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INDEPENDENT SMALLHOLDERS IN THE GLOBAL PALM OIL VALUE
CHAIN
A Case Study of Malaysia
Shaufique F. Sidique
Director
Institute of Agricultural & Food Policy Studies
shaufique@upm.edu.my
Outline
Background of Malaysian Oil Palm Smallholders
Current Issues Faced by the Independent Smallholders
Key Research Questions
Aims & Potential Benefits of Certifications
Challenges of Obtaining Certifications
Case Study of Malaysian Independent Smallholders
Conclusions
Background of Malaysian Oil Palm
Smallholders
Generally defined as having less than 40-ha land.
Holders of land title/customary rights.
Can be categorized into:
Organized smallholders
Growers who cultivate oil palm WITH the support of either
government or any organization that provides technical assistance,
agriculture inputs or financing etc. (FELDA, FELCRA, RISDA etc.)
Independent smallholders
Growers who cultivate oil palm WITHOUT direct assistance from the
government or any private organization.
Total Planted Area of Oil Palm in Malaysia,
2012 - 2014
Category
2012 2013 2014
Area (ha) % Area (ha) % Area (ha) %
Organized
smallholders1,258,251 24.7 1,255,138 24.0 1,240,214 23.0
Independent
smallholders691,688 13.6 732,163 14.0 808,835 15.0
Total
smallholders1,949,939 38.4 1,987,301 38.0 2,049,049 38.0
Private estates 3,126,990 61.6 3,242,438 62.0 3,343,186 62.0
TOTAL 5,076,929 100 5,229,739 100 5,392,235 100
Source : Economic & Industry Development Division, MPOB (2012, 2013, 2014)
Distribution of Oil Palm Independent Smallholders &
Land Size in Malaysia, 2014-2016
STATE2014 2015 2016
No. ha No. ha No. ha
Johor 67,499 201,258 69,622 207,483 72,463 213,396
Kedah 4,926 23,658 5,252 24,724 5,401 25,347
Kelantan 1,171 4,575 1,336 4,996 1,553 5,465
Melaka 2,286 10,571 2,489 11,347 2,703 11,905
Negeri Sembilan 4,511 22,046 4,956 23,533 5,310 25,093
Pahang 9,381 42,689 10,123 45,428 10,863 48,073
Perak 35,669 103,575 38,742 109,995 40,830 115,369
Pulau Pinang 1,723 8,879 1,754 9,019 1,776 9,078
Selangor 19,431 43,093 19,801 43,058 20,966 45,196
Terengganu 2,598 10,353 2,735 10,851 3,042 12,001
Perlis 12 68 11 67 16 82
Peninsula 149,207 470,765 156,821 490,503 164,923 511,004
Sabah 32,740 214,818 33,736 217,403 34,866 221,678
Sarawak 23,023 121,425 30,930 175,098 34,918 201,266
Sabah/S'wak 55,763 336,243 64,666 392,501 69,784 422,944
Malaysia 204,970 807,008 221,487 883,004 234,707 933,948
Source: MPOB (2017)
Demographic Background of Independent
Smallholders in Malaysia
Demographics Descriptions
Age Average 54.6 years old; 66.6% > 50 years old
Education Primary (49.6%); secondary (34.1%); tertiary (8.9%);
and 7.4% with no formal education
Household size Average 5.6 persons
Farm employment Full time (55.6%); part-time (28.9%); absentee owner
(15.5%)
Farm size Average 2.6 ha, < 4 ha (88.9%)
Source of seedling Govt. (50.4%), private (24.4%), estate (14.1%)
Average yield 17.84 mt/ha (MPOB, 2014); National Avg. – approx. 20
mt/ha
Characteristics of Independent Smallholder’s
Farming
Establishment
• Seedlings are sourced directly from private
nurseries.
• Development costs e.g. land preparation are
self- funded.
Maintenance • Self harvested and maintained.
• Maintained by casual workers or contractors.
• Organised via dealership who maintains and
harvests the crop.
Logistics • Direct transport using own vehicle.
• Dealer organises transportation of FFBs.
Point of sale • Dealership e.g. FFB collection centre.
• Direct to nearby mill or mill appointed
dealers.
Current Issues Faced by the Independent
Smallholders in Malaysia
Lack of
agronomic
knowledge
Lack of financial
support
Lack of farm
training
Affordability to
get seedlings and
fertilizers
Lower quality
crop and yield
No clear
relationship with
the mills
Vulnerable to
highly volatile
market price
Poor public
infrastructures
No clear legal
support due to
land ownership
Poor farm
efficiency
Reliance on the
dealers to sell
FFBs
No guaranteed
crop pricing
mechanism
Four Pillars for Sustainable Inclusion of
Smallholders in the Global Value Chain
Source: Fernandez-Stark et al. (2012)
Key Research Questions
What are the current livelihood conditions of
independent smallholders in Malaysia?
Will certification help improve the welfare and livelihoods
the independent smallholders?
Understand the adoptive behavior - perception and attitude of
smallholders towards sustainable environment and certification;
Decision-making process of smallholders in getting the
certification; and
Identify barriers and challenges in getting the certification
among the smallholders
Can certification be a tool to empower the independent
smallholders in the global value chain?
Aims of Certification – Sustainable Development
Potential Benefits of
Certification
Improved market access
Earn higher household incomes
Environmental improvements
Social wellbeingHighly ordered smallholders
Improved farming practices
Stronger presence in the
supply chain
Other Potential Benefits of Certification to the
Smallholders
Helps organize the independent smallholders;
More organized smallholders enjoy greater benefits e.g.
better bargaining power;
Improves their presence and market power in the supply
chain;
Less vulnerable to the exogenous shocks e.g. global
market price fluctuations, policy shifts, global pressure;
Improved market and policy information flow and
networks; and
Better agricultural input use in the farm – reduce
wastage, minimize inputs, maximize yield, become
more efficient.
Examples of Certification Scheme in the Oil
Palm Industry
International Sustainability and
Carbon Certification (ISCC)
Rainforest Alliance
Roundtable on Sustainable
Biomaterials (RSB)
Roundtable on Sustainable
Palm Oil (RSPO)
Malaysian Sustainable Palm
Oil (MSPO)
Indonesian Sustainable
Palm Oil (ISPO)
Challenges of Obtaining Certification among
the Smallholders
Achieving certifications requires skills in management,
administration, quality control, marketing and service delivery
that are difficult for the smallholders to develop without
relevant support.
High costs associated with certification process, training and
certification assessment are beyond the means of the
smallholders and may prevent their participation in the
certification scheme.
Skepticism against effectiveness of the certification scheme;
Stringency of technical requirements for production methods;
Organizational demand for verification system; and
Auxiliary services of the certification scheme.
Case study of Certification Scheme among
Malaysian Independent Smallholders
Methodology
Location
• 10 longhouses in Bintulu, Sarawak,
Malaysia (Keresa)
• 10 villages in Telupid/Beluran, Sabah,
Malaysia (Sapi)
Data collection
Sampling
Data Analysis
Methodology
Sampling
• 76 respondents were interviewed in Sarawak
(Keresa).
• 100 respondents were interviewed in Sabah (Sapi).
Data Analysis
• Descriptive statistics: frequency count & percentages
• Efficiency Analysis – Data Envelopment Analysis:
technical efficiency
Working Model for Certification Scheme in
Keresa, Sarawak
Note: KSGS = Keresa Sustainability Group Scheme
Working Model for Certification Scheme in
Sapi, Sabah
FFBs
NGO- MPOB SPOC
CERTIFIEDSMALLHOLDERS SAPI PALM OIL
MILL
Technical Advice
Management Support
Training & Capacity Building
Advisory services
Payment Premium (RM5/ton: kicked off in the 2nd half of
2015)
Sponsorship
Potential Smallholders
Demographic Background
VariableMean
Keresa Sapi
Age of
Household
Head
55 years old 53 years old
Household Size 6 persons 7 persons
Farming
Experience8 years 17 years
Farm Profile
Mean Total Land Size (ha)
Keresa Sapi
Certified Non Certified Certified Non Certified
6.64 3.49 5.01 4.84
t-statistics = 3.976, p = 0.000*
t-statistics = 0.444,
p = 0.658
Total Land Size (ha)
“…towards sustainable agriculture…”
AgriculturalInput Training
Keresa Sapi
CertifiedNon
CertifiedCertified
Non Certified
Seed 7 (27%) 12 (27%) 59 (87%) 7 (22%)
Fertilizer 22 (85%) 27 (59%) 61 (90%) 8 (25%)
Pesticide 5 (20%) 12 (27%) 59 (87%) 8 (25%)
Herbicide 23 (85%) 24 (52%) 61 (90%) 8 (25%)
TrainingIndex
2.12 1.61 3.53 0.97
t(67) = 1.384, p = 0.086 t(98) = 8.49, p = 0.000
Farm Profile
Agricultural input training programs
Perceived social & environmental benefits of certification by the independent smallholders
Perceived social & environmental benefits are higher
among the certified smallholders than the non-certified
ones;
They perceive that they are going to enjoy various social
benefits upon getting the certification; and
Certified smallholders have a consensus on the positive
effects of certification on the environment.
Social & Environmental Impacts of Certification
Annual Household Income
Annual Household Income
Keresa Sapi
Certified Non Certified Certified Non Certified
MYR 23,922 MYR 20,484 MYR 27,011 MYR 26,123
t(66) = 0.88, p = 0.382 t(82) = 0.25, p = 0.804
Economic Impacts of Certification
Note: USD 1 ≈ MYR 4.28.
Perceived Changes in Annual Income among Certified Smallholders
Changes in Annual Income
Keresa Sapi
Certified Certified
Increased 81% 76%
Unchanged 13% 14%
Decreased 7% 10%
Economic Impacts of Certification
Annual Yield (tonne/ha)
Age of Tree
Annual Yield (tons/ha)
Keresa Sapi
CertifiedNon
CertifiedCertified
Non Certified
3 – 6 years old15.13 8.17 10.56 13.19
t(24) = 2.848, p = 0.009* t(8) = - 0.67, p = 0.261
7 – 20 years old11.61 8.42 13.41 12.11
t(31) = 1.58, p = 0.062*** t(30) = 0.68, p = 0.250
Above 20 years old
- 4.16 14.79 16.74
- t(21) = - 0.78, p = 0.222
Economic Impacts of Certification
Input/Output Selection for Data Envelopment Analysis
Output
Yield
Input
Labour
Herbicide
Fertilizer
Cultivated Area
Number of Trees
Technical Efficiency of Independent Smallholders
Technical Efficiency of Independent Smallholders
Technical Efficiency: Input-orientated (IO)TEIO (CRS) TEIO (VRS)
Efficiency Range Certified Non-Certified Certified Non-Certified
0.000-0.250 21 (21.88) 21 (26.25) - -
0.251-0.500 28 (29.17) 23 (28.75) - -
0.501-0.750 23 (23.96) 21 (26.25) 25 (26.04) 14 (17.50)
0.750-0.999 13(13.54) 7 (8.75) 34 (35.42) 38 (47.50)
1.000 (Fully Efficient) 11 (11.46) 8 (10.00) 37 (38.54) 28 (35.00)
Total 96 (100.00) 80 (100.00) 96 (100.00) 80 (100.00)
Mean 0.544 0.504 0.859 0.878
SD 0.278 0.283 0.153 0.130
Min 0.099 0.138 0.518 0.529
Max 1.000 1.000 1.000 1.000Note: Figures in parentheses represent percentages. CRS = Constant Return to Scale;
VRS = Variable Return to Scale; SD = standard deviations.
Conclusions
Smallholders play an integral role in the global value chain.
Certification scheme appears as a promising instrument
to adequately prepare and empower the smallholders in
this sustainability age.
Despite its vast benefits and access to various market
facilities, the certification process is evidently challenging.
Barriers to the inclusion of smallholders into certification
schemes will potentially undermine the effectiveness of
sustainability standards.
Academia and industries should collaborate in various
initiatives to strengthen the smallholder’s presence in the
global supply chain.
INDEPENDENT SMALLHOLDERS IN THE GLOBAL PALM OIL VALUE
CHAIN
A Case Study of Malaysia
Thank you for listening
shaufique@upm.edu.my