Abstract
Smallholders play a significant role in the Indonesian palm oil industry. They cultivate more than 40% of the total plantation area, and their production contributes to the national revenue. However, despite their significant role, smallholders continue to face crop management, financial and environmental challenges. The fact that some smallholder plantations are illegally located in state forestland poses challenges for smallholders as regards getting access to finance, improving yields, and obtaining sustainable certification. Government policy on the collection of levies from exported crude palm oil (CPO fund) and its derivative products provides smallholders the opportunity to replant and support their sustainable practices, thereby reducing deforestation. This paper discusses how fiscal incentives of the CPO fund may have been optimized to prioritize these outcomes. We should prioritize the use of the fund not only to support smallholder replanting, but also to clarify their land tenure rights, so that they could get access to sustainable certification and financial institutions. It is also recommended that funds be allocated to subsidize loan interest to the bank and build productive capital during the grace period. These efforts have to be accompanied by building and improving smallholder databases and strengthening local government.
Highlights
Indonesia is currently the world’s largest producer of palm oil, and, together with Malaysia, accounts for 85 to 90% of total global palm oil production [1]
Despite its important role in enhancing people’s welfare and contributing to the national production of palm oil, smallholders face some challenges in getting their plantations certified under sustainable standards, the Indonesian Sustainable Palm Oil (ISPO)
We argued that the CPO fund could be categorized as a direct incentive, since it took the form of a cash payment to support smallholders in oil palm replanting
Summary
Indonesia is currently the world’s largest producer of palm oil, and, together with Malaysia, accounts for 85 to 90% of total global palm oil production [1]. In 2017, Indonesia produced around 37.8 million tons of palm oil, derived from around 14 million ha of plantation areas across different regions in the country [2]. The palm oil industry contributes fiscal and foreign exchange earnings to the country, employs large numbers of rural workers, and supports the livelihoods of a growing number of smallholders, who increasingly embrace this crop as their main income source [1,3]. Further the sustainable plantation management can accelerate economic development in the regions and reduce the poverty [4] and oil palm play important role in livelihood strategies in rural areas [5]. Oil palm expansion generates significant carbon emissions, when planted in peatlands [6], and contributes to biodiversity loss when production involves the conversion of primary forests [7,8]. It is argued that for a developing country such as Indonesia, it is inevitable that the natural resources utilization through plantation development is aimed to prosper national and relevant stakeholders the community
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