Already in 2008, Giovannucci and Purcell warned that the new market requirements for certification of sustainable palm oil could effectively lead to eliminating smallholders and the poor from the value chain
Aware that the standards and procedures of the RSPO were ill-suited to smallholders, the RSPO set up a task force on smallholders, which through several years of consultation has allowed the RSPO to elaborate on revised standards designed for both smallholders in schemes contractually linked to specific mills and for the group certification of independent smallholders (Colchester et al. 2011). As of , six initiatives globally comprising more than 9000 smallholders have achieved group certification, supported by approximately one million Euro funded through the RSPO Smallholders Support Fund (RSPO 2015c). Although it is a great achievement, it remains a drop in the bucket considering that approximately 3 million smallholders grow oil palm worldwide (Balch 2013). 2012). The actual benefits of certification to smallholder livelihoods have been widely disputed (Bacon 2008, Giovannucci and Purcell 2008, Dolan 2010, Blackman and Rivera 2011, Hidayat et al. 2015). Although the RSPO does have a specific criteria for “growers and millers to contribute to local sustainable development where appropriate,” unlike Fairtrade it is mainly concerned with issues of sustainability and not of not of growers livelihood (RSPO 2013).
Moreover, growers and retailers that are targeting markets with little interest in sustainably sourced palm oil have very few reasons to change their production systems given alternative low-standard markets to the standard intensive OECD ). This is well reflected in the uneven distribution of RSPO members across consumer countries in which most manufacturers are largely from the EU or the USA (Table 3). Ethically concerned consumers prevail in OECD markets with high GDP per capita incomes, whereas emerging markets in China and India with far lower per capita incomes are yet to see the formation of equally concerned consumers chemistry.com (Nikoloyuk et al. 2010). It has yet to be seen whether and in what form an impact due to emerging markets with less standard intensive value chains might be on the palm oil industry. Evidence from the timber and cassava industries in Gabon and Thailand, respectively, shows that Chinese-driven value chains were less concerned about standards (i.e., product, process, and environmental standards) than value chains driven by European lead firms (Kaplinsky et al. 2010).
Smallholders are an important segment of the global palm oil value chain. They are responsible for two fifths of global palm oil production (Balch 2013). At a local scale many oil palm estates are dependent on smallholders to ensure efficient operation of palm oil mills and diversification of production risks (Rahman et al. 2008). The smallholder segment is quite complex, including in the major palm oil producing states of Malaysia and Indonesia. In simplified terms, there are three kinds of smallholders: those who are directly contracted by large estates, produce for the estates, and might receive investment and management support from them; independent smallholders who sell to mills either directly or through agents; and, smallholders contracted to large estates who keep some independent production. Contract farming provides the smallholder with greater production efficiency, income stability, market security, and access to capital (credit) and technological advances (Echa). Thus from an agronomic perspective, it can be considered more sustainable because it supports intensification. However, it does come at the price of loss of autonomy (Dolan 2010, Echa). Also, a number of studies have pointed out that the livelihood outcomes of contract farming are highly variable and depend strongly on farmers ability to negotiate favorable contract conditions as well as the investors support during planting stage (McCarthy 2010, McCarthy and Zen 2010). In general, investors engage with smallholders simply as a means to access land and labor. Social responsibilities beyond provision of plantation infrastructure are largely absent (Sutton 2001).