CERTIFICATION, REPLANTING AND OIL PALM SMALLHOLDERS’ INCOME
Consortium Studies on Smallholder Palm Oil - Universitas Sumatera Utara (CSSPO-USU)
Sustainable certification is designed to improve smallholding productivity and income. However, its costs are too steep for most smallholdings, while having uncertain material benefits. This study aims to analyze this condition using data from 964 oil palm smallholdings in North Sumatra, South Sumatra, Riau and Jambi. Business sustainability was calculated by comparing certification costs with production costs, revenue, and income of 5 types of smallholding groups, namely (i) certified plasma/ex-plasma, (ii) certified independent partnered, (iii) noncertified plasma/ex-plasma, (iv) Noncertified independent – partnered, and (v) noncertified Independent – non partnered. The estimation results show that, on average, certification can increase the productivity, selling price and income of smallholders. However, the productivity could only reach the optimum level if the smallholdings use the legitimate seedlings. Therefore, the smallholding replanting program can be utilized as part of the effort to improve the smallholdings’ productivity. Compared to the average production costs, revenues, replanting costs, and certification costs are still relatively high. Smallholders could still cover the certification costs if they have sufficient productivity and selling price. Fortunately, certified smallholding groups, both of the plasma/ex-plasma and independent types appear to increase their productivities and selling prices. Having an optimal group land size could reduce the costs and managing group saving from the initial stage could be a solution. The biggest cost is the component that indirectly impacts smallholding productivity and selling prices. Therefore, state certification has the potential to reduce these costs by shifting certification costs to the state. In addition, intensive long-term partnerships appear to enhance productivity and selling prices, a clear benefit of being part of the smallholding certification program.