Palm oil production is at the heart of Indonesia's economy, serving as a vital resource for both domestic needs and global markets. The industry supports over 16 million individuals, encompassing producers, oil mill operators, traders, and food industry workers (Ekon: 2022). However, as the world's leading producer, Indonesia faces a dual challenge: driving economic growth and addressing the environmental impact of rapid industry expansion.
As the largest producer of palm oil, its production has benefited more than 4 million smallholder households and lifted around 2.6 million rural Indonesians out of poverty. The production and expansion of palm plantation areas have led to a 2.7% faster poverty reduction and a 4% faster consumption growth (Palm Oil Monitor: 2020).
In 2023, Indonesia contributed 47 million Metric Tons from a total production of 79.5 million Metric Tons worldwide (UFDA: 2024). While this has strongly contributed to economic growth, there is concern about the rapid expansion of plantations to meet the production and export demands. This expansion has led to a significant environmental impact, primarily due to deforestation.
As palm oil production continues to scale, vast areas of tropical rainforest are also cleared to make way for new plantations. This forest loss threatens biodiversity, contributes to greenhouse gas emissions, and disrupts the livelihoods of indigenous communities. The Center for International Forestry Research (CIFOR) data shows that oil palm plantations were the main cause of deforestation in Indonesia between 2021 and 2022, leading to 200 million metric tons of greenhouse gas emissions annually. Indonesia's total emissions for 2022, excluding the land-use sector, were 1,240 million metric tons, the highest on record. Therefore, palm oil supply chain emissions account for about a fifth of Indonesia's total emissions (Mongabay: 2024).
This underscores the urgent need for sustainable practices in the palm oil supply chain. To tackle these challenges, the European Union, one of the world's major trading blocs, agreed in December 2022 on a regulation to be adopted in 2023 that prohibits the trade of products contributing to deforestation. This European Union Deforestation Regulation (EUDR) aims to curb deforestation and greenhouse gas emissions from consumption within the EU, including targeting commodities like palm oil (Forest News: 2023).
As the EU is Indonesia's fourth-largest export destination for palm oil, accounting for 11 percent of its total palm oil exports, Indonesia must demonstrate compliance with the European Union Deforestation Regulation (EUDR) by proving that commodities have not been produced on land subject to deforestation or forest degradation after December 31, 2020 (Forest News: 2023).
This highlights that achieving genuine sustainability, as also mandated by the regulation, requires scrutiny at each stage of this extensive supply chain. Ensuring that every step, from cultivation to production, adheres to sustainable practices is crucial for mitigating the environmental impact while maintaining economic benefits.
The Need for Transparency and Sustainable Practices in Palm Oil Supply Chain
In a news piece by Deutsche Welle (DW) TV, a German international broadcaster, titled "More Transparency for More Sustainable Products," Manfred Borer, CEO and Co-Founder of KOLTIVA, highlighted the importance of transparency and holistic approaches in agricultural supply chains. He emphasized our commitment to creating a comprehensive software solution that benefits all stakeholders involved.
"We can't just build the software for the producer or the software for the trader. It has to be a holistic end-to-end system where we deliver a platform that helps agri-input suppliers, producers, off-takers, and the mills up to the brands," he said.
Verifying the data is the key. To this day, we have registered more than 170,000 palm oil plantation smallholders in Indonesia alone through our boots on the ground, and each producer has been interviewed by our field agents.
"So, we have the verification that the farm is not in a protected forest, not involved in deforestation over the past ten years, and does not exploit children," Borer added.
What Does "End-to-End" Mean in Palm Oil Supply Chains?
An end-to-end supply chain covers the entire lifecycle of a product, from its creation to final consumption. By efficiently managing this process, businesses can optimize efficiency, reduce costs, and improve customer satisfaction. We offer comprehensive solutions through our four business lines: KoltiTrace, KoltiSkills, KoltiTrade, and KoltiPay, ensuring streamlined and effective supply chain management.
KoltiTrace
KoltiTrace is our comprehensive traceability platform, designed to ensure transparency from seed to table. To facilitate data collection and verification, our Field Agents (FA) utilize the KoltiTrace Mobile app. Additionally, we facilitate agri-input distributors and manufacturers in reaching a wider market by distributing agri-inputs to kiosks. The agri-input kiosk owners can utilize the KoltiTrace MIS FarmRetail mobile app, an e-commerce platform that connects them directly with local palm oil producers nearby, streamlining input procurement processes.
Palm oil producers can then purchase these agri inputs through the KoltiTrace MIS FarmCloud mobile app. This app also provides features for managing field data, recording sales, verifying transactions, accessing responsible digital financial services, receiving tips, conducting cashless crop procurement and input transactions, and accessing agri-input financing, which includes "pay later" options for smallholder producers, crop insurance, and premium disbursements. Additionally, producers have access to free digital Good Agricultural Practices (GAP) training materials, enhancing their knowledge and agricultural practices related to climate-smart agriculture, leading to improved practices and a measurable reduction in carbon emissions, contributing to global climate change efforts.
At the point of harvest, the KoltiTrace MIS mobile app ensures complete transparency in the buying process. This app facilitates crop procurement through various payment methods, including cash, digital transactions, and split payments, providing flexibility for both producers and buyers. Processors and manufacturers can also utilize the KoltiTrace MIS web platform, a powerful tool for managing data, generating reports, and ensuring compliance with regulations. This promotes transparency and accountability throughout the supply chain, ensuring that products meet sustainability standards and consumer expectations.
KoltiTrace SHOP
The KoltiTrace SHOP platform connects end consumers directly with traceable and sustainable products, completing the seed-to-table cycle with full transparency. Consumers can scan QR codes on products to trace their journey from producers to end-users, empowering them to make informed choices that support responsible agricultural practices. Additionally, the platform allows direct tipping to producers through digital payments, further empowering them and fostering a more sustainable agricultural ecosystem.
Given the importance of EUDR in the palm oil supply chain, our EUDR solutions within KoltiTrace MIS are also designed to enhance compliance and sustainability specifically for this sector. Here's how we help you comply through our products and solutions.
EUDR Supply Chain Mapping & Risk Assessment
The KoltiTrace MIS Mobile App equips processors with the tools for supply chain mapping and conducting farm and risk assessments to ensure thorough producer compliance. It aids in documenting the connections within the supply chain among producers, intermediaries, and processors.
Land Use Tracker & Spatial Legality Verification
The system performs automatic deforestation checks using annually updated satellite data and will integrate with the upcoming EU deforestation baseline map once it is available. Local protected area maps are incorporated to ensure legal compliance of producers. Additionally, there is potential to expand the service to include historical Land Use Change (LUC) emissions data to assess scope 3 emissions within your supply chain.
Transactional Traceability
This offers comprehensive crop production data visualization and transaction traceability from producers to manufacturers across more than 57 crop settings. Harvests are accurately weighed using the KoltiTrace IoT Digital Scale, ensuring precise measurements. This data is seamlessly transferred to the KoltiTrace MIS App for further processing. From the application, the transaction data can be easily connected to a printer, allowing for convenient data printing and record-keeping.
EUDR Due Diligence Report
Our KoltiTrace MIS web platform facilitates the automatic creation of due diligence statements for processors and their primary suppliers. By utilizing the collected data, it can produce customized risk assessments, supplying the necessary evidence for EUDR compliance submissions.
EUDR Compliance Dashboard
With our EUDR Compliance Dashboard, businesses can gain a visual representation of their adherence to EUDR regulations and conditions. These dashboards provide valuable insights, including metrics like the total hectares of non-compliant producers in deforested areas, as well as the number of non-compliance plots and producers. By leveraging real-time data sourced from users and our field agents, businesses can make well-informed decisions to improve compliance efforts.
KoltiVerify
KoltiVerify is a data verification solution for EUDR. Starting from data Integration, our system consolidates files from any supplier into a unified database, regardless of their format or origin. By converting and injecting data into the system via API integration or manual upload, we ensure a standardized format that simplifies data management.
To maintain high data integrity, KoltiVerify performs thorough checks, highlighting anomalies and inaccuracies. This data quality verification includes validating estimated annual production and ensuring plot polygons do not overlap. Advanced spatial analysis techniques are used to meet deforestation compliance requirements with our Land Use Tracker feature on KoltiTrace MIS, classifying data into compliance, indicative compliance, and non-compliance categories.
After gathering the data, we generate a comprehensive EUDR Analysis Report that details data, geolocation, land use rights, legality, and other risks such as environmental protection, human rights, and tax issues. The Verification Report Dashboard on KoltiTrace MIS enables users to extract a list of data per processor, supported by our flagging system for tailored reporting.
KoltiVerify addresses risk mitigation by providing recommendations in the analysis report and highlighting high-risk data inaccuracies. By meticulously addressing data integration, quality verification, analysis, and risk mitigation, KoltiVerify ensures the integrity and accuracy of supply chain data, enabling informed decisions and effective risk mitigation for EUDR compliance.
KoltiPay
Financial transactions are supported through KoltiPay, a responsible digital wallet feature integrated into our technology ecosystem. KoltiPay facilitates responsible digital finance and payments through an integrated fintech platform, enabling cashless transactions, "buy now, pay later" agri-input solutions, savings, micro-insurance, and bill payments. This platform is designed to meet the unique needs of smallholder producers, MSMEs, and agribusinesses in rural areas, offering a two-way solution that benefits both parties.
Through KoltiPay, producers gain access to e-payments, crop insurance, savings accounts, and responsible loans. This comprehensive support extends to enabling direct payments for essential services such as electricity, health insurance, and phone credits through the KoltiTrace MIS FarmCloud platform, ensuring that producers have the financial tools they need to thrive.
For MSMEs and agribusinesses, KoltiPay facilitates premium payment distributions, input transactions, and crop transactions. The mobile app further streamlines e-payments and transactions related to crops and agricultural inputs, supporting businesses to operate more effectively within the agricultural sector
KoltiSkills
KoltiSkills acts as a "boots on the ground" service, providing crucial field support throughout the supply chain. Our dedicated field team empowers all actors within the supply chain. They collect and verify producer data and carbon emissions while also guiding traders during harvest collection. Collaborating with our agronomists, they provide group training and one-on-one coaching on Good Agricultural Practices (GAP) to producers. This comprehensive support ensures responsible sourcing practices and prepares producers for certification processes or external audits.
In the context of EUDR, KoltiSkills plays a pivotal role in risk mitigation. This includes personalized producer coaching and support in obtaining land legality and certification, and product segregation training, and supply chain mapping certification. Through data-driven one-on-one coaching, we focus on EUDR non-compliant or flagged producers, guiding them effectively toward compliance.
KoltiTrade
This operates through two main pillars. The first is KoltiTrade Agri Inputs, where we use technology to enhance the trade of agricultural inputs. This includes investment in local production, such as the development of seed nurseries and ensuring efficient distribution of fertilizers and compost to producers. With this strategy, KoltiTrade Agri Inputs not only acts as an intermediary but also as an active player, contributing to the availability and quality of agricultural inputs needed by producers.
The second pillar is KoltiTrade Single Origin, which focuses on trading harvests. We use technology to improve efficiency and connect producers with premium markets for high-quality, single-origin crops. The impact of using KoltiTrade Single Origin includes increased efficiency and transparency in input distribution, providing better access to high-quality agricultural inputs, connecting producers with premium markets for their harvests, offering better prices for producers and higher value for their crops. This impact allows producers to gain access to affordable and high-quality agricultural inputs while buyers receive sustainable and traceable products.
Our solutions have assisted multinational companies and their suppliers with traceability and sustainable practices. With roots in Indonesia, our reach in the palm oil sector extends across various regions in Indonesia, including Aceh, North Sumatra, West Sumatra, Riau, Jambi, South Sumatra, Lampung, Bangka Belitung, Yogyakarta, West Borneo, Central Borneo, South Borneo, and East Borneo.
As demand for transparent supply chains grows, our holistic solutions align perfectly with the needs of multinational companies seeking to map and optimize their supply chains from seed to table. Talk to our expert today to learn how we can help you achieve full traceability and sustainability in your supply chain!
Resources:
DW. (2024). More transparency for more sustainable products. Retrieved from https://www.dw.com/en/more-transparency-for-more-sustainable-products/video-68640612
East Asia Forum. (2023). European Union palming off deforestation regulation to smallholders in Indonesia. Retrieved from https://eastasiaforum.org/2023/10/10/european-union-palming-off-deforestation-regulation-to-smallholders-in-indonesia/
CIFOR. (n.d.). Deforestation-free palm oil is not an automatic win-win. Retrieved from https://forestsnews.cifor.org/83646/deforestation-free-palm-oil-is-not-an-automatic-win-win?fnl=en
Palm Oil Monitor. (2020). The flawed logic of the palm-poverty-certification narrative. Retrieved from https://palmoilmonitor.org/2020/11/23/the-flawed-logic-of-the-palm-poverty-certification-narrative/
Mongabay. (2024). Palm oil deforestation makes comeback in Indonesia after decade-long slump. Retrieved from https://news.mongabay.com/2024/02/palm-oil-deforestation-makes-comeback-in-indonesia-after-decade-long-slump/
Indonesia Palm Oil Facts. (n.d.). Palm and the G20. Retrieved July 31, 2024, from https://www.indonesiapalmoilfacts.com/g20/
UNDP. (2024). EUDR preparedness check for the coffee and commercial forestry sectors in Viet Nam. UNDP Viet Nam. Retrieved from https://www.undp.org/vietnam/press-releases/eudr-preparedness-check-coffee-and-commercial-forestry-sectors-viet-nam
Statista. (n.d.). Global palm oil industry. Statista. Retrieved from https://www.statista.com/statistics/706786/production-of-palm-oil-in-indonesia/#:~:text=Indonesia%20is%20the%20world%E2%80%99s%20top%20producer%20of%20palm,amounted%20to%2046.98%20million%20metric%20tons%20in%202023.
Foreign Agricultural Service. (n.d.). Commodity: Palm Oil, Production (metric tons). U.S. Department of Agriculture. Retrieved August 1, 2024, from https://fas.usda.gov/data/production/commodity/4243000
Writer: Kumara Anggita, Content Writer
Editor: Daniel Prasetyo, Head of PR and Corporate Communication
About the 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.
This article is a real eye-opener! In-depth exploration of the importance of traceability and transparency.