonesian government subsidies to the palm oil industry. In 2017, Wilmar received 55% of the total $530 million distributed by the government to five palm oil companies. The money came from a fund that the companies pay into in the form of export tariffs; Wilmar’s share was three times the amount it had paid into the fund.”
There is obviously something very wrong with the biofuel tax and subsidies when Wilmar can gain a 300% return on the “tax” it paid to support Indonesia’s biofuel program.
In a renewed effort to show the financial inequities and what it perceives as mismanagement of the funds, SPKS compiled a report which we received last week.
It is a scathing review of how the funds have been used. A copy can be downloaded here. In brief:
“All palm oil stakeholders appreciate the breakthroughs made by the Government of Indonesia (GoI) by forming the Palm Oil Plantation Fund Management Agency (Badan Pengelola Dana Perkebunan Kelapa Sawit/ BPDP-KS) through Government Regulation Number 24 of 2015. BPDP-KS programs are believed to be able to raise and promote Indonesian palm oil especially specifically smallholder plantations. As is known, the area of smallholder plantations today in Indonesia is approximately 43% of the total area of 16.3 million ha of oil palm plantations. With the existence of BPDP-KS, it will certainly become a new center of hope for oil palm farmers to advance the people’s plantation sector and make farmers as subjects towards independence and prosperity. Since its establishment until now, the BPDP-KS has collected fees from plantation business actors of more than IDR 47 trillion.”
The report went on to breakdown the usage of the funds and condemned its inequitable distribution and poor management.
SPKS has renewed its call for a review of how the funds are managed:
“If the government is serious about realizing the importance of oil palm farmers' position in the biodiesel industry, and wants to encourage them to maximize their yields, then the government should also involve oil palm farmers in the biodiesel program. One of the concrete steps that can be taken is a policy that includes farmers in the biodiesel supply chain."
Income Security As A Solution
Smallholders need income security. Many of the smaller ones with minimal acreages are reported to be working two or different jobs in order to provide a decent income for family livelihood. They will not tend to their farms when the price for FFBs is so low that they lose money every harvest.
This will fix many of the issues we have seen with smallholder supply of CPO where the main complaint is the inconsistent supply, both in volume and quality, from smallholders.
Income security through a floor price for FFB will help to make them ensure consistent supply. Smallholders do not have the luxury of playing off different commodities to make a profit or living wage unlike Wilmar which posted earnings of $386 million even in the tough economic times of Covid19 and is forecasted to have a 48% rally in share price despite low prices for CPO.
This will help to ensure living profits for the day-to-day expenses for a smallholder but beyond that, the costs of maintaining an efficient farm operation to meet corporate demands requires further financial support. Darto Mansuetus pointed out Wilmar’s palm oil mill at Palalawan as an example.
“The Wilmar mill at Palalawan processes around 45 tons per hour, this means that the mill requires around 10 thousand to 12 thousand hectares of oil palm plantations. Wilmar’s own plantation at Pelalawan is only 2 thousand hectares. My question is, where does Wilmar find the rest of the raw material? Why can’t Wilmar support the hundreds of small farmers working around their mill to fulfill their raw material needs? Tell me why Wilmar chose to buy FFB from eleven of their own business partners instead?
These business partners are not small farmers. Are they even legal and certified? According to the Indonesian regulations, a smallholder is defined as a farmer with 25 hectares of land or less. SPKS defines our independent smallholder members as farmers who cultivate a maximum holding size of 6 hectares of their own land, live in villages, and using their own family labors and capital.
We understand that smallholders sometimes are far from perfect. Smallholder plantations might not be licensed or certified, as an example. But SPKS and our members will be more than happy to work with producers like Wilmar to improve the smallholders’ practice to meet the market requirement and, if properly funded, to build a solid traceability system to track the palm oil from farmers to the mill with registered trucks without the intervention by middlemen. We do not need middlemen to pressure us with low prices. The small farmers need support to build our capacity to be able to make a living.
Wilmar often speaks publicly about their support to their plasma-farmer programs. But supporting farmers with seedling and in their land preparation processes means nothing if at the end of the day the income made by the small farmers is hardly enough to meet their basic needs.
It is shameful that the Indonesian government and palm oil producers like Wilmar have been using smallholders for their PR campaign and for their arguments at the WTO without substantial basis. If they indeed support smallholders, then where are our subsidies, capacity building support and guaranteed price? The Indonesian palm oil industry will never be sustainable if they do not fully support smallholders with proper funding. Smallholders are the foundation of a sustainable palm oil industry in Indonesia. Empty words and policies do not feed our farmers, they do not send our children to school.
It is clear that many stakeholders, including our market in EU, do not consider Indonesian biofuel as sustainable. It is also clear for SPKS and our smallholder members that Indonesian palm oil will never be sustainable if the environmental sustainability and the minimum social foundations necessary to support smallholders’ quality life are not addressed,” stated Darto of SPKS.
Published August 2020, CSPO Watch
Indonesia introduced a subsidy for palm-based biofuels which imposed a tax of $50 per ton on Crude Palm Oil to bridge the price gap between fossil fuels and biofuels. As reported by Reuters the fund was supposed to reduce Indonesia’s import of fuels AND finance replanting programs for smallholders.
In 2018, smallholders, through the SPKS sued for a judicial review of how the funds were used as they for a bigger portion of the funds.
“Only 1 percent of last year’s fund went to small farmers in the form of funding for a state-run replanting program. By contrast, 89 percent of the funds collected by the BPDP-KS were channeled to 19 large companies as biodiesel subsidies. The rest of the money was used for human resources development, research, and promotion.”
Smallholders like those represented by SPKS are often touted as a keystone feature for sustainability in Indonesian palm oil but appear to have been excluded in reality.
Smallholders are frequently used as a selling point or argument against EU RED ll policies by ministries and companies who quote their inclusion for sustainability. Economic Coordinating Minister Airlangga Hartarto reiterated the importance of smallholders recently when he told CNBC that the program is aimed at supporting 17 million smallholders.
The government also sees the increased use of palm in biofuels as relief on foreign exchange in importing less fossil fuels and ability to support its palm oil industry. However, the increased use of palm oil in biofuels for Indonesia’s energy needs has resulted in a mere trickle of benefits. Some farmers have benefited but the majority remains unable to make a living as CPO prices fell.
A new report on the issues quoted SPKS spokesperson Darto Mansuetus as saying:
“Just check Wilmar International, which produces 2.3 million kiloliters [of biodiesel]. Most of them come from their own plantations, and the rest is sourced from affiliated plantations. So how does it benefit farmers?
Wilmar is the world’s biggest palm oil trader, and also the biggest recipient of Indonesian government subsidies to the palm oil industry. In 2017, Wilmar received 55% of the total $530 million distributed by the government to five palm oil companies. The money came from a fund that the companies pay into in the form of export tariffs; Wilmar’s share was three times the amount it had paid into the fund.”
There is obviously something very wrong with the biofuel tax and subsidies when Wilmar can gain a 300% return on the “tax” it paid to support Indonesia’s biofuel program.
In a renewed effort to show the financial inequities and what it perceives as mismanagement of the funds, SPKS compiled a report which we received last week.
It is a scathing review of how the funds have been used. A copy can be downloaded here. In brief:
“All palm oil stakeholders appreciate the breakthroughs made by the Government of Indonesia (GoI) by forming the Palm Oil Plantation Fund Management Agency (Badan Pengelola Dana Perkebunan Kelapa Sawit/ BPDP-KS) through Government Regulation Number 24 of 2015. BPDP-KS programs are believed to be able to raise and promote Indonesian palm oil especially specifically smallholder plantations. As is known, the area of smallholder plantations today in Indonesia is approximately 43% of the total area of 16.3 million ha of oil palm plantations. With the existence of BPDP-KS, it will certainly become a new center of hope for oil palm farmers to advance the people’s plantation sector and make farmers as subjects towards independence and prosperity. Since its establishment until now, the BPDP-KS has collected fees from plantation business actors of more than IDR 47 trillion.”
The report went on to breakdown the usage of the funds and condemned its inequitable distribution and poor management.
SPKS has renewed its call for a review of how the funds are managed:
“If the government is serious about realizing the importance of oil palm farmers' position in the biodiesel industry, and wants to encourage them to maximize their yields, then the government should also involve oil palm farmers in the biodiesel program. One of the concrete steps that can be taken is a policy that includes farmers in the biodiesel supply chain."
Income Security As A Solution
Smallholders need income security. Many of the smaller ones with minimal acreages are reported to be working two or different jobs in order to provide a decent income for family livelihood. They will not tend to their farms when the price for FFBs is so low that they lose money every harvest.
This will fix many of the issues we have seen with smallholder supply of CPO where the main complaint is the inconsistent supply, both in volume and quality, from smallholders.
Income security through a floor price for FFB will help to make them ensure consistent supply. Smallholders do not have the luxury of playing off different commodities to make a profit or living wage unlike Wilmar which posted earnings of $386 million even in the tough economic times of Covid19 and is forecasted to have a 48% rally in share price despite low prices for CPO.
This will help to ensure living profits for the day-to-day expenses for a smallholder but beyond that, the costs of maintaining an efficient farm operation to meet corporate demands requires further financial support. Darto Mansuetus pointed out Wilmar’s palm oil mill at Palalawan as an example.
“The Wilmar mill at Palalawan processes around 45 tons per hour, this means that the mill requires around 10 thousand to 12 thousand hectares of oil palm plantations. Wilmar’s own plantation at Pelalawan is only 2 thousand hectares. My question is, where does Wilmar find the rest of the raw material? Why can’t Wilmar support the hundreds of small farmers working around their mill to fulfill their raw material needs? Tell me why Wilmar chose to buy FFB from eleven of their own business partners instead?
These business partners are not small farmers. Are they even legal and certified? According to the Indonesian regulations, a smallholder is defined as a farmer with 25 hectares of land or less. SPKS defines our independent smallholder members as farmers who cultivate a maximum holding size of 6 hectares of their own land, live in villages, and using their own family labors and capital.
We understand that smallholders sometimes are far from perfect. Smallholder plantations might not be licensed or certified, as an example. But SPKS and our members will be more than happy to work with producers like Wilmar to improve the smallholders’ practice to meet the market requirement and, if properly funded, to build a solid traceability system to track the palm oil from farmers to the mill with registered trucks without the intervention by middlemen. We do not need middlemen to pressure us with low prices. The small farmers need support to build our capacity to be able to make a living.
Wilmar often speaks publicly about their support to their plasma-farmer programs. But supporting farmers with seedling and in their land preparation processes means nothing if at the end of the day the income made by the small farmers is hardly enough to meet their basic needs.
It is shameful that the Indonesian government and palm oil producers like Wilmar have been using smallholders for their PR campaign and for their arguments at the WTO without substantial basis. If they indeed support smallholders, then where are our subsidies, capacity building support and guaranteed price? The Indonesian palm oil industry will never be sustainable if they do not fully support smallholders with proper funding. Smallholders are the foundation of a sustainable palm oil industry in Indonesia. Empty words and policies do not feed our farmers, they do not send our children to school.
It is clear that many stakeholders, including our market in EU, do not consider Indonesian biofuel as sustainable. It is also clear for SPKS and our smallholder members that Indonesian palm oil will never be sustainable if the environmental sustainability and the minimum social foundations necessary to support smallholders’ quality life are not addressed,” stated Darto of SPKS.
Published August 2020, CSPO Watch