Will sustainable palm oil surge exclude small farmers?

Workers stand near palm oil fruits inside a palm oil factory in Sepang, outside Kuala Lumpur, February 18, 2014. REUTERS/Samsul Said (Reuters)

By Megan Rowling BARCELONA (Thomson Reuters Foundation) - Among Ghana's small-scale farmers, there's a saying that if your cocoa crop fails, you may as well go back and tend your oil palm. That's because oil palm is more resistant to pests and diseases, and provides a regular harvest throughout the year - as long as it is looked after properly, which is rare, according to Rosemary Addico who runs a program supporting farmers. Her organization, Solidarid, is working to get hundreds of Ghanaian small-scale farmers certified by the Roundtable on Sustainable Palm Oil (RSPO), which Addico hopes will boost their yields and profits. To achieve this, they must first be brought together in groups of between 25 and 100 growers. "If they are not in groups, we can't train them and no one wants to invest in them. This way, they get better prices for their crops and higher incomes," Addico said. Many individual farmers who grow the fruit that makes palm oil - which is used in fuel and consumer goods from cereals to cosmetics worldwide - produce only around half the industry average of oil per hectare. That is because of inferior-quality seeds and poor management of their trees. Yet they still supply around 35 to 40 percent of palm oil globally. As a growing number of multinational companies scrutinize their supply chains and commit to using only palm oil produced in a way that does not clear forests for new plantations or exploit workers, small-scale growers who cannot provide the right guarantees could lose out, experts fear. That has sparked interest in helping them improve their methods and boost their harvests. GROWTH POTENTIAL Biswaranjan Sen, Unilever's vice president for chemicals procurement, calculates that if the world's 4.5 million small growers doubled their harvests to 4 tonnes of oil per hectare, they alone could meet the projected increase in global demand for palm oil, from 60 million tonnes a year today to 78 million by 2020. "The benefits would be that, technically speaking, you don't need fresh land and therefore the whole tussle about deforestation versus development goes away," he told the Thomson Reuters Foundation. Small-scale growers would earn more from the same amount of land, giving their families a better quality of life, he added. "The challenge is that a lot of this has to do with getting the right agricultural practices to the smallholders - in many cases, helping them to replant," he noted. Sen, who also co-chairs the RSPO board, said Unilever is seeking to partner with governments in palm oil-producing nations, donor agencies, non-profit groups and plantation companies to develop a system that enables poor farmers to replace their palms with higher-yielding varieties. The problem is it takes three to four years for new trees to produce fruit and six to seven years before they reach full output, Sen said. "There has to be a way of funding this, to sustain the smallholder over the next four to six years so they can see the benefits," he added. Jan Maarten Dros, coordinator of Solidaridad's international palm oil program, said upfront investment is needed because small-scale farmers lack the capital and assets to swap their old trees for new, and keep going financially until they mature. "There a lot of barriers to overcome," he said. 'THEM AND US' One problem in major palm-oil producers Indonesia and Malaysia, as well as in West Africa, is that the mills where the palm fruit is processed into oil do not have contractual relationships with small growers. That gives the companies running the mills little incentive to invest in helping farmers produce more. "Historically there has been a 'them and us' situation in Indonesia and Malaysia," said Simon Lord, group director for sustainability with New Britain Palm Oil Limited (NBPOL). "But I think that is changing now, and companies like Unilever are beginning to understand some of the problems." NBPOL, which operates mainly in Papua New Guinea, has applied a different model for decades, providing the farmers it buys from with high-quality seed, soft loans for tools, and agronomic advice. Farmers don't pay back loans until trees start producing fruit. "We have regarded them as 'our' smallholders, and since the beginning we have always collected the crop - there are no middlemen in Papua New Guinea - and trust has built up," Lord said. Given the fragmented nature of the industry elsewhere, the best solution may be to have companies come together with growers and authorities across a region and jointly agree to promote practices that will support small-scale farmers, said Solidaridad's Dros. His organization has done this in Honduras and Colombia, he said. Other trials, involving the RSPO, major firms and donors, are underway or planned in parts of Indonesia and Malaysia. Finding a long-term answer to smallholders' problems involves demonstrating good growing and harvesting practices on plots in the field, and providing them with better seeds and tools. It also means training them in business skills so they can keep their books and plan for the next 25 years, Dros said. "We need to do a lot of institution building if these growers are to be part of the global market," he added. LOW PRICES, SMARTER GAME? As the level of industry commitment to sustainable palm oil has soared in the past 18 months, however, palm oil prices have sunk alongside crude oil. This may benefit forests as big producers put plantation expansion plans on hold. But it raises the question of whether they will be prepared to invest in smallholders as their profits are squeezed. Still, in an era when "the idea that they can rush off and clear more forest is anathema to their customers", companies will need to find a smarter way to move ahead, said Scott Poynton, founder and executive director of The Forest Trust. Helping small growers harvest more from their land is no longer a philanthropic choice for the big Asian palm oil producers such as Musim Mas, Wilmar International and Golden Agri-Resources, he added. As they strive to meet promises to supply deforestation-free palm oil, "there is a real business case for it", Poynton said. (Reporting by Megan Rowling; editing by Laurie Goering)