In Malaysia, our goal is to include our smallholders into the sustainably certified circle. That is why, SD Guthrie has welcomed the Malaysian government's mandatory Malaysian Sustainable Palm Oil (MSPO) Certification Scheme. The MSPO is targeted at oil palm plantations, independent and organised smallholdings, and palm oil processing facilities.

Unfortunately, Malaysian smallholders face numerous challenges that impede certification. They are harvesting palms that produce less fruit and oil and live on small incomes, leaving them open to exploitation. Most of them are unable to pay for the improvements needed to carry out the certification process. They often do not even have the land deeds that are a basic requirement of the certification process or lack the license to trade Fresh Fruit Bunches (FFB).

Our supply chain in Indonesia comprises Kredit Koperasi Primer Anggota (KKPA) smallholders and Plasma Scheme smallholders. Through this scheme, the KKPA land holdings are managed by SD Guthrie while the smallholders are allocated share certificates for oil palm cultivation in their concessions. In exchange for the share certificates, the smallholders receive an income from the profits generated while the local communities enjoy additional work opportunities as well.

Plasma smallholders, on the other hand, are those who took part in the Plasma Transmigration Program (Perkebunan Inti Rakyat, also known as PIR-Trans), set up by the Indonesian government in 1987. Plasma schemes are managed by the community farmers who sell their Fresh Fruit Bunches (FFB) to SD Guthrie.

We received our first Roundtable on Sustainable Palm Oil (RSPO) smallholder certification for KKPA smallholders in Indonesia in 2014. The total operational area under the smallholder certification was 16,639 hectares with a total production capacity of 347,749 metric tonnes of fresh fruit bunches . As a result of this first smallholder certification, three mills achieved segregated status under the RSPO Supply Chain Certification System (SCCS).

In 2023, we continued to support over 21,000 smallholders, encompassing both scheme and independent smallholders, to ensure their adherence to our Responsible Sourcing Guidelines and ultimately, achieve RSPO certification. While the number of certified smallholders decreased in 2023 due to operational divestments, dedicated local teams continue to assist them in improving market access and livelihoods. We remain committed to increasing the number of certified smallholders within our supply chain and are actively supporting those currently undergoing the certification process.

Our most successful smallholder stories are in Papua New Guinea (PNG). All our smallholders in PNG have been certified to the Roundtable on Sustainable Palm Oil (RSPO) since 2013, and they received a significant sustainability premium. As SD Guthrie is able to sell their oil as segregated (sustainable palm oil from different certified sources that is separated from the ordinary palm oil), we calculate premiums for smallholders based on both the published RSPO premiums and our own premiums received on the sale of Certified Sustainable Palm Oil (CSPO) converted to FFB equivalents. The premium is paid to each smallholder based on their production with no administrative charges or other deductions. We cover all smallholder certification costs, and these are not charged back to the growers. In 2023, smallholders earned collective premiums of 8,707,846 PGK (or USD 2.19 million). The premium paid to each smallholder is based on their production with no administrative charges or other deductions

To understand how we can bring additional smallholders into our supply chain in Papua New Guinea (PNG) and the Solomon Islands (SI), we carried out assessments for smallholders interested in developing their land and guided their implementation of the RSPO's New Planting Procedure. We also actively share best practices to help farmers obtain the skills and knowledge they need to manage their oil palm blocks. SD Guthrie uses visual aids and provides simplified learning tools to increase smallholders' knowledge on topics including FFB quality, planting cover crops, applying fertilisers, as well as the costing and pricing of their products. We conduct these activities during field days, block demos, and through our financial literacy training sessions.

Supporting smallholders through financial literacy

Aside from certification, our NBPOL sites carry out programmes with local communities on land use planning, gender empowerment, and sharing best practices to help farmers obtain the skills and knowledge they need to manage their oil palm blocks and improve their livelihoods. One such programme provides financial literacy support to smallholders and landowner groups through a train-the-trainer model that covers topics such as budgeting, financial planning, sound financial practices, and banking. We also facilitate the opening of personal bank accounts for interested members.

Improving the socioeconomic status of smallholders

Low productivity caused by social and economic factors is the main challenge facing oil palm smallholders. NBPOL is collaborating with the PNG Oil Palm Research Association’s (PNGOPRA) Smallholder and Socioeconomic Research Division to conduct extensive research and provide technical advisory services to smallholders. This includes conducting research on fertiliser programmes that best maximise yields for smallholders, understanding the effectiveness of smallholder training on best management practices provided by SD Guthrie, and understanding smallholders’ income and expenditure patterns. Through this research, we aim to better understand these social and economic factors and improve our programmes to address smallholder productivity and strengthen the country’s economic, environmental, and social well-being.

Approximately 95% of the overall palm oil production in Thailand comes from smallholders. Currently, there are about 285,000 farmers across Thailand with an average plantation land of approximately 2.5 hectares. Most palm oil mills in Thailand are independently owned and lack the resources necessary to implement sustainability and certification programmes. As we work further down the supply chain, it becomes increasingly challenging to reach smallholders and work with them. Due to the significant contribution of smallholders in Thailand, we understand that strong collaborations with other stakeholders in the supply chain is integral to move everyone on the sustainability journey.

Our refinery in Thailand, Morakot Industries, has established a smallholder programme in collaboration with local mill partners, to help smallholders achieve certification, and to secure a steady and reliable supply of Certified Sustainable Palm Oil (CSPO) into its supply chain.

The smallholder certification programme was established in 2018 and identified 6,000 smallholders with a production capacity of over 300,000 MT of Fresh Fruit Bunches (FFB) per year. These smallholders are divided into 10 groups based on their location – that is, whether they are located within 50 km radius of an identified mill. We then run a series of engagement sessions to raise smallholder awareness about certification processes and to better understand the needs and challenges faced by the smallholders in Thailand.

We encourage smallholders to complete certification processes by paying out premiums as an incentive for the production of certified sustainable palm oil. As of 2019, we now have a supply of fully segregated CSPO from 592 smallholders. During this period, we also signed a Memorandum of Understanding with Narathiwat Cooperative and Panom Cooperative, two out of 10 smallholder collectives. Panom Cooperative has successfully received its RSPO certification and currently supplies to S.P.O. Agro-Industries Co. Ltd. Mill.

Our aim is to enable 700 smallholders in our Thai supply base to supply certified Identity Preserved palm oil by the end of 2020.

In 2019, we committed to expanding our current supply of CSPO Mass Balance to Identity Preserved (IP) / Segregated (SG). This means we ensure sustainable palm oil from a single identifiable certified source and different certified sources are kept separately from other palm oil throughout the supply chain.

All smallholders must adhere to the same Responsible Sourcing Guidelines criteria we impose on all FFB suppliers. However, we recognise that many smallholders may have difficulty meeting these criteria despite making commitments because they lack capacity, know-how, and access to financial resources. Given the significant volumes produced by smallholders, supporting their transition to sustainable practices is crucial to transforming the industry and ensuring that SD Guthrie achieves our NDPE ambitions.

Therefore, we have developed programmes across our upstream operations to support scheme and independent smallholder certification as a gateway to sustainable production. These programmes build capacity and train smallholders to improve production efficiency and secure higher yields. They also reduce barriers to market access and provide support to meet certification requirements.

Our community programmes also focus on proper land use planning, management committee responsibilities and community needs assessments. Training programmes are designed to equip smallholders to plan their finances effectively, and we provide interest-free credit to help towards quality farm inputs like tools and fertilisers.

A major component of our programmes is helping farmers understand how climate change can impact their livelihoods and adopting climate-smart agriculture approaches. Our programme modules include responsible land use and conservation planning, adopting good agricultural practices on fertiliser application and moisture retention, and maintaining riparian buffer zones as part of flood mitigation. Smallholders in our supply chain can also potentially access planting material that is more climate-resilient. Transitioning smallholders to climate-smart agricultural practices is critical to SD Guthrie’s climate strategies and intricately linked to meeting our No Deforestation and No Peat requirements.

In 2022, SD Guthrie embarked on a 3-year Smallholders Inclusion Project with Solidaridad Network and Colgate-Palmolive. The project aimed to increase the adoption of Good Agricultural Practices (GAP) to improve farmers’ resilience against the challenges of climate change as well as increase demand for transparency and traceability, and ultimately, improve their livelihoods and sustainability standards. The project also focusses on responsible fertiliser application and chemical use to minimise land use change and reduce greenhouse gases (GHG) emissions. The Smallholders Inclusion Project targets smallholder palm oil suppliers in Perak, the state with the second-largest number of smallholders in Malaysia, accounting for over 37,000 farmers, according to the Malaysian Palm Oil Board (MPOB). This made Perak an ideal location for the implementation of the project to have a substantial impact.

The GAP training covers essential practices such as water use, fertiliser application, pest control, and waste management. It also equips farmers with the knowledge to comply with regulations on worker rights, safe work conditions, and fair treatment. As of February 2024, the project has trained more than 700 oil palm smallholders. For more information, click here.