Sustainable Oil Palm Industry based on Social Enterprises for the Humanness of ASEAN

The highly industrialized 21st century has transformed this world tremendously in every aspect. The shift from agricultural to industrial economy has changed the ways people use and interact with the environment to meet their needs. The complication escalates when the fossil fuel reserve, as the main energy and material source for the economic growth, has been depleting very quickly. People are now striving to find “renewable energy sources” to fuel their ambition of industrial expansion. Growing plants for renewable energy has become one of the plausible solutions for the energy-hungry society. The so-called industrialization has taken the land to pursue their expectation of unlimited profit.

Oil-producing plants become very important commodity in the aforementioned situation. In terms of productivity (tons of crude oil produced per hectare of plantation), oil palm ranks the first among other oil producing plants. On average, oil palm produces 4-5 MT/ha while other commodities only produce less than one fifth of it. For example, rapeseed produce around 1 MT/ha of oil, soybean 0.375 MT/ha, and sesame 0.16 MT/ha [1][2]. Oil palm plantation becomes more attractive because the oil derivatives include various ranges of products from food ingredient, cosmetics, personal cares, up to biofuel [3]. In 2012, 22.5 billion liters on biodiesel was produced globally [1]. Palm oil is the most attractive feedstock for biodiesel production because of its high productivity and guarantee of availability all year long.

Three Indonesian fellows of 2015 ASEAN-US Science and Technology Fellowship interviewed small farmers in North Sumatera Province (August 2015)

Indonesia is currently the largest palm oil producer which contributes 48% of total volume of world production capacity, followed by Malaysia with 37% of total volume [4]. Unfortunately, it also implies the issues of deforestation and the threat on biodiversity. So here comes the controversy of oil palm industry, including biofuel as the most ambitious derivative industry.

Dilemma of large-scale palm oil production includes encroaching towards protected areas, affecting water systems, displacing food production, and harboring unsustainable land-use practice [1]. Palm oil plantations are linked with deforestation and degradation of biological sensitive habitat. On the other hand, millions of lives depend very much on the oil palm plantations. In Indonesia more than 2 million people depend on it, and a big portion of the number is smallholder farmers [4].

Small farmers desperately need access to high quality oil palm seeds and technical assistance to improve their plantation productivity

Regulatory tools are crucial to maintain sustainable practices in oil palm plantation. Standards of sustainable practices in oil palm management have been implemented, such as the Roundtable on Sustainable Palm Oil (RSPO) at the international level and Indonesian Sustainable Palm Oil (ISPO) at the domestic level. The standards provide guideline to implement sustainable production practices and to promote the growth and use of sustainable palm oil [5]. However, the certification procedures can usually only be complied by large scale plantations which own palm oil mills and have direct access to overseas buyers. Small farmers are left behind in the certification system. With their lack of awareness on such a certification guideline, they remain doing traditional ways with low oil productivity.

Currently there are 10.5 million hectares of oil palm plantation in Indonesia and about 44% of it belongs to small farmers who do not have their own mills [4]. This portion of land is actually still far below the optimum productivity. Due to the lack of knowledge and limited access to good seeds and ideal fertilizer, the productivity of small farmers’ plantation is only around 2-3 ton of oil/hectare, which is less than half of the productivity of large scale plantation. This fact raises a question: Do we need to open new plantation while almost half of Indonesian oil palm plantation has NOT optimally managed? Is it possible to improve the productivity of the portion owned by small farmers so that we can prevent aggressive deforestation for new oil palm plantation?

With the current scheme, small farmers are just suppliers of fresh fruit bunch to the mills through long chain of intermediate sellers between the farmers and the mills, so that the margin for the farmers is very low. Direct attachment of small farmers to the palm oil mills are required to improve the productivity of the small plantations in a sustainable ways according to the certification guideline. Fair trading schemes and shared ownership of the mills are needed to guarantee both sides responsibilities are fulfilled, which are continuous supply of fresh fruit bunch from the farmers to the mills and the fair share of profit from the mills to the farmers. To transform the small farmers into the practitioners of sustainable palm oil producers, it takes a new business scheme.

Integrated oil palm plantation and cow farm as a model for sustainable oil palm plantation for small farmers, as a pilot project in Bukit Sentang, North Sumatera Province, run by the Oil Palm Research Institute (OPRI/PPKS) Medan. The cattle is fed by the processed waste of the oil palm plantation. I

Some initiatives have been taken by companies, research institutions, and NGOs in Indonesia which is called “social business scheme”. In one of the proposed scheme for example, the mill investor buys the fresh fruit bunch directly from the small farmers. A portion of the profit is returned back to the farmers in the form of technical assistance to improve the farmers’ land productivity. After 2 or 3 years the farmers are projected to be knowledgeable about the sustainable way of oil palm production so that technical assistance does not need to be as intensive as before and the funding now can be calculated as the farmers’ shares on the mill ownership. After several years, the mill will be practically owned by the farmers and the “former owner” of the mill remains as the manager of the mill with fair profit share with the farmers. This “former owner” of the mill plays a role as the “social entrepreneur”. When the ownership of the mill shifts to the farmers, the former owner has got the investment back that could be invested elsewhere with the same scheme on different group of small farmers.

This new trend in business is being tested in Indonesia, one of which is a mill in Jambi Province. The scheme needs studies from the various aspects: the social study to observe the impact of the scheme on the farmers’ quality of life, land use change, and biodiversity [6], optimization of the financing scheme, the best organization system for micro-financing to support the farmers’ operational costs for sustainable plantation, and the appropriate and affordable technology to comply with the certification standards and also to improve the efficiency of the cash-flow in the cluster through material and energy conservation [7][8][9][10].

As a part of the effort to maximize the social benefit of the “community-based plantation and mill”, the wastes of the oil palm plantation and mills can be converted into biogas. It reduces the GHG emission and can potentially provide energy self-sufficiency in the surrounding community

It is now the challenge for Indonesian policymakers to develop regulations to encourage these initiatives. One of the effective ways to support these “social entrepreneurs” is special interest rate for investment in sustainable projects. This is of course not an instant solution for the current environmental issues caused by deforestation in Indonesia. Nevertheless, in the long run, to establish sustainable oil palm industry we need regulations that will drive the profit from sustainable plantations towards the social benefit of the local community [2]. Improved life quality of local community makes them natural guardian of the environment, from which they owe their welfare. With community-based approach in oil palm plantation, people-planet-profit will be very well balanced. The bigger role of “people” is crucial to improve the “humanness of ASEAN” so that the coming ASEAN Economic Community is not only about pursuing profit across borders, but more on building “people connections” in the region.



[1]       I. Mukherjee and B. K. Sovacool, “Palm oil-based biofuels and sustainability in southeast Asia : A review of Indonesia , Malaysia , and Thailand,” Renew. Sustain. Energy Rev., vol. 37, pp. 1–12, 2014.

[2]       M. Seegräf, D. May, T. Breuer, and P. Schukat, “Palm Oil – sustainability is possible ! Promotion and certification of smallholders,” 2010.

[3]       Green Palm Sustainability, “Oil Palm : Fractions & Derivatives Palm Oil process Oil Palm : Fractions & Derivatives Palm Kernel Oil process,” Green Palm Sustainability, 2015. [Online]. Available: [Accessed: 10-Jul-2015].

[4]       Board of CPO Fund, “Guideline for Oil Palm Research.” pp. 8–11, 2015.

[5]       RSPO Board of Governors, “RSPO Supply Chain Certification Standard,” RSPO, 2014.

[6]       S. B. Hansen, R. Padfield, K. Syayuti, S. Evers, Z. Zakariah, and S. Mastura, “Trends in global palm oil sustainability research,” J. Clean. Prod., vol. 100, pp. 140–149, 2015.

[7]       K. Y. Foo and B. H. Hameed, “Insight into the applications of palm oil mill effluent : A renewable utilization of the industrial agricultural waste,” Renew. Sustain. Energy Rev., vol. 14, no. 5, pp. 1445–1452, 2010.

[8]       C. S. Goh and K. T. Lee, “Palm-based biofuel refinery (PBR) to substitute petroleum refinery: An energy and emergy assessment,” Renew. Sustain. Energy Rev., vol. 14, no. 9, pp. 2986–2995, 2010.

[9]       H. Kamahara, U. Hasanudin, A. Widiyanto, and R. Tachibana, “Improvement potential for net energy balance of biodiesel derived from palm oil : A case study from Indonesian practice,” Biomass and Bioenergy, vol. 34, no. 12, pp. 1818–1824, 2010.

[10]     U. E. Hansen and I. Nygaard, “Sustainable energy transitions in emerging economies: The formation of a palm oil biomass waste-to-energy niche in Malaysia 1990-2011,” Energy Policy, vol. 66, pp. 666–676, 2014.



Wiratni Budhijanto ( is currently one of the ASEAN-US Science and Technology Fellow 2015 working on biofuel and focusing on oil palm based industry. She received her bachelor (1996) and master (1999) degrees in chemical engineering in Universitas Gadjah Mada, Indonesia and doctoral degree (2004) in chemical engineering in West Virginia University, USA. She has been a faculty member in Chemical Engineering Department, Universitas Gadjah Mada, Indonesia since 1996 and under the ASEAN-US Science and Technology Fellowship she is currently working under the Ministry of Research, Technology, and Higher Education. Her research area is bio-renewable commodities, including materials and energy, with special interest in utilizing wastes to improve sustainability and efficiency of zero-waste industrial clusters. She developed her skills in bioprocess engineering through the visiting research fellowship in the Bioreaction Engineering Lab, West Virginia University USA (2004) and The Angenent Lab, Cornell University USA (2009-2010). Her passion for community outreach has made her research distinctive with their applicability as appropriate technology for relevant communities. Her action research activities have brought several awards in the last 10 years, which include L’Oreal-UNESCO For Women in Science Fellowship (2007), Schlumberger Faculty for the Future Fellowship (2009), Best Research-Based Community Empowerment Program (2011), and Best Research-Based Appropriate Technology (2013).