Small-scale Farmers and the Sustainability Imperative in Palm Oil

Image Source: Getty Images

In global commodity value chains, small-scale farmers play a critical role. They contribute around 35 percent of the global food production and account for 84 percent of the total farms worldwide. Small-scale farmers are responsible for producing 70 percent of the food being consumed in low- and middle-income countries. Nonetheless, they do not dominate the sustainability story. Instead, they are on the margins, struggling to cope with the impacts of climate change due to lack of access to information, training, and markets, which hinders their ability to improve productivity, build climate resilience, and enhance the quality of livelihoods.

Sustainability initiatives have ignored and even failed to recognise small-scale farmers. This is despite small-scale farms being traditionally known to practice polyculture (as against monoculture by big industrial plantations) and protect biodiversity. A relatively easy indicator would be the number of small-scale farmers certified against a sustainability standard. Nearly 2 percent of small-scale farmers in low-income countries are certified.

Palm oil accounts for 40 percent of the vegetable oil traded globally. It is almost ubiquitous: it can be found in instant noodles, ice creams, chocolates, cookies, packaged bread and more. Roughly 7 million small-scale palm oil farmers are responsible for 25-30 percent of the total palm oil supply.

Furthermore, with consumer markets in the United States (US), Europe—and with early trends visible in Asia as well—moving towards sustainable, deforestation-free produce, small-scale farmers are uniquely positioned to cater to this shift. For instance, in palm oil production, studies have shown that as zero-deforestation commitments by companies and moratorium on large-scale palm plantations in Indonesia continue, the area and production under small-scale farms will increase.  

While the demand for sustainable palm is expected to grow each year, large-scale plantations alone will not be able to fulfil it. Sustainable palm—which is compliant with a sustainability standard—accounts for only 17 percent of the overall production. The segment that needs to be included and mainstreamed to improve the share of sustainable palm globally is the small-scale farmers.

Small Farmers, Big Stakes: Where Do They Stand?

Palm oil accounts for 40 percent of the vegetable oil traded globally. It is almost ubiquitous: it can be found in instant noodles, ice creams, chocolates, cookies, packaged bread and more. Roughly 7 million small-scale palm oil farmers are responsible for 25-30 percent of the total palm oil supply.

In Indonesia, which is the largest producer of palm oil globally, nearly 35 percent of the crude palm oil comes from small-scale farms. It is critical to poverty alleviation and corroborates why many small farmers have transitioned from growing rubber to palm in the past two decades. Simultaneously, the footprint of small-scale farmer-managed plantations in Indonesia has expanded from 1.6 million hectares in 2001 to 5.8 million hectares by 2018. In 2025, the crop serves as a source of livelihood for 2.6 million small-scale farmers. In both Malaysia and Indonesia, research indicates that small-scale farmers in palm have experienced notable improvements in living standards compared to the past generation.  

While its role in securing livelihoods is established, the palm oil sector is increasingly facing pressure to demonstrate environmental and social responsibility—especially as concerns over deforestation, biodiversity loss, and labour rights violations have gained global traction. The European Union Deforestation Regulation (EUDR) is set to take effect at the end of 2025. Micro and small enterprises have received an extension until May 2026. The regulation aims to encourage the consumption of deforestation-free products while addressing deforestation caused by the expansion of agricultural land. In other words, companies supplying to the European Union (EU) will have to prove that their products don’t come from deforested land. Palm oil is one of the key commodities this legislation aims to cover. 

Small-scale farmers are at the risk of exclusion by default. They are bound to find it difficult to meet the regulatory requirements effectively without adequate administrative and financial support. Globally, certification is becoming the determining factor for export-readiness on the producer’s end, especially in light of regulations demanding traceability. With only about 0.3  percent of the land managed by small-scale farmers certified against the Indonesian Sustainable Palm Oil (ISPO) standard, small-scale farmers growing palm are looking at an uncertain future.

Green Labels, Red Margins – The High Cost of Compliance

However, certification is not an easily attainable goal for small-scale farmers. First, it does not come cheap. For small-scale farmers operating on razor-thin margins, the costs of maintaining compliance—which include land legality verification, traceability audits, and better farm inputs—can eat up to 50 percent of their annual income. Second, incentives for certified palm oil often fail to trickle down to them. Intermediaries and processors capture most of the value. Small-scale farmers in the value chain remain price takers, with little negotiation power in a market dominated by mills and traders. Although certification promises better incomes, the reality is rather stark: for many, the math simply does not work. The Palm Oil Barometer 2025 notes that price incentives are inconsistent and rarely offset the cost of compliance. Without these, small-scale farmers bear the burden of sustainability certifications without receiving a share of the resulting benefits.

Concurrently, failing to integrate small-scale farmers meaningfully into sustainable palm oil efforts poses a risk to local livelihoods and global supply chains. Several companies and governments have committed to ‘No Deforestation, No Peat, No Exploitation’ (NDPE) policies. However, without small-scale farmers on board, these goals remain unattainable. 

Additionally, small-scale farmers are expected to double their production capacity by 2030, indicating that future growth in sustainable palm oil will largely depend on them. This becomes a challenge especially because younger generations are increasingly reluctant to take up palm oil farming, viewing it as labour-intensive, financially unrewarding, and disconnected from modern aspirations. If certification schemes and sustainability efforts continue to overlook tangible, farm-level benefits, the industry may not immediately witness a mass exodus. However, it still risks skill drain, stagnation, and deepening inequality.

Exclusion generates monolithic and oligopolistic markets, which may appear convenient for coordinated supply chains but limit competition and create market imperfection. Without the inclusion of small-scale farmers, a sustainable palm oil supply chain remains a hollow promise.

Shared Burden, Shared Future

Small-scale farmers must be seen as co-architects of the solution, not compliance risks to be managed. They hold immense potential to drive the growth of the palm sector in the next few decades. 

To reverse the looming stagnation and ensure small-scale farmers remain central to the palm oil sector’s future, structural reforms must go beyond certification and address the deeper inequalities engrained in the system. First, there must be a shift from burdening small-scale farmers with compliance costs to foster shared responsibility. Buyers and financiers must co-invest through direct subsidies, preferential credit, or embedded support in sourcing contracts. Second, group certification models should be promoted through cooperatives, farmer groups, or jurisdictional initiatives. It should be prioritised to reduce individual costs and increase bargaining power. Third, sustainability frameworks must go beyond ticking the compliance box and reward real performance, whether through carbon monetisation, improved income, or results-based procurement. Fourth, certification must be anchored in landscape-level approaches, recognising that palm oil cultivation intersects with water systems, biodiversity corridors, and community governance, not just individual plots. Fifth, there needs to be enhanced investments in integrating regenerative palm oil practices in small-scale farmer plantations, such as soil restoration, diversified planting, and low-impact inputs. It can play a crucial role in building climate resilience, enhancing soil health, and reducing emissions at the farm level. Finally, in an era of traceability and deforestation-free supply chains, data must be made to work for small-scale farmers, who currently remain digitally invisible. Investments in tools that help farmers map their land, monitor practices, and validate improvements are crucial to level the playing field. These interventions, if taken together, could contribute to the sector’s long-term sustainability and ensure genuine inclusivity.

Small-scale farmers must be seen as co-architects of the solution, not compliance risks to be managed. They hold immense potential to drive the growth of the palm sector in the next few decades. 

Sumit Roy is Assistant General Manager - Palm Oil Programme at Solidaridad Asia. 

Edy Hartono is Senior Program Manager - Agriculture Carbon at Solidaridad Indonesia. 

Kritika Banerjee is Senior Manager - Communications at Solidaridad Asia. 

• Climate, Food and Environment
• Agriculture
• India
• commodity value chain
• indonesian sustainable palm oil
• palm oil production
• palm oil sector
• small scale farming
• small scale farming and sustainability
• sustainable farming
• sustainable palm

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.

PREV NEXT