Interests Arrangement in the Implementation of Indonesian Sustainable Palm Oil Certification: Case Study of Sari Makmur Palm Oil Smallholders in Riau Province

Abstract

The implementation of the Indonesian Sustainable Palm Oil (ISPO) certification remains unsettled nearly a decade since its introduction in 2011. Only a small number of palm oil companies and smallholders have been ISPO certified. Palm oil smallholders became the target of ISPO certification because of their significant contribution to the Indonesian palm oil industry. This study aims to analyze the slow ISPO implementation process at the smallholder level by using a polycentric governance framework, which views the ISPO’s overarching rules as changing the relationship between companies and smallholders toward sustainable management. This study examines a smallholder’s ISPO implementation in Sari Makmur. This smallholder became a pilot project site for the smallholder ISPO certification in 2011; however, it has still not been certified. This study reveals that the recurring problem of land swaps and the expectations of being certified have complicated the fulfillment process of legal documents for ISPO certification. Nevertheless, smallholders and companies are in the process of delineating their interests toward defining their physical boundaries for sustainable palm oil production.

1 Introduction

In 2011, the Indonesian government launched a national sustainability certification policy for palm oil commodities, which was called the Indonesian Sustainable Palm Oil (ISPO) policy. Palm oil companies operating in Indonesia must comply with ISPO sustainability principles. Four years into its implementation, this first version of ISPO was changed through the Ministry of Agriculture Regulation No 11/Permentan/OT.140/3/2015 with regard to the certification system. By 2016, only around 30% of the 1688 operating companies had met the ISPO requirements. These companies had planted almost 1.7 million ha of oil palms and produced 8.9 million tonnes of certified palm oil. These comprised 14% of the total plantation area in Indonesia and 28% of the total palm oil produced in Indonesia (Komisi ISPO 2017). Four years on, this figure has not changed considerably; the ISPO Commission has certified 607 companies or 35% of total operating companies, ten independent cooperatives, and four plasma cooperatives. The low participation in ISPO certification has been attributed to the ministry’s weak enforcement mechanisms, which have been unable to solve the many problems around palm oil production. In response, President Joko Widodo released Presidential Regulation No. 44/2020, which seeks to strengthen the ISPO certification system.

ISPO certification is obligatory for palm oil companies, but it is still voluntary for palm oil smallholders¹ until 2025. Through the latest presidential regulation, palm oil smallholders will be obligated to obtain ISPO certification 5 years henceforth. The regulation urges palm oil smallholders to be ISPO certified in view of their significant contribution to palm oil production. Indonesian palm oil smallholders held 4.65 million ha or around 40% of the total palm oil plantation land in Indonesia in 2015. This figure had increased by almost 50% compared to the previous decade (BPS 2016).

There were initially four pilot projects for smallholder certification announced by the government in 2011, all of which are located in Riau Province. Three of the communities involved were supervised by the Astra Plantation Group (PT KTU and PT. SLS). The other pilot project was under the supervision of Asian Agri, with the cooperation of the World Wildlife Fund (WWF). Of these four projects, only one community that was supervised by Asian Agri, and WWF was ISPO certified, indicating the tedious ISPO certification process for smallholders. This article focuses on a smallholder in Sari Makmur supervised by PT Astra that has not received ISPO certification. This pilot project community is selected because the community has a problem of land conflict, which ISPO as a government regulation as well as a sustainability certification system could serve to mitigate and solve. The pilot project that received ISPO certification did not have the land legality problem. Therefore, the process to get ISPO certification was mainly focused on sustainability management in the palm oil plantation.

This study seeks to analyze the reasons behind the slow ISPO implementation process for smallholders. In so doing, this study raises two questions. First, what factors account for the slow process of ISPO certification at the level of palm oil smallholders? Second, how have the smallholders responded and overcome this problem?

This study uses the polycentric governance system to analyze smallholders’ self-governance process to obtain the certification. This chapter analyzes the capacity of the smallholder community to influence the outcome of ISPO implementation through its existing economic and capital accumulation, political relations, and cultural infrastructure. This condition has allowed it to make arrangements for negotiating or compromising on its interests with companies and/or local government to solve its problems. The community’s success in cooperation and ability to provide solutions are the notable characteristics of smallholder polycentric governance (Carlisle and Gruby 2019).

This study is organized into six sections. Section 11.2 reviews the literature to show the significance of this study. Section 11.3 discusses the methodology, which consists of the research site, scope, and data collection. Section 11.4 discusses the conceptual framework and hypothesis of this study. Section 11.5 discusses findings and a discussion on how smallholders, the local government, and the company try to overcome the problems to fulfill ISPO certification requirements, including making institutional arrangements through communication and negotiations. Section 11.6 concludes the study.

2 Literature Review

In the development of commodity certification, the certification is not only merely about quality control; it has become a social and environmental institution. Commodity certification has been endorsed amid the doubt over governments’ effective regulatory mechanisms to mitigate severe environmental degradation and the prevalence of social injustices. Limited budgets and a lack of human resource capacities are commonly blamed for government bureaucracy. Commodity certification is generally implemented by private entities to build governance systems that can avoid such asymmetric information problems, take immediate measures, and adjust accordingly. Institutionally speaking, commodity certification sets operational compliance standards to meet principles, such as environmental protection or labor rights, and it provides a chamber for multistakeholders to participate in decision making, monitoring, and reporting processes. The certification does not have the coercive power that government regulations do. However, it does depend on market mechanisms—in this case, the public consumer—to respond to institutional misconduct. A public consumer can place pressure on commodities in the form of protests, “blaming and shaming” strategy campaigns, and boycotts. Multiple stakeholders within the certification governance can then take measures accordingly (Cashore et al. 2008; Vandergeest 2007; Ebeling and Yasué 2008; Bartley and Smith 2010).

The performance of certification mechanisms for social and environmental institutions has been put into the spotlight of contention. Some literature argues that commodity certification could bring welfare to a targeted community through increasing commodity prices and a certain degree of financial freedom for household income allocation (Bacon 2005; Elbers et al. 2015; Hidayat et al. 2015; Cameron 2017). Although this goal might not be easy to reach, other researchers have argued that community organizational factors, such as preexisting social capital (Bray et al. 2002; Pérez-Ramírez et al. 2012), further factor production incentives and managerial support (Suradisastra 2006; Ruben and Zuniga 2011; Beuchelt and Zeller 2012), and prior experience in commodity certification (Bacon 2005) are necessary factors to consider. These factors are needed to maintain organizational and institutional consolidation, community negotiation capacities, and community resistance against external shocks.

However, other studies express that commodity price incentives given to farmers have the potential to co-opt a community’s preexisting social values through crowding out processes (Frey and Obelhozer-Gee 1997), incorporation and exclusion (Somerville 2000; Li 2007; McCarthy 2011; Dove 2012; Peluso 2016). In a traditional community in which organization and cooperation are built based on necessity and reciprocity principles, the presence of price incentives in a commodity certification organization could lead to new values for measuring relationships in the community and crowding out prior social values. Guthman (2004) depicts these shifting values in cooperation as rent-seeking activities by communities, which can further drive away initial aims or values of commodity certification, such as sustainability and fairness. Gamson (2005) further describes a situation in which the missing new advantage to community acceptance for certification is a form of co-optation.

Similarly, researches on ISPO are conducted by comparing aspects of sustainability governance of ISPO with the Roundtable on Sustainable Palm Oil (RSPO) and typically found that the ISPO certification per se did not promote sustainability aspects (Brandi et al. 2013; Jiwan 2012; Suharto et al. 2015; Potter 2016; Rietberg 2016; Varkkey 2016; Erman 2017; Hutabarat 2017; Hidayat et al. 2018). In addition, other research has shown that certification also cannot guarantee market access and higher prices (premium prices) as promised by RSPO certification (Hidayat et al. 2015; Cramb and McCarthy 2016) as well as struggling with accountability problem (Jiwan 2012). This condition would make the ISPO certification even harder to obtain, as the global market has been reluctant to approve its operation (Hidayat et al. 2018). In contrast to this research, several studies have shown that certification will guarantee market access, better prices, incentives for oil palm farmers (Frey and Obelhozer-Gee 1997; Cameron 2017), redistributive benefits through free prior inform consent mechanism (McCarthy et al. 2012) and a form of government paternalism policy and inclusion (Silver 1994; Werle 2001; Wolf 2006; Thomas and Buckmaster 2010).

Nonetheless, there are drawbacks to these studies. The research on palm oil certifications mentioned above has always been carried out on certified oil palm smallholders. These smallholders did not face land problems or conflicts, so the findings may not be representative of the obstacles faced by palm oil smallholders in Indonesia, who were mostly beset by land problems or conflicts in the process of obtaining an ISPO certification. Therefore, this study fills the gap by showing the process of securing ISPO certification by palm oil smallholders who in fact still face problems, such as with land tenure and social conflict. This study shows to what extent ISPO certification can induce initiatives and local arrangements to overcome obstacles in the implementation of sustainable palm oil certification.

3 Research Site and Methodology

3.1 Research Site

The village of Sari Makmur, previously called Satuan Pemukiman 6 or SP6, is located in the Pangkalan Lesung Sub-District of Pelalawan Riau, which had been formed together with the opening of the palm oil plantation of Sari Lembah Subur Company (PT. SLS) in the late 1980s. This village was named a pilot project for ISPO certification for smallholders.

The total village settlement covers approximately 300 ha and 1000 ha of the total plasma plantation area. The village became a plasma area for PT. SLS. The community of this village comprises migrants from other islands, especially Java Island, from the three waves of transmigration for palm oil development through the nucleus-plasma scheme (Trans-PIR) in 1989, 1990, and 1991 (see Table 11.1). The demographics have since changed due to the Trans-PIR families’ descendants and people’s movements (see Table 11.2).

Table 11.1 Initial transmigrant flows and settlements in Sari Makmur (Source of data: Village administration documents and interview on September 27, 2017)

Table 11.2 Sari Makmur household status and village area distribution (Source of data: Village administration documents and interviews, 2017)

As smallholders in a nucleus-plasma system, each household received around 2.5 ha of land—2 ha to be used for palm oil cultivation (plasma) and 0.5 ha for settling and growing a living source of crops. The company prepared the 2-ha plantations for this plasma, including the seed and fertilizer. The smallholders had to pay the company back for this setup after the fruits were ready for harvest. It took 8 years for them to pay off the Rp9 million debt that started in 1994—4 years sooner than projected.

Newcomers were those who arrived in this village after its independence from the Ministry of Transmigration’s administrative responsibility in 1997. These newcomers, who worked as wage laborers, were motivated by promising job offers and family reunification. Once the laborers became financially independent, they bought a piece of land for their own palm oil plantation. The smallholders of Sari Makmur also benefited from the presence of seasonal laborers who worked on their plantations. This type of labor usually came from other districts in Riau Province, such as Bengkalis or Meranti. They only worked for several months and did not stay on afterwards.

3.2 Methodology

The research scope is limited to the period between the implementation of ISPO for the first time in 2011 under President Susilo Bambang Yudhoyono until the final research conducted in 2017 under the President Joko Widodo.

This study uses quantitative and qualitative methodology with data collected from primary and secondary sources. The primary data was collected through a questionnaire and interviews with 50 households in Sari Makmur Village, Pelalawan District, Riau Province, from August until November 2017. These 50 households were chosen through a random sampling method. Once those chosen agreed to be respondents, they were provided with a questionnaire that consisted mostly of open-ended questions on the household’s historical formation, migration processes, land ownership history, palm oil production, and other information concerning household members’ relationships with the company and local government. The primary data on capital accumulation was extracted from a national land certificate owned by a Sari Makmur household, which provides financial banking transaction records. These records, usually called catatan roya, hold information on Sari Makmur households’ past debt transactions registered by their notary and acknowledged by the National Land Agency (BPN). From the 500 available certificates, 377 were successfully listed. Approximately 216 of the collected certificates were used by the owners as collateral for bank loans. Primary data was also collected through interviews with the local government of Pelalawan District, the ISPO commission of the Ministry of Agricultural, and the UNDP representative in Jakarta to cross-check information regarding ISPO implementation at village level. Secondary data was collected from documents, regulations, books, journal articles, and government reports related to the implementation of ISPO.

There are two steps to data analysis. First, the interview record is transcribed. Second, the answers, which have been grouped, are analyzed through analytic induction. Eventually, all the data gathered from the written sources and interview are interpreted and analyzed to produce a claim within the framework of the research question.

4 Governing Palm Oil Sustainability Through Polycentric Governance and ISPO Certification

This study utilizes the polycentric governance perspective to observe the ISPO implementation, an approach that is particularly beneficial for analyzing the institutional complexity of the natural resource system’s situation, improving adaptive capacity, and mitigating risk on overlapping governance actors and institutions (Marshall 2015; Carlisle and Gruby 2019). But some drawbacks, such as complex accountability, leakage, redundancy, high transaction cost, and free-rider problems, can be found in polycentric governance implementation (Marshall 2015; Morrison 2017). Nonetheless, the perspective this approach takes provides a substantial scenario for analyzing institutional arrangements in addressing social problems, especially resource management, as well as relationships and interactions among the actors involved (Thiel et al. 2019). In order to reach such an outcome, this approach requires the exploration of three essential elements of polycentric governance.

Polycentric governance connotes many centers of decision making that are formally independent of each other. Whether they actually function independently or instead constitute interdependent system of relations is an empirical question of particular case. To the extent that they take each other into account in competitive relationships, enter into contractual and cooperative undertakings or have to recourse to central mechanisms to resolve conflicts. (Ostrom et al. 1961).

Based on the statement above, the first element of polycentric governance is the independence of each actor/unit involved in resource management. Marshall (2015) provides an interpretation of independence, which refers to de facto autonomy from one to another (Marshall 2015; Schröder 2018). This means that each actor/unit has a certain degree of freedom in identifying attributes, developing rules and sanctions, and carrying out a decision-making process independently. According to Marshall (2015), this interpretation is more functional than taking the perspective of de jure autonomy since possessing de facto autonomy would still give the opportunity and ability to arrive at a working arrangement with other overlapping actors/units in resource management, even in a situation in which de jure autonomy is absent (Marshall 2015). In addition to this interpretation, if the actor/unit’s independence is characterized mainly by de jure autonomy, they tend to be exclusive and concentrate on maintaining their existence in the face of the overarching rules prescribed, especially by the government. This does not mean that recourse to the process of rules is abandoned. However, in a situation in which an actor/unit lacks legal knowledge and access, strengthening de facto autonomy is urgently required.

The second element is the interdependent relationship between these actors; despite their individual independent nature, each actor is linked to a certain type of relationship arrangement in managing the resources. This relationship is formed because of overlapping jurisdiction among actors/units in resource management. The overlapping jurisdiction is the engine for actions, reactions, and interactions among actors/units involved in resource management (Stephan et al. 2019). There are three sources of overlapping jurisdictions: (1) interdependence between the issues being governed; (2) the interconnectedness of the physical jurisdiction; and (3) the function of governance, such as monitoring (Stephan et al. 2019). Schröder (2018) suggests that for the overlapping jurisdiction to become more functional, the relationship should focus on good aspects or problems (points 1 and 2) that connect actors/units involved in resource management.

These overlapping jurisdictions attributed to actors/units would describe the third element of the types of relationships in polycentric governance. There are three recognizable relationships, namely, cooperation and collaboration, conflict, and competition (Ostrom 1990). Koontz (2019) provides some of the important factors that could either incentivize or hinder cooperation and collaboration. The first factor is authority, which is marked by the lack of vertical hierarchies and power imbalances. This situation could lead to a dual scenario of conflicting engagement among actors/units but also cooperation and collaboration as a response to power imbalances. The latter situation might require the actors/units to share values, beliefs, and goals toward a common understanding and interest. To achieve this, the second factor, which is responsible information, needs to be circulated. This could lead not only to the process of learning but also trust among actors/units. The third factor is resources, which capacitates collaboration among actors/units. Koontz (2019) further notes that the lack of resources can incentivize actors/units to join forces for collaboration. It should also be considered that the source of funding could affect collaborative partnerships, especially when funding is limited.

Power imbalances, incomplete information, and insufficient resources are some factors that hinder collaboration and tend to lead to conflict among actors/units. However, in a polycentric governance, actor/unit adaptation and learning capacity in a conflict situation through conflict-resolution cycle could also catalyze further collaboration (Hekkila 2019). This learning capacity and adaptation in a conflict situation could also improve actor/unit efficacy toward exploring opportunities and channeling rules for better resource appropriation, provision, and production of public goods (Garrick and Villamayor-Tomás 2017).

In the context of ISPO implementation, the government has emphasized sustainability as an overarching condition of certification for both companies and smallholders. The ISPO certification thus intends to transform production relationships between companies and smallholders and their perspectives and initiatives in favor of the environment. Several regulations inserted in the ISPO sustainability principles ostensibly compel company and smallholder operations to comply with sustainable palm oil production (see Table 11.3).

Table 11.3 Principles of ISPO certification for palm oil companies and smallholders (Menteri Pertanian Republik Indonesia 2015; Presiden Republik Indonesia 2020)

The ISPO upholds the legal aspect as the first principle in building sustainable palm oil production before plantation management, conservation, environmental surveillance, labor, and social responsibility and business improvement. The legal aspect is the gateway to arrange and rearrange licenses and permits for companies and smallholders in palm oil production. Legality almost always ensures that other sustainability principles will be easily fulfilled.

The ISPO also has a direct mechanism for sanctions, including a warning notification, fine, temporary suspension of operations, putting the certification on hold, and revoking it altogether. To some extent, the ISPO has indirectly forced companies to strengthen partnerships with smallholders—for example, companies source a minimum of 20% palm oil supply from smallholders. However, ISPO certification has embedded inclusive benefits, which give government and financial institutions the assurance of legality, sustainability, and profitability. This assurance is positively related to access for aid and assistance to improve palm oil production.

Within this scheme, the ISPO has provisions for both the company and the smallholder competing to obtain certification. However, it should be noted that palm oil development does not happen in a vacuum; it is often backdropped by stories of conflict and environmental degradation. Such stories are characterized by power imbalances between the company and community, as well as imperfect information. These in turn create various descriptions of community co-optation, which lead to patron–client relationships between the company, tauke or middleman, and smallholder. Moreover, imperfect information influences the community’s access to capital, production, and legal knowledge. This has the effect of putting the community at a disadvantage, as it is unable to improve productivity and its legal position in a conflict situation.

However, polycentric governance gives another perspective, one in which a power imbalance and imperfect information can induce cooperation among the actors, especially in palm oil production. Van der Enden (2013) has shown that palm oil development through government programs has not only empowered communities in terms of improving local economies but has also opened pathways for sustainable policy arrangements. Her research acknowledged that intensified palm oil development methods introduced by the government had been adopted by one of the communities in Siak Riau (van der Enden 2013). This community’s commitment to sustainability has led to other conservation initiatives involving both national and international nongovernment actors.

5 Findings and Discussion

Based on the theoretical framework previously discussed, the first element of polycentric governance in this case comprises the palm oil smallholders in Sari Makmur village incorporated in the Mulia Cooperative (Mulia). The existence of Mulia as an economic entity maintains the resource appropriation and capital accumulation processes. The current Mulia cooperative not only binds the community’s palm oil economic activities but also empowers the community to realize the value of the legal standing of their resources, especially to access financial assistance. This condition enables the smallholders in Sari Makmur to be independent actors to make decisions in the production and cultivation process, distribution system, partnership with the company, and participation in local government programs.

Another independent actor is PT. SLS as a palm oil company. This company operated as a nucleus in the nucleus-plasma program in the 1980s. This status changed after the program completed in the 2000s. The company no longer has an obligation and responsibility to its plasma. The plasma smallholders in Sari Makmur do not have any obligation to the company, either. Therefore, both PT. SLS and smallholders are independent and free to determine their relationships.

Both these independent actors have built a partnership based on interdependent interests in managing the palm oil plantation. This interdependent relationship is the second element of polycentric governance. On one side, PT. SLS cannot rely on its core plantation to supply fresh fruit bunches (FFB) of palm oil. The company needs an FFB supply from the palm oil smallholders to fulfill its daily target of processing production. On the other side, the smallholders have the same interest. They need the company to buy their fruits for a good price, even though they have the freedom to sell their produce elsewhere. The smallholders require factory production that is readily available, stable pricing, and information on good production management, all of which are usually provided by the company. This interdependence of both actors is an incentive for cooperation between PT. SLS and palm oil smallholders in Sari Makmur. Nonetheless, both actors also have a conflicting relationship regarding land status legality due to past land swap processes.

In relation to palm oil sustainable management, the Indonesian government has implemented ISPO certification. This certification is mandatory for companies and will be an obligation for smallholders in 2025. SLS is a company that holds ISPO certification. Meanwhile, a smallholder in Sari Makmur village is a pilot project for ISPO certification due to its successful plantation management under Mulia. For this achievement and its past participation in a government program on nucleus-plasma palm oil development, this smallholder is considered for having no peculiarities on land legalities. However, this smallholder has not been awarded ISPO certification. Why has it not received the certification 10 years after it became the pilot project? I found that the problem of land swaps caused a legality issue with its land status. This problem is hindering the smallholders in obtaining a smallholder certificate for plantation registration (Surat Tanda Daftar-Berkebun, STDB) and statement letter for environmental management (Surat Pernyataan Pengelolaan Lingkungan, SPPL) documents as a requirement for certifying ISPO. Another obstacle in the process of smallholder certification are the unclear procedures to obtain STDB and SPPL documents under the local government authority.

How, then, do the palm oil smallholders tackle these obstacles? Being certified by ISPO is an important issue for smallholders in Sari Makmur because ISPO certification is a precondition for them to be eligible to receive the government replantation fund, which important for their palm oil replantation. The implementation of ISPO in the community also promises to strengthen this social capital since it would help them progress to the process of replanting. This condition of a smallholder’s old plantation is problem for the company due to the potential disruption of FFB supply. If the replantation program is not successful, it will also influence the company. In addition, holding ISPO certification gives PT. SLS a reason to maintain a good relationship with the community. Therefore, if conflict occurs, it is obligatory for the company to solve it. Otherwise, the ISPO certification would be forfeited by the government.

Due to these reasons, based on the third element of polycentric governance, both the company and community have to make arrangements to solve those problems to fulfill the sustainable requirement on ISPO certification. PT. SLS and smallholders in Sari Makmur negotiated initial arrangements to complete the certification process instead of awaiting sanctions from the government for their failure to fulfill ISPO requirements. Both parties are working together to complete the certification procedure, which also means finding solutions to land swap issues and obtaining STDB and SPPL documents for smallholders. The current dynamics, especially in completing the legal process, see both parties putting their resources toward a definition of their physical boundaries in pursuit of sustainable palm oil production.

5.1 Self-Governance Through Mulia and Capital Accumulation

The village of Sari Makmur was one of four pilot project areas in Riau for ISPO implementation. Its local government had officially announced this status in January 2015. These pilot project areas are expected to show the way for other smallholders to obtain ISPO certificates. Mulia here is the main agency responsible for ISPO implementation. It deals with administrative documents for registration and maintains sustainable practices in plantations following certification. The local government has acknowledged the cooperatives in these four villages as the best financial performers. Mulia works with PT. SLS, which has been ISPO certified.

Mulia was founded together with the administrative formation of Sari Makmur in 1997. Mulia manages 34 farmer groups, which originally organized 500 households that owned a plasma plantation. However, the actual number of households today is less than 500 because of ongoing land transactions. From PT. SLS land certificate data, it was found that 38 of these households possess more than one plasma land certificate. Therefore, only around 462 members are currently active.

Mulia functions as a bridge for constant communication regarding issues related to plantation management faced by the farmers group. The farmers’ group leader is obligated to deliver the meeting results to the group members. Everyone in the group has rotational responsibilities for harvesting, loading, and maintaining security in the smallholder oil palm plot (ronda). All Mulia members are also obligated to attend the annual meeting to hear the report from their leader and administration on the cooperative’s performance.

Mulia also helps the community to get easier access to affordable daily goods and plantation necessities by providing a grocery store because the village is in a remote area. In addition, it provides a transport business for its members to deliver palm oil fruits to processing companies.

Mulia also provides its members with recommendations when they want to access the bank’s loan facilities. The bank needs Mulia to double-check the documents, incomes, and the smallholder’s ability to repay. This is why Mulia is vital for palm oil smallholders in Sari Makmur, especially for capital accumulation and land expansion.

Sari Makmur community members generally work either as owners or laborers of their palm oil smallholdings. Landholders regularly nurture palm oil productivity. They check the availability of fertilizer stock, field distribution and labor, and the palm oil’s harvesting schedules and current prices. Such information is verified through phone calls or visits to the cooperative. Harvesting, fertilizing, and pruning are usually handled by available wage laborers in the village. This kind of work requires strength and knowledge about palm oil trees, especially when a tree’s height is at or above 10 m, and the tree is more than 20 years old. The owner usually checks the work of their laborers in the fields but prefers to do other regular field jobs themselves, such as babat (slashing palm oil weeds) and brondol (collecting loose fruit from the trees).

Plantation jobs are both physically and mentally intense for laborers who do not have landholdings. They have to finish their jobs on time and with satisfying results. For example, a landholder will personally contact laborers several days before the scheduled harvest to ascertain their availability. On harvest day, laborers start working in the early morning and have to finish harvesting before it’s time to transport the harvest. Usually, harvesting is completed in 2–3 h for 2 ha of land. Laborers must have good eyesight and cutting skills to pick and slice the palm oil fruits that are ready for harvest. Mistakes such as choosing over- or underripe fruits and wrongly slicing them will cost the owner time and money and reduce palm oil tree productivity. Quality laborers are usually paid around Rp150,000 per 2 ha, excluding lunch and a pack of cigarettes. Subpar performances merit several warnings from owners and, ultimately, termination (sometimes without notice) in case of consistently bad results.

The working sector in this village (besides the palm oil industry) is limited, as other sources of work have not become an option for the general community. This has made the community rely solely on palm oil as its source of income. Unfortunately, with aging palm oil trees, the community faces challenges regarding its future income; however, it manages this risk through land investment. Thus, when replanting time approaches, the community already has an alternative source of income. This strategy is seemingly easier for people to take since financial services from banks are readily accessible. After community members, especially Trans-PIR households, receive land certificates from the bank, they continue to access the institution’s financial support for many necessities (see Fig. 11.1), which mostly involves buying land (see Fig. 11.2). This condition is supported by the availability of land in the community and in nearby areas.

Fig. 11.1

Financial banking records from Sari Makmur Community Land Certificates. Source of data on Transmigrant National Land Certificate were collected and compiled by the author during fieldwork in Sari Makmur Village

Fig. 11.2

Sari Makmur community bank loans by borrowing motives (Source of data: Survey in Sari Makmur, 2017)

Figure 11.1 shows the community’s interactions with financial institutions from 2002 to 2015. As it demonstrates, the highest number of banking transactions—84—took place in 2005, particularly with Bank Negara Indonesia. From these transactions, the community’s average proposed loan was Rp19 million. These proposed loans quadrupled, reaching an average of around Rp80 million some 4–5 years later.

With debt payoff usually taking around 3–4 years, the number of banking transactions should have risen. However, there were some institutional barriers that checked the desire for capital accumulation. Since mid 2000, the community had not easily been able to interact directly with the bank to propose loans. The community needed to show the bank written permission from the farmer groups’ leaders, as well as cooperative seals. This written permission became the guarantee, which stated that a member was financially capable of repaying the debt. It was used to prevent loan defaults. Additionally, since 2013, the bank has reduced the amount of financing for the plantation. Despite this, the village’s financial institution (Badan Usaha Milik Desa, BUMDes) has been performing very well in Sari Makmur. BUMDes can provide loans below Rp20 million for 2 years. Unlike the bank, BUMDes’s fast service and easy conditions for loan approval enable the community to access financing from it.

Since the roya notes did not mention specific reasons why the community accessed bank services, in-depth household interviews were carried out from August to November 2017 to clarify the community’s motives. The interviewers asked questions mostly regarding families’ formation histories, banking interactions, purchased land, ownership, and palm oil production. Fifty households were randomly selected in Sari Makmur to participate in these interviews.

Figure 11.2 indicates that Sari Makmur families had tended to borrow from the bank for land-related transactions. Before 2000, less than Rp100 million accumulatively was used to buy land. However, it appears that in the last decade, the accumulation tended to grow to above Rp400 million, reaching its highest at Rp670 million in 2016. This acceleration of capital accumulation was not solely because of the many land transactions that had been conducted by families. It was also because of the high price of land around the village. Approximately 2 ha of land comprising hills and with less infrastructure could cost Rp250–300 million. Many communities said that even at those prices, people still lined up to buy land. In fact, the families that were surveyed reported that their highest land transactions had occurred around 2004. In the last 5 years, Sari Makmur families have also tended to use bank loans for other purposes, such as marriage ceremonies, houses, cars, and financing their children’s higher education in Java. The highest accumulation for loans unrelated to land transactions reached Rp585 million in 2014, which was 14 times greater than that of 1997.

The community divides its plantation land into three locations: house yards, plasma, and plantations located outside Sari Makmur (see Fig. 11.3). Two decades ago, this distribution was unlikely to be found in the community. Each transmigrant family generally owned 2.5 ha of land. However, it appears that the community’s financial interactions with the bank especially helped these households to accumulate land outside the community. Nowadays, each household owns an average of approximately 6 ha of palm oil smallholdings. These consist of a 0.6-ha house yard, 2.5 ha of plasma holdings, and approximately 3 ha of holdings outside the community.

Fig. 11.3

Sari Makmur community land ownership area by location (Source of data: Survey in Sari Makmur, 2017)

Figure 11.4 shows that plasma holdings comprised the most palm oil production space in 2017. Families claimed that, on average, their plasma holdings could produce a total of 5 tonnes of palm oil per month (Fig. 11.4). This production is still high considering the age of the trees. The main reason for this is the high level of communication among the farmers’ groups and the willingness to collaborate within cooperative organizations. Mulia not only functions as an organization of farmers’ groups that communicates with the company but is also a venue for regular factory production at an affordable price. In addition, it has become a communications clearinghouse, especially on matters of plantation productivity, labor matters, transportation problems, and commodity prices. Within cooperative organizations, there is moral suasion to maintain the quality and quantity of palm oil production. Therefore, it is typical for members to fertilize their plots three times a year, weed or clean three or four times a year, and tidy up palm oil fronds once a year. With such regular care, farmers need not worry about the musim trek (seasonal downtime for palm oil production). Farmers do admit, however, that during this three- to four-month period, their production might decrease, on average, to 20%. In comparison to independent smallholders, the Sari Makmur community has a doubled production figure and a lower percentage of production loss during musim trek.

Fig. 11.4

Sari Makmur community palm oil production by location (Source of data: Survey in Sari Makmur, 2017)

There are several differences between plasma holdings, house yards, and outside-village holdings. First, in terms of production, a house yard and an outside-village holding can produce 1 tonnes and 3 tonnes of palm oil per month, respectively (Fig. 11.4). For outside-village holdings, production is relatively low. With an average of 3 ha of land, an outside-village holding should be able to produce at least 5.5 tonnes per month. Moreover, knowing that palm oil trees usually reach their most productive point at 15 years of age, these figures can be easily exceeded. Although farmers have admitted to implementing similar smallholding management styles as in their plasma, it seems they pay more attention to smallholdings with national land certificates (Surat Hak Milik, SHM) rather than land certificates recognized by local leaders (Surat Keterangan Tanah, SKT or Girik). This priority is indicated in land productivity, in which plasma holdings have the highest production of up to 1.8 tonnes per ha. This is followed by house yard holdings and outside-village holdings, which produce 1.5 tonnes and 0.76 tonnes of palm oil per hectare, respectively.

Second, house yards and outside-village holdings are not under cooperative management. Therefore, they do not directly relate to PT. SLS in terms of price and selling agreements. Farmers are free to choose where they sell their palm oil FFB; price becomes the main factor in this decision. The Sari Makmur community usually sells its produce to a local palm oil collector known as the tauke. There are price differences; it is around Rp100–200 cheaper per kilogram to sell to a tauke when compared to the PT. SLS price, which is relatively stable at around Rp1500–1700 per kilogram.

Even with this impressive economic achievement, the community is worried about the replanting they should carry out in the next 2–3 years. Without cutting down the old palm oil trees and using better seeds, the community’s palm oil productivity will decrease, as well as its income. However, it is also concerned that the replanting process could erode its cohesion as a community and break down its institutional foundations in Mulia. This concern was expressed by some farmers’ groups during a monthly meeting. They felt that following the replanting program administered by the company put them at a disadvantage because the cost was too high. They argued that it would be cheaper if they replanted their own way. However, other groups said that individual replanting processes would endanger the environment because of the poison used to kill the trees. Individual replanting also means breaking the partnership contract with the company, which means losing the benefits of a stable and better palm oil price.

5.2 Solving the Land Swap Problems Between Smallholders and Companies

The ISPO was introduced to Mulia for the first time by PT. SLS in June 2014. The company invited representatives of plasma smallholders to attend an ISPO socialization. As one of the communities targeted to receive ISPO certification, Mulia and several farmers’ organization leaders attended this event. During the event, a representative of the ISPO Commission discussed the definition of ISPO, its benefits, and some processes needed to obtain the certificate. The meeting was followed by a visit to the Mulia office for another round of socialization and interviews with several farmers on the cooperative’s current plantation management. After this, Mulia management and PT. SLS started to collect the required documents from the community to apply STDB and SPPL.

Immediately, they faced several difficulties. The problem of document availability as well as the distrust of some community members of document collection became issues during this process. Sometimes, the documents were still in the bank as loan collateral, and other times these documents were lost and therefore could not be provided. In these situations, extra time was needed to get copies or to recover the documents. Another problem was the community’s distrust of PT. SLS due to land conflicts that had occurred in the past. This was exacerbated by fraudulent land transactions experienced by some members of Mulia.

To regain the community’s trust, PT. SLS became directly involved with Mulia’s administration, appointing an official company worker in the Mulia office on a regular basis. Meanwhile, the head of Mulia also assigned village elders to work as cooperative secretaries. These two agencies jointly became a symbol and a strong guarantor for the community to put their trust in the ISPO document collection process. It was important for the community to know that there was an agency they could turn to in case something went wrong—such as the fraud case that the community had been unable to handle on its own. However, it is interesting that not only narratives of ISPO requirements were used during the collection but also replanting matters. By owning STDB and SPPL, not only would the community receive ISPO but it would also be eligible for financial government aid for replanting in its plasma plantation. This aid, which reached Rp25 million per ha, was of greater interest to the community than the ISPO issues. Moreover, the lack of information about ISPO, which only tended to be shared among the co-operative’s staff and farmers’ group leaders, made ISPO certification a less attractive goal.

Besides the problem of fulfilling the required documents, the process of ISPO certification in the village of Sari Makmur also brought up past land conflicts between the community and PT. SLS. This conflict was related to the plasma land distribution during the early days of Sari Makmur as a transmigrant village. There had been constant elephant attacks on plasma land that encroached on elephant habitat, rendering the land unproductive. The unresolved issues of elephant conservation had compelled the PT. SLS to delay the distribution of several portions of plasma land until conservation matters were resolved, which did not sit well with the community, which demanded that PT. SLS fulfill its obligations sooner. This clash led to protests and harsh demonstrations.

In response, PT. SLS, in cooperation with the local government and related institutions, offered a land exchange to affected families. This included the 47 families who agreed to the offer. These households cultivated block area numbers 31–34 (see the green area in Fig. 11.5). The company and households agreed that this exchange was only temporary and that all of these families would eventually return to their initial distributed plasma areas when the latter could be feasibly cultivated by the community—i.e., within one planting period for the plantation, which is around 25 years.

Fig. 11.5

Plasma plantations within PT. SLS land concessions in Sari Makmur (Adapted from Widyatmoko 2019)

By the end of the period, however, not all 47 households agreed to return to their initial areas, as 17 households who had cultivated block area number 32 still refused to return to P21 and P22 (see the white areas on Fig. 11.5). Even though these locations had been replanted with new trees, and the households would therefore not have to pay for replanting costs for 25 years, they still had concerns with the areas’ poor infrastructure. The households demanded that PT. SLS pay compensation (Rp50 million) to each smallholder to build new infrastructure for their lands. However, PT. SLS has not yet granted this demand, as it does not consider the matter urgent. After all, the other 30 households had already moved and were cultivating block areas P18, P19, and P20 without issue.

In the case of STDB and SPPL applications in the community, ISPO administrative requirements have divided the interests of the smallholders’ community and the company. For Sari Makmur, ownership of these documents means access to further capital accumulation through government assistance and funds from financial institution. It also means a guarantee of stable market access, especially for PT. SLS, leading to better commodity prices as well as the legal acknowledgment of their plantations. However, this community first has to solve the problem of land swap with the company in order to get the STDB and SPPL for all smallholders in Sari Makmur.

For PT. SLS, pushing for STDB and SPPL application in the community will pave the way for it to close concessions and plasma plantation border disputes. It is important for this company to renew its rights to the palm oil plantation in this area given that the permit will expire soon. An ISPO application by the community would be a great reason for PT. SLS not to grant compensation demands from several smallholders who do not want to return to their original plantations. This is because the ISPO application requires legal acknowledgment of community-cultivated plantations. A community application will be rejected if the ISPO Commission finds that some of the plantations are still located inside the company concession.

Furthermore, the clearance border dispute is also important for PT. SLS, which not only has to renew its HGU but also its ISPO certification by January 15 2019. Unless the company resolves the dispute before this due date, ISPO certification will be revoked. This condition will harm PT. SLS’s reputation as a nationalist company determined to use national certification for sustainability. For this reason, it will not be surprising if PT. SLS offers assistance to the community in applying for ISPO certification.

5.3 Vague Regulations for Obtaining STDB as an ISPO Certification Requirement and Replanting

As an ISPO pilot project, unfortunately, the Sari Makmur community did not receive a comprehensive explanation regarding administrative requirements and the process to obtain palm oil sustainable certification during the ISPO socialization process. The administrator of Mulia merely went about collecting documents administered by the company without understanding why. To be sure, ISPO implementation entails more than matching documents necessary for certification. At play here were local dynamics and different interpretations of obtaining documents such as STDB and SPPL. Leaders of the cooperative have admitted that obtaining these documents would cost around Rp1.3 million. In other words, a cooperative/organization will have to pay Rp650 million to accomplish the STDB and SPPL documents. Adding this to the cost of certification, in total, a cooperative would have to have around Rp700 million in its account.

This is a heavy cost to bear by the cooperative. The community expects the local government and the company to shoulder the cost. The community also maintains good relationships with the current district leader and member of local parliament to communicate this problem. This example happened in a neighboring village, which had also been targeted by PT. SLS for ISPO certification. The presence of local parliament representatives in Sari Makmur and its neighboring village could push for easier communication with leaders. The Sari Makmur community hopes that by communicating their problem, it will help the community to shift the costs of the STDB and SPPL applications to the company or local government. Moreover, the Mulia administration understands that in other provinces, such as Jambi, communities do not have to pay for these documents. In addition, the Sari Makmur community is a strong political supporter of the current district leader. Leaders of Mulia understand their political position and are confident in capitalizing on it during formal meetings with government representatives to raise their concerns. These community efforts show the leaders’ abilities to use social capital to bargain with the government.

At the local government level, regulation for an STDB license mentioned in the Plantation Law and the regulation of the Ministry of Agriculture generated confusion in its practical implementation. In the context of an authorized agency, the plantation department in the local district is responsible for handling document collection and registration. This department did not impose costs for the document. This authority was transferred to the Board of Investment and Integrated Licensing Service (BPMP2T, Badan Penanaman Modal dan Pelayanan Perizinan Terpadu); however, there would be a cost charged for the document handling. At some point, the local government recognized the potential of STDB registration as a source of additional revenue, rather than as a vehicle for information dissemination that would help smallholder farmers carry out accurate spatial planning. The cost attached to STDB could also be found in other districts, such as Siak.

The STDB document is categorized by BPMP2T as a non-licensing document. Therefore, it can be inferred that the local government does not impose a cost on STDB arrangements. In practice, there is an operational cost that has to be borne by the plantation department as the responsible agency for issuing STDB documents before they are legally transferred to BPMP2T. An STDB application requires knowledge of the location coordinates as well as an on-site inspection by a team of experts from the plantation department. Unfortunately, the plantation department cannot cover this operational cost because there is no official local government allocation for this duty. Therefore, the operational problem should be communicated and coordinated with the plantation department, team of experts, farmers, and the company.

For an implementing agency such as the local plantation department, consolidating costs with the smallholder is the best solution. If they have to follow the application of ISPO rules in which the certification cost, especially for the smallholder, is obtained from the local government, it will take longer to process the ISPO certification. This is because allocating local government expenditure requires political consolidation. From the local government’s perspective, consolidating the cost to obtain STDB and SPPL could open an opportunity for company involvement.

6 Conclusion

The paper has shown how legal requirements and processes to be fulfilled by both the smallholder and company have slowed ISPO implementation. The reluctance of the company and smallholder to participate in the tedious process does not necessarily imply any past legal wrongdoing on their part. In the case of the palm oil smallholders in Sari Makmur, the long process for ISPO certification is from a re-delineation of resource boundaries between the company and the community. Even though both parties have been cooperating through the nucleus-plasma mechanism, the land swap in the past has resurfaced as a point of contention, with some groups in the community intending to break from the commitment by seizing an opportunity opened up by ISPO implementation. This problem has complicated the process of gaining STDB for the community as well as returning company land concession.

The STDB requirement for ISPO certification has been the intersection for the company and the community at which they made arrangements to pursue their mutual interests. For the company, community STDB ownership along with their land ownership will clear resource boundaries between company concession and community areas for palm oil cultivation. Therefore, it was not surprising when the company offered assistance to the community to collect the documents required in the application for ISPO certification. Meanwhile, the community expected that STDB ownership would open further assistance for the replanting process.

These show that the relationship between the company and the community is relatively fluid. The power imbalances in terms of capital and commodity prices do not shut down communication lines between them, especially in pursuit of win–win solutions. The company sees the Sari Makmur community as an independent and yet beneficial partner for their palm oil production cycle. Conversely, the community sees the company as a beneficial patron that can assure stable and fair prices for their palm oil output.

The cost of obtaining STDB is also an important matter for both the company and community. The community insists that the company bears the cost for STDB and the ISPO certification process, but the company thinks otherwise. Both parties occasionally discuss the matter through monthly meetings or at company events. Nevertheless, the community is making representations with the local government through linkages and networks with the district leader and the administration. The issue of cost for STDB results from the uncertainty in the ISPO implementation as to who ultimately bears the cost of the certification process.

Palm oil smallholders, especially those that are independent, are still facing problems with land legality. This occurs during the initial land clearing for plantation due to the overlapping of smallholder land ownership with a company’s land use right or land clearing for a plantation on land forest status. This problem has limited the ISPO certification process for smallholders, which encounter difficulties in registering their smallholding or plantation, let alone gaining ISPO certification.