- A new report calls on palm oil-buying firms to take serious steps to address systemic imbalances in the distribution of profits across the supply chain.
- Smallholder farmers produce nearly one-third of raw palm oil globally, yet they receive a disproportionately small share of industry profits compared to large corporations, the report says.
- Small-scale producers are often locked out of high-value markets due to a lack of technical capacity and financial capital to meet increasingly hefty due diligence requirements driven by consumer demand for less environmentally destructive goods.
- The authors urge industry buyers to adjust their purchasing policies to be more inclusive of smallholder farmers, helping to create an industry that is more socially responsible and less environmentally destructive.
Multinational palm oil-buying companies could be doing more to address financial inequities in their global supply chains that perpetuate challenges for smallholder farmers, according to a new report from sustainable development watchdog Solidaridad.
The report highlights how smallholder farmers, who produce nearly one-third of raw palm oil globally, receive a disproportionately small share of industry profits compared to large corporations like retailers and oil-processing firms.
The imbalance often leaves farmers lacking the resources to gain a foothold in high-value markets that increasingly demand less environmentally destructive goods, the report notes, a situation set to intensify as the European Union, one of the world’s biggest importers of palm oil, brings its deforestation-free regulations (EUDR) into effect at the end of 2025.
The EUDR will require producers of a suite of deforestation-linked commodities, including palm oil, to comply with new standards of traceability, geolocalization and land-use mapping. However, trade experts have warned that without support to comply with these new rules, farmers could lose access to the EU market, worsening their economic position and exposing them to land grabbing, dispossession and other abuses. Meanwhile, smallholders lack the technical resources and financial capital to adopt practices that could benefit biodiversity and boost climate-resilience on their farms.
“In theory, it’s fine if everybody in the supply chain makes a profit,” Michel Riemersma, palm oil policy adviser at Solidaridad, told Mongabay. “But if the downstream companies are the only ones making a profit while the farmers at the beginning of the supply chain have to struggle from week to week … in the end we see that this is not a sustainable supply chain.”
In its report, Solidaridad calls on palm oil-buying firms to address these challenges by reforming their purchasing policies toward a “Procurement for Prosperity” approach that offers smallholder farmers a fair price that covers the costs of complying with regulations. The group also encourages firms to establish long-term collaborative partnerships with small producers, offering them income security and boosting their capacity to adopt more environmentally friendly practices, such as agroforestry.
Unsustainable palm oil production drives deforestation, land conflicts and labor abuses across tropical producing regions that are also home to most of the world’s remaining primary rainforests. As one of the world’s most widely used deforestation-linked commodities, palm oil has a legacy of environmental destruction that has spurred a series of reforms in the industry, such as certification by the Roundtable on Sustainable Palm Oil (RSPO), to hold companies and producers accountable for their products.
More than three-quarters of palm oil companies evaluated in Global Canopy’s 2025 Forest 500 assessment have committed to deforestation-free production. But for these pledges to be meaningful, experts say they must be implemented in a fair and equitable manner across the whole value chain.
“Simply demanding sustainable production is insufficient,” said Marieke Leegwater, senior policy adviser at Solidaridad Europe. “Companies need to commit to an inclusive value chain that recognizes and integrates independent smallholder farmer perspectives and voices, and enables sustainable production by paying fair prices that make a living income possible.”
The report cites a 2021 analysis by Chain Reaction Research that found consumer goods companies, manufacturers and retailers receive 66% of the palm oil industry’s gross profits. A transition to deforestation-free palm oil could be accelerated, the report concluded, by increasing corporate purchasing prices by just 1.8% and reinvesting the returns in smallholder farmers to help them comply with environmental regulations.
Roughly 7 million smallholder farmers produce around 25-30% of the total global palm oil supply, according to a 2023 RSPO impact report. It’s therefore in the interests of the whole industry to help them meet compliance standards and remain in business, Riemersma said. “If farmers switch to producing something else because they’re not making a profit with palm oil, that’s a big consequence for the entire industry,” he said. “We have to ensure they stay in business and do so in a sustainable way.”
Riemersma said that once smallholder producers have adequate support to comply with industry regulations, they might be able to take things further in terms of enhancing biodiversity and environmental conditions on their plantations.
A variety of practices can be implemented — from diversifying planting regimes on young plantations through intercropping, to using organic fertilizers and agroforestry — to boost food security and generate alternative incomes, Riemersma said. “By offering the right support, downstream players can really make a big difference in the livelihoods of the smallholders, while also securing their own supply base,” he said.
The report outlines recommendations for palm oil stakeholders focused around four pillars: policies that take smallholder perspectives into account; fair pricing that covers the costs of sustainable production; collaborative and genuine partnerships between suppliers and end-buyers; and programs that help smallholders secure land tenure and access basic resources like seedlings, financing and adequate processing facilities.
For Riemersma, fair pricing is perhaps the “simplest solution” to help smallholders prosper in the industry. He said firms should be prepared to pay for the true costs of produce grown under RSPO standards. “Don’t try to negotiate the best price for you as a downstream player. Think about what it cost the supplier to produce while complying with all the regulations, and pay that price. Because often it’s a fairly minor sum for the downstream player, but it’s a very major sum for the producer.”
He said buyer firms could also play an important role in improving product traceability by incentivizing cooperation along opaque sections of the supply chain, and ensuring farmers who operate under customary land rights have the legal support to obtain the paperwork necessary for compliance.
Riemersma said he recognizes it’s a big ask to invite companies — some of which have been working toward deforestation-free production for several decades — to do even more. What the industry has achieved so far in terms of certification “is a great step forward,” he said, while acknowledging that palm oil certification scandals do still occur. “But it’s not the final stage of sustainable development in this sector.”
“We have to take a step even further,” he said. “And if there are companies that are inspired and want to work with us on this, then we invite them to do so.”
Banner image: Oil palm production is taking off in Latin America, sparking concern among experts over volatile market prices that could incentivize forest clearing. Image courtesy of Solidaridad.
Carolyn Cowan is a staff writer for Mongabay.
See related story:
EU deforestation-free rule ‘highly challenging’ for SE Asia smallholders, experts say
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