In the Name of Growth and Equity: The Future of Oil Palm Smallholders in Indonesia

Abstract

In 1997-1998 the economic crisis hit almost all industries and Indonesia’s GNP experienced a negative growth (-13.2% in 1998). Under these circumstances, the oil palm sector showed its strength and resilience. Oil palm plantation area and output respectively increased by almost 7% and 6% per year between 1996 and 2001. All three coexisting management systems—private estates, smallholders and government-owned estates—experienced this growth. Smallholders’ welfare in oil palm producing areas is significantly higher than most of other tree crop or annual crop smallholders and oil palm, with an average net income of 500 dollars per hectare, and this attracts more and more farmers. This paper combines secondary data and field survey results to address two key issues for the future of the oil palm smallholder sector. First is the question of the contribution of oil palm to the emergence and existence of wealthy households on a long-term run; are the conditions currently met to guarantee them a sustainable livelihood? Second is the political issue of smallholder development versus private estate development in relation to growth and equity; what are the terms of the alternative? Finally, this paper discusses policy options and implementation issues.