Indonesian oil palm smallholders have raised a court case against the country’s state-operated fund to improve plantations, which they claim is being used to unconstitutionally subsidise the biodiesel industry.

Indonesia’s oil palm farmer’s union SPKS alleged in a lawsuit that the government had failed to carry out its obligations under the Indonesian Oil Palm Plantation Fund (BPDP-KS) due to the uneven distribution of the funding, reported Mongabay on 24 April.

The BPDP-KS – set up in 2015 – was formed to manage the money collected through Indonesia’s palm oil export duties for “human resource development, research and development, and rejuvenation of plantations”.

But of the 14.2 trillion rupiahs (US$1.03bn) collected in 2017, only 1% went to smallholders, while 89% of the money was given to 19 large biodiesel companies as biodiesel subsidies, Mongabay reported.

The remaining 10% was used for human resources development, research and promotion.

The Indonesian government argued that biodiesel producers required subsidies in order to compete with regular diesel, which was also subsidised by the state, and that the funding given to the biofuel companies boosted domestic palm oil demand, preventing an oversupply and stabilising market prices.

However, Marselinius Andry, head of SPKS’ advocacy department, said the scheme gave nothing to smallholders, who were also forced to jump through legal hoops to get access to the money, while some were reluctant to even apply due to the small amounts of cash handed out.

BPDP-KS management had already pledged to increase the funding given to smallholder to 22% and cut biodiesel subsidies to 70% in 2018, but the SPKS still planned to uphold its lawsuit, arguing that no money from the fund should be used on the biodiesel industry.

Indonesian anti-corruption authority KPK had also begun investigating the fund allocations in order to ensure farmers got a bigger slice of the pie, Mongabay said.

The BPDP-KS argued that should the SPKS win the legal challenge, it would end up hurting smallholder farmers due to resultant falling domestic palm oil prices.

Indonesia’s oil palm plantation were typically managed either by large companies or by smallholders, with the latter being further split into independent operators and “plasma” farms that received support and a guaranteed purchase agreement from one of the larger firms.

Independent smallholders typically learned to manage their plantations without training or supervision and with limited government support, which presented them with several challenges, including poor yields and outdated farming techniques, wrote Mongabay.

The yield discrepancy was significant, with a large company plantation achieving yields of up to 20 tonnes/ha, while independent smallholders were able to harvest only 2-3 tonnes/ha.

Another issue was the old age of the oil palms at smallholder farms and, to alleviate this, the government launched a replanting programme in 2017 handing out free seedlings to smallholders.

This programme was also meant to be funded through the BPDP-KS, said Mongabay.