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Reducing agricultural expansion into forest: analysis of implementation financing gap
f. Certification
Assessment
NA NA
NA Need cost for
preparation, maintenance, and
certification.
2. Plantation
a. Planting
Low quality of seeds, low inputs
fertilizers, pesticides,
insecticide, etc. Moderate quality of
seeds, moderate inputs fertilizers,
pesticides, insecticide, etc.
Good quality of seeds, good inputs
fertilizers, pesticides,
insecticide, etc. Good quality of
seeds, good inputs fertilizers,
pesticides, insecticide, etc.
b. Plant care
Poor maintenance Moderate
maintenance Good maintenance
Good maintenance
3. Infrastructure
a. Roads
NA Roads provided by
partner nucleus company, cost is
paid by plasma farmer through a
credit scheme. Cost for roads is
spent in the initial stage of project
Cost for roads is spent in the initial
stage of project
b. Bridges
NA NA
Cost for bridges is spent in the initial
stage of project Cost for bridges is
spent in the initial stage of project
c. Buildings
NA NA
Cost for buildings is spent in the initial
stage of project Cost for buildings is
spent in the initial stage of project
d. Housing
NA NA
Cost for roads is spent in the initial
stage of project Cost for roads is
spent in the initial stage of project
e. Harvesting
Harvesting cost is influenced by
production volume low, technology
equipments less effective, and price
of labour low. Harvesting cost is
influenced by production volume
moderate, technology
equipments moderate, and
price of labour low.
Harvesting cost is influenced by
production volume high, technology
equipments high, and price of labour
high. Harvesting cost is
influenced by production volume
high, technology equipments high,
and price of labour high.
f. Wages salary
NA NA
Average labour’s wage IDR
37.800day Need additional
salary for RSPO and HCVA staffs.
g. Corporate Social
Responsibility
NA NA
Obligation Obligation and
responsibility
B. BENEFITS
1. Fresh Fruit
Bunch FFB
Average production 8.06 tonha, Price
IDR 1,100,000- Average Production
12.59 tonha, Price IDR 1,100,000-
Average Production 19.67 tonha, Price
IDR 1,100,000- Average Production
19.67 tonha, Price IDR 1,100,000-
status of SKPT. Although, it is also possible that some of them have farm lands with legal status of SHM or HGU. The land acquisition cost for oil palm companies is assumed IDR 4 millionha. It is much higher than land
acquisition cost of smallholders and plasma farmers because the legal status of land is HGU. The land acquisition cost will be higher if the land is not a bare land but has been planted by valuable trees or crops, such as rubber,
coffee, or other agricultural crops.
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Reducing agricultural expansion into forest: analysis of implementation financing gap
1,250,000kg 1,300,000kg
1,300,000kg 1,300,000kg
2. By products
NA NA
All solid and liquid waste could be
applied for organic fertilizer K-
fertilizer. Value of by products is ca.
10 in reducing cost of fertilizers.
All solid and liquid waste could be
applied for organic fertilizer K-
fertilizer. Value of by products is ca.
10 in reducing cost of fertilizers.
Note: NA
= Not Available FS
= Feasibility study EIA
= Environmental Impact Assessment ABA
= Area Boundary Arrangement HCVA
= High Conservation Value Area SKPT
= Letter of notification for land ownership released by village head HGU
= Right of business utilization released by BPN national Land Agency SHM
= Land Ownership Certificate
Table 2-2
shows that generally independent smallholder needs investment cost only for land acquisition. In Central Kalimantan, normally cost for land acquisition is about IDR 2.5 million per hectare, included
payment for land and letter of notification for land ownership released by the village head so called SKPT Surat Keterangan Pemilikan Tanah
. For plasma farmers, there are two possibilities of land acquisition permit they have, i.e. SKPT or HGU. The costs for HGU Right of Business Utilization permit and other
costs such as feasibility study and area boundary arrangement are usually paid by the partner company as a part of loan package in a nucleus-plasma estate scheme. There is additional cost for company who wants
to apply RSPO certification, i.e. management of High Conservation Value HCV area. These costs are usually spent at the initial stage of project.
Independent smallholders usually plant oil palm with low quality seeds, low inputs in terms of fertilizers, pesticides, insecticide, and other important inputs. Plasma farmers are assumed planting a better quality of
seeds and other inputs rather than independent smallholders. Companies, both ordinary and RSPO certified companies, are assumed to apply good quality of seeds, optimum inputs, as well as intensive
plant care and maintenance. Independent smallholders are usually not spending investment for infrastructure. They use the existing
roads, bridges, and other infrastructures developed by government or company. For plasma farmers, roads are usually provided by their partner company. Those investment costs for infrastructure are paid by
plasma farmers as a soft loan and spent in the initial stage of project. Besides those infrastructure costs for
roads and bridges, the oil-palm companies also spend additional investment costs for buildings. Cost for
buildings was spent in the initial stage of project, including offices and housing for management staffs and labours.
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Reducing agricultural expansion into forest: analysis of implementation financing gap
The other important costs in the operational stage are harvesting costs. Those costs are highly influenced by production volume, technology and equipments, and prices of labour. The harvesting costs of
independent smallholders are low because they usually gain low production volume and apply less effective technology and equipment. The oil-palm companies pay higher costs for harvesting than farmer
because their production volume is higher than of farmers, using better technology and equipments, as well as paying labour costs.
Referring to the minimum regional labour price UMR of Central Kalimantan Province, the average labour’s wage in an oil palm company is about IDR 37.800day. For a company who wants to apply
RSPO certification, it needs additional cost for operating and maintaining RSPO and HCV standards. Besides costs of production an oil-palm company shall also spend costs for community development as
state obligation or voluntary Corporate Social Responsibility CSR. It is assumed that the average production of FFB produced by usual independent smallholder is 8.06
tonha, improved independent smallholder 10.07 tonha, usual plasma farmer 12.59 tonha, improved plasma farmer 15.74tonha and company 19.67 tonha. The normal price of FFB is assumed IDR
1,250,000 farmer to 1,300,000ton plasma and company, and in this study the premium price for RSPO certified product is assumed 5 higher than normal price.
16
It is also important to note that an RSPO certified company usually allocates about 20 of the farm land for conservation purposes
HCVA. Consequently, the production of oil palm will also decrease by ca. 20. By products of CPO plant, i.e. solid and liquid waste, are very valuable. Those wastes of CPO could be
applied for organic fertilizer K-fertilizer. The total value of those by products is estimated to reduce 10 costs of fertilizer.
17
A.2 Regular business operation of oil-palm estates
To operate business of oil-palm estate, there are some components of cost shall be considered, i.e. planning and investment consist of feasibility study, permit, area boundary arrangement, and land
acquisition; plantation costs planting and plant care; infrastructure costs roads, bridges, building, and
housing; harvesting costs; wages and salaries, and corporate social responsibility Table 2.3. The
16
According to the informal discussions during the RSPO annual meeting in Kota Kinabalu, Sabah, Malaysia November 2011, the maximum premium price for FFB is approximately only 4-5 above the normal price. MFH,
Executive Director of GAPKI informed that the current price of the RSPO certified CPO is only about USD 0.5-1.0 above the normal price or higher less than 1 personal communication.
17
Personal communication with KN, a General Manager of an oil-palm company.
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Reducing agricultural expansion into forest: analysis of implementation financing gap following Table 2.3 is dealing only with regular business operation. The business operation of a certified
company is described in the Table 2.4. Table 2.3. Costs for regular business operation of oil-palm estate
Components Indep. Farmer
BAU IDRha25
year Plasma Farmer
BAU IDRha25 year
Ordinary company
IDRha25 year
A. Costs 1. Planning Investment
a. Feasibility Study -
60,000 60,000
b. Permit -
40,000 40,000
c. Area boundary arrangement -
60,000 60,000
e. Land acquisition 2,500,000
2,500,000 4,000,000
2. Plantation
a. Planting 13,695,500
34,343,000 34,344,000
b. Plant care year 4-25 98,053,950
96,998,757 170,457,900
3. Infrastructure
a. Roads -
12,204,000 12,204,000
b. Bridges -
- 1,018,800
c. Buildings -
- 694,000
d. Housing -
- 870,000
e. Harvesting 14,099,120
22,029,875 61,467,285
f. Wages salary -
- 820,200
g. Corporate Social Responsibility -
- 20,000
Total Costs IDRha25 year 128,348,570
168,235,632 286,056,185
A.3 Business operation with productivity improvement premium price for certified commodity
There are some additional costs to improve productivity of oil palm estate, particularly for plantation costs, i.e. costs of planting and plant care. About 75 of costs for plant care are allocated for fertilizer’s
application and about 10 for pesticides
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. After improved productivity, harvesting costs would be also increase as a consequence of the raising production volume. For a plasma farmer or company which
wants to apply HCV standards or RSPO certification, additional costs for environmental impact
assessment and certification assessment are needed Table 2.4.
18
Personal communication with KN, General Manager of an oil-palm company and HY oil-palm expert from Bogor Agricultural University IPB
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Reducing agricultural expansion into forest: analysis of implementation financing gap Table 2.4. Costs for improvement business operation of oil-palm estate
Components
Improved Indep. Smh
IDRha25 year
Improved Plasma Farmer
IDRha25 year
Certified Company
IDRha25 year A. Costs
1. Planning Investment a. Feasibility Study
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