Oil Palm Smallholders’ Inclusiveness Possibility in the Industry 4.0:

RSPO Sustainability Certification Case in the Palm Oil Global

Supply Chain

Diana Chalil

, Riantri Barus

and Thomson Sebayang

Universitas Sumatera Utara, Medan, Indonesia

Keywords: Industry 4.0, Smallholders, Palm Oil, Certification.

Abstract: The palm oil industry is big, involving long supply chains with smallholders as part of the chain. In contrast

with the significant increase in the smallholder plantation areas’ share, significant innovations are found in

neither development of oil palm smallholders’ cultivation techniques nor marketing and management aspects.

Using 320 smallholder samples’ data in 2012 and 315 in 2018 purposively selected in North Sumatra, such

conditions are descriptively analysed. In particular, Roundtable Sustainable Palm Oil (RSPO) certification is

chosen as the case for analysing the smallholders’ inclusiveness possibility in industry 4.0. The results show

that only 10 out of 39 (25%) RSPO certification principles are possibly related to the character of industry

4.0, particularly in connection and precision aspects. On average, smallholders’ implementation scores for

these principles are still low. Such a condition is significantly influenced by the smallholders’ experience,

level of income and participations. Comparing the 2012 and 2018 data, all of these possible implementation

scores’ increased, showing potential improvement in RSPO P&C implementation. However, with a 25%

relevant P&C and low level of implementation, it can be concluded that RSPO certification is still not effective

in improving smallholders’ inclusiveness in industry 4.0.

1 INTRODUCTION

Palm oil is one of the largest industries in the world,

both in scale and scope. For a multinational company,

the plantations’ and mills’ scale can reach almost

300,000 ha, while the scope can cover all type of

commodities and products from the Fresh Fruit

Bunches to end products (Gerard, 2017).

Smallholders appear as one of the bottom players of

the wide and long palm oil supply chain. The

Indonesian palm oil supply chain mostly distribute to

the global market, which recently demands

sustainable certified palm oil (CSPO). Physically

CSPO is not different with uncertified crude palm oil

(CPO), certification only proves that the palm oil is

produced in a sustainable way. To obtain the

Roundtable Sustainable Palm Oil (RSPO)

certification, growers need to fulfill 8 principles, 43

criteria and 139 indicators. Therefore, CSPO needs

to be sold at a premium price to cover extra costs and

effort needed to meet the principles and criteria

(P&C), thus CSPO market can be seen as a high

value-adding market. In fact, from the CSPO total

production in the world, only half are sold with

premium prices (RSPO, 2017). This can partly be

explained by the complexity of the global palm oil

supply chain. Information about how much and where

CSPO are needed are not fully received by the

growers, traders or processors (RSPO, 2018).

Growers and millers tried to produce markets’

demand based on information they receive and

interpret. In theory Industry 4.0 provides automation

and data exchange in manufacturing, in which players

along the supply chain would utilize technologies to

connect and communicate. However, agricultural

supply chain is relatively complex, as it links different

characteristic of subsystems along the supply chain.

Smallholders that are seasonal and scattered links to

processors that are operating on a daily basis with a

larger scale. Marketing and distributions have their

own characteristics as well. The supply chains do not

only encompass the flow of product, but also the

knowledge and information among stakeholders and

consumers (Braun et al, 2018). To participate, the

players need to have knowledge and skills related to

new technologies and processes of industry 4.0.

Chalil, D., Barus, R. and Sebayang, T.

Oil Palm Smallholders’ Inclusiveness Possibility in the Industry 4.0: RSPO Sustainability Certiﬁcation Case in the Palm Oil Global Supply Chain.

DOI: 10.5220/0010102201250128

In Proceedings of the International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches (ICOSTEERR 2018) - Research in Industry 4.0, pages

125-128

ISBN: 978-989-758-449-7

125

Otherwise, they could be excluded. With more than

40% share of the smallholders’ total area, the

exclusion could significantly influence the

Indonesian palm oil industry. This study is conducted

to analyze the smallholders’ inclusion possibility

through RSPO certification facing the Industry 4.0

era. Findings from this study are expected to provide

inputs for policymakers in preparing programs for the

Indonesian palm oil industry development.

2 METHOD

This study was conducted in 2012 and 2018 in 4 palm

oil smallholder centers in North Sumatra Province,

namely Asahan, Labuhanbatu, Labuhanbatu Utara

and Labuhanbatu Selatan. This study uses data from

a previous study (Chalil and Zein, 2012) and primary

data. Data are collected from 320 samples in 2012 and

315 samples in 2018, which are determined using

cluster sampling method, based on the type of

management. Certified palm oil market is treated as

the high-value adding market. The possibility of

inclusiveness is analyzed descriptively by comparing

the required and existing conditions of implementing

RSPO P and C that are relevant with the industry 4.0

aspects.

Descriptive method is used in estimating the

RSPO P&C implementation score for both schemed

and independent smallholders; each principle in the

RSPO P&C was given a value of one if the samples

applied it, and zero otherwise. The implementation

for each principle in each sample is measured by:

𝑎







(1)

where i = 1. ..... 10 (number of relevant principles)

and j = 1. .... n (number of samples in each

district/kabupaten). 𝒏

𝒊

= total score for principle i and

𝒎

𝒊

= number of criteria in principle i. Each principle

does not necessarily have the same number of criteria.

By using 𝒂

𝒊𝒋

for all samples, the average

implementation level value of each sample is

determined with

𝒔

𝒋



∑

𝒂

𝒊𝒋

𝟑𝟕

(2)

and the average implementation value of each

principle is determined with:

𝑐





∑

𝑎



(3)

𝒄

𝒊

is then used to calculate the score of each principle

in each district. The score is divided into 5 levels,

comprising (a) 0 – 19 percent. (b) 20 – 39 percent. (c)

40 – 59 percent. (d) 60 – 79 percent and (e) 80 – 100

percent for score 1 to 5, respectively. The possible

influencing factors included are smallholders’ age,

level of formal education, experience, number of

dependence, land size, income and participation, and

regressed with the Binomial Logit Model. The

statistics of the 2012 condition of the influencing

factors are then compared with the 2018 condition.

3 RESULTS AND DISCUSSION

One of the main differences between the 3.0 and 4.0

industry is the connection between players along the

supply chain. In RSPO certification, the connection

and communication between smallholders from the

bottom downstream and end consumers from the end

upstream is linked through the principle and criteria

(P&C) of the certification. Consumers and producers

do not meet, but producers fulfill consumers demand

on sustainable managed palm oil production by

implementing all of the P&C. Producers in different

stages are also directly linked through the supply

chain certification. Among 39 sub-criteria for the

smallholders’ certification, only 10 sub criteria are

possibly relevant with the industry 4.0. In particular,

2 sub criteria relate to the connections among players

along the supply chain, while the remaining relate to

precision agriculture aspects. On average both

independent and schemed smallholders have a score

of 2, with 25.44% and 38.03% of implementation

level, respectively. The details are as follows.

ICOSTEERR 2018 - International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches

126

Table 1: RSPO P&C Relevant Sub-Criteria and Smallholders’ Level of Implementation.

No Sub criteria

Industry 4.0

aspect

Independent Schemed

% Score % Score

1.1

Adequate available information for

stakeholders about environmental, social and

legal issues that are related to the RSPO P&C

Connections 2.67 1 57.69 3

1.2

Documents are publicly available

Connections 50.97 3 41.03 3

2.2

Evidence for land control and usage

Precision 76.00 4 94.87 5

4.2

Maintaining soil fertility practice or where

ossible improving soil fertilit

Precision 5.56 1 30.34 2

4.3

The practice of minimizing and controlling

erosion an

radation of soils

Precision 9.64 1 39.74 2

4.4

The practice of maintaining the quality and

availability of surface and ground water

Precision 11.78 1 23.50 2

4.5

Invasive pests, diseases, weeds and introduced

species are effectively controlled by applying

adequate Integrated Pest Management (IPM)

Precision 16.89 1 43.59 3

4.6

Agrochemicals are used in a manner that does

not endanger health and environment

Precision 23.20 2 30.98 2

5.3

Waste is recycled, re-used, and disposed of in

ways that are environmentally and socially

friendly

Precision 32.22 2 17.95 1

5.6

Plans to reduce pollution and emissions.

including greenhouse gas

Precision - - 0.64 1

Average 25.44 2 38.03 2

Minimum

2.67 0.64

Maximu

76.00 94.87

Data Source: (Chalil and Zein, 2012)

Table 1 shows that overall the implementation of

the relevant P&C is low, with an average of 25% and

38% for the independent and schemed smallholders,

respectively. However, for principle 2.2 about the

evidence for land controlling and using is high,

reaching 76% and 94.87% for independent and

schemed smallholders, respectively. Other precision

aspects are still low, indicating the smallholders’ less

efficient applied cultivation techniques and partly

explaining the low productivity.

In the palm oil industry, plantations, especially

smallholders are unlikely to utilize the development

of technology. This can be seen by having no

significant change in the cultivation method from

1980s until now. An example of technology usage in

cultivation is in the Dura marking method. The survey

in Labuhanbatu Utara shows that all smallholder

samples can differentiate the 2 types of palm oil

seeds, Dura and Tenera. Dura has lower oil content

than Tenera, thus considered as a low quality seed.

Smallholders identify Dura from their thick shell,

which means it can only be observed after the palm

oil trees’ first harvest. A technology for Dura marking

from leaf tissue has been invented. Smallholders do

not have to wait until 3 or 4 years until the first

harvest, hence avoiding unnecessary costs. The

survey shows that none of the smallholder samples

know about this technology. Unfortunately, even

after receiving the information 28.85% of the samples

do not consider the Dura marking service as

important, and 51.92% only have minimum

willingness to pay (WTP) for obtaining the service.

The 2012 study shows that using the Binomial

Logit Model, the RSPO P&C implementation is

significantly influenced by experience, income and

participation. Fortunately all of these have increased

in 2018, which is detailed in Table 2.

Oil Palm Smallholders’ Inclusiveness Possibility in the Industry 4.0: RSPO Sustainability Certiﬁcation Case in the Palm Oil Global Supply

Chain

127

Table 2: The Development of Smallholders and Smallholdings’ Characteristics in 2012 and 2018.

No Variables Measurement

Independent Schemed

2018

(n=191)

2012

(n=169)

2018

(n=124)

2012

(n=169)

1 Smallholders’ age Year 47.88 47.56 46.33 45.71

2 Formal education Year 9.40 8.82 9.85 9.28

3 Experience Year 16.92 14.25 19.23 15.40

4 Dependents Persons 3 3 3 3

5 Land area Ha 2.79 2.25 3,02 2.51

6 Income million IDR/month/ smallholder 4.70 2.17 7.67 3.89

7 Participation Percent 48.22 0 100 100

1) Data Source: Chalil and Zein,2012

2) Primary data

The smallholders’ income significantly increased

around two times for both independent and schemed

smallholders, although the land area increase were

lesser. Interestingly, in 2018, not only schemed

smallholders participate as smallholder groups’

members, but 48.22% of the independent

smallholders have also recorded as the participants.

The estimation results also show that formal

education and experience do not significantly

influence the level of implementation. On average,

smallholders’ level of formal education is less than 10

years, both among the independent and schemed

smallholders. The condition is only slightly

improved from 2012 to 2018. Their experiences are

better, with average length around 15 years and

improved to 17 to 19 years in 2018. In fact, the

surveys show in general both independent and

schemed smallholders do not have sufficient

knowledge and skill to utilize the Industry 4.0

technology to improve inclusiveness in the global

supply chain.

4 CONCLUSION AND POLICY

IMPLEMENTATION

Palm oil supply chain is a long and complex supply

chain. Potentially the Industry 4.0 that provide

automation and data exchange in manufacturing

could utilize technologies to connect players along

the supply chain. Certification is used as a case of the

potential tools of connecting consumers’ demand

with smallholders’ supply. This means that although

within a long and complex supply chain, by

implementing the RSPO P&C oil palm smallholders

would meet consumers’ demand on sustainable

managed palm oil product. In fact, among the 39

RSPO P&C only 10 are relevant with the Industry 4.0

aspects, particularly connection and precision.

Moreover, on average the smallholders’

implementation on the 10 relevant RSPO P&C is still

low. Therefore, it can be concluded that RSPO

certification is not effective in improving

smallholders’ inclusiveness in the palm oil global

supply chain. On one side this implies the needs for

improving the certification P&C to be more relevant

with the Industry 4.0 aspects. On the other side,

smallholders’ knowledge and skill also need to be

improved so that implementation could be executed

smoothly.

ACKNOWLEDGEMENT

This work was supported in part by a Penelitian

Terapan (TALENTA 2018) from Research Center,

Universitas Sumatera Utara.

REFERENCES

Gerard, L., 2017. Top 10 Indonesian Palm Oil Companies.

Retrieved from https://www.bizvibe.com/blog/top-10-

indonesian-palm-oil-companies/

RSPO Impact Update, 2017. Retrieved from

https://rspo.org/toc/RSPO-Impact-Update-Report-

2017_221117.pdf

RSPO, 2018. Why is only half of the available sustainable

palm oil sold ?. Retrieced from

https://askrspo.force.com/s/article/Why-is-only-half-

of-the-available-sustainable-palm-oil-sold

Braun, A. T., Colangelo, E., Steckel. T., 2018. Farming in

the era of industrie 4.0. 51st CIRP Conference on

Manufacturing Systems, 72 : pp 979–984

Chalil, D., Zein, Z., 2012. Analisis Implementasi

Kesepakatan RSPO pada Perekbunan Sawit Rakyat.

Research Report National Strategic Fund (Hibah

Strategis Nasional), Direktorat Jenderal Pendidikan

Tinggi, Kementerian Pendidikan dan Kebudayaan.

ICOSTEERR 2018 - International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches

128