Smallholders and plasma: the partnership side of oil palm

Smallholders farm a large part of Indonesia’s oil palm, and most estates in Kalimantan have them as neighbours, suppliers or partners. Many are tied to a company through plasma, a scheme in which the company develops or supports plots for local households and buys their fruit.

For an investor, plasma is a legal duty that comes with the estate. It’s also one of the most frequent causes of conflict around an estate, so it belongs in the valuation from the start.

Where plasma comes from

The model began with the nucleus estate and smallholder schemes (Perkebunan Inti Rakyat, PIR) backed by the World Bank. The first loan agreement was signed in 1977, for rubber, and oil palm projects followed in the early 1980s. A nucleus company (inti), usually a state plantation company, built the mill and its own estate and developed plots for settlers and local households, the plasma, who repaid the cost from their fruit. Later versions tied plasma to the transmigration programme (PIR-Trans) and to credit channelled through primary cooperatives (KKPA).

The terms have changed since, but the idea hasn’t. The company brings the land development, the know-how and the mill. The households end up holding the plots and selling the fruit to the company.

Smallholders farm about 37% of Indonesia’s oil palm area by the agriculture ministry’s count for 2024, and about 42% by the statistics agency’s. Many of them are independent growers with no company link at all.

The 20% rule today

The Plantation Law (Law 39 of 2014) requires plantation companies to facilitate community plantations, and the Job Creation Law amended the duty. Government Regulation 26 of 2021 now sets it. A company whose licensed cultivation land comes wholly or partly from non-forest land outside an existing right to cultivate (Hak Guna Usaha, HGU), or from land released from the forest estate, must facilitate community plantations equal to 20% of that land. It has three years from the grant of the HGU to do it.

Agriculture Minister Regulation 18 of 2021 sets out how. Facilitation can take the form of credit, profit sharing, grants or other partnerships in productive activities. The steps run on deadlines from the HGU grant: a public meeting with the community within 90 working days, then a decision by the regent or mayor on the beneficiaries and the land within a year. Beneficiaries must join a farmer institution, such as a farmer group or a cooperative. Before handover, an assessment team checks a sample of at least 25% of the area, and a company that doesn’t repair failed plots is treated as not having met its duty.

Older estates are harder to read. The regulation sends companies that were already operating, and hadn’t met the duty, back to the 2013 licensing guidelines, so what an estate owes depends partly on when it was licensed. The article on plantation permits and HGU covers the licences themselves.

How plasma is financed and run

Plasma has usually been financed with bank credit to the cooperative or its members, with the company as the partner that develops the plots and stands behind the loan. In many schemes the company also runs the plasma blocks. It plants and maintains them, harvests and mills the fruit, takes out loan instalments and costs, then pays the rest to members through the cooperative. Members often receive a monthly payout without working the plots themselves.

Under profit sharing, the company funds the plots and shares revenue or profit with members, and the arrangement ends once the cost is repaid. Grants don’t have to be repaid at all.

The fruit price follows a state formula. Agriculture Minister Regulation 13 of 2024 requires a mill to buy fruit from its partner smallholders at the price set by the provincial government, and to pay through the farmer institution. A plasma partnership must run for at least one planting cycle, and a partnership with independent smallholders for at least two years.

Where conflicts come from

Plasma disputes usually start with a gap between what was promised and what was delivered:

• Plasma promised when land was acquired but never built, or built smaller than agreed.
• Members who don’t know the size or location of their plot, or a member list that doesn’t match the village.
• Loans that took far longer to repay than members expected, so payouts stayed low for years.
• Deductions that members can’t check, and fruit priced below the provincial figure.
• Land contributed by a community for plasma that ended up inside the company’s own estate.
• Cooperative boards run by a few people for their own benefit.

These disputes surface as road blockades, complaints to the regency and claims over land, and they last longer where customary land rights are involved. The article on customary land and communities explains that side.

What comes with an estate you buy

If you buy the shares of a plantation company, its plasma duty comes with it, met or not. If you buy the estate’s land and licences instead, assume the duty stays with the land and check it the same way. An HGU is extended or renewed only if the conditions of its grant were met, so an unmet plasma condition can cost you at renewal as well as on the ground.

Before you sign:

• Get the plasma agreements, the cooperative’s member list and the map of plasma blocks, and compare them with what the HGU decree and the licence require.
• Find out who lent to the plasma, how much is still owed and what the company guaranteed.
• Read the cooperative’s accounts and the payouts per member over the last few years.
• Ask the regency plantation office whether it records the duty as met.
• Talk to members and village heads, not only to the cooperative board.
• Check whether smallholder suppliers hold the cultivation registration letter (STDB) and can reach ISPO certification, which becomes mandatory for smallholders in 2029 (see ISPO and RSPO).

The rest of the purchase checklist is in buying an existing plantation.