Enhancing Palm Oil Competitiveness through ISPO: Scenarios and Recommendations

The Indonesian palm oil industry, a crucial player in the national economy, grapples with international controversies tied to social, environmental, and land tenurial issues. The Indonesian Sustainable Palm Oil (ISPO) scheme, initiated in 2011, seeks to establish sustainability standards. This article explores challenges faced by ISPO and envisions two scenarios for its future impact.

Challenges and Mandatory Extension
ISPO, initially mandatory for palm oil companies, faces hurdles in its broader adoption. A 2020 regulation extended ISPO certification to all growers, including smallholders, by 2025. Challenges include increased farming costs, especially for smallholders, and barriers like forest land use and agricultural licenses.

Scenario 1: Government Mandate with Price Regulations
In this scenario, the government mandates ISPO as the sole standard for palm oil, compensating for implementation costs through regulations on fresh fruit bunch (FFB) selling prices. While it aims to position palm oil as a premium, sustainable product, challenges like global recognition, buyer interest, and non-ISPO product responses persist. Potential consequences include an emerging illegal market, lower prices for smallholders, and a decline in palm oil market share.

Scenario 2: Voluntary ISPO Program with Incentives
Scenario 2 envisions ISPO as an optional, voluntary program, with the government offering incentives through higher selling prices for labeled products. This approach caters to different buyer preferences, creating two distinct cost structures for ISPO and non-ISPO products. Challenges akin to Scenario 1 persist, impacting the sustainability of this profit-optimizing strategy over time.

Recommendations:

• Extensive ISPO Promotion: Prioritize promoting ISPO extensively to enhance market acceptance and increase membership.
• Agricultural Practices Improvement: Urgently address the need for improved agricultural practices, especially for smallholders, through comprehensive government intervention covering farming assistance, premium inputs, and conflict resolution.
• Bureaucratic Simplification: Streamline agricultural governance by simplifying redundant procedures between ISPO and other requirements, saving time and budget for the industry.

Navigating the future of ISPO involves strategic promotion, addressing farming challenges, and streamlining bureaucracy. The scenarios presented highlight potential market shifts and underscore the importance of proactive measures for the sustainable development of the palm oil industry.

By Fajril Amirul, Senior Officer
Indonesian Palm Oil Plantation Fund Management (BPDPKS)
https://www.bpdp.or.id/en/
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