Smallholder Inclusion in the Global Value Chain for Sustainable Palm Oil: Governance and Power Relationships in the RSPO

Nicolaj Skou

Student thesis: Master thesis


Palm oil the most commonly used vegetable oil in the World, finding application in a wide array of products and industrial processes. The oil is extracted from the fresh fruit bunches of the African Oil Palm. Owing to the profitability of oil palm cultivation, the crop has become popular among smallholders, who contemporarily account for an estimated 35-40 % of global palm oil production. However, oil palm cultivation has been associated with a range of unsustainable practices. The Roundtable on Sustainable Palm Oil has emerged to promote sustainability in the industry. Because of the extensive involvement of smallholders in oil palm cultivation, any attempt to make the industry sustainable must include the smallholders. The Roundtable of Sustainable Palm Oil can be construed as an embodiment of the institutional setup in which the global value chain for sustainable palm oil is embedded. It distinguishes between Scheme- and Independent smallholders, each of which are assigned different levels and responsibilities towards their buyers. Thus, the inclusion of either type of smallholder will impact the governance of the industry differently. This thesis examines the institutional setup embodied in the Roundtable for Sustainable Palm Oil, in order to assess the conduciveness of smallholder participation in the global value chain and draw inferences as to the mode of governance promulgated by this setup. It is argued that the institutional setup provides an incentive structure that favour the inclusion of Scheme smallholders, a finding which does not correspond with the distribution of gains along the value chain that conventional global value chain theory predicts. Thus, the analysis is broadened to include the various interest coalitions, involved in the Roundtable on Sustainable Palm Oil, their sources, and application of power vis-à-vis one another. In this, the thesis breaks with the traditional vertical confines of global value chain analysis, by including NGOs, who are external to the value chain per se, but hold the potential to influence the institutional setup. It is argued that the global value chain for sustainable palm oil is governed by a leading coalition, representing the interests of downstream actors in the chain, but that the NGOs are able to exert considerable indirect influence over the leading coalition. Thus, the puzzling distribution of gains smallholders and their buyers, is explained by the exertion of power over said buyers from the leading coalition and the NGOs, promoting smallholder inclusion on favourable terms in order to promote sustainability in the industry.

EducationsMSc in International Business and Politics, (Graduate Programme) Final Thesis
Publication date2016
Number of pages114