A palm oil worker carries oil palm bunches in Pekanbaru, Riau, on March 20, 2019. (Antara Photo/Rony Muharrman)

Inclusive Closed-Loop Model Key to Improve Oil Palm Smallholders' Productivity and Livelihood: Kadin

BY :JAYANTY NADA SHOFA

DECEMBER 04, 2020

Jakarta. The inclusive closed-loop model has helped improve the vulnerable oil palm smallholders' productivity and well-being, key for increasing Indonesia's palm oil productivity over the next few decades, a powerful business lobby said on Thursday. 

The inclusive closed-loop model puts farmers at the center of palm oil production, connecting them with palm oil companies, banks, and the government for assistance.

Companies as the commodity buyer would help farmers to find financing from financial companies. They did so by putting orders to be used to guarantee banks when farmers apply for loans. Banks and insurance companies provide loans and insurance for the farmers who would use the financing to buy better seeds, equipment, and fertilizers.

The government and the companies would also help farmers gain access to training programs, certified seeds, technology, and funding. They can learn good agricultural practices for sustainable palm oil production.

According to Franky O. Widjaja, a deputy chairman for agribusiness, food, and livestock affairs at the Indonesian Chamber of Commerce and Industry (Kadin), smallholder farmers are the most important stakeholder in the palm oil sector. Still, they are at the same time the most vulnerable. 

"Smallholders manage 41 percent out of the total 16.38 million hectares of oil palm plantation," Franky told an online conference held by the Indonesian Palm Oil Association (Gapki) on Thursday.

"But these farmers are the most vulnerable in the value chain because they yield only 2 to 3 tons per hectare per year. Whilst the industrial standards are 5 to 6 tons per hectare a year," he said. 

On the other hand, the inclusive closed-loop model increased the farmers' productivity by 40 to 76 percent. Kadin, along with Indonesia's Partnership for Sustainable Agriculture (PISAgro) — who also partners with Gapki — implemented the model on palm oil and several other agricultural commodities and saw farmer income rose by 50 to 200 percent, depending on the commodity.

“We were able to achieve this when we adopted the inclusive closed-loop model that is used in the palm oil industry, which has brought Indonesia to become the world’s largest palm oil producer. Consistent handholding is key to help these farmers,” he said.

The government is currently promoting a replanting program to boost farmers' productivity. The government also uses the inclusive closed-loop model by assisting Rp 30 million (around $2,126) per hectare to farmers through the Palm Oil Plantation Fund Management Agency (BPDPKS). As well as rolling out subsidized microloans (KUR) through banks to support the replanting program.

"While we are doing this, we continue to make significant progress in the development of sustainable palm oil production. Our goal is to balance economic opportunities, environmental protection, and social welfare. And the palm oil industry has implemented the sustainable development goals," Franky said.

Also, the palm oil industry can help feed the ever-growing population. The global population is projected to reach 9.8 billion people by 2050.

"With this number, it is estimated it will require an additional 200 million tons of vegetable oil to feed the population. Palm oil can be used to fulfill this requirement as it is the most efficient and the most productive vegetable oil," Franky said.

Against Negative Campaign

The palm oil industry suffers from numerous negative campaigns, ranging from accusations of deforestation to human rights violations.

Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan calls the industry to combat these negative campaigns as the palm oil sector plays a vital role in the national economy. The palm oil industry is a major foreign exchange contributor amid the Covid-19 pandemic. As of September, palm export value reached $13.84 billion.

"Until now, there are still many negative campaigns against the palm oil industry, be it domestic or international. [Because of the industry's importance to the economy], all parties must join forces against these negative campaigns," Luhut said.

The minister also hopes the recently enacted Job Creation Law can improve the palm oil industry's investment climate.

"The Job Creation Law regulates the land use and permits as well as partnerships in the palm industry. Hopefully, investments in the industry -- be it in the upstream or downstream -- improves with the Job Creation Law and its derivatives," Luhut said.

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