Advancing Smallholder Palm Farmers under No-Deforestation Pressures

We propose a palm oil supply chain innovation to channel “nodeforestation” pressures into improved welfare for smallholder farmers. Palm fruit is produced in tropical developing countries, primarily Indonesia. Rapid growth in the industry has alleviated poverty but with the environmental costs of forest-burning to plant palm trees. Under pressure from consumers and NGOs, prominent firms that buy palm oil are committing to “no deforestation” in their supply chains. Consequently, smallholder palm farmers could be excluded from those supply chains. Instead, our proposed innovation aims to benefit and engage smallholders: A palm oil buyer will provide advance payments to mills and smallholder farmers, help the farmers to increase their productivity, and engage the farmers’ villages to prevent nearby illegal deforestation. Our proposed innovation has been recognized by aid organizations, industry leaders, and NGOs as a break-through for the advancement of small palm farmers (FSI 2016). To evaluate and refine our proposed innovation, we will develop and analyze a game-theoretic model of the supply chain and conduct a randomized controlled trial.