Zero-deforestation commitments failing to reach smallholder farmers in Indonesia’s palm oil industry

While many companies have adopted zero-deforestation commitments (ZDCs) to remove products linked to forest loss from their supply chains, it remains unclear whether they successfully engage smallholder producers or inadvertently marginalise them. Researchers from the Conservation and Development Lab at University of Cambridge and ETH Zurich investigated the effectiveness and equity of ZDCs – often implemented as ‘no deforestation, no peat, no exploitation’ (NDPE) policies – in the Indonesian palm oil sector.

Indonesia is the world's largest producer of palm oil, contributing 60% of global supply. With oil palm expansion as a primary driver of deforestation in the country, the industry has faced significant pressure to adopt ZDCs. However, smallholders – who account for one-third of national production and manage roughly six million hectares of land – often face barriers to compliance including lack of land titles, dispersed locations and limited technical and financial support.

The study, published in the scientific journal Nature Sustainability, assessed ZDC implementation in two major palm-producing provinces: Aceh and South Sumatra. The researchers surveyed 1,541 smallholders to track their supply chain links and exposure to ZDC policies, and conducted interviews with producer cooperatives and intermediary suppliers to understand the communication channels between mills and smallholder producers. They combined producers’ self-reported sales relationships with mills and Trase supply chain data to identify where producers sell oil palm fruit and whether those destinations (mills and downstream buyers) have ZDC policies. They also compared deforestation rates in villages within ZDC mill sourcing areas with those outside.

The research finds significant challenges in the effectiveness and equity of ZDC implementation:

• Limited supply chain transparency: Only 23% of the surveyed smallholder producers sold directly to mills, while the rest relied on a complex network of intermediaries. Consequently, 42% of producers were unaware of which mills processed their oil palm fruit. This limited traceability makes it difficult for companies to communicate ZDC requirements to smallholder producers and monitor compliance beyond the mill level.
• Poor knowledge dissemination: While some companies claimed to disseminate ZDC information, actual awareness among producers was extremely low. None of the independent smallholders reported awareness of NDPE-related restrictions such as peatland protection or prohibitions on planting in forest estates. Awareness was slightly higher among tied smallholders linked to companies through cooperatives. Intermediaries, who act as the primary bridge between mills and producers, also lacked knowledge of ZDC policies.
• Absence of ZDC-focused support: While producers within ZDC mill sourcing areas received more training than those outside, it was almost exclusively technical (e.g. pruning, planting) rather than focused on ZDC compliance. Companies generally did not provide the targeted support to help smallholders change their land-use practices to meet NDPE requirements.
• Lack of incentives: Companies may use financial incentives, such as price premiums, to encourage producers to meet sustainability requirements. However, no significant relationship was found between selling to ZDC mills and receiving higher prices. Among independent smallholders, the relationship between ZDC market access and revenue was inconsistent or weak. The absence of price premiums suggests that producers lack a clear incentive from ZDC mills to align with sustainability requirements.
• Deforestation outcomes: The analysis of satellite-derived forest cover data revealed that villages within ZDC mill sourcing areas had lower deforestation rates before 2019 compared to non-ZDC areas. However, after 2020, deforestation rates in ZDC-associated villages began to rise slightly, and overall, there was no significant difference in average deforestation rates between villages inside and outside ZDC mill sourcing areas.
• Limited smallholder exclusion: A positive finding is that companies generally continued to buy fruit from smallholders regardless of their location, provided their mills had capacity. While some producers perceived exclusion due to limited supply quotas, low prices that made selling financially unviable, or specific certification requirements (e.g. the Roundtable on Sustainable Palm Oil), there was no evidence that companies were broadly excluding smallholders to meet their ZDCs.

The research concludes that current approaches to ZDCs have limited reach and are not consistently translating corporate commitments into production practices. This is due to systemic mill overcapacity in Indonesia, which reduces the influence that companies have to enforce strict sourcing requirements. Moreover, most Indonesian producers supply markets with few environmental requirements. Only 10% of Indonesian palm oil is exported to the EU where sustainability requirements are most demanding. Additionally, relationships between smallholders and intermediary suppliers are not being used effectively to promote NDPE policies, and state-led services often lack the resources to fill the gap.

To address these shortcomings, the research recommends that companies and governments should design support systems tailored to the varied needs of smallholders and local circumstances. Offering price incentives, when combined with sufficient monitoring and enforcement, might increase awareness and encourage producers to adopt deforestation-free practices. Intermediaries and cooperatives should be integrated into the dissemination process, as they are the key access route to engage smallholders. Coordinated public and private finance, alongside greater attention to supply-shed and jurisdictional approaches, could help address both deforestation risks and underlying livelihood needs.

Read the research paper: Chandra, A., Grabs, J., Meemken, EM. et al. Limited reach of zero-deforestation commitments to Indonesian oil palm smallholders. Nat Sustain (2026). https://doi.org/10.1038/s41893-026-01861-4