There is no interaction between the parties except for the financing arrangement
A number of forward-thinking companies outside of the oil palm industry have started to explore a new approach to address the sustainability of their production through efforts to bring direct benefits to smallholder producers. The new approach is called insetting. Insetting originated as an alternative to climate change offsetting and describes the process of sourcing opportunities for mitigation activities outside the immediate confines of the company’s boundary, by identifying and supporting actions that are of relevance (and benefit) to the company’s upstream stakeholders (Tipper et al. 2009). For practical purposes, it can be thought of as partnership with local communities that live in the sourcing landscapes of the companies to jointly achieve a lower ecological footprint.
What makes insetting projects distinctively different from conventional offsetting projects is that in the case of offsetting a company will typically finance an offset project through a different party
In the case of insetting, the company itself gets involved by providing incentives to local communities or customers or suppliers to mitigate environmental or social impacts. This way the mitigation activities become internalized into the activities of the company (Tipper et al. 2009, Smedley 2015). Although offsetting can be effective in dealing with issues at a global level with a great environmental homogeneity (such as greenhouse gases and ozone depleting gases in the atmosphere), it does not work for impacts at a local scale: the loss of a specific ecosystem service or livelihood option cannot be mitigated by restoring it somewhere else.
Livelihood insetting is based on the concept of mutuality
Currently the majority of insetting initiatives are aimed at delivering environmental benefits, such as carbon sequestration, protecting and restored natural ecosystems, and improving water quality (Smedley 2015). In the light of the current oil palm debate, we would like to introduce a different angle to insetting: livelihood insetting, in which the aim is to strengthen social and human capital. Here, the company sets out to bring social benefits directly to the community by investing in both social and human capital, either directly through its policies and rewarding practices or through partnerships with other stakeholders in that landscape. To give an example, the founder of Mars Incorporated, Forrest E. Mars, Sr. included mutuality as one of the business principles of his company. He prioritized the promotion of a mutuality of service and benefits across every stakeholder that comes into contact with the business: from farmers and suppliers to consumers, commercial partners, and even to competitors over the need to serve shareholders (Badger 2014). There have been a number of companies following suit including IKEA and Danone. It has been demonstrated that investment in community capital can greatly improve people’s ability to manage their own lives better, which includes becoming better managers of their resources and better and more efficient managers of their commodity production while learning how to diversify their income generating opportunities and improve community livelihoods (Roche and Jakub 2014).
Although opportunity costs have often been cited as the main obstacle for land-use diversification in the oil palm growing landscapes (Clough et al. 2016), more nuanced analysis that take into account the limitations of smallholder-managed fields do not support this argument (Ismail et al. 2003; M. N. Mohd Noor, personal observation). Land-use diversification in oil palm landscapes is mainly hampered by the lack of access to adequate physical and institutional infrastructure (M. N. Mohd Noor, personal observation). Whereby oil palm growers are directly linked to a network of densely distributed and easily accessible palm oil mills, without any statutory body involved, landowners that produce other crops often rely on themselves for marketing their produce (Voon 1981). Additional barriers to new agribusiness ventures are limited options for financing these agricultural investments. Generally, banks and finance companies are less inclined to the financing of small-scale agricultural food production mainly because of the higher risk and the longer abdlmatch payback period of such projects (Molenaar et al. 2013).