Table of Index
Executive Summary
Indonesia, the world’s top CPO producer, is under growing scrutiny as output is projected to rise from 46 to 51 million metric tons by 2025 (Indonesia Investments, 2024; Taylor and Francis, n.d.).
Massive palm oil production has driven deforestation and high emissions—3 million hectares lost and 220 million tons of GHGs annually—prompting NDPE policy commitments across the industry (News Security Beat, 2024).
NDPE (No Deforestation, No Peat, No Exploitation) is a key sustainability commitment in the palm oil industry, aiming to protect ecosystems and uphold human rights (Sustainable Palm Oil Choice, n.d.); however, its effectiveness remains limited without full traceability to plantation.
In recent years, the palm oil industry has faced increasing scrutiny due to its environmental and social impacts. Indonesia for example, as the world's largest producer of crude palm oil (CPO), produces approximately 46 million metric tons annually (Indonesia investments: 2024), with projections suggesting this figure could reach 51 million metric tons by 2025 to meet growing domestic and international demand (Taylor and Francis: n.d)
However, this massive production comes at a steep environmental cost. The expansion of palm oil plantations has driven large-scale deforestation, endangering biodiversity and accelerating climate change. Over the past two decades, palm oil cultivation has accounted for nearly one-third of Indonesia’s total loss of old-growth forests—an estimated 3 million hectares. The industry’s reliance on carbon-rich peatlands further exacerbates its environmental impact, with emissions from the palm oil sector reaching approximately 220 million metric tons of greenhouse gases per year—nearly 20% of Indonesia’s total emissions in 2022. (News Security Beat: 2024). In response, major producers, traders, and buyers have committed to No Deforestation, No Peat, and No Exploitation (NDPE) policies to promote sustainable practices across the supply chain.
NDPE stands for No Deforestation, No Peat, and No Exploitation, a critical commitment in the palm oil industry to ensure sustainable and ethical production. It requires companies to prevent deforestation, protect high conservation value (HCV) and high carbon stock (HCS) areas, prohibit plantation development on peatlands to maintain carbon storage and water ecosystems, and uphold human rights by preventing the exploitation of workers and local communities. This includes ensuring fair treatment of smallholders, respecting indigenous rights, promoting gender equality, and preventing child labor. By adhering to NDPE commitments, companies contribute to environmental preservation and social responsibility while offering consumers greater confidence in sustainably sourced palm oil (Sustainable Palm Oil Choice: n.d.)
The Limitations of Traceability to Plantation in Achieving Sustainable Palm Oil
A critical element of these commitments is Traceability to Plantation (TTP). It is a process aimed at mapping the journey of palm oil from its source to the final product. While NDPE policies have long recognized the importance of traceability, implementing TTP in practice presents several challenges. Strengthening accountability and sustainability in the palm oil sector through TTP is essential not only for ensuring compliance with NDPE commitments but also for enhancing risk management and reducing environmental impact.
According to experts, TTP can only be effectively implemented if regulatory frameworks and market demand create a strong incentive for adoption. According to Miko, this includes government regulations such as ISPO (Indonesian Sustainable Palm Oil), as well as non-governmental and market-driven commitments like RSPO (Roundtable on Sustainable Palm Oil), NDPE (No Deforestation, No Peat, No Exploitation), and EUDR (EU Deforestation Regulation). Additionally, incentives from regulators and the market play a crucial role in encouraging compliance among industry players.
“Once these conditions are met, the successful implementation of TTP contributes to two key areas. First, it enhances risk management by increasing transparency and reducing the likelihood of sourcing from non-compliant suppliers. Second, it supports environmental sustainability, particularly by mitigating deforestation risks and improving supply chain monitoring,” mentioned Miko.
Without regulatory enforcement and clear incentives, however, achieving full traceability remains a challenge, as many independent suppliers and smallholders lack the motivation or resources to participate in traceability programs. Addressing these gaps will be essential to ensuring that TTP can drive meaningful improvements in accountability and sustainability across the palm oil sector.
1.Difficulties for Corporations in Supply Chain Mapping
According to Diantur Jatmiko, our Impact Program Manager Palm Oil traceability is one of the biggest challenges. Palm Oil Mill (POM) receive Fresh Fruit Bunches (FFB) from multiple sources, including company-owned plantations, independent smallholder producers, palm oil dealers and intermediaries.
“Tracking these fresh fruit bunches back to their precise source is difficult due to the involvement of multiple intermediaries. The supply chain typically includes layers of sub-agents who purchase from farmers, then sell to palm oil dealers, who then supply to PKS. Many of these transactions are informal, lacking proper documentation or digital records. Large corporations also face difficulties mapping out their third-party supply sources due to these gaps in traceability,” said Jatmiko.
2.The Lack of Financial Incentives for Suppliers
Another key issue is the lack of financial incentives for suppliers to adhere to NDPE commitments. Without sufficient economic benefits or support mechanisms, smallholders and intermediaries often prioritize immediate profitability over long-term sustainability, opting for non-certified markets that do not enforce NDPE standards . (WWF: 2023). As a result, many suppliers do not see direct benefits from compliance, making enforcement challenging.
“Many suppliers do not see direct benefits, making it difficult to enforce compliance. Companies often struggle to implement NDPE policies among independent smallholders and intermediaries who have little regulatory oversight. Some intermediaries hesitate to share supply chain data due to fears of losing their business relations,” mentioned Jatmiko.
Despite these regulatory frameworks and market incentives, companies still face major challenges in implementing TTP, particularly in supply chain mapping and supplier engagement.
3.The complexity of supply chain linkages
One of the biggest challenges in implementing NDPE commitments is the complex and fragmented nature of palm oil supply chains. Miko explains that fresh fruit bunches (FFB) often pass through multiple layers of intermediaries before reaching mills and refineries, making traceability difficult.
The process typically begins with smallholder farmers, who sell their harvest to sub-agents—local collectors who aggregate supplies from multiple sources. These sub-agents then sell to palm oil dealers, who act as intermediaries between farmers and processing mills (POM). Once processed, the crude palm oil moves to refineries, where it is refined and distributed to consumer goods companies for use in various products.
This complex network of transactions, often conducted manually and and in non-standardized format, leads to significant data gaps in traceability efforts. Many transactions lack proper documentation, making it difficult to track the origin of palm oil and ensure compliance with NDPE commitments. Without better supply chain visibility, enforcing sustainability standards remains a major challenge.
According to him, this complexity makes real-time data tracking difficult. A sub-agent might change their supplier for one week to another, making it nearly impossible to map a fixed supply chain structure. Sometimes, palm oil dealers mix supplies from multiple sources, further complicating traceability. He highlights that in some cases, transactions occur outside of official digital tracking systems. Palm oil dealers and suppliers might choose different buyers depending on pricing or location convenience. This results in an unrecorded portion of the supply chain, creating data blind spots that hinder NDPE compliance.
4. Resistance from Palm Oil Dealers to Digital Systems
Despite the benefits of digital traceability, adoption remains a challenge, particularly among palm oil dealers who are unfamiliar with digital reporting. According to Miko some hesitate to share supplier data due to concerns over business confidentiality, while others lack the technical skills to navigate digital platforms effectively.
Ensuring accurate and complete data entry is another hurdle. Many small-scale traders and intermediaries operate informally, with limited record-keeping, making digital reporting inconsistent. Without proper incentives or support, compliance remains low, hindering the overall effectiveness of traceability initiatives. Bridging this gap requires targeted training, user-friendly digital solutions, and policies that balance transparency with business security.
5. Certification and Compliance
NDPE requirements are embedded in several major certification programs, including:
RSPO (Roundtable on Sustainable Palm Oil)
ISPO (Indonesian Sustainable Palm Oil)
Companies with RSPO certification are generally considered NDPE-compliant, but this does not automatically extend to independent smallholders. Many smallholders face barriers to certification, including high costs and lack of administrative capacity.
According to Miko, ISPO also aligns with NDPE principles in many aspects, but its implementation differs. “The requirements for ISPO and NDPE are quite similar, but ISPO certification is more focused on compliance with Indonesian regulations rather than voluntary global sustainability commitments,” he explained.
Unlike RSPO, which is internationally recognized, ISPO is a mandatory certification in Indonesia. However, challenges remain, especially in ensuring traceability beyond plantation-owned mills, as independent smallholders often struggle with documentation and financial constraints.
Building True Sustainability: What It Takes to Achieve Traceability to Plantation in the Palm Oil Industry
Achieving Traceability to Plantation (TTP) requires comprehensive supply chain mapping, but the complexity of supplier relationships makes this a challenging task. Without the right tools and structured processes, ensuring full traceability remains difficult. Here are key steps to address this challenge:
1.Mapping the full supply chain including supply chain linkages
A critical requirement for Traceability to Plantation (TTP) is mapping the full supply chain, including all supply chain linkages from farmers to final product manufacturers. However, the complexity of palm oil sourcing makes full traceability a significant challenge. He emphasized that technology is essential to improving traceability, but current traceability systems struggle to adapt to dynamic supply chain relationships.
“If linkage mapping is done manually, it becomes extremely complex. We need automated solutions that can track changing supplier relationships in almost real time,” he noted.
Without a structured approach to mapping supply chain linkages, achieving full traceability remains difficult. Companies must invest in digital traceability tools, encourage supplier transparency, and ensure intermediaries report their transactions accurately to improve NDPE compliance and enhance the integrity of sustainable palm oil sourcing.
2.Digitalization and the Need for Accurate Traceability Data
To improve traceability in the palm oil supply chain, many companies are investing in digital traceability systems designed to create structured and transparent records of supply chain transactions. These systems make it easier to track fresh fruit bunches (FFB) back to their source, ensuring greater accountability and compliance with sustainability commitments.
However, for these platforms to be truly effective, they must be user-friendly, adaptable, and capable of real-time updates to accommodate the complexities of palm oil sourcing. Additionally, capacity building for farmers and intermediaries is crucial. Providing education and training programs can help smallholders and supply chain actors understand the value of NDPE compliance, empowering them to participate in sustainable palm oil production and improve data accuracy within traceability systems.
As Miko highlights, digitalization alone is not a complete solution. The effectiveness of traceability efforts depends on the accuracy and reliability of the data recorded. Key aspects of digital traceability include:
Supplier Identification: Recording supplier names and categorizing them (e.g., company-owned plantation, independent smallholder, palm oil dealer).
Geolocation Data: Using polygon-based farm coordinates instead of single-point coordinates for better accuracy.
Transaction Records: Tracking the volume of Tandan Buah Segar, TBS (Fresh Fruit Bunches supplied, timestamps, and intermediary transactions to map supply chain linkages effectively
Ensuring accurate and reliable data is crucial for multinational corporations such as Unilever and Wilmar, which have set ambitious NDPE targets. These companies depend on traceability data to assess whether their suppliers comply with sustainability commitments. However, without consistent and verifiable data from the ground level, even companies with strong NDPE policies struggle to enforce compliance. Overcoming this challenge requires robust verification mechanisms, standardized reporting frameworks, and stronger collaboration between all supply chain actors.
3.Field verification and continuous monitoring
While certification is an important step in ensuring sustainable palm oil production, it is not sufficient on its own. Field verification and continuous monitoring are essential to ensure compliance, particularly for the "E" (Exploitation) component of NDPE, which focuses on labor conditions, workers' rights, and ethical business practices. To make NDPE commitments truly effective, companies must extend verification efforts to smallholders and intermediaries.
According to Miko, one important mechanism to support this is the establishment of a grievance mechanism—a system that records complaints or incidents of exploitation, whether they occur within the company or across its supply chain. This mechanism allows for systematic documentation of what happened, when it occurred, and what actions were taken in response. It provides an additional layer of accountability and helps companies proactively identify and address labor-related violations that may not be visible through audits alone.
However, implementing these verification mechanisms at scale remains a major challenge. Manual audits require extensive resources, making large-scale enforcement challenging. While some companies use spatial analysis to detect deforestation and land-use changes, labor exploitation remains much harder to track remotely. To bridge this gap, third-party audits and field verification play a critical role. Regular audits by independent organizations can help ensure that reported data accurately reflects on-the-ground realities, strengthening accountability and reinforcing ethical practices across the supply chain.
4.Stronger Financial Incentives for Suppliers
To encourage compliance with NDPE commitments, companies should offer premium pricing, direct monetary incentives, and financial benefits to suppliers adopting sustainable practices. Market premiums and cost-sharing mechanisms have been identified as effective tools, particularly for smallholders who struggle with the financial burden of certification and legal compliance. Without these incentives, many suppliers continue to prioritize non-certified markets that do not impose sustainability requirements.
Beyond premium pricing, companies can support suppliers by facilitating access to credit, input subsidies, and compensation programs to offset the costs of sustainable production. Financial mechanisms such as subsidized loans, tax incentives, and discounted agricultural inputs could further enhance participation in sustainability initiatives. Combining these financial benefits with technical training and stronger market linkages would help create a long-term shift toward responsible palm oil production (WWF: 2023).
5.The Role of Consumer Awareness and Collaborative Efforts
Beyond traceability systems and verification processes, consumer awareness also plays a crucial role in driving sustainability in the palm oil industry. As demand for ethically sourced palm oil increases, companies face greater pressure to ensure transparency within their supply chains. This shift is pushing businesses to invest more in digital traceability solutions and stronger compliance mechanisms to meet both regulatory requirements and consumer expectations.
Achieving meaningful change, however, requires more than just corporate action. Public-private collaboration is essential to strengthening sustainable palm oil practices. Partnerships between palm oil companies, government agencies, and NGOs can provide regulatory support, improve enforcement, and promote industry-wide accountability. By aligning efforts across sectors, stakeholders can create a more transparent and responsible palm oil supply chain.
He noted that implementing challenges across the entire palm oil supply chain remains a complex and evolving challenge. While digitalization and certification efforts have made progress, gaps in traceability and supplier incentives persist. Moving forward, a combination of financial incentives, regulatory enforcement, technological advancements, and education will be necessary to achieve a fully sustainable palm oil industry.
We play a crucial role in enhancing traceability, sustainability financial inclusion in the palm oil supply chain by providing end-to-end digital solutions that empower smallholders, traders, and corporations. By integrating real-time data collection, geolocation mapping, and supply chain verification, Koltiva helps bridge the transparency gap that has long hindered NDPE (No Deforestation, No Peat, No Exploitation) commitment.
Through KoltiTrace and KoltiSkills we enable suppliers to log transactions, track sourcing origins, and comply with sustainability standards. Additionally, it facilitates access to financial services through KoltiHub by helping smallholders secure loans, connect with premium markets, and improve agricultural practices. By fostering data-driven decision-making and incentivizing compliance, Koltiva significantly strengthens accountability across the palm oil sector
Talk to our experts today to learn how our traceability solutions can help your business achieve NDPE compliance and drive sustainability in the palm oil industry.
Writer: Kumara Anggita, Content Writer
Editor: Bobby Hermawan, Head of Digital Marketing and Daniel Prasetyo
About Writer:
Kumara Anggita, serving as Koltiva's dedicated Content Writer, brings a wealth of experience from her six-year tenure in journalism in the fields of humanities and lifestyle, as well as her role as a writer in the tech industry. Her deep-rooted passion for gender equality and sustainability spurred her to enhance her reporting and storytelling skills through the EmPower Media Bootcamp by UN Women. Now, Kumara utilizes her platform to advocate for sustainable practices and gender equality through her compelling writing.
Resources
Indonesia Investments. (2024). Palm oil. Retrieved from https://www.indonesia-investments.com/business/commodities/palm-oil/item166
Taylor & Francis. (n.d.). Evaluating the palm oil demand in Indonesia: production trends, yields, and emerging issues. Biofuels.https://www.tandfonline.com/doi/full/10.1080/17597269.2018.1461520
United States Department of Agriculture (USDA). (2023). Indonesia: Palm oil exports forecast to rebound in 2023/24. Retrieved from https://ipad.fas.usda.gov/highlights/2023/11/Indonesia/index.pdf
