<![CDATA[Indonesian Sustainable Palm Oil (ISPO) certification is mandatory for Indonesia’s palm oil industry, including smallholders. However, its implementation is constrained by information asymmetry and transaction costs that affect smallholder profitability. This study compares transaction cost structures and profitability between ISPO and non-ISPO smallholders using the Brunner–Munzel (BM) test. Data were collected through interviews with 100 randomly selected smallholders, comprising 50 ISPO and 50 non-ISPO smallholders in Asahan Regency, Indonesia. The results indicate significant differences in transaction cost structures and profitability between the two groups. ISPO smallholders operate within a more formalized institutional and value chain governance framework, resulting in higher explicit transaction costs, particularly cooperative fees and compliance-related expenses. In contrast, non-ISPO smallholders face substantially higher implicit transaction costs associated with weak bargaining power and market inefficiencies in informal markets. Consequently, although ISPO smallholders incur higher explicit costs, their total transaction costs are lower because of the substantial implicit costs borne by non-ISPO smallholders. ISPO smallholders also report lower profits, primarily associated with declining yields from aging plantations approaching replanting. Nevertheless, their governance arrangements support a favorable R/C ratio. The findings highlight the importance of strengthening smallholder institutions and market governance alongside production-input support to facilitate sustainable certification.]]>
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