CPO Prices Soar, Palm Oil Farmers Restraint by Middlemen

For decades, Kanisius Tereng has been a palm oil farmer in Paser Regency, East Kalimantan. Since the last three months, he admitted that the price of palm oil has moved up. Unfortunately, those who garden every day and harvest oil palm bunches, are unable to taste the sweetness of this world trend. This is because they cannot deny the role of middlemen in the palm oil trading system.

“Farmers do not have direct contact with factories. So the price that seems quite large is not the factory price. There are certain people who enjoy it. For farmers, because they are not related to the factory, this price is still regulated by middlemen,” Tereng said when contacted by Mouab.

Among East Kalimantan’s oil palm farmers, the term loading is known. This lot consists of a number of middlemen, who have access to sell palm oil to the processing mill. According to Tereng, the purchase price set for each loading is different. Farmers can choose where to land, the palm oil from their plantations will be sold.

Currently, the price per kilo of Fresh Fruit Bunches (FFB) is in the range of Rp. 3 thousand. Much better than the price in the past, which could even touch below Rp. 1,000. However, Tereng is sure that these lodings already have an agreement on the price, how much they will increase or decrease. So, in fact, wherever they want to be sold, farmers still do not have an adequate bargaining position. “The price that determines them, whenever they want to go up, when they want to go down, it’s the middlemen who have business. Because middlemen already have cooperation with factories,” he added.

Palm oil storage tank at Sinar Mas Agro Resources and Technology (SMART) palm oil based refinery in Marunda, West Java March 30, 2011. (Photo: REUTERS/Enny Nuraheni)

Palm oil storage tank at Sinar Mas Agro Resources and Technology (SMART) palm oil based refinery in Marunda, West Java March 30, 2011. (Photo: REUTERS/Enny Nuraheni)

Tereng once tried to suppress the role of middlemen, by establishing cooperatives and asking for partnerships with factories. There is an opportunity, but one condition cannot be fulfilled, and this condition is actually in the hands of the government.

“I’ve tried to apply for a partnership, but it lacked the requirements for a Cultivation Registration Certificate. But it can’t, while this letter is the responsibility of the government. There is a role for the government in how to establish such cooperation,” said Tereng.

So far, efforts to partner with the factory have not been successful. Oil palm farmers still have to sell their crops, through middlemen. However, there is a large price difference. If every kilogram of factory prices and farmers’ prices differ by only Rp. 500, then Tereng, who can sell up to 10 tons of palm oil a month, loses potential income of Rp. 5 also per month.

Food Prices Rise

Conditions that pushed up the price of palm oil, among others, were the increase in world food prices. The United Nations Food and Agriculture Organization, FAO, said the increase in global food prices in September 2021 reached 32.8 percent, the highest in 10 years. Increases occurred in wheat, rice, corn, and soybeans as well as a variety of cereals. Due to the increase in raw material for vegetable oil, palm oil as a substitute has received a positive impact.

According to data from the Indonesian Palm Oil Association (Gapki), CPO exports in August 2021 were recorded at US$4.42 billion. That figure experienced an increase of 1.6 billion dollars, when compared to the previous month. One of the countries with a large import surge is India, which requires more than 950 thousand tons of CPO, whereas in July they only bought about 231,000 tons of CPO from Indonesia. In addition, China also experienced a large increase in CPO consumption, from around 520 thousand tons in July, to more than 800 thousand tons in August.

Workers install pipes to pump crude palm oil (CPO) to tankers at the port of Belawan in North Sumatra Province, February 21, 2013. (Photo: REUTERS/Roni Bintang)

Workers install pipes to pump crude palm oil (CPO) to tankers at the port of Belawan in North Sumatra Province, February 21, 2013. (Photo: REUTERS/Roni Bintang)

The price of CPO on the Malaysian Stock Exchange, which is the benchmark, this week remained in the range of 5 thousand Malaysian Ringgits per tonne. If calculated, this price has increased by more than 30 percent from the initial price last year. CPO prices rose, apart from the need, also related to the policies of a number of countries. India, for example, since last June has reduced import duties on CPO imports.

Small Impact on Farmers

The small impact of the increase in world CPO prices to oil palm farmers was also confirmed by the Secretary General of the Oil Palm Farmers Union (SPKS), Mansuetus Darto. As Tereng stated above, Darto also admitted that the majority of small-scale oil palm farmers depend on middlemen.

Mansuetus Darto, representative from SPKS (doc. Mouab/Yudha)

Mansuetus Darto, representative from SPKS (doc. Mouab/Yudha)

“Eighty-three percent of the farmers with land under 8 hectares sell their palm oil to middlemen, with a fairly large price difference, with the price determined by the government. This, this 83 percent point is taken from the results of research that we have in 2018,” said Darto in a discussion related to palm oil, Tuesday (19/10).

Even though the current price of palm oil is high, there is no guarantee that farmers will prosper. The problem is, the price of palm FFB does change from time to time. Currently, with prices in the range of Rp. 3 thousand per kilogram of FFB, farmers are quite helped. However, there are a number of other things that determine the level of welfare of oil palm farmers in the long term.

“The important point is the partnership aspect. If, for example, the small farmers had partnered with a palm oil corporation, of course, the 20-30 percent lost income would not have happened,” added Darto.

To cover the price gap that has arisen between government pricing and the reality received by farmers, improvements need to be made at the factory level. The current condition, said Darto, must be changed in order to provide more benefits to small farmers.

“Farmers sell to middlemen. The supply chain is too long. This system does need to be changed so that there is a better partnership. Here we need the role of each company to empower small-scale oil palm farmers in the region,” he said.

However, there are a number of other facts which, according to SPKS records, are a factor in the level of farmers’ welfare. Data shows that the majority of farmers’ land is less than four hectares and productivity is low. In addition, only about 30 percent of the small oil palm farmers, who have other land for food crops. This condition is vulnerable, when the price of palm oil falls, farmers do not have an independent food source, which helps them.

Due to a number of facts, said Darto, in fact, the dependence of oil palm farmers on the price of palm oil is still quite high.

A girl pushes a cart while working in an oil palm plantation area in Pelalawan, Riau Province, 16 September 2015 (Photo: AFP/Adek Berry)

A girl pushes a cart while working in an oil palm plantation area in Pelalawan, Riau Province, 16 September 2015 (Photo: AFP/Adek Berry)

To ensure the welfare of oil palm farmers, according to Darto, the land area factor will be very decisive. In addition, the price of FFB cannot be below Rp. 1,200 per kilogram at the farm level. Oil palm smallholders should also be encouraged to own food land or cross commodity and have a maximum of two children.

On the other hand, a fair partnership between farmers and corporations must be established. Oil palm productivity must also increase, to above 14 tons per hectare per year, if the farmers’ land is less than 8 hectares.

Government Commitment

Last week, the government reaffirmed its commitment to the welfare of farmers, particularly through a partnership scheme. At least, it can be read from the statement of the Coordinating Minister for the Economy, Airlangga Hartarto, in the ministry’s official statement Wednesday (13/10).

Airlangga said that the development of partnership patterns needed to be done to answer the problem of the weak bargaining position of smallholders in the oil palm trade chain.

Coordinating Minister for the Economy Airlangga Hartarto.  (photo: PR)

Coordinating Minister for the Economy Airlangga Hartarto. (photo: PR)

“This partnership pattern can also be done, among others, by developing palm-based incubation,” said Airlangga.

He also emphasized that oil palm plantation partnerships were built to synergize farmers with corporations, both state-owned and private. This step is to continue to encourage growth and equal distribution of oil palm economic opportunities, as well as to encourage regional economic growth. In this new scheme, small-scale oil palm farmers are partnered with corporations related to biodiesel production.

“As the largest producer country, which controls about 55 percent of the world’s palm oil market share, and utilizes no more than 10 percent of the world’s palm oil total global land bank for vegetable oil“Indonesia is able to produce 40 percent of the world’s total vegetable oil,” Airlangga added.

The government is also committed to replanting or replanting 540,000 thousand hectares of oil palm plantations owned by smallholders until 2024.

“Especially to increase the productivity of smallholder oil palm plantations, which previously was less than 3-4 tons per hectare, of course, it is hoped that replanting can approach the productivity of private plantations,” he said again. [ns/ab]

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