Agustus 13, 2014

Oil Palm: Boom or Ruin for RI Farmers?

PALM OIL is now the world’s most widely traded vegetable oil. As Indonesia is the center of global production, palm oil in a priority for Indonesia’s economic planners. With millions of hectares either under oil palm or planned for development, a highly polarized debate surrounds the question of oil palm development in Indonesia.

The underlying question here is: Can a boom in agricultural commodities such as oil palm provide a pathway out of poverty? Or does it amount to an instrument of mass immerseration?

In the last year, Greenpeace has pursed a very successful campaign against a range of large multinationals.

Unilever, the world’s largest buyer of palm oil, responded by blacklisting two major Indonesian members of the Roundtable on Sustainable Palm Oil (RSPO) for engaging in “unsustainable” practices.

Nestle, the world’s biggest food and beverage company, announced it would also withdraw from another key Indonesian supplier. Earlier, in response to complaints, the World Bank Group ordered a complete moratorium on investment in palm oil for one year.

Under an Australian Research Council discovery grant, we have subjected these perspectives to careful consideration. In particular, we wished to understand the widespread changes now occurring across Southeast Asia, particularly Indonesia, as markets for palm oil, the world’s most traded vegetable oil and now a key biofuel stock, develop and extend.

Here agriculture is in transition as forested areas and areas used for swidden farming are transformed for more intensive cash crop production.

We followed how changing policy settings affect farmers engaged in agriculture across wide swathes of Indonesia. As the state has withdrawn from direct involvement in smallholder development from the 1990s, the central government moved away from supporting smallholder oil palm development schemes.

Instead, policy allows for the free development of independent smallholders and private-social partnerships with minimal central government involvement. Following this demand for the liberalization of agricultural arrangements, during this decade a “partnership” model has replaced the earlier “nucleus estate” (PIR and KKPA) model.

Research in Jambi revealed that the earlier (PIR/NES) schemes led to the enclosure of large areas of land for oil palm and plantation projects. While only small numbers of local people were included in these early schemes, many Javanese transmigrants found pathways out of poverty.

Villages affected by economic, geographical and social isolation face significant structural disadvantages and farmers here are less likely to find pathways out of poverty. The ability of farmers to enjoy the fruits of the oil palm boom also depended upon village control over the institutions and processes through which they participate in the oil palm economy.

To contrast the fate of smallholders under these schemes, we studied another village that had been left to fend for itself. In this village we found that some 50 percent of villagers had become landless since the advent of oil palm. Following the collapse of rubber prices, villagers had sold off unproductive rubber land. As local elites bought up these lands, large village estates were emerging.

Meanwhile, without support from the state for access to seedlings and fertilizer, the poor were unable to find a secure foothold in the oil palm economy. Here the oil palm boom had created significant numbers of prosperous farmers alongside large numbers of poor farmers and landless laborers.

Comparing average incomes by village, we found a large gap between prosperous oil palm scheme villages and left behind rubber villages where a much narrower cohort of villagers had succeeded in enjoying the fruits of this boom crop.

Under the earlier “nucleus estate” model of the 1990s utilized in the Jambi villages, the plantation estate developed 30 percent of the scheme land for its core plantation while 70 percent was returned to participating smallholders.

But now these schemes no longer operated. Under the new “partnership” model of the last decade, depending upon negotiations in the field, the core estate is only obliged to return 20 percent of the scheme lands to villagers, retaining up to 80 percent of the land as its core estate.

In the Jambi schemes, 70 percent of the scheme land was returned to smallholders. Here farmers obtained 50 percent of yields after credit and production costs were subtracted by the scheme developers.

To compare outcomes for farmers under the new “partnership” schemes, we visited a plantation in Sanggau, West Kalimantan.

Here, farmers only received 20 percent of the land developed under the scheme. Further, they would only obtain 30 percent of the benefits under a 30:70 production sharing arrangement, with further deductions for plantation costs and credit repayments.

Clearly the terms under which smallholders engage with oil palm have remarkably deteriorated under the most recent arrangements.

This suggests that the oil palm controversy needs to move beyond a simple polarity between those who advocate oil palm as an instrument for poverty alleviation and those who see it as an instrument of impoverishment.

The answer to the question of whether farmers can be included into the globalized oil palm economy on advantageous terms very much depends upon the terms under which smallholders engage with oil palm and the dynamics that shape that engagement.

State intervention generated the conditions for prosperity for some, while state withdrawal has allowed processes of immerseration to affect others without an effective policy response. Vulnerable landowners are even more exposed to risk under recent policy settings.

The “partnership” model needs to be reworked. The state, civil society and private or multilateral investors need to engage more effectively in providing credit, extension, technology and the forms of accountability required to protect the poor.[]


John F. McCarthy, “Oil Palm: Boom or Ruin for RI Farmers?”, The Jakarta Post, November 19, 2010.
John F. McCarthy works at Environmental Management and Development Program, Crawford School of Economics and Government, ANU College of Asia & the Pacific.

Source: The Jakarta Post.

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