1. PPPs for Value Chain Development

2. Indonesia Case

3. 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
Investment
US$16.7 million
37% public (subsidized loans)
63% private
Extend oil palm cultivation in conflict affected areas

4. Partners Public Private National and local:
Oversight by MOA’s Directorate General of plantations;
Ministry of Co-operatives
State owned bank
Local government authority
Private
Processing company
Establish nucleus estate
Provide technical support
Purchase all palm fruit
Define ‘public good’ element in accordance with SEDPs
Enabling environment: Regulations to protect land rights & land lease, concessions, rural infrastructure, support for rural institutions
What did they not do? Consider other alternatives to PPP, be guided by balance of costs and benefits, compared with other alternatives – transaction costs and risk of failure

5. 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.

6. 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

7. 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

8. 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.