Despite risks, Indonesia’s farmers stake their future in palm oil

Workers at a Papuan oil palm plantation. Photo by Agus Andrianto/CIFOR

BOGOR, Indonesia (7 September, 2011)_Indonesia has capitalised on the soaring price of crude palm oil, but further action is needed to ensure Indonesia’s farmers benefit from the development of oil palm, according to a new report by the Center for International Forestry Research.

Over the last twenty years, Indonesia’s agricultural policies have made it the world’s leading producer of valuable palm oil, but unclear land ownership issues and a lack of leadership in smallholders’ collectives undermine the ability of local communities to share in this boon.

The authors studied the impact of oil palm development on the Bungo district, in the province of Jambi, Sumatra.  In this area, there has been a rapid shift from rice and rubber cultivation to oil palm, which offers higher profits and a better return on investment.

In general, the development of oil palm led to an improvement in the livelihoods of local people. However, issues over land loss left communities demanding a fairer deal.

“Oil palm is not bad in itself. It is the way it is developed that makes it bad or good for local populations,” says Laurène Feintrenie, CIFOR scientist and co-author of Why do farmers prefer oil palm? Lessons learnt from Bungo district, Indonesia.

Palm oil plantations in Indonesia are often formed under partnerships referred to as Nucleus Estates and Smallholders (NES) schemes.  In this arrangement, a certain proportion of the land to be developed is handed over to the company (the “nucleus”) in return for compensation, whilst the villagers retain smallholdings (the “plasma”).

Usually the company acquires 70% of the land under development, but as land scarcity drives up the value of unconverted plots, villagers are keen to hold onto a greater share.  The villagers can chose to pay for the planting and management of their own plots by the company if they don’t want to work themselves in their plots, but benefit from access to the seedlings and technical advice of the estate, as well as the creation of skilled jobs in the refinery.  Facilities such as accommodation, schools and medical clinics are also provided for company workers.

This model is not without problems.  Famers participating in NES contracts may incur high levels of debt from the planting and management costs. Often, farmers prefer to cultivate new land rather than replant existing plots, exacerbating deforestation.  When run well, oil palm plantations are profitable to both the company and smallholder: 90% of farmers at one large Bungo co-operative repaid their debts within 3 years of harvesting.

However, disputes in other farmer cooperatives led to a breakdown in land management, with the company taking control of the work required on the land and charging the additional costs to the smallholders. Conflicts arising from unclear land tenure and a lack of consultation with local communities have on occasion descended into violence – the authors report that a company base camp and oil palm nursery was burned to the ground in 1998 by aggrieved locals.

The development of oil palm has also brought an influx of migrants, who offer a source of cheap labour for local farmers.  The authors report that in general, these migrants integrated well with the local population, but tensions were exacerbated where local communities were marginalised during the transmigration process.

In one example, a large amount of land was ceded by the Sungai Telang villagers for a proposed oil palm plantation, and was settled by migrants arriving from Jakarta.  When the promised oil palm plantation failed to materialise, argument broke out between the two groups over rightful ownership of the land, and attempts were made to drive Javanese migrants out by burning their plots.

The authors report that in all the cases of conflict surveyed, both locals and migrants felt deceived and mistreated by the poor management of oil palm development by the local government. And yet, all those spoken too desired further oil palm development. In Bungo, communities see palm oil as their best opportunity for increased prosperity.

“People were complaining about the absence of an oil palm company, or about bad leadership of oil palm cooperatives by their co-villagers, or about their next door villages trying to get their lands, but never directly against oil palm companies,” says Feintrenie.

“Oil palm development doesn’t happen systematically against local people’s will; in Jambi and most probably all over in Sumatra, local people are clearly calling for it.”

The report concludes that under better management, oil palm plantations can benefit both agricultural companies and smallholders equally.  They recommend that efforts should be made to reform the dominant system, so that large companies focus on processing rather than estate management, a regime that has been successful in natural rubber and coffee production.