This brief analyzes the governance and interaction patterns within the oil palm value chain in North Labuhanbatu District, North Sumatra, as part of the Sustainable Farming in Tropical Asian Landscapes (SFITAL) initiative. The sector faces several critical challenges, including unaffordable fertilizer prices leading to suboptimal maintenance, an overcapacity of mills compared to fruit supply, frequent fresh fruit bunch (FFB) theft, and delays in smallholder replanting programs. By identifying nine key actors—ranging from harvest workers and smallholder farmers to delivery order (DO) holders and large-scale CPO processing companies—the study maps the complex flow of commodities and the varying degrees of coordination and power asymmetry across the supply chain.

The research identifies four distinct governance patterns: relational governance, which is prevalent and based on long-standing trust, kinship, and social proximity among farmers, brokers, and ramps; market-based governance, involving simple transactions between mills and processing companies; modular governance, observed in easily codifiable transactions between brokers and mills; and hierarchical governance, characterized by vertically integrated top-down control within corporate structures. To enhance sector productivity and sustainability, the brief recommends improving seed quality and certification, promoting the use of organic fertilizers, strengthening farmer capacity through field schools, and streamlining supply chains to ensure traceable and transparent marketing.