ISPO CERTIFICATION AND INDONESIAN OIL PALM COMPETITIVENESS IN GLOBAL MARKET SMALLHOLDER CHALLENGES TOWARD ISPO CERTIFICATION

Certification becomes a prerequisite for tradable products to get legality and access to global market. Each tradable product can choose certificate according to its market destination. However, the application of certification standards are very low in both international (RSPO and ISCC) and domestic (ISPO) standards. This study was focused on the ISPO certification. How large is the gap between current practices and ISPO standard? What are factors that affect adoption of ISPO certification? Does ISPO deliver more access to market for oil palm smallholders? Do smallholders have adequate capacity to meet ISPO standard? These questions have been assessed and discussed in this paper to find answer and alternative way out for smallholders to meet the ISPO standard. The objective of this study is to assess capacity and willingness of oil palm independent smallholders to meet the standard of ISPO certification. This study was conducted in Pelalawan District, Riau Province using a survey method. The result shows that a number of barriers are faced by smallholders to obtain ISPO certification while the opportunity to get better access to local and global market is still uncertain. The adoption of ISPO certificate was influenced by farmers’ knowledge on agricultural practices, business legality, household income, and land-size.


Kata kunci : sertifikasi, daya saing, minyak sawit, pekebun rakyat
Choosing appropriate certification program for a tradable product in the global market could be a dilemma for Indonesian producers, particularly for palm oil and its derivatives products.Indonesia is the leading palm oil producers in the global market that provides 52% of world supply of palm oil products.Indonesia exports more than 70% of palm oil to international market which tend to apply RSPO or ISCC certification.At the same time, palm oil industry in Indonesia must have ISPO certificate.
In the future, ISPO will be a mandatory certification for oil palm The standard of ISPO is mandatory for plantation companies, plantations only with no mill, and mills with no plantation while it is still voluntary for scheme and independent smallholders.Farmer Group (called Gabungan Kelompok Petani/ GAPOKTAN) or association) to reach a minimum business scale to be certified.
Certification is a procedure by which a third party (certification institution/ certification body) offers written assurance that a product, process or service is in conformity with certain standards.
Certification is a documented agreements which specify standards (principles, criteria, and indicators) as a rules or guidelines that must be complied by actors in a product supply chains for sustainable products .
Certification system includes standards, certification, accreditation, and labelling.Standard consists of principles, criteria, and indicators that need to be applied with certain procedures.
Certification is conducted to ensure that the standards are being applied correctly.
Accreditation for certification body is important to make sure that certification system is working appropriately.Finally, the compliance to standard could be represented by labelling (brands or logos) (FAO, 2014;Gawron & Theuvsen, 2010).

Sustainable certification scenario
includes institutionalization of private governance arrangement that allows actors in the market play the games by themselves, improve transparency and accountability by creating complementary between private and state regulations, and enhancing coherence of sustainability standard between public and private sectors (Arifin, 2016).
The need of certification to get better access to global market has encouraged companies, millers, processors and traders to make commitment to produce sustainable products.The growth rate of certified products has increased to become more than 40% outperforming growth of conventional commodity markets in 2012.
However, process to comply with standard and obtain certificate is not simple, particularly for oil palm smallholders since agricultural practices and plantation management practices are often conducted traditionally for many years.Certification requires attention, capital, labour and time.
Smallholders need additional costs to meet the standards while additional yield and revenue might be uncertain (Hutabarat, Slingerland, Rietberg, et al., 2017).
In contrast, Beuchelt and Zeller (2011) found that revenues from technological changes in certification scheme often cannot compensate the additional cost involved in the process of production.

ISPO Certification System
This study was focused on the ISPO.
ISPO was claimed as an instrument to enhance economy of Indonesia.ISPO was mandatory for oil palm industry operated in Indonesia to ensure sustainability production.ISPO that adopted Indonesian rules and regulations is also take into account international principles of oil palm   The issue of legality may explain why independent farmers only meet 25% of the ISPO standard on Principle one compared to 86% for PIR and 85% for KKPA (Table 2).Source: Analysis of primary data (2017) Second principle for scheme smallholders is plantation management.
The first criteria is plantation management The assessment found that the gap is more than 70% while PIR and KKPA meet 69% and 72%, respectively, of the ISPO standards (Table 3).Source: Analysis of primary data (2017) The fourth principle for scheme smallholders is responsibility on health and work safety.The result shows that scheme smallholders have more than 65% compliance with Principle Four.
All responsibility related to health and work safety have been provided by the partnership company.This criteria is not applicable for independent smallholders.
Principles Four for independent smallholders is continuous improvement whereas this Principle for scheme smallholders is in the Principle Six.Access to information and technology for independent smallholers is much lower than scheme smallholders, therefore, the capability of independent smallholder to keep update with new technology is also low (Table 5).
The survey shows that farmers education on average is low and the majority of the farmers do not have adequate knowledge and skill to run oil palm plantation.Technical assistants from partnership company was only available for scheme company and not accessible for independent smallholders.
Extension workers from local estate agency was generally not available for independent smallholders.The survey found that the background of extension workers vary (from foodcrops, fishery, to animal husbandry), only fews of them are focus on estate crops.Source: Analysis of primary data (2017) The fifth principle for scheme smallholders is social responsibility and community empowerment.Smallholders and their partnership company should implement community empowerment and development such as build and/or maintain village infrastruture, improve business skill for local entrepreuner, and increase access for information.This principle is also aimed to improve community tradition and local wisdom.This principle is not obliged for independent smallholders.Currently, scheme smallholders have meet more than 60% of this standard (Table 6).Source: Analysis of primary data (2017) The sixth principle for scheme smallholders is continuous improvement.
Farmers are encouraged to update their business and cultivating skill to the latest technologies.For example, using organic inputs, harmless chemical materials for pesticide and herbicide, more effective and efficient machinary, and protection equipment.This is the standard in Principle Four for independent smallholders.PIR smallholders meet 53% of the standard while KKPA only 45% (Table 7).These factors explain that the adoption of ISPO certification was not easy for independent smallholders.

ISPO and access to market for oil palm smallholders
Oil palm smallholders do not have mill to process their FFB to CPO.FFB must be delivered to mills owned by company.
Scheme smallholders would have better access to mill as long as they have contract partnership.However, there are many scheme smallholders that have ended the contract and free to sell their FFB to any mill.In one hand, this condition could benefit farmers because they can sell the fruit to buyers that offers the highest price.
On the other hand, without any contract, it would be uncertainty for market access.
smallholders.Based on the Minister of Agriculture Regulation No. 98/2013, Oil palm smallholders are growers that have land size less than 25 ha.The majority of Indonesian smallholders have only less than 4 ha.The business scale is not adequate to cover modern agricultural practices with certification standards.Therefore, smallholders must establish group certification such as Village Cooperative (called Koperasi Unit Desa/KUD) and INTRODUCTION Transforming the market to make sustainable products become a trend in global supply chains.Certification is one of global market change for tradable products.Started by organic movement in 1940s, then followed by International Federation of Organic Agriculture Movements (IFOAM) in 1970, Fairtrade in 1988, Storage Area Network (SAN) in 1991, Forest Stewardship Council (FSC) in 1993, International Organization for Standardization (ISO) 14001 in 1996, Roundtable on Sustaianble Palm Oil (RSPO) in 2004 and International Sustainability & Carbon Certificate (ISCC) in 2010.The latest certification program was launched by Indonesian Ministry of Agriculture in 2011, the Indonesian Sustainable Palm Oil (ISPO).The regulation was revised in the Minister of Agriculture Regulation No. 11/2015.

Farmers
scheme.Revitalization was established to accelerate oil palm smallholders performance.Revitalization program was based on: Minister of Agriculture Regulation No. 33/2006 regarding the Estate Crops Development through Estate Crops Revitalization Program, Minister of Finance Regulation No 117/2006, Minister of Forestry Regulation No P.26/2007, and Minister of Agriculture Decree No 438/2007.
Scheme smallholders have land ownership certificate/Sertifikat Hak Milik (SHM) prepared by partnership company and local government.Since the land title were issued by National Land Agency/ Badan Pertanahan National (BPN), it has been guarrantied that plantation site is in appropirate location for estate crops.In contrast, most of independent smallholders have inadequate legality documents (Hutabarat, Slingerland, & Dries, 2017).They have inadequate land title as it has been regulated in Government Regulation No. 40 year 1996 regarding HGU, HGB and Right to Use Land; no business registration/Surat Tanda Daftar Usaha Perkebunan untuk Budidaya (STD-B) regulated in Minister of Agriculture Regulation No. 98 year 2013 regarding Guideline of Licensing of Estate Crops; and no environmental impact assessment/Surat Pernyataan Pemantauan dan Pengelolaan Lingkungan (SPPL) as it has been regulated in Ministry of Environment Regulation No. 13 year 2010 regarding Environmental Monitoring group or cooperative), overlapping with mining industry, land conflicts and compensation, and data/ information for government agencies and stakeholders.Independent smallholders have no subcriteria regarding overlapping with mining industry.The second criteria is agricultural practices and transportation which comprises of land clearing, protection on water resources, plant materials, planting on mineral land, planting on peat land, plantation maintenance, pest and disease management, harvest, fresh fruit bunches (FFB) transportation, and price setting for FFB.There is no subcriteria of water resources protection for independent smallholders.Farmers in the scheme smallholders have been organized in farmer groups and cooperatives.Technical assistant for good agricultural practices and best management practices are supported by the partnership company.Conversely, independent smallholders run the business individually without support from any party.Technical assistants from local government agencies were inadequate or not exist.The organization of extension workers was design to serve all agricultural activities with various skills.There is no specific extension workers for estate crops.The study found that in some areas of independent plantations, the knowledge and skill of extension workers was not match with estate crops.
Independent smallholders do not have access to mill since most of them have no minimum weight to get "delivery order" or "DO" to mill.They have to deliver their FFB through middlemen.Eventually, they always receive lower farmgate price compared to scheme smallholders.The majority of Indonesian CPO are exported to global market which tend to apply other certification system.European Union countries have started applying sustainable standard (RSPO certification) from December 2015 and it will be 100 percent (fully) sustainable standard by 2020.Having only ISPO certificate will not have better access to the global market since the main importer countries of Indonesian CPO, India and China have made commitment to apply sustainable palm oil in the future.Domestic market is an alternative market that should be considered for palm oil, particularly for downstream manufactures and biodiesel.However, to the global market could be a challenge in the future if ISPO cannot be accepted in international market.There would be excess domestic supply which led to reduce CPO and FFB prices.Eventually, these condition might reduce farm income and farmers' welfare.The ISPO obliges a partnership between smallholders and mills/company with an official business contract.This will guarantee access market to mill, technical assistant from partnership company, access to finance (banking), and access to information.The ISPO also reduce land conflicts and environmental damage.CONCLUSION AND SUGGESTION Conclusion Certification is an effort to ensure that globally tradable products are produced and processed sustainably.There are many certifications or standards that have been established in the global supply chains.ISPO is one of product certificate that was created by Government of Indonesia to ensure sustainable production of palm oil.However, ISPO is not acceptable in the global market.Having ISPO certificate might not improve access to global supply chains.Competitiveness of Indonesian palm oil and accessibility to global market are not only determined by production efficiency on resource use and production cost but also depends on product certification.The capacity of independent smallholders to meet ISPO standards is on average low due to various barriers that cannot be managed by smallholders themselves including access to information, technology, inputs, financial, and market.The adoption of ISPO certification depends on farmers' knowledge on agricultural practices, business legality, household income, and farm-size.Suggestion Stakeholders are encouraged to facilitate training for independent farmers to improve knowledge on agricultural practices and business legality.Farmers should be facilitated to establish organization to improve business scale and business performance.Government and private sectors should facilitate smallholders to improve their capacity and bargaining power that enhance their access to global supply chains.Government of Indonesia should create rules of game that can be adopted by local and foreign actors and accepted in the global supply chains.between flows, networks and systems at multiple levels" funded by Wageningen University, The Netherlands.The research has been conducted in collaboration with

Table 1 .
). P r i n c i p l e & C r i t e r i a f o r Smallholders