Palm oil is one of main commodities in Indonesia. This commodity becomes one of biggest foreign exchange income in the last decade. The increasing demand for domestic vegetable oil and the big export potential of the palm oil have triggered the rapid growth of palm oil plantation in the country. One of the escalation areas of the palm oil plantation is dominated by palm oil cultivation by the palm oil farmers. Production sourced from the people is 32% out of total national production.
On Prakarsa study in 2019 (Ningrum et al., 2019), palm oil is one of Indonesia’s leading export commodities which resulted in the largest illicit financial inflows which valued up to USD 40,47 billion. Moreover, in the recent years palm oil commodity has experienced increasing illicit financial inflows trends on net basis which is getting higher than any other leading commodities.
In the practical business practice context, particularly the cooperation scheme between farmers and companies , the existing regulation states that companies as the owner of the plantation nucleus and the farmers manage the plasma plantations. The cooperation scheme varies. One of the schemes is plasma scheme managed by the companies ; in this case, it tends to be disadvantages for the farmers as the weak party. Relation scheme between farmers as the supplier and companies is part of the vital governance to support sustainable palm oil. So far, few case which address the relation between smallholder farmers and companies , particularly the development of the palm oil as in Sulawesi.
This encouraged PRAKARSA to conduct a research regarding the governance faced by smallholder farmers in Central Sulawesi along with Walhi Central Sulawesi. Walhi is part of Koalisi Responsibank Indonesia, (Indonesia Responsibank Coalition). Koalisi Responsibank Indonesia, (Indonesia Responsibank Coalition) is an initiative which PRAKARSA encourages so that civil society organizations in Indonesia to work “hand-in-hand” in the study and advocacy of financial sector regulation which responsible for social aspect, environmental and the goof governance. Koalisi Responsibank Indonesia, (Indonesia Responsibank Coalition) is part of Fair Finance Asia (FFA) and Fair Finance Guide International (FFGI), in which PRAKARSA is one of the organizations that oversee FFA and FFGI as well.
This case study is trying to examine on how relation between farmers and palm oil plantation companies in Central Sulawesi by taking three Astra Agro Lestari subsidiaries, by applying procedural fairness framework. Moreover, this study also maps the financial institution which funding flows in the supply chain related to the mentioned palm oil companies . It is hoped that this case study report may serve an understanding for the stakeholders regarding the procedural fairness that needs to be encouraged in the cooperation scheme between farmers and companies in this case. Correspondingly, with the financial institution mapping, this report can be one of the considerations to encourage the funders to apply continual funding which is one of the efforts to overcome the poverty related to this palm oil supply chain.