PPPs for Value Chain Development Indonesia Case Case

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PPPs for Value Chain Development

PPPs for Value Chain Development

Indonesia Case

Indonesia Case

Case description Subsector/ Value Chain PPP Purpose Palm oil Empowering village unit cooperatives Increasing

Case description Subsector/ Value Chain PPP Purpose Palm oil Empowering village unit cooperatives Increasing farmer income Creating new economic growth centres in remote rural areas US$16. 7 million 37% public (subsidized loans) 63% private Investment

Partners Public Private National and local: • Oversight by MOA’s Directorate General of plantations;

Partners Public Private National and local: • Oversight by MOA’s Directorate General of plantations; • Ministry of Co-operatives • State owned bank • Local government authority Processing company • Establish nucleus estate • Provide technical support • Purchase all palm fruit

Roles of Public Partners • Create a supportive regulatory environment with appropriate incentives for

Roles of Public Partners • Create a supportive regulatory environment with appropriate incentives for private sector investment and inclusion of smallholders Indonesia Estate laws and MOA regulations: …any oil palm plantation company willing to form partnerships with smallholder farmers will gain access to a minimum land area of 20 percent of the total plantation area and will have a business license extended for 35 years; …under MOA decree, any plantation company wishing to expand must involve farmer partnerships and each farmer must have a minimum of two hectares of land each.

Roles of Public Partners • Promote the incorporation of risk-sharing/risk mitigation in the design

Roles of Public Partners • Promote the incorporation of risk-sharing/risk mitigation in the design process: • Ensure risks are allocated in a way that transfers some of the risk away from smallholders and shares these risks between the public and lead private partner. • Mechanisms: ▫ ▫ Subsidized interest on loans and bank guarantees Secure purchasing contracts Business management training for FOs Contingency funds – 10% of farmer income saved to prevent default during heavy rainy season

Roles of Public Partners • Ensure regulatory compliance including the enforcement of land rights

Roles of Public Partners • Ensure regulatory compliance including the enforcement of land rights • Contracts at all levels must meet legal requirements ▫ proof of land ownership for companies and smallholders ▫ formalized cooperative/FO status as legal entity ▫ ensuring that private parties are only providing nationally registered inputs • Ensure implementation of environmental standards (RSPO) • Monitoring of partnerships by local government ▫ supervise the partnership between cooperatives and companies ▫ monitor prices for raw materials ▫ attend annual meetings of cooperatives to share information on new regulations or policies

Impacts 2500 oil palm farmers in 5 cooperatives Gross annual income US$ 2 800/ha

Impacts 2500 oil palm farmers in 5 cooperatives Gross annual income US$ 2 800/ha IPM implemented with reduction in chemical pollution Social benefits: increased education enrolments, permanent houses constructed and reduced crime Diversification into other activities: rubber plantations, bird raising. For co-ops: management skills and accounting improved; new local business opportunities including grocery stores and loan funds Estate RSPO certified, secure supply of raw materials.