Palm oil is one of the most resilient sectors in any global economic situation. In 2022, this sector has contributed 13,45% toIndonesian national export value and had steadygrowthover the last 5 years. Amidst this nation’s economic development, thissector’sstrategic position has to be supported by its business’s well-being. By its demography, smallholders contribute more than 40% of oil palm business in Indonesia. However, only 30% of total national production originated from smallholders. Productivity is the key issue of this situation which put financial factor as the main obstacle for smallholders to improve their business.
The gap between demand and supply of oil palm financinghas been soaring among farmers since their business feasibility cannot meet creditrequirements by the bank. According to the law, credit can be given as long as borrower provides certain amount of asset as collateral.That gives opportunity for the government to have significant role in equalizing access for smallholders to financial source. Prior to the discussion of how palm oil fund as a government fiscal instrument delivers solution for sustainable oil palm development, to give balance perspective a flashback of how the demand and supply of oil palm financing gap has been rising in smallholders’ case will be discussed first.
Low production of palm oil drives smallholders to prepare a huge amount of savings to replace old trees to increaseproductivity. Currently, it needs in average 80 million rupiah per hectare to run replanting comprises of old plants demolishing, land clearing, distributing new palm seeds, and plantsmaintenance until production period reached. Furthermore, that amount is not including opportunity cost of smallholders from losing income of selling fruits. To illustrate,supposedly the average selling price of fruits in the last 5 years is 1.500 rupiah per kilogram andproductionis maintained at 15 tons per hectare per year, therefore potential loss for the replanting farmers would be around 22,5 million rupiah per year or 90 million rupiah in 4 years. Total economic cost resulted from replanting project is estimated 170 million rupiah per hectarewhich will be recovered after production in next 4 years.
Meanwhile, banks considerpalm oil as a promising market.Few types of credit program had been provided for smallholders such as Pinjaman Perkebunan Inti Rakyat Perkebunan (PIR-BUN) and Perkebunan Inti Rakyat Transmigrasi (PIR-Trans), Kredit Koperasi Primer Anggota (KKPA), Program Revitalisasi Perkebunan, and lastly the still-running Kredit Usaha Rakyat (KUR). Despite thosefacilitiesand combination with governmentsubsidy, smallholders still find it fairly difficult to access financing supports.As the credit requiresland certificate as collateral in credit proposal, smallholderswill keep struggling to accessloan facility.Facts show that many of smallholders’ area are not certified,or ownership have been transferred without proper legal documentation followed.
Analysis by CIFOR in 2017 shows farmers whom their business run independently or also known as independent farmersare the one who suffer the most from this situation. In contrast,for plasma whom their business operated by the parent companies, there is less issue since land certification process has been done by the company when the estate firstly open. Moreover, the role of parent company as the estate operator and guarantor to smallholders’ loan ensure plasma meet creditworthiness of credit requirements. For independent farmers, upgrading land ownership status through certification is not an easy task since it requiresa substantial amount of cost and long processing-time inThe Land Office. That situation isworsened by claims tosome landswhich are detected in forestareas. That tenurial conflict gives another homework for independent farmers to request abolishment of their land status prior to land certification and loan application.
Palm oil fund is a solution to portfolio beyond commercial financing reach. Mandatefor palm oil fund to be spent for smallholders’ oil palmproductivity improvement is implemented through several programs such as smallholders replanting, estate equipment and facilitysupport (Program Sarana dan Prasarana), human resources development, and ISPO certification.
(Selengkapnya dapat dibaca di Majalah Sawit Indonesia, Edisi 141)