Forest risk commodity (FRC) regulations provide little direct support or incentives to smallholders, of which there are over 100 million in Asia, particularly in Indonesia, Viet Nam and Thailand. For smallholder farmers across Southeast Asia, the promise of sustainable global markets remains elusive.
More recent regulations designed to halt deforestation, like the European Union Regulation on Deforestation-free Products (EUDR), are inadvertently pushing them further to the brink, jeopardizing their livelihoods and undermining the very forests these rules aim to protect.
The cost of compliance – where smallholders suffer
FRC regulations, particularly those put in place by governments, rely on private sector implementation. It is companies, after all, that place commodities in national and global markets. Often, when companies invest in their supply chains, communities, producers and smallholders have to develop the capacity to comply. To fulfill demand, companies often invest resources to prepare their suppliers to comply with FRC regulations. However, what happens when the cost of reaching suppliers is too high?
The cost does often prove “too high” for companies when it comes to reaching smallholder farmers, particularly those who live in geographically far-off regions. Smallholders have limited resources to comply with buyer demand, which means they are often ignored and left behind. With little access to secure markets, they are pushed towards supply chains uninterested in regulations, leaving them without fair benefits. They are also left with little incentive to comply with FRC regulations.
As FRC regulations and the countries behind them often do not invest in those left behind, there is little if any motivation for smallholders to develop more sustainable production methods. And without resources, information and connections, they fall further behind. In the worst cases, they have insecure tenure, leading to greater uncertainty regarding their future.
Regulations define the rules of the game, but how can we ensure a just transition for those who lack the resources to adapt?
The private sector's balancing act – commitment and cost
Over the years, the role of the private sector in implementing sustainability efforts has become more dominant. However, even for companies with genuine and demonstrated commitment to sustainable sourcing and inclusive development, there is often systemic pressure to prioritize cost effectiveness.
Large corporations invest in sustainability initiatives when they ensure supply security, reduce risks or improve their market image. When supporting smallholders becomes too expensive or logistically challenging, companies often opt to source from large-scale plantations or well-organized cooperatives instead. This leaves many independent smallholders unable to meet stringent compliance requirements, further entrenching inequality in global supply chains.
Indonesia and Thailand provide consistent support to their major commodities – palm oil and rubber respectively – because these industries are central to their economies. The Indonesian and Thai governments actively invest in smallholder development, often ensuring access to legal land tenure, financing mechanisms and technical assistance.
Palm oil smallholders in Indonesia that comply with legality receive state-supported certification schemes and replanting funds to sustain production. Similarity, in Thailand, rubber smallholders benefit from structured financial support and government-backed cooperative networks, helping them maintain market access. China takes a similar approach with its bamboo sector, investing heavily to ensure both the industry and smallholders thrive.
Such state involvement is not replicated in many other countries and sectors, which means smallholders lack similar institutional backing. To boost smallholder development, governments and international actors must invest in long-term capacity-building and infrastructure, provide financing mechanisms that lower compliance costs and strengthen market linkages to create more resilient supply chains.
Access to finance – unlocking sustainability investments
Even when smallholders meet regulatory requirements, their ability to finance sustainable practices remains a major challenge. The cost of certification, traceability systems and sustainable land management is often beyond their financial reach.
In Viet Nam, the Aratay Coffee Cooperative has tackled this challenge by providing interest-free input loans to farmers, which are later repaid through product sales. This model ensures that farmers can afford sustainable production without the immediate burden of financial risk.
In Indonesia, SPKS (Serikat Petani Kelapa Sawit or oil palm famers’ union) smallholders have leveraged sustainability credits from the Roundtable on Sustainable Palm Oil (RSPO), selling them through platforms such as PalmTrace to generate funds for ongoing compliance and certification costs. Innovative financial mechanisms such as these demonstrate that financial inclusion is possible but require tailored approaches that align with smallholder realities.
Market access – ensuring inclusion in global trade
Market access remains a significant hurdle for smallholders, especially as compliance requirements become stricter. Many smallholders produce high-quality commodities but struggle to connect with buyers who recognize and reward sustainable practices.
One successful approach is seen in Viet Nam, where Tropenbos and Rong Xanh enterprise have established direct market linkages for smallholders engaged in agroforestry-based coffee production. By ensuring premium pricing and providing long-term buyer commitments, they have strengthened the resilience of smallholder supply chains.
Similarly, in Lao PDR, a RECOFTC-led partnership initiative has connected teak smallholders to a sawmill through a carefully brokered business agreement. By guiding both parties through capacity development and sensitization before signing the agreement, a fair and transparent process was ensured. Both sides recognized the win-win benefits of the partnership.
Such models, where non-governmental organizations bridge gaps, highlight how structured facilitation can create equitable trade arrangements for smallholders.
Moving forward – bridging the gaps together
These examples illustrate that solutions exist but require systemic support. Governments, financial institutions and market actors must collaborate to:
- expand participatory land tenure mapping to ensure legal recognition of smallholder farms, particularly for marginalized communities
- develop financial products tailored to smallholder needs, such as low-interest loans, sustainability credits and cooperative-led financial models
- strengthen market linkages by creating incentives for buyers to prioritize smallholder-inclusive supply chains
- improve data governance and traceability by integrating local data systems with formal compliance requirements, ensuring that smallholders can verify legal sourcing and meet regulatory standards without being excluded from markets
Traceability and data governance are crucial components of compliance with FRC regulations. Smallholders often lack the tools and knowledge to collect, store and share geolocation data, which is increasingly required for market access.
Governments and non-governmental organizations must support smallholders by providing affordable traceability solutions and training. They must also ensure that data collection processes are transparent and beneficial to farmers rather than an additional burden. If these barriers are not addressed, the risk of excluding smallholders from global supply chains will only increase, undermining both sustainability goals and rural livelihoods.
As an organization dedicated to community forestry and empowering local communities, RECOFTC recognizes that sustainable solutions must prioritize inclusive and equitable approaches that support, rather than exclude, smallholder farmers. By investing in systems that empower smallholders rather than penalize them, we can create supply chains that are both sustainable and just. The narrative must shift from seeing smallholders as compliance burdens to recognizing them as frontline stewards of our forests.
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Martin Greijmans is programme lead for increased economic benefits for communities at RECOFTC.