Abstract
The climate change may lead to anomaly in hydrological cycle. Climatic disturbance in precipitation or rainfall rate will turn to impact oil palm production. The low precipitation due to erratic rainfall will affect sex differentiation, abort female inflorescence, and subsequently decrease oil palm yield. On a larger scale, the peculiar yield trend will fluctuate oil palm supply and thus impact the crude palm oil (CPO) price. This study was aimed to assess the impact of climate change on palm oil price dynamics and to anticipate its adverse effect faced by the vulnerable smallholder in Indonesia. The system of equations was estimated by employing simultaneous equation model. The simulations were set to generate the forecasts from 2018 to 2050 using Representative Concentration Pathway (RCP) scenarios. A time series data ranging from 1980 to 2018 of CPO yield, oil palm mature areas, stock changes, export, as well as monthly rainfall rate were taken into account. The simulation revealed that the climate change in terms of fluctuating rainfall would cause unfavourable palm oil price level that eventually would exacerbate smallholder welfare.
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