2024年棕榈油行业晴雨表.docx

PALM OIL BAROMETER 2024
Consultation Paper

LEGAL COMPLIANCE

Procurement for Prosperity

Introduction

Over the last decade there’s been much heated debate and substantial positive action taken in response to deforestation in the name of palm oil production. While the area of land being cleared to plant oil palm is thankfully in global decline, another equally serious issue remains.

Between 3 and 7 million oil palm smallholders are responsible for around 25-30 percent of the total palm oil supply1. Most smallholder oil palm growers live their lives month to month, not knowing whether the price of their crops will be hit by another flood or fluctuation, potentially devastating their land and income. The demands to produce more sustainably continue to pile up while the prices that buyers are willing to pay remain firmly out of smallholders’ control.

In short, the palm oil industry is a challenging place to be a farmer. They are vulnerable for climate change related extreme weather events, and have to deal with more sustainability requirements. To date, the wider sector has avoided the big questions around poor value distribution, precarious income and price volatility that disproportionately impact small-scale producers, and yet hold the key to their prosperity.

In this paper we look at how focusing on the four dimensions of inclusivity; ownership, voice, risk and reward, has the potential to turn the tide on unequal value distribution and support both farmer livelihoods and more sustainable production.

Flooded palm oil mill and plantations in Honduras. © Solidaridad

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PAYING THE PRICE FOR SUSTAINABILITY
As with all crops, there is growing recognition that oil palm must be grown sustainably if we are to continue to meet demand and face today’s climate crisis. Farmers are working on the frontline, facing worsening extreme weather conditions. They need more support on multiple levels to deal with the devastation that comes with an increasingly warm planet.

However, it’s growers, of all sizes, who pay the price for sustainable oil palm farming while buyers and retailers pocket the majority of the value created in the supply chain for themselves. This has to change. The cost of production and, in particular, more sustainable production must be more equally distributed throughout the supply chain.

In the first edition of the Palm Oil Barometer,2 published in 2022, we wrote: “To minimize risk and take advantage of opportunities, the key point is to acknowledge smallholder farmers’ interests and agenda setting as the point of departure, rather than implementing pre-conceived ideas”. In 2024 this is still true. In this second edition we continue to contribute to the discussion by unpacking more about value distribution and purchasing practices, and to stimulate the debate.

The central question in the second Palm Oil Barometer is thus: In a globally operating sector that depends on market mechanisms, how can we establish a system that truly includes and supports growers and smallholder farmers to produce in a more sustainable way?

In the first chapter of this paper we explain the current situation and growing challenges that smallholders face. In the second chapter we present our recommendations on how responsible procurement practices can offer real solutions to these global issues.

In the second edition of the Palm Oil Barometer, to be published late 2024/early 2025, we will include three continental deep dives reflecting the state of the palm oil industry in Africa, Latin-America and Asia, along with a global overview of sustainability issues in the sector.

The production is guided and supported by various smallholder representative organisations and experts. These draft versions of chapters one and two will be enriched with the feedback collected from our network during the consultation phase.

We hope the second Palm Oil Barometer will help to drive the agenda forward and bring us closer to living incomes for smallholder farmers growing oil palm.

Palm oil farmer, Ghana. © Chikis Studios / Solidaridad

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“These aging trees urgently need replanting to maintain productivity, but that comes at a price: several years of reduced yields and income.
For farmers, this transition can be
a make-or-break moment.”
Lesly Vera, Solidaridad Peru

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The need for more inclusivity in the palm oil value chain

1.1 DEFINING SMALLHOLDERS IN THE OIL PALM VALUE CHAIN
It’s not easy to define an oil palm smallholder. These farmers contribute to the palm oil supply chain in a variety of ways, with significant differences both between and within countries. They follow a wide range of land use strategies and models of social organization. Commonly, families operate as independent units and pursue their own livelihood strategies with a combination of different production activities
to generate household income.3 A typical oil palm plot is below five hectares, despite the fact that the threshold for smallholder farmers is set at 25 hectares in Indonesia and at 40 hectares in Malaysia.4 To learn more about the specific circumstances facing oil palm smallholders in these regions, please refer to our continental deep dive chapters (to be published in the final palm oil barometer).

Smallholder farmers account for an estimated 27 percent of the total cultivated land area and between 25 and 30 percent of global production.5 Large plantations often integrate smallholder plots through
outgrower schemes or rental agreements. These so-called scheme smallholders are specialized in oil palm farming and rely on the plantation company for improved planting stock, fertilization and training.

When we talk about smallholders we usually refer to independent smallholders who have freedom to choose how they operate their land. The vast majority of independent smallholders rely on diversified agricultural production to make a living, where the linkages between forest, farm and land support human well-being and a range of ecosystem services.6 These smallholders are developing their operations independently from the large plantations. They organize themselves in farmer groups, cooperatives and
associations to collect and sell their fresh fruit bunches (FFB) to the mill that offers the best price. Or they depend on intermediaries for selling their produce as well as for access to inputs and credit.

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SMALLHOLDER DEFINITION

The term oil palm smallholders or farmers often lacks a precise definition, but in practice tends to refer to differences in size and level of reliance on family labor. The farm provides the majority of income to the family, and in turn the family provides the majority of labor on their farm.7 This aligns with the RSPO’s definition:
“Smallholders are those managing palm oil plantations of 50 hectares or less. They can operate either independently or in collaboration with companies”. In this definition, the RSPO distinguishes two types of smallholders: scheme smallholders and independent smallholders.

Scheme smallholders: do not have enforceable decision-making power on how they operate their land and their production practices, and/or freedom to choose how they use their land, the types of crops to plant, and how to manage them.

Independent smallholders: all other smallholders not classified as scheme smallholders. They have the freedom to choose how they use and manage their land including the types of crops to plant.

Many smallholders are attracted to growing oil palm for its greater yield and potentially higher prices, as well as the fact that it can be harvested year-round, providing a steady cash flow. Compared to other
commodities like cocoa, coffee or tea, oil palm is seen as a profitable crop and price is rarely the subject of public debate. This is likely linked to the fact that palm oil is generally more profitable compared to other crops and that, in most cases, smallholders have larger plots than their peers in other crops.

However, they face constant changes in a fast-moving market. Their incomes remain precarious, reliant on factors that are out of their control. At the same time food manufacturers and consumer goods (FMCG) companies and retailers manage to consistently generate profits on products which include palm oil.

1.2 SMALLHOLDER INCLUSIVITY
It is time to look at building palm oil value chains through an inclusive lens. Interesting things have been written on the topic of smallholder inclusivity. One developed model8 suggests assessing four dimensions of inclusion;

• Ownership: deals with the question of who owns what part of the business, and assets such as land and processing facilities.
• Voice: the ability of marginalized actors to influence key business decisions, including their weight in decision-making, arrangements for review and grievance, and mechanisms for dealing with asymmetries in information access.
• Risk: including commercial (production, supply and market) risks, but also wider risks such as political and reputational ones.
• Reward: the sharing of economic costs and benefits, including price setting and finance arrangements.

Looking at these dimensions allows for a clearer perspective on inclusiveness and a better understanding of the actual conditions under which smallholders are included in business practices.9 Many companies think they are smallholder inclusive when they source from smallholders. But that is only the start. To

deliver on all four aspects of inclusive agribusiness10, we must be aware of the interlinkages. For instance, ownership can influence voice, and voice in price-setting crucially affects reward. Ownership influences risk, as a jointly owned business also involves sharing of business risks.

In terms of the palm oil sector, we can highlight interlinked elements like income and value distribution, corporate transparency or participation in multi-stakeholder initiatives.

In this paper, we take the four aspects of inclusion and their interlinkages as guidelines for procurement practices.

Smallholder farmers get support in digital administration. © Chikis Studios, Ghana.

1.3 RSPO AND SMALLHOLDER INCLUSIVITY
Many players refer to the Roundtable on Sustainable Palm Oil (RSPO) for sustainability and smallholder inclusivity in the palm oil value chain. While RSPO is an important tool to drive improvements in the palm oil value chain such as labor standards and the recognition of rights of indigenous communities, it does not have a good track record with respect to the inclusivity of smallholders.

Two decades since its foundation, independent smallholders now make up 1.5-2 percent of RSPO certified volume. In 2024, this represents around 50,000 smallholders11 and around 130,000 hectares of RSPO certified land (2.5% of all RSPO certified land). New data from the RSPO suggests there has been a remarkable growth in numbers of certified smallholders in recent years, however this still represents only a few percent of all global smallholders12.

Instead the push for segregated RSPO certified material pushes smallholders out of RSPO certified value chains, as the costs of smallholder certification are relatively high compared to the benefits. So, we can say, the uptake and increase of RSPO certified material does not necessarily drive more inclusive value chains, or improved Independent smallholder farming practices.

FARMER PROSPERITY IS A HOUSE OF CARDS

LEGAL COMPLIANCE

1.4 SMALLHOLDER PRECARITY
The amount a smallholder earns is reliant on a number of external conditions. Their income situation is comparable to a house of cards (see illustration). The price of smallholders’ FFB is an important factor in just how precarious their position is. Farmer income is influenced by a range of factors including:

• The implementation of a pricing mechanism formula that’s often prescribed by local or national governments.
• The world market price, as the FFB-price received by smallholders often relies on global prices.
• The price farmers pay for inputs like fertilizer and pesticides also depend on global market prices.
• Whether the farmer or agent is selling to intermediaries or directly to the mill.
• The state and availability of local infrastructure and transport logistics
• The number and capacity of mills that can be reached before the FFB starts to deteriorate.
• The reliability and fairness of weighing scales and quality control procedures.
• The objective assessment of FFB grading by the mill and how transparent it is about its grading system.
• The Oil Extraction Rate (OER), which in turn relies on the quality of the FFB.

We are currently seeing three key developments that make the topic of smallholder inclusivity particularly relevant:
1. increasing vulnerability for climate change related extreme weather events
2. increasing price volatility
3. increasing sustainability requirements

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1. CLIMATE CHANGE VULNERABILITY
We see increasingly regular extreme weather events due to climate change, such as flooding and extended periods of droughts. Such events cause costs to rise for farm inputs and further price volatility. Smallholders often lack access to the knowledge and capital to overcome these problems.13

2. INCREASING PRICE VOLATILITY
In the past four years we have seen palm oil prices swing between 576 US dollars in May 2020 and 1,776 US dollars in March 2022 and down below 1,000 US dollars in 2023 and 2024.14

FIGURE 1 PALM OIL AND PALM KERNEL OIL PRICES 2006-2024
(US$/mt)

2500

2000

1500

1000

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
500
Palm kernel oil PALM OIL

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FIGURE 2 COMPARATIVE VOLATILITY OF REAL AGRI PRICE INDEXES
Real Price Index (2010=100)

140
120
100
80
60
40
2016-2019
2020-2023
Raw Materials Beverages Other food Veg. oils & meals Grains
Source: Cárcamo-Díaz, R. (2024, 3 July), Global food markets: Implications for international trade and competition and consumer policies, Fifteenth Meeting of the UNCTAD Research Partnership
Platform, online: unctad.org/system/files/non-official-document/ccpb_IGRRPP2024_presentation_Carcamo_en.pdf

Source: IndexMundi (2024), Palm oil Monthly Price - US Dollars per Metric Ton - January 2006 - August 2024, online:
IndexMundi (2024), Palm Ker