Does farmer’s institution matter for sustainable certification? case in Indonesia and Malaysian oil palm smallholders

Abstract

Smallholders are a crucial part of the Indonesian and Malaysian palm oil industry. However, both lack economies of scale ownership individually. Therefore, institutions have become a crucial aspect. Sustainable certification is one of the most relevant aspects of managing economies of scale. This study was conducted to analyse the institutional aspect of sustainable certification. Data were collected from 1080 smallholders in 18 districts in Indonesia and Malaysia. This data was then analysed through nine business model components, namely key resources, cost structure, revenue stream, value proposition, channel, customer segment, customer relationship, key partners, and key activities. Institutions were grouped into non-groups, non-economic groups, and economic groups of smallholders. The results show that economic groups appear to have the highest certification percentage. They receive higher prices from direct sales to the ramp or mills and better FFB quality. Non-economic groups are competitive in economies of scale, as 3 out of 4 types of group institutions are in merged forms. The non-grouped smallholders strengthen the needs of institutions for smallholders to be certified and enjoy the economic benefits through good partnerships, which could be improved by achieving economies of scale and reaping its benefits.