New evidence on impacts of smallholder palm oil in Sumatra

Recent research points to improved living standards, expanding farm sizes, more diversified livelihoods … as well as rising inequalities and increased pressure for forest conversion.

A study of Oil Palm Adoption, Household Welfare, and Nutrition Among Smallholder Farmers in Jambi, Sumatra demonstrates that oil palm adoption improves household living standards and nutrition. The statistically rigorous study by scientists at the University of Goettingen and Bogor Agricultural University, identifies lower labour requirements as the prime driver for this outcome rather than greater profitability per hectare. Oil palm requires significantly less labour per unit area than alternative crops like rubber. Consequently, farmers switching to oil palm can manage larger areas of land and thereby increase their income by expanding their farm size. Many also divert the labour saved to increase their off-farm income.

The study findings provide objective evidence of improved household consumption, food security and nutrition for farmers with access to the land and capital to invest in oil palm production. But it is not all good news. Attractive economic returns and relatively low labour requirements for palm oil production are likely to drive further smallholder expansion. And with a dysfunctional property market and prevalent uncertainties over property rights in Sumatra, farmers may resort to other channels of land acquisition, such as forest encroachment.

Furthermore, this expansion may contribute to rising social inequality, which could lead to the eventual marginalisation of those smallholders who face economic and social constraints to investment (at scale or at all) in palm oil plantations. 70% of the households in the random sample did not own any palm oil plantation, suggesting that the majority of households could be left behind in the oil palm economy.

A parallel CIFOR study, in the Rokan Hulu regency of the Sumatran province of Riau, developed a typology of independent oil palm growers. The study distinguished small and medium sized farmers, noting that the latter group were better capitalised, less risk averse and more likely to own oil palm plots in frontier areas and state forest land. It found lack of formal tenure security is a common problem across both groups, which could jeopardise their integration in formal markets in the future. This study also encompassed independent producers with much larger land holdings, who were few in number but accounted for around 45% of production area (outside company developed plantations), a large proportion of which is on recently deforested peatland. This second study illustrates the unequal distribution of oil palm plantation ownership that has already emerged from the process of forest conversion over the past 30 years.  

Looking forward over the next 30 years, reserves of unoccupied or underutilised land in Sumatra may be quickly exhausted. As Indonesia’s population continues to grow, so may pressure for the land to support a greater number of viable livelihood opportunities, which could point to different, less extensive options for land use.

Filed under: ,