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Agro Ekonomi Vol. 28/No. 2, Desember 2017

ISPO CERTIFICATION AND INDONESIAN OIL PALM
COMPETITIVENESS IN GLOBAL MARKET
SMALLHOLDER CHALLENGES TOWARD ISPO CERTIFICATION
Sertiikasi Ispo dan Daya Saing Kelapa Sawit Indonesia di Pasar Global
Tantangan Perkebunan Rakyat Menghadapi Sertiikasi ISPO
Sakti Hutabarat12
Department of Agribusiness, Faculty of Agriculture, University of Riau
Jl. HR Soebrantas km 12,5, Kampus Binawidya, 28293, Pekanbaru, Indonesia
2
Plant Production System Group, Wageningen University
Droevendaalsesteeg 1, 6708PB Wageningen, The Netherlands
shutmail@yahoo.com
and sakti.hutabarat@lecturer.unri.ac.id
1

Diterima tanggal : 29 Agustus 2017 ; Disetujui tanggal : 30 November 2017
ABSTRACT

Certiication becomes a prerequisite for tradable products to get legality and access
to global market. Each tradable product can choose certiicate according to its market
destination. However, the application of certiication standards are very low in both
international (RSPO and ISCC) and domestic (ISPO) standards. This study was focused
on the ISPO certiication. How large is the gap between current practices and ISPO
standard? What are factors that affect adoption of ISPO certiication? Does ISPO deliver
more access to market for oil palm smallholders? Do smallholders have adequate capacity
to meet ISPO standard? These questions have been assessed and discussed in this paper
to ind answer and alternative way out for smallholders to meet the ISPO standard. The
objective of this study is to assess capacity and willingness of oil palm independent
smallholders to meet the standard of ISPO certiication. This study was conducted in
Pelalawan District, Riau Province using a survey method. The result shows that a number
of barriers are faced by smallholders to obtain ISPO certiication while the opportunity
to get better access to local and global market is still uncertain. The adoption of ISPO
certiicate was inluenced by farmers’ knowledge on agricultural practices, business
legality, household income, and land-size.
Keywords : certiication, competitiveness, palm oil, smallholder
INTISARI
Sertiikasi telah menjadi suatu prasyarat bagi produk-produk komersial untuk mendapatkan
legalitas dan akses ke pasar global. Setiap produk yang diperdagangkan dapat memilih

sertiikat sesuai dengan tujuan pemasaran. Namun, penerapan standar-standar sertiikasi
masih sangat rendah baik standar international (RSPO dan ISCC) dan nasional (ISPO). Studi
ini difokuskan pada sertiikasi ISPO. Sejauh mana kesenjangan antara praktek budidaya saat
ini dan standar ISPO? Apa faktor-faktor yang mempengaruhi penerapan sertiikasi ISPO?
Apakah ISPO memberikan akses pasar yang lebih baik pada pekebun kelapa sawit? Apakah
pekebun memiliki kapasitas yang memadai untuk menerapkan standard ISPO? Pertanyaan-

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171

pertanyaan tersebut telah dikaji dan dibahas dalam tulisan ini untuk menemukan jawaban
dan alternatif solusi bagi pekebun dalam memenuhi standar ISPO. Tujuan studi ini adalah
untuk mengukur kapasistas dan keinginan pekebun kelapa sawit swadaya untuk memenuhi
standar sertiikasi ISPO. Studi ini telah dilaksanakan di Kabupaten Pelalawan, Provinsi
Riau dengan menggunakan metode survei. Hasil penelitian memperlihatkan bahwa sejumlah
tantangan dihadapi oleh pekebun kelapa sawit untuk mendapatkan sertiikat ISPO sementara
peluang untuk mendapatkan akses yang lebih baik pada pasar lokal dan global masih belum
jelas. Adopsi sertiikat ISPO bergantung dari pengetahuan pekebun tentang praktek budidaya,
legalitas usaha perkebunan, pendapatan rumah tangga, dan luas kepemilikan lahan.

Kata kunci : sertiikasi, daya saing, minyak sawit, pekebun rakyat
INTRODUCTION

Choosing appropriate certiication

Transforming the market to make

program for a tradable product in the global

sustainable products become a trend in

market could be a dilemma for Indonesian

global supply chains. Certiication is one of

producers, particularly for palm oil and

global market change for tradable products.

its derivatives products. Indonesia is the

Started by organic movement in 1940s, then

leading palm oil producers in the global

followed by International Federation of

market that provides 52% of world supply

Organic Agriculture Movements (IFOAM)

of palm oil products. Indonesia exports

in 1970, Fairtrade in 1988, Storage Area

more than 70% of palm oil to international

Network (SAN) in 1991, Forest Stewardship

market which tend to apply RSPO or ISCC

Council (FSC) in 1993, International

certiication. At the same time, palm oil

Organization for Standardization (ISO)

industry in Indonesia must have ISPO

14001 in 1996, Roundtable on Sustaianble

certiicate.

Palm Oil (RSPO) in 2004 and International

In the future, ISPO will be a

Sustainability & Carbon Certiicate (ISCC)

mandatory certification for oil palm

in 2010. The latest certiication program

smallholders. Based on the Minister of

was launched by Indonesian Ministry

Agriculture Regulation No. 98/2013, Oil

of Agriculture in 2011, the Indonesian

palm smallholders are growers that have

Sustainable Palm Oil (ISPO). The regulation

land size less than 25 ha. The majority of

was revised in the Minister of Agriculture

Indonesian smallholders have only less

Regulation No. 11/2015.

than 4 ha. The business scale is not adequate

The standard of ISPO is mandatory

to cover modern agricultural practices

for plantation companies, plantations only

with certification standards. Therefore,

with no mill, and mills with no plantation

smallholders must establish group

while it is still voluntary for scheme and

certiication such as Village Cooperative

independent smallholders.

(called Koperasi Unit Desa/KUD) and

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Agro Ekonomi Vol. 28/No. 2, Desember 2017

Farmer Group (called Gabungan Kelompok

enhancing coherence of sustainability

Petani/ GAPOKTAN) or association) to

standard between public and private sectors

reach a minimum business scale to be

(Ariin, 2016).

certiied.

The need of certiication to get better

Certiication is a procedure by which

access to global market has encouraged

a third party (certification institution/

companies, millers, processors and

certiication body) offers written assurance

traders to make commitment to produce

that a product, process or service is

sustainable products. The growth rate of

in conformity with certain standards.

certiied products has increased to become

Certiication is a documented agreements

more than 40% outperforming growth of

which specify standards (principles,

conventional commodity markets in 2012.

criteria, and indicators) as a rules or

However, process to comply with

guidelines that must be complied by actors

standard and obtain certiicate is not simple,

in a product supply chains for sustainable

particularly for oil palm smallholders

products .

since agricultural practices and plantation

Certification system includes

management practices are often conducted

standards, certification, accreditation,

traditionally for many years. Certiication

and labelling. Standard consists of

requires attention, capital, labour and time.

principles, criteria, and indicators that

Smallholders need additional costs to meet

need to be applied with certain procedures.

the standards while additional yield and

Certiication is conducted to ensure that

revenue might be uncertain (Hutabarat,

the standards are being applied correctly.

Slingerland, Rietberg, et al., 2017).

Accreditation for certification body is

Studies have been conducted to

important to make sure that certiication

show the impact of global changes through

system is working appropriately. Finally,

certification, for example Fair trade on

the compliance to standard could be

coffee (Bacon et al., 2008; Barham et

represented by labelling (brands or logos)

al., 2011; Raynolds et al., 2007), Cacao

(FAO, 2014; Gawron & Theuvsen, 2010).

(Aidoo & Fromm, 2015; Gockowski et

Sustainable certification scenario

al., 2013), cotton (Kaminski et al., 2011;

includes institutionalization of private

Makita, 2012), and horticulture (Kuwornu

governance arrangement that allows

et al., 2013; Lemeilleur, 2013; Ouma,

actors in the market play the games by

2010). Certiication could improve yield

themselves, improve transparency and

(Lee et al., 2014; Weber, 2011) and reduce

accountability by creating complementary

risk on farmers’ income (Bacon, 2005;

between private and state regulations, and

Blackman & Jorge, 2011). However,

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173

the revenue received by farmers are

Subdistrict, Jambi Province. There are

mostly from increasing yield but not

still some groups in the process of RSPO

price premium (Barham & Weber, 2012).

certiication, for example, GAPOKTAN

In contrast, Beuchelt and Zeller (2011)

Kopau Jaya at Sengingi Tengah and

found that revenues from technological

Mandiri Association at Kuantan Hilir,

changes in certification scheme often

Riau Province. Amanah Association is

cannot compensate the additional cost

also the irst group certiication that obtain

involved in the process of production.

ISPO certiicate on Februay 2017.

Few studies were focused on
certification on oil palm smallholders,

ISPO Certiication System

for example study on sustainability

This study was focused on the ISPO.

certiication and oil palm smallholders’

ISPO was claimed as an instrument to

livelihood (Hidayat et al., 2015),

enhance economy of Indonesia. ISPO was

transforming local institution on

mandatory for oil palm industry operated

smallholders’ organization (Bitzer et

in Indonesia to ensure sustainability

al., 2013; Prodinger et al., 2015), and

production. ISPO that adopted Indonesian

certifying sustainability for oil palm

rules and regulations is also take into

smallholder (Amekawa, 2010; Silva-

account international principles of oil palm

Castaneda, 2012). Studies on the impact

sustainable production. The differences

of certiication have been started since the

between ISPO and RSPO are the criteria

irst RSPO certiied oil palm smallholders

related to High Conservation Values

was obtained by Amanah Association

(HCV), Free, Prior and Informed Consent

on July 2013 (Brandi et al., 2015; Calil,

(FPIC), and New Planting Procedures

2013; Christin et al., 2015; Harianja et al.,

(NPP).

2015; Lee et al., 2011). Currently, there

Companies that submit an application

are only four farmer groups in Indonesia

for ISPO must already have been assessed

that obtained RSPO certiicate: Amanah

in accordance to Minister of Agriculture

Independent Oil Palm Smallholders

Regulation No. 2/2009 on guideline for

Association at Ukui Subdistrict, Riau

plantation business assessment on legal

Province; GAPOKTAN Tanjung Sehati

permit, plantation management, processing,

at Tabir Selatan Subdistrict, Jambi

social economy, environment and reporting.

Province; Yayasan Sapta Tunggal Mandiri

The pre-certiication prerequisite classify

at Lempuing Jaya Subdistrict, South

plantation into ive categories. Plantations

Sumatera; and Forum Petani Swadaya

that are in Class I, II, and III are eligible to

Merlung Renah at Renah Mendaluh

apply for ISPO certiication.

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Agro Ekonomi Vol. 28/No. 2, Desember 2017
ISPO Sustainability Principles

Agriculture Decree No 668/1985 regarding

consists of seven principles: First, the

General Rules for Implementation of

legality of plantation business; Second,

Estate Crops Project. The Nucleus Estate

plantation management; Third, protection

Smallholders (NES) or Perusahaan Inti

to the utilization of primary forest

Rakyat (PIR) Project has been extended to

and peatlands; Fourth, environtmental

establish PIR Khusus (NES Special), PIR

management; Fifth, responsibility of

Lokal (NES Local), PIR TRANS (NES

workers; sixth, responsibility of the social

TRANS), PIR KKPA (NES KKPA) and

and economic empowerment; and seventh,

Self-Sustained NES.

continuous business improvement.

In 1990s, government realized that

The principles of ISPO standard

another important aspect in developing

are different amongst different type of

oil palm industry is sustainability which

producers. Large scale operators must

comprises of environmental, social and

comply with seven principles while scheme

economic aspects. These aspects need

smallholders have to meet six principles and

changes in system and management

independent smallholders four principles.

of oil palm production from farm-gate
to consumers and/or from upstream to

he Role of Government

downstream (Manggabarani, 2009). The

In a competitive market, market

development of oil palm industry (from

coordination is performed by private

upstream to downstream) needs regulations

sectors. Private actors in palm oil supply

as institutional environment that plays as

chain play the game while the government

the rule of games.

facilitates the rule of the game. The role of

There are at least 108 regulations have

government has been implemented through

been established to promote development

the establishment a number of regulations

of oil palm industry including 23 Laws, 21

(Laws, Government Regulations, President

Government Regulations, 3 Presidential

Regulation, Minister Regulation, etc.).

Instructions, 3 Presidential Decrees, 32

In the late 1970s, there were Ministry of

Ministry Regulations, 16 Ministry Decrees,

Agriculture Decree No 695/1979, Minister

and other Government Agency Decrees

of Agriculture Decree No 310/1981,

and Guidelines. All of these regulations

and Minister of Agriculture Decree No

were established and controlled by various

182/1983. Based on these regulations the

government agencies at different levels

government established special team to take

(national, provincial and regencies).

care of all NES projects and Loan PMU.

The government has applied the

Then. the government launched Minister of

following regulations to support the

Agro Ekonomi Vol. 28/No. 2, Desember 2017

175

development of oil palm industry that

In the last decade, when more

covers all stakeholders in the supply chain:

pressure on oil palm industry, the

Law No 12/1992 regarding Cultivation

government of Indonesia revised and

System, Law No 25/1992 regarding

issued a number of laws and regulations

Cooperative, Law No 23/1997 regarding

including Law No. 19/2013 regarding

Environmental Management, Law No

Protection and Empowerment of

41/1999 regarding Forestry.

Farmers, Law No. 39/2014 regarding

The vast forest ires in late 1990s has

Estate Crops, Government Regulation

motivated government to create more laws

No. 27/2012 regarding Environmental

and regulations related to environmental

Permit, Government Regulation No.

management including Law No 18/2004

71/2014 and Government Regulation

regarding Estate Crops, Minister of

No. 57/2016 regarding Protection and

Agriculture Regulation No 26/2007

Management of Peatland Ecosystem,

on Guideline of Licensing of Estate

Minister of Agriculture Regulation No.

Crops Business, Minister of Agriculture

19/2011 and No. 11/2015 regarding

Decree No. 486/2006 on Guideline of the

ISPO, Minister of Agriculture Regulation

Classiication of Estate Crops Companies,

No. 14/2013 regarding Guideline of

Guideline of Land Opening Without Fire

Determination of Purchase Price of FFB,

and Guideline of Cultivation of Oil Palm,

Minister of Agriculture Regulation No.

and Minister of Agriculture Regulation No

82/2013 regarding Empowerment of

14/2009 on Guideline of Utilization of Peat

Kelompok Tani (POKTAN) and Gabungan

Land for Oil Palm Cultivation.

Kelompok Tani (GAPOKTAN), Minister

In 2000s, revitalization of estates crops

of Agriculture Regulation No. 98/2013

was launched to improve NES and related

regarding Guideline of Estate Permit,

scheme. Revitalization was established

Minister of Agriculture Regulation No.

to accelerate oil palm smallholders

18/2016 regarding oil palm replanting,

performance. Revitalization program

and Minister of Agriculture Regulation

was based on: Minister of Agriculture

No. 67/2016 regarding Empowerment of

Regulation No. 33/2006 regarding the

Farmers’ Organization.

Estate Crops Development through Estate

These regulations show that the rule of

Crops Revitalization Program, Minister of

government is very important in promoting

Finance Regulation No 117/2006, Minister

sustainable oil palm production far before

of Forestry Regulation No P.26/2007,

the establishment of RSPO and ISPO.

and Minister of Agriculture Decree No

There are various government agencies

438/2007.

involved in assuring that production of oil

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Agro Ekonomi Vol. 28/No. 2, Desember 2017

palm is conducted in a sustainable way

the establishment of Indonesia Sustainable

such as Ministry of Agriculture, Ministry

Palm Oil (ISPO).

of Forest, Ministry of Environment,

H o w e v e r, t h e s t u d y f o u n d

Ministry of Cooperative and Small

harmonisation amongst regulations

Business, Ministry of Finance, National

and agencies plus weaknesses on law

Land Agency, Provincial Government, and

enforcement led to destroy market

District Government.

coordination. The implementation of ISPO

The government through various

could be ineffective if there is distrust from

government agencies has established

stakeholders particularly foreign actors in

regulations to make sure that all activities

the global supply chains.

in oil palm product and oil palm derivative

Based on the condition described, the

is produce sustainably. The regulations

research questions of this study are how

manage and organize business license,

large is the gap between current practices and

land use, good agricultural practices, good

ISPO standard; what are factors that affect

handling practices, good manufacturing

adoption of ISPO certiication; Does ISPO

practices, prohibition of the use of ire in

offers better access to market for oil palm

land preparation, obligation to conduct

smallholders? Do farmers have capacity to

Environmental Impact Analysis, and others.

fullil the certiication standard? This study

All of these regulations relect that

was aimed to assess capacity and willingness

Government of Indonesia is aware and

of oil palm smallholders to meet the standard

committed to sustainable development.

of ISPO certification. The study discuss

Many government agencies have

prospects and challences faced by oil palm

proactively issued regulations and policies

smalholders towards ISPO certiication.

that support every principle and criteria in
promoting sustainable oil palm production
from upstream to downstream.

METHODS
This study was conducted in Pelalawan

The development of oil palm industry

and Kampar Districts, Riau Province. Data

has been implemented to improve the

collected consist of smallholders’ proile,

welfare of the nation, but it must take

plantation performance, good agricultural

into account various issues in the world

practices, best management practices, and

community. The development of oil palm

other data related to ISPO Principles and

in Indonesia has also been in accordance

Criteria. Data were collected from samples

with the principles of RSPO. Participation

of farmers, Internal Control System (ICS),

of Indonesia in promoting sustainable

group manager, company’s extension

production of oil palm is also relected by

worker and local government agencies.

Agro Ekonomi Vol. 28/No. 2, Desember 2017
The study assessed two types of
smallholders: scheme smallholders and
independent smallholders. Smallholders
are farmers who grow oil palm with or
without other crops using family labour,
the plantation provide main source of
household income in a land size less
than 25 ha (ISPO) or 50 ha (RSPO).

177

Table 1. P r i n c i p l e & C r i t e r i a f o r
Smallholders
ISPO
standard
Principles
Criteria
Indicators

Scheme

Indipendent
6
22
69

4
18
45

Source: Minister of Agriculture Regulation
No. 11/2015

Scheme smallholders are farmers who
join farmer group that has collaboration
or partnership with estate company in a
scheme called Nucleus Estate Smallholders
(NES) or Perusahaan Inti Rakyat (PIR).
In this partnership the farmers are called
nucleus or plasma while the partnership
company is called estate company. This
partnership model includes NES/PIR and
Koperasi Kredit Primer Anggota (KKPA).
Independent smallholders are farmers that
operate oil palm plantation individually
without partnership or support from any
party. Sample of farmers were selected
from oil palm smallholders (Scheme and
Independent smallholders). The size of

Farmers that have high score answers
means have less gap compared with
the standard. The application of ISPO
standard was divided into three categories:
good, adequate, and bad. Number of
question was determined in accordance
with number of criteria, 22 criteria for
scheme smallholders and 18 criteria for
independent smallholders.
Assessment on each criteria was
based on interval scale where highest
score (h) = 5, lowest score (l) = 1, and
number of class (s) = 3. Interval scale =
((h-l)/n)-1). Average sample score for
each criteria:

sample are 440 farmers, comprises of PIR
(1)

(n=160), KKPA (n=150), and independent
smallholders (n=130).
Data was analyzed using Guttman
scale to assess the gap between current
practices and the standard of ISPO. Gap

where
= average sample score for criteria-k.
= score for each sampel (s) for
criteria-k, and n = size of sample.

analysis was based on Good Agricultural
Practices (GAP) and Best Management

Assessment on criteria in each

Practices (BMP) which represented by

principles were based on interval scale

principles and criteria for scheme and

where highest score (p x h), lowest score

independent smallholders (Table 1).

(p x l), and number of class (s) = 3. Scale

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Agro Ekonomi Vol. 28/No. 2, Desember 2017

of interval = ((p(h-l))/n)-0,01). Average

smallholders is plantation legality of oil

sample score for each principles:

palm smallholders. The survey shows
that all scheme plantations have met
(2)

the standard of legality. The legality
documents for scheme smallholder have

where
= average sample score for criteria in

already been prepared by the partnership
company before the ownership of oil

principle-p,
= score for sample (s) in criteria (k1...r)

palm plantations were converted to the
participant farmers (Manggabarani, 2009).

on principle-p,
r

= number of criteria in a principle

Scheme smallholders have land ownership

n

= sampel size.

certificate/Sertifikat Hak Milik (SHM)
prepared by partnership company and

Assessment on all criteria in all

local government. Since the land title

principles for scheme smallholders use

were issued by National Land Agency/

interval where maximum score (h) = 22

Badan Pertanahan National (BPN), it

x 5, minimum score (l) = 22 x 1, and

has been guarrantied that plantation

number of class (s) = 3. Scala of interval

site is in appropirate location for estate

= ((h-l)/n)-0,01). Average sample score for

crops. In contrast, most of independent

all criteria in all principles:

smallholders have inadequate legality
documents (Hutabarat, Slingerland, &
(3)

Dries, 2017). They have inadequate
land title as it has been regulated in

where
= average sample score for all criteria
(k),
= score for sample (s) for all criteria
(k),

Government Regulation No. 40 year
1996 regarding HGU, HGB and Right to
Use Land; no business registration/Surat
Tanda Daftar Usaha Perkebunan untuk

r

= number of criteria,

Budidaya (STD-B) regulated in Minister

n

= sample size.

of Agriculture Regulation No. 98 year
2013 regarding Guideline of Licensing

RESULTS AND DISCUSSION

of Estate Crops; and no environmental

The gap between current practices and

impact assessment/Surat Pernyataan

ISPO standard

Pemantauan dan Pengelolaan Lingkungan

The first principle of ISPO

(SPPL) as it has been regulated in Ministry

for both scheme and independent

of Environment Regulation No. 13 year
2010 regarding Environmental Monitoring

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179

and Management (UKL-UPL) and

Second principle for scheme

Statement of environmental Monitoring

smallholders is plantation management.

and Management Capability (SPPL).

The irst criteria is plantation management

At the beginning, independent

(scheme smallholders) and plantation

smallholders cultivated oil palm using

organization and management (independent

traditional community land or private-

smallholders). The subcriteria are slightly

owned land. However, as they expanded

different between scheme and independent

their oil palm plantation, they often

smallholders. The subcriteria for scheme

obtain their land from state-owned land

smallholders consists of farmers’

including protected forest, production

organization (farmer group or cooperative),

forest, and conservation forest. These

overlapping with mining industry, land

areas were often without clear border signs

conflicts and compensation, and data/

and inadequate control by government

information for government agencies and

agencies. Some farmers have low education

stakeholders. Independent smallholders

and little knowledge of formal regulations.

have no subcriteria regarding overlapping

Regrettably, government agencies have

with mining industry. The second criteria

inadequate capacity to control and manage

is agricultural practices and transportation

state-owned land. Lack of coordination

which comprises of land clearing, protection

and harmonization amongs government

on water resources, plant materials,

agencies horizontally and vertically cause

planting on mineral land, planting on peat

the use of state-owned land by unautorised

land, plantation maintenance, pest and

people cannot be monitored properly.

disease management, harvest, fresh fruit

The issue of legality may explain

bunches (FFB) transportation, and price

why independent farmers only meet 25%

setting for FFB. There is no subcriteria of

of the ISPO standard on Principle one

water resources protection for independent

compared to 86% for PIR and 85% for

smallholders.
Farmers in the scheme smallholders

KKPA (Table 2).

have been organized in farmer groups
Table 2. Score on Principle 1 (Legality of
plantation)
ISPO
standard
Maximum
Actual
Percentage

Independent

PIR

KKPA

1300
330
25%

1600
1369
86%

1500
1282
85%

Source: Analysis of primary data (2017)

and cooperatives. Technical assistant
for good agricultural practices and best
management practices are supported by
the partnership company. Conversely,
independent smallholders run the business
individually without support from any
party. Technical assistants from local

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Agro Ekonomi Vol. 28/No. 2, Desember 2017

government agencies were inadequate or

for the company including their scheme

not exist. The organization of extension

smallholders. Nevertheless, based on

workers was design to serve all agricultural

Minister of Environment Regulation No.

activities with various skills. There is

13/2010, independent smallholders must

no speciic extension workers for estate

have SPPL, environmental monitoring

crops. The study found that in some areas

and management document. The majority

of independent plantations, the knowledge

of independent smallholders do not have

and skill of extension workers was not

SPPL and many of them even do not

match with estate crops.

know what is the SPPL and how to obtain

The assessment found that the gap is

this document. Therefore, in this study

more than 70% while PIR and KKPA meet

independent smallholder only meet 34%

69% and 72%, respectively, of the ISPO

of this criteria (Table 4).

standards (Table 3).
Table 3. Score on Principle 2 (Plantation
management)
ISPO
standard
Maximum
Actual
Percentage

Independent

PIR

KKPA

7800
2330
30%

11200
7781
69%

10500
7552
72%

Table 4. S c o r e o n P r i n c i p l e 3
(Environmental Management)
ISPO
standard
Maximum
Actual
Percentage

Independent
1,950
658
34%

PIR KKPA
2,400
1,766
74%

2,250
1,597
71%

Source: Analysis of primary data (2017)

Source: Analysis of primary data (2017)
The fourth principle for scheme
The third principle is environmental

smallholders is responsibility on health

monitoring and management consist

and work safety. The result shows that

of three criteria: environmental permit,

scheme smallholders have more than

use of fire in plantation activities, and

65% compliance with Principle Four.

biodiversity. Both scheme and independent

All responsibility related to health and

smallholders have the same criteria.

work safety have been provided by the

However, scheme smallholders do not

partnership company. This criteria is not

need environmental documents or Surat

applicable for independent smallholders.

Pernyataan Kesanggupan Pengelolaan dan

Principles Four for independent

Pemantauan Lingkungan (SPPL) as it should

smallholders is continuous improvement

be available for independent smallholders.

whereas this Principle for scheme

The partnership company has implemented

smallholders is in the Principle Six. Access to

Environmental Impact Assessment (EIA),

information and technology for independent

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181

smallholers is much lower than scheme

for information. This principle is also

smallholders, therefore, the capability of

aimed to improve community tradition and

independent smallholder to keep update

local wisdom. This principle is not obliged

with new technology is also low (Table 5).

for independent smallholders. Currently,

The survey shows that farmers education

scheme smallholders have meet more than

on average is low and the majority of the

60% of this standard (Table 6).

farmers do not have adequate knowledge
and skill to run oil palm plantation. Technical
assistants from partnership company was
only available for scheme company and not

Table 6. Score on Principle 5 (social
responsibility and community
empowerment)

was generally not available for independent

ISPO
standard
Maximum
Actual
Percentage

smallholders. The survey found that the

Source: Analysis of primary data (2017)

accessible for independent smallholders.
Extension workers from local estate agency

Independent
-

PIR KKPA
800
488
61%

750
531
71%

background of extension workers vary (from
foodcrops, ishery, to animal husbandry),

The sixth principle for scheme

only fews of them are focus on estate crops.

smallholders is continuous improvement.
Farmers are encouraged to update their

Table 5. S c o r e o n P r i n c i p l e 4
(Responsibility on health and
work safety)
ISPO
standard
Maximum
Actual
Percentage

Independent
650
130
20%

PIR KKPA
800
518
65%

750
566
75%

Source: Analysis of primary data (2017)

business and cultivating skill to the latest
technologies. For example, using organic
inputs, harmless chemical materials for
pesticide and herbicide, more effective
and efficient machinary, and protection
equipment. This is the standard in Principle
Four for independent smallholders. PIR
smallholders meet 53% of the standard

The fifth principle for scheme

while KKPA only 45% (Table 7).

smallholders is social responsibility and
community empowerment. Smallholders
and their partnership company should
implement community empowerment and
development such as build and/or maintain
village infrastruture, improve business skill
for local entrepreuner, and increase access

Table 7. Score on Principle 6 (Continuous
improvement to businesses)
ISPO
standard
Maximum
Actual
Percentage

Independent
-

PIR KKPA
800
422
53%

750
335
45%

Source: Analysis of primary data (2017)

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Agro Ekonomi Vol. 28/No. 2, Desember 2017

Factors that affect application of ISPO

space for smallholders to apply for ISPO

standard

certiication that need additional cost to

Scheme smallholders have better

meet the ISPO standard.

access to information, technology,

These factors were also found in the

input, finance and market. Good

previous studies. Hutabarat, Slingerland,

Agricultural Practices (GAP) and Best

and Dries (2017) mention that access to

Management Practices (BMP) have

information, technology, inputs, inancial,

already been facilitated by partnership

and market are factors that inluence the

company (Manggabarani, 2009). The

adoption of certiication. Calil (2013) found

development of scheme smallholders

that the adoption of certiication standard

were prepared properly by cooperation

also depends on smallholders’ experience,

amongts different government ministries

income and cosmopolitan levels. Study by

(Ministry of Agriculture, Ministry of

(Suharni et al. (2017)) mentioned that land

Transmigration, Ministry of forestry, and

size, farmers’ education, farming experience,

Local Government),

availability of farm inputs inluence level of

Independent smallholders are grown

GAP application on shallot.

by individual farmers without any support

After establishing ISPO by

from any stakeholder. The survey found

Government of Indonesia, it seems that

that independent farmers do not have

there is conlicting role between ISPO and

adequate knowledge on oil palm plantation.

RSPO. The establishment of ISPO creates

They also do not have adequate information

competition between ISPO and RSPO

on business legality and environmental

(Wijaya & Glasbergen, 2016). Principles

management. Oil palm plantations have

and criteria in RSPO and ISPO are almost

already occupied non-converted area

similar. The differences are related to HCV,

including protected forest, conservation

FPIC, and New Planting.

areas and peatland. Applying for ISPO

RSPO is voluntary in nature. It

certificate needs legality on land. This

is applied to producers that would like

means that plantations must be withdrawn

to sell CPO to countries that required

from those areas to obtain land ownership

RSPO sustainable oil palm certiication,

certiicate while the growers have spent

especially EU countries. However, ISPO is

a lot of fund for the plantations. Small-

mandatory. All growers and producers that

scale business which was on average less

operates in Indonesia must comply with

than 4 ha and low productivity cause their

ISPO standard and have ISPO certiicate.

income just around the monthly regional

However, from business actors’ point

wage. These conditions do not give enough

of view, the application of RSPO and ISPO

Agro Ekonomi Vol. 28/No. 2, Desember 2017

183

is an additional costs that they have to

Independent smallholders do not

pay double on the same objective. In both

have access to mill since most of them have

RSPO and ISPO certiication, the business

no minimum weight to get “delivery order”

actors have to pay initial investment costs

or “DO” to mill. They have to deliver

for improving their practices to meet the

their FFB through middlemen. Eventually,

certiication standards. Then, they have to

they always receive lower farmgate price

pay for annual surveillance for auditing. In

compared to scheme smallholders.

this condition, the RSPO and ISPO seems
to be conlicting.

The majority of Indonesian CPO are
exported to global market which tend to

It is not necessary to have RSPO

apply other certiication system. European

certiication if the CPO is sold in domestic

Union countries have started applying

market and/or in certain countries such

sustainable standard (RSPO certiication)

as India, China, and Pakistan. However,

from December 2015 and it will be 100

if the CPO is sold in EU countries which

percent (fully) sustainable standard by

applied sustainable production, the RSPO

2020. Having only ISPO certiicate will

certiication is a must.

not have better access to the global market

These factors explain that the

since the main importer countries of

adoption of ISPO certification was not

Indonesian CPO, India and China have

easy for independent smallholders.

made commitment to apply sustainable
palm oil in the future.

ISPO and access to market for oil palm
smallholders

Domestic market is an alternative
market that should be considered for

Oil palm smallholders do not have

palm oil, particularly for downstream

mill to process their FFB to CPO. FFB must

manufactures and biodiesel. However,

be delivered to mills owned by company.

these options are not straightforward

Scheme smallholders would have better

since domestic market have already been

access to mill as long as they have contract

saturated. Entering domestic market

partnership. However, there are many

might reduced return of investment

scheme smallholders that have ended the

in a competitive market for existing

contract and free to sell their FFB to any

manufactures while increasing subsidy

mill. In one hand, this condition could

could be a big challenge for biodiesel

beneit farmers because they can sell the

industry.

fruit to buyers that offers the highest price.

Access to the global market could

On the other hand, without any contract,

be a challenge in the future if ISPO cannot

it would be uncertainty for market access.

be accepted in international market. There

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Agro Ekonomi Vol. 28/No. 2, Desember 2017

would be excess domestic supply which led

by smallholders themselves including

to reduce CPO and FFB prices. Eventually,

access to information, technology, inputs,

these condition might reduce farm income

financial, and market. The adoption of

and farmers’ welfare.

ISPO certification depends on farmers’

The ISPO obliges a partnership

knowledge on agricultural practices,

between smallholders and mills/company

business legality, household income, and

with an oficial business contract. This will

farm-size.

guarantee access market to mill, technical
assistant from partnership company,

Suggestion

access to inance (banking), and access to

Stakeholders are encouraged to

information. The ISPO also reduce land

facilitate training for independent farmers

conlicts and environmental damage.

to improve knowledge on agricultural
practices and business legality. Farmers

CONCLUSION AND SUGGESTION

should be facilitated to establish

Conclusion

organization to improve business scale

Certiication is an effort to ensure that

and business performance. Government

globally tradable products are produced

and private sectors should facilitate

and processed sustainably. There are many

smallholders to improve their capacity and

certiications or standards that have been

bargaining power that enhance their access

established in the global supply chains.

to global supply chains. Government of

ISPO is one of product certiicate that was

Indonesia should create rules of game that

created by Government of Indonesia to

can be adopted by local and foreign actors

ensure sustainable production of palm oil.

and accepted in the global supply chains.

However, ISPO is not acceptable in the
global market. Having ISPO certificate
might not improve access to global supply
chains.

ACKNOWLEDGEMENT
The research has been executed
within the Interdisciplinary Research and

Competitiveness of Indonesian palm

Education Fund (INREF) programme

oil and accessibility to global market are not

“Towards Environmentally Sustainable and

only determined by production eficiency

Equitable Palm Oil: promoting sustainable

on resource use and production cost but

pathways by exploring connections

also depends on product certiication. The

between lows, networks and systems at

capacity of independent smallholders to

multiple levels” funded by Wageningen

meet ISPO standards is on average low due

University, The Netherlands. The research

to various barriers that cannot be managed

has been conducted in collaboration with

Agro Ekonomi Vol. 28/No. 2, Desember 2017

185

University of Riau. We like to thank the

Development, 33(3): 497-511. doi:

manager of scheme smallholders and

10.1016/j.worlddev.2004.10.002

farmers for sharing their information.
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