Report on Small-Scale Farmers and the Sustainability Imperative in the Palm Oil Sector

Introduction: The Role of Small-Scale Farmers in Achieving the Sustainable Development Goals (SDGs)

Small-scale farmers are fundamental to global food systems and the achievement of the Sustainable Development Goals (SDGs). Despite their significant contributions, they are often marginalized in sustainability initiatives, hindering progress towards key global targets. This report examines the challenges and opportunities for small-scale farmers within the palm oil value chain, with a specific focus on how their inclusion is critical for meeting SDGs related to poverty, hunger, economic growth, and environmental protection.

• Small-scale farmers produce approximately 35% of the world’s food supply.
• They account for 84% of all farms globally.
• In low- and middle-income countries, they are responsible for 70% of food consumption, directly impacting SDG 2 (Zero Hunger).

However, these farmers face significant barriers, including the impacts of climate change and a lack of access to training and markets, which impedes their ability to enhance livelihoods and build resilience. This systemic exclusion undermines SDG 1 (No Poverty) and SDG 10 (Reduced Inequalities).

The Palm Oil Sector: A Nexus of Livelihoods and Sustainability Challenges

Economic Significance and Contribution to SDG 1 (No Poverty)

Palm oil is a dominant global commodity, accounting for 40% of the vegetable oil traded worldwide. The sector is a critical source of livelihood for millions, directly contributing to poverty alleviation.

• Approximately 7 million small-scale farmers produce 25-30% of the total global palm oil supply.
• In Indonesia, the world’s largest producer, small-scale farms contribute nearly 35% of crude palm oil. The crop supports the livelihoods of 2.6 million smallholders, demonstrating its vital role in achieving SDG 1 (No Poverty) and SDG 8 (Decent Work and Economic Growth).
• Research in Indonesia and Malaysia confirms that engagement in palm oil cultivation has led to significant improvements in living standards for small-scale farmers.

Environmental Pressures and Regulatory Hurdles

The palm oil industry faces intense scrutiny over its environmental and social impacts, particularly concerning deforestation and biodiversity loss. In response, regulations such as the European Union Deforestation Regulation (EUDR) are being implemented to promote deforestation-free supply chains, directly addressing SDG 15 (Life on Land) and SDG 12 (Responsible Consumption and Production). However, these regulations risk excluding small-scale farmers who lack the resources to meet stringent compliance and traceability requirements. With only 0.3% of smallholder-managed land in Indonesia certified under the Indonesian Sustainable Palm Oil (ISPO) standard, millions of farmers face an uncertain future, threatening the progress made on poverty and economic stability.

The High Cost of Compliance: A Barrier to SDG 10 (Reduced Inequalities)

Financial Burdens and Market Disparities

For small-scale farmers, achieving sustainability certification is often financially prohibitive. The high costs and lack of direct economic incentives create a system that perpetuates inequality, working against the principles of SDG 10.

• Compliance Costs: The expenses associated with land legality verification, audits, and improved farm inputs can consume up to 50% of a smallholder’s annual income.
• Lack of Incentives: Promised price premiums for certified palm oil are inconsistent and rarely reach the farmers, as intermediaries and processors capture most of the added value.
• Market Power Imbalance: Smallholders remain price takers with minimal negotiating power in a market dominated by large mills and traders.

This failure to integrate smallholders meaningfully not only jeopardizes their livelihoods but also threatens the viability of corporate and governmental ‘No Deforestation, No Peat, No Exploitation’ (NDPE) commitments. As smallholder production is projected to double by 2030, their exclusion would render global sustainability targets unattainable.

A Framework for a Shared Future: Aligning Palm Oil with the SDGs

Recommendations for Structural Reform

To ensure the palm oil sector’s future is both sustainable and inclusive, structural reforms are necessary. Small-scale farmers must be treated as co-architects of the solution, not as risks. The following interventions can align the industry with multiple SDGs:

1. Foster Shared Responsibility: Shift the financial burden of compliance from farmers to the entire value chain. Buyers and financiers must co-invest through subsidies and preferential credit, embodying the spirit of SDG 17 (Partnerships for the Goals).
2. Promote Group Certification: Encourage cooperative and jurisdictional models to reduce individual costs and increase the bargaining power of farmers, thereby advancing SDG 8 (Decent Work and Economic Growth) and SDG 10 (Reduced Inequalities).
3. Reward Performance: Move beyond compliance checklists to frameworks that reward tangible outcomes, such as improved income or carbon monetization, directly supporting SDG 1 (No Poverty) and SDG 12 (Responsible Production).
4. Adopt Landscape-Level Approaches: Anchor certification in holistic strategies that consider the intersection of palm oil cultivation with water systems, biodiversity, and community governance, crucial for SDG 15 (Life on Land).
5. Invest in Regenerative Practices: Enhance investment in soil restoration, diversified planting, and low-impact inputs on smallholder farms to build climate resilience and reduce emissions, contributing to SDG 13 (Climate Action) and SDG 2 (Zero Hunger).
6. Ensure Digital Inclusion: Invest in digital tools that empower farmers to map their land, monitor practices, and validate improvements. Making data work for farmers is essential for leveling the playing field and achieving traceability in a just manner.

By implementing these reforms, the palm oil sector can transition towards a model that is environmentally sustainable, economically viable, and socially equitable, ensuring that the immense potential of small-scale farmers is harnessed to achieve the Sustainable Development Goals.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on small-scale farmers and sustainability in the palm oil sector addresses several interconnected Sustainable Development Goals (SDGs). The analysis below details the most relevant ones:

• SDG 1: No Poverty

  The article directly connects the palm oil sector to poverty alleviation. It states that for small-scale farmers in Indonesia, palm oil is “critical to poverty alleviation” and has led to “notable improvements in living standards.” However, it also highlights the threat to this progress, noting that the high costs of sustainability compliance can “eat up to 50 percent of their annual income,” pushing them back to the margins.

• SDG 2: Zero Hunger

  This goal is central to the article’s premise. It begins by establishing the importance of small-scale farmers, who “contribute around 35 percent of the global food production” and produce “70 percent of the food being consumed in low- and middle-income countries.” The discussion revolves around improving their productivity, building resilience, and ensuring their livelihoods, which are all essential for food security.

• SDG 8: Decent Work and Economic Growth

  The article focuses on the economic viability of small-scale farming as a livelihood. It mentions that palm oil is a source of livelihood for “2.6 million small-scale farmers” in Indonesia. It addresses the lack of decent work conditions by pointing out that farmers are “price takers, with little negotiation power” and that financial incentives for sustainability “rarely offset the cost of compliance,” hindering inclusive economic growth.

• SDG 12: Responsible Consumption and Production

  This is a core theme. The article discusses the global shift towards “sustainable, deforestation-free produce” and the role of sustainability standards and certifications like the Indonesian Sustainable Palm Oil (ISPO). It highlights the gap in responsible production, stating that sustainable palm oil accounts for only “17 percent of the overall production,” and emphasizes the need to integrate small-scale farmers to improve this figure.

• SDG 13: Climate Action

  The article links small-scale farming directly to climate change, noting that farmers are “struggling to cope with the impacts of climate change.” It advocates for solutions that build “climate resilience” and suggests “regenerative palm oil practices” such as soil restoration and low-impact inputs to reduce emissions at the farm level.

• SDG 15: Life on Land

  This goal is explicitly addressed through the discussion of the environmental impact of palm oil production. The article raises concerns over “deforestation, biodiversity loss, and labour rights violations.” It references the European Union Deforestation Regulation (EUDR) and corporate ‘No Deforestation, No Peat, No Exploitation’ (NDPE) policies. It also notes that small-scale farms have traditionally practiced “polyculture” which helps “protect biodiversity.”

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the issues discussed, several specific SDG targets can be identified:

1. Target 2.3: Double the agricultural productivity and incomes of small-scale food producers.

   The article directly aligns with this target by stating that “small-scale farmers are expected to double their production capacity by 2030.” It also emphasizes the need to improve their incomes, which are currently threatened by high compliance costs and a lack of price incentives.

2. Target 2.4: Ensure sustainable food production systems and implement resilient agricultural practices.

   This target is reflected in the call for “integrating regenerative palm oil practices in small-scale farmer plantations, such as soil restoration, diversified planting, and low-impact inputs.” These practices are aimed at building climate resilience and enhancing soil health, contributing to sustainable agricultural systems.

3. Target 8.5: Achieve full and productive employment and decent work for all…and equal pay for work of equal value.

   The article touches upon this target by highlighting the economic vulnerability of small-scale farmers. It describes them as “price takers” and notes that “price incentives are inconsistent and rarely offset the cost of compliance.” The call for shared responsibility and fair value distribution aims to ensure farmers receive benefits proportionate to their sustainability efforts.

4. Target 12.2: Achieve the sustainable management and efficient use of natural resources.

   The entire discussion on shifting the palm oil industry towards sustainability supports this target. The article points out that only “17 percent” of palm oil is compliant with a sustainability standard and argues for mainstreaming small-scale farmers to improve the sustainable management of land and resources used for palm oil cultivation.

5. Target 12.a: Support developing countries…to move towards more sustainable patterns of consumption and production.

   The article’s recommendations directly support this target. It calls for buyers and financiers to “co-invest through direct subsidies, preferential credit, or embedded support” and for “investments in tools that help farmers map their land, monitor practices, and validate improvements” to help them meet sustainability requirements.

6. Target 15.2: Promote the implementation of sustainable management of all types of forests, halt deforestation…

   This target is central to the article’s focus on the environmental impact of palm oil. The text repeatedly refers to the goal of “deforestation-free produce,” regulations like the “European Union Deforestation Regulation (EUDR),” and corporate “‘No Deforestation, No Peat, No Exploitation’ (NDPE) policies,” all of which are aimed at halting deforestation linked to agriculture.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article provides several quantitative and qualitative indicators that can be used to measure progress:

• Proportion of certified small-scale farmers and land area.

  This is a key indicator of progress in sustainable production (Target 12.2). The article provides baseline data, stating that nearly “2 percent of small-scale farmers in low-income countries are certified” and only “0.3 percent of the land managed by small-scale farmers” in Indonesia is certified against the ISPO standard.

• Share of sustainable palm oil in the global market.

  This indicator measures the overall success of responsible production and consumption efforts (Target 12.2). The article states that sustainable palm currently “accounts for only 17 percent of the overall production.” An increase in this percentage would indicate progress.

• Income and cost of compliance for small-scale farmers.

  To measure progress towards Target 2.3 and 8.5, one could track farmers’ incomes and the proportion of that income spent on compliance. The article notes that compliance costs can consume “up to 50 percent of their annual income,” and that price incentives are often insufficient. A reduction in this cost burden and an increase in net income would be positive indicators.

• Area of land under small-scale farmer management.

  This indicator tracks the economic footprint of smallholders. The article notes the expansion in Indonesia from “1.6 million hectares in 2001 to 5.8 million hectares by 2018,” showing their growing importance. Tracking this alongside their inclusion in sustainable supply chains is crucial.

• Adoption of regenerative and resilient agricultural practices.

  Progress towards Target 2.4 can be measured by tracking the adoption of practices like “soil restoration, diversified planting, and low-impact inputs.” This could be measured through surveys or monitoring programs.

• Deforestation rates linked to palm oil expansion.

  This is a direct indicator for Target 15.2. The effectiveness of the EUDR and NDPE policies can be measured by monitoring whether the expansion of palm oil cultivation, particularly by smallholders, is decoupled from deforestation.

4. Summary Table of SDGs, Targets, and Indicators

Source: orfonline.org