PSR Series: Strategies to Grow Independent Oil Palm Smallholder Institutions

Independent oil palm smallholders manage about 6.94 million hectares, or about 40% of Indonesia's oil palm plantations. Their yield averages 3.3 tonnes of CPO per hectare per year, well below a potential of 6 to 7 tonnes, while at least 2.8 million hectares have become unproductive and need replanting. From 2017 to 2024, the Smallholder Oil Palm Replanting Program (PSR) reached only 376,504 hectares of its 1,145,780 hectare target, or 33%.

A major cause is the lack of formal institutions, which are a prerequisite for accessing PSR, People's Business Credit (KUR), infrastructure assistance, and sustainability certification. IPOSS field research in West Kalimantan, Riau, and North Sumatra in 2024 found that only 34.84% of smallholders belonged to an institution. The barriers are not only distrust after bad experiences with cooperatives, but also limited knowledge of legal procedures and organizational governance.

This policy brief sets out five policy options: priority access to government assistance and replanting KUR for formal institutions, premium price incentives for group-sold fresh fruit bunches, strengthening of existing smallholder organizations, initiatives to form new institutions, and better use of existing regulation through implementing rules specific to independent smallholders. Implementation is divided into three phases over 18 months, with the Ministry of Agriculture as lead coordinator alongside BPDP, the Ministry of Finance, the Ministry of Cooperatives, and local governments.