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Vlog : Smallholder Farmers and Innovative Financing


Indonesian smallholder farmers manage over 40 percent or 4.5 million hectares of palm oil estates in the country. More than half are managed by independent smallholders with the remainder run by plasma smallholders where growers partner with big commercial plantations.

But independent smallholders face many challenges including low productivity and yield due to poor quality seed stock and lack of training in estate management. This means that the average smallholder yield per hectare is low – between two and three tons per hectare.

As a result, many smallholders face an urgent need to replant their oil palm, to replace aging trees and to improve their productivity through improvements in crop management.

But replanting is expensive, and takes time – it can be four years until the new tree is productive, and throughout this period, farmers need to invest in new seedlings, fertilizers and the protection of the young trees from pests and disease, without a steady source of income. As a result, many smallholders find it difficult to finance a replanting and instead try to expand their planted area adding to pressure on the forests of Indonesia.

Renville, a smallholder farmer from Bandar Pandang, Indragiri Hulu Regency describes the situation of most small growers, “The productivity of my plantation is very low. This is because my trees were grown from poor quality seeds and don’t produce the required grade. Due to this I cannot sell at the market price.”

Introducing the Innovative Financing Scheme

A public-private partnership involving the Indonesian Government, the Indonesian Chambers of Commerce (KADIN) and the Indonesian Economists Association (ISEI) under the umbrella of Partnership for Indonesia’s Sustainable Agriculture (PISAgro), aims to reach these farmers and help them access financing and training to boost their yields and income. And GAR and PT SMART are actively involved in this through the Innovative Financing Scheme.

The Scheme aims to:

  1. Support the replanting of two million hectares of independent smallholder estates
  2. Double or triple the productivity of independent smallholders to match the yields achieved by commercial plantations
  3. Support the livelihoods of one million independent smallholders during replanting
  4. Potentially remove the need to open another one million hectares of agricultural land

The Scheme has been launched in Riau province on the island of Sumatra. It works by encouraging farmers to form cooperatives and by doing so, secure long term supply contracts with GAR’s supplier mills.

In addition to long term supply contracts, the farmer cooperatives are able to access certification in the form of the Indonesian Sustainable Palm Oil System (ISPO), government land certification, grants, training and subsidized loans to enable the farmers to invest in certified high yielding seeds and the best available crop science.

The results are higher yields and incomes for the farmers, a greater and stable supply of certified palm oil for GAR and reduced pressure on nearby forests.

The local government is also supportive of the Scheme as Regent Jeffrey H. Noer of Kampar District, Riau explains: ” There are about 600,000 hectares of palm oil plantations in Kampar and the majority of trees are in urgent need of replacement. If it is not done, our farmers will lose their source of income. GAR/PT SMART has provided a lifeline for communities in the area, enabling the replanting of the palm estates.”

The Scheme currently involves 320 farmers across Riau managing close to 900 hectares and following its success, GAR plans to roll it out in other areas.

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