Smallholder Oil Palm Production Systems in Indonesia: Lessons from the NESP Ophir Project. Idsert Jelsma, Ken Giller and Thomas Fairhurst

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1 Smallhlder Oil Palm Prductin Systems in Indnesia: Lessns frm the NESP Ophir Prject Idsert Jelsma, Ken Giller and Thmas Fairhurst Plant Prductin Systems, Plant Sciences Grup, Wageningen University, Wageningen Octber 2009

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3 Affiliatins Idsert Jelsma is a research fellw at Plant Prductin Systems, Wageningen University, Drevendaalsesteeg 1, 6708 PB Wageningen, The Netherlands. Tel. +31 (0) Ken Giller is Prfessr f Plant Prductin Systems, Wageningen University, PP, Drevendaalsesteeg 1, 6708 PB Wageningen, The Netherlands. Tel. +31 (0) Thmas Fairhurst is a cnsultant agriculturalist with Trpical Crp Cnsultants Limited, 26 Oxenturn Rad, Wye, Kent TN255BE, UK. Tel. +44 (0) Acknwledgements We thank the Ophir management, farmers and families, and laburers that cntributed t this research fr their time and willingness t share infrmatin. The amunt f infrmatin shared was very generus and is greatly appreciated. Staff at PTPN VI were kind enugh t shw Idsert Jelsma arund the mill and prvided data n mill prductivity and efficiency. We als thank Bah Lias Research Statin, Nrth Sumatra, Indnesia fr carrying ut the sil analysis. Klaus Dieter Peters and Rudlph Heering Just, tw frmer GTZ prject leaders, prvided vast amunts f literature and prject dcuments, interesting cnversatins and hspitality fr which we are very grateful. Bth pened their private cllectins n Ophir, cntaining dcuments irretrievable elsewhere, and let Idsert stay at their hmes fr multiple days t select the mst relevant dcuments and make cpies. NGOs such as Sawit Watch, LBG and HuMa are greatly appreciated fr prviding their insights n palm il develpments in Indnesia and West Sumatra specifically. They cntributed t a balanced backgrund fr this research. We thank Dr. Afrizal at Andalas University fr sharing his knwledge n palm il develpments in West Sumatra and assistance in arranging surveyrs fr this prject. Withut Dr. Afrizal it wuld have been extremely difficult t cnduct the surveys, which were perfrmed by five Andalas students that were arranged via the scial and plitical studies faculty at Andalas University. Last but nt least we thank Shell Glbal Slutins fr funding this research. Wageningen UR Address : Drevendaalsesteeg 1, 6708 PB Wageningen, The Netherlands : P.O. Bx 430, 6700 AK Wageningen, The Netherlands Tel. : Fax : E mail : Internet : i

4 Cntents 1. Intrductin Methds used Research techniques Scpe and limitatins Structure f the reprt Oil palm develpment in Indnesia Sme characteristics f il palm and their effect n smallhlder develpment in Indnesia The lcatin f the Ophir prject Gegraphy Climate Sils Site suitability Histry f land use Prject gals Area develpment in West Pasaman and the NESP Ophir prject General gals f NES/PIR prjects Specific gals f Ophir NESP/PIR prject Institutins invlved Germany Ministry fr Freign Cperatin (Bundesministerium für wirtschaftliche Zusammenarbeit, BMZ) German Develpment Bank (Kreditanstalt für Wiederaufbau, KfW) German Technical Cperatin (Deutsche Gesellschaft für Technische Zusammenarbeit, GTZ) Prvincial Crdinating Cmmittee (PCC) Indnesian state wned plantatin cmpany (PTPN VI) Indnesian Tree Crp Extensin Service (Dinas Perkebunan, Disbun) Reginal Develpment Bank (Bank Pembangunan Daerah, BPD) and Ophir Bank Target grup Prject implementatin Cst f prject develpment Phases f develpment Plantatin and infrastructure develpment GTZ rle in farmers rganisatin develpment Training prvided by GTZ, Disbun and specialist NGOs Characterizatin f the Ophir smallhlder plantatin Farmers rganisatin Grup management Primary cperative (plasma) Secndary cperative (KJUB) ii

5 10.2 Slidarity and Subsidiarity Principle Financial management Plantatin services prvided fr farmers by plasma and KJUB Fruit bunch price Crp transprt Pest and disease cntrl Leaf and sil sampling Fertilizer prcurement, distributin and applicatin Rad maintenance Replanting Plantatin grss margin Input requirements Farmers use f plantatin labur Farmer exit and entry strategy Use f hme garden plts Prject results based n literature review and field surveys Farmer lan repayments Plantatin agrnmy Envirnmental impact Changes t sil prperties Lcal sci ecnmic impacts Fd security and nutritinal situatin Jb creatin Cmparisn with ther il palm smallhlder schemes Ophir system vs. KKPA system Ophir smallhlders vs. individual smallhlders Transfer f Ophir cncept t ther prjects RSPO certificatin in Ophir Weaknesses, threats and pssible slutins Replanting and cnsumptive behaviur Lack f innvatin Maintaining scial chesin Cnclusins n threats and pssible slutins Cnclusins References iii

6 Table 1 Table 2 List f Tables Area planted, altitude and tpgraphy f plasmas in NESP Ophir (BMZ, 1992; Fairhurst, 1992; KfW, 2000) Sil chemical prperties in the Ophir plantatin site measured in 1975 (Rsenquist and Andersn, 1975)... 9 Table 3 Occupatinal backgrund smallhlders (Heering, 1993)...14 Table 4 Summary f prject csts till 1992 (BMZ, 1992)...17 Table 5 Phases in prject and GTZ cntributin (Heering, 1993; Peters, 1992), (pers. cmm. Peeters, )...18 Table 6 Primary cperative size (BMZ, 1992; Heering, 1993)...23 Table 7 Nutrient balances fr il palm in Plasma 1 in Table 8 Infrastructure in the NESP/PIR BUN Ophir prject...30 Table 9 Table 10 Age plantatin related t generatin and replanting (Surce: BMZ 1992; Own fieldwrk)...31 Yields and verall prductivity ver the replanting perid when each farmer grup is replanted ver tw years Table 11 Credit cmpnents fr smallhlders (Heering, unknwn)...36 Table 12 Overview lan repayment in Millins IDR (GTZ, 1995b; KfW, 2000), (Own data)...36 Table 13 Fruit bunch yields in leading listed plantatin cmpanies in Malaysia and Indnesia (Tiah et al., 2006) Table 14 Stunting f children in West Pasaman in 1990 (GTZ, 1995b)...39 Table 15 Direct emplyment created by the Ophir prject (BMZ, 1992)...39 Table 16 Lcatin land certificates accrding t smallhlders (Own survey, 2009)...45 iv

7 Figure 1 List f Figures Area planted t il palm by smallhlders, state wned plantatins and private sectr plantatins in Indnesia, (Badan Pusat Statistik, 2008) Figure 2 Prductin f crude palm il by cuntry (Badan Pusat Statistik, 2008)... 5 Figure 3 Mean mnthly rainfall and number f raindays in NESP Ophir (after Purba and Lubis, 1993)... 8 Figure 4 Ethnic backgrund f farmers in the NES/PIR BUN Ophir Prject (Bergschneider, 1990 and wn data) Figure 5 Structure f farmers rganisatin in the NES/PIR BUN Ophir prject, cmprising a secndary cperative, primary cperative and farmer grups Figure 6 Farmers perceptin f best functining plasma (Own survey)...25 Figure 7 Organisatinal structure Ophir smallhlders (adapted after Peters, 1999)...26 Figure 8 Figure 9 Oil Extractin Rati (OER) and palm kernel extractin rati (PKER), and rigin FFB at PTPN VI factry in NESP/PIR BUN Ophir (Surce: PTPN VI)...28 Oil extractin rate and yield f palm prducts in Plasma 1. Palm prducts include palm il and palm kernel il based n actual extractin rates and kernel il at 41% f palm kernels (Surce: PTPN VI)...28 Figure 10 Divisin f labur in 1990 (Bergschneider, 1990) and 2009 (Own data)...32 Figure 11 Yields in smallhlder plasma 1 5 and the nucleus plantatin PTPN VI Inti by year after planting...37 v

8 List f Annexes Annex I. Map f NESP Ophir shwing lcatin f plasma and nucleus...54 Annex II. Key factrs cntributing t the success and sustainability f NESP OPHIR...55 Annex III. Tw mdels f smallhlder il palm develpment in Malaysia and Papua New Guinea...56 Annex IV. Cmparisn f margin ver cst (BMZ, 1992 and this study)...57 Annex V. Prject csts till 1992 (millins currency units) (BMZ, 1992)...58 Annex VI. Annex VII. Sil ph (a), rganic carbn (b), ttal nitrgen (c), and available phsphrus (d) in sil beneath the weeded circle, access path and frnd stack (Fairhurst, 1996 and this study) Sil exchangeable K (a), Mg (b), Ca (c), and effective catin exchange capacity (d) in sil beneath the weeded circle, access path and frnd stack (Fairhurst, 1996 and this study) Annex VIII. Cntent f GTZ Institutinal Training Prgram fr NESP Ophir prject...61 Annex IX. Example f a farmer accunting sheet (Amprah I)...63 Annex X. Example f a farmer accunting sheet (Amprah II)...64 Annex XI. Differentiatin in plantatin labur between plasmas...65 Annex XII. Setup and cntent f training prgramme (Heering 1993)...66 Annex XIII. Lcal Minangkabau land rights, rle f the authrities and businesses cncerning il palm develpment in West Sumatra...68 Annex XIV. Gap analysis fr implementatin f RSPO fr smallhlders in the Ophir Prject...71 Annex XV. English versin f questinnaire used in Ophir...74 Annex XVI. Pht reprt and interviews illustrating NESP Ophir activities vi

9 ADP BAPPEDA BKAK BMZ BPD DGE DISBUN DM FELDA FFB GOI Area Develpment Prject List f abbreviatins Badan Perencanaan Pembangunan Daerah (prvincial planning ffice) Badan Kerjasama Antar Kelmpk, bard fr inter farmer grup cperatin, a primary cperative transfrmed int KUD and current plasma. Bundesministerium für wirtschaftliche Zusammenarbeit (Germany Ministry fr Freign Cperatin) Bank Pembangunan Daerah (Reginal Develpment Bank) Directrate f Estates Dinas Perkebunan (Indnesian Tree Crp Extensin Service) Deutsche Mark, pre eur German currency Federal Land Develpment Authrity Fresh Fruit Bunch Gvernment f Indnesia GTZ Deutsche Gesellschaft für Technische Zusammenarbeit (German Technical Cperatin) IDR IPB KAN KBPR KfW KJUB KKPA KPS KUD LSS masl NESP NES/PIR PCC PIR BUN PIR Trans PTP(N) PNG PNGDB USD VOP ZOPP Rupiah, Indnesian currency Institut Pertanian Bgr, (Agrarian Institute Bgr (Indnesia) Kerapatan Adat Nagari, (authrities n Minangkabau traditins and culture) Kperasi Bank Perkreditan Rakyat Ophir Kreditanstalt für Wiederaufbau (German Develpment Bank) Kperasi Jasa Usaha Bersama, secndary cperative Kperasi Kredit Primer Anggta, Prime C perative Credit fr Members Kperasi Perkebunan Sawit (plasma) Kperasi Unit Desa Land Settlement Schemes meters abve sea level Nucleus Estate Smallhlder Participatin Nucleus Estate Smallhlder/Pryek Inti Rakyat Prvincial Crdinating Cmmittee Pryek Inti Rakyat Berbetuan, PIR prgram supprted by freign dnrs Pryek Inti Rakyat Transmigrasi, PIR prgramme aimed at transmigrants Perseran Terbatas Perkebunan (Nusantra), state wned plantatin cmpany Papua New Guinea Papua New Guinea Develpment Bank United States Dllar Village Oil Palm Ziel Orientierte Prjekt Planung (Gal Oriented Prject Planning) vii

10 Adat Amprah Arisan Bendahara Bupati Erfpacht Desa Gemeinschaft Gesellschaft Inti Kapling Kebun Kelmpk Ketua Custmary law Explanatin f terms Cmputer prgram used t calculate financial administratin smallhlders Lttery within kelmpk Treasurer Head f regency Lng term landuse rights granted by the Dutch clnial gvernment t entrepreneurs. Village Cmmunity, refers t cllabratin frm internal mtivatin (ppsed t Gesellschaft) Cmpany, refers t single purpse functinal relatins (ppsed t Gemeinschaft) Nucleus Plt, in Ophir it refers t the 2 ha il palm plt Garden r plantatin, in Ophir it refers t the plantatin Grup Leader r head Nagari Traditinal cmmunity system in West Sumatra and lwest gvernment administrative unit Ninik mamak Traditinal cmmunity leaders/ uncles f the clans Petugas tehnis Technical manager Pusak Rakyat Rapat Ratau Siliah Jariah Ulayat Yield Wakil Cmmunal lands under traditinal Minangabau landrightssystem which are intensively used by lcal cmmunity Peple, r smallhlders Meeting Area utside traditinal three Minangkabau kingdms Cmpensatins t Minangkabau indigenus peple fr imprvements these peple had made n land which is used by thers later. Cmmunal land part f Minangkabau land rights systems which are nt intensively used by cmmunity. Usually in amunt f Fresh Fruit Bunches (FFB) in tns ha 1. In rder t btain the amunt f litres multiply tns per hectare with the il extractin rate and multiply this by 1000 (((tn/ha)*x%)*1000). Deputy viii

11 1. Intrductin In the cntext f increasing demand fr palm il and related envirnmental and scial cncerns abut il palm expansin, there is a demand fr knwledge n hw t increase the average palm il yield per hectare in a sustainable way, thus increasing verall palm il prductin withut additinal land use. In 2007 smallhlders held 41% f the il palm area in Indnesia and prduced 34% f Indnesian il palm fruits. The sheer size f smallhlder engagement in palm il prductin and their cntributin t reginal develpment indicates the need t investigate further the current and ptential rle smallhlders can play in prviding sustainable palm il. This study fcuses n the Ophir smallhlder prject, part f the Gvernment f Indnesia s (GOI) Nucleus Estate Smallhlder (NES) prgramme, which prvided an pprtunity t assess the develpment f an il palm smallhlder prject ver a 25 year perid since its inceptin in the early 1980s till The NESP Ophir prject is an 8,000 ha il palm plantatin, with 4,800 ha managed by smallhlders and 3,200 managed by the nucleus estate. The nucleus estate runs the milling facility and is mainly supplied by the smallhlders and its wn plantatins. The prject prved t be highly successful as smallhlders maintained fruit bunch yields f between 22 and 29 t ha 1, thereby cntinuusly utperfrming the nucleus estate and many leading private sectr il palm cmpanies. We embarked n this study as it was perceived that a review f this successful prject wuld prvide a wide range f insights int what determined the success f this smallhlder il palm prject. The bjectives f this study were as fllws: A) Characterisatin f Ophir smallhlder plantatins with respect t: Smallhlder rganisatins (functins in financial management, extensin services fr farmers, rad maintenance, fertilizer prcurement and general management); Plantatin agrnmy (crp management, input requirements; including analysis f yield variability); Envirnmental impact; and Lcal sci ecnmic impacts (including fd cnsumptin pattern / fd basket; purchasing pwer and fd availability in the lcal market) B) Understanding the reasns fr success r failure f the smallhlder system, cnsidering aspects named abve; als understanding f the range f perfrmance within the prject. C) Assessment f sustainability f the systems based n the RSPO criteria. Wuld the OPHIR smallhlders be eligible fr certificatin and if nt, what wuld they need t imprve? D) Hw can be the success stry transferred t ther smallhlder systems? What wuld be the key factrs needed fr this? Hw can a nucleus estate use the results t replicate the gd results fr the smallhlders they wrk with? Oil palm yields are reprted in tns ha 1 fresh fruit bunches (FFB). Oil yields are calculated by multiplying the fruit bunch yield by the il extractin rate (%). Thus a yield f 20 t ha 1 fruit bunches with il extractin f 22% gives an il yield f 4.4 t ha 1. 1

12 2. Methds used 2.1 Research techniques This study included five weeks f data cllectin in Eurpe, tw mnths f fieldwrk in Indnesia fr ne researcher (Idsert Jelsma) and tw visits t Ophir by the cnsultant (Thmas Fairhurst), and eight weeks fr data analysis and reprt writing. In rder t btain the requested infrmatin the fllwing methds were applied: Literature study Interviews Field bservatins Survey The literature study mainly fcused n prject dcumentatin which was written by r fr the German develpment agencies invlved in the prject. Sme additinal infrmatin was btained frm these develpment agencies and by cntacting a cnsulting cmpany that perfrmed a brader evaluatin f area develpment in West Pasaman. Much relevant dcumentatin was cllected frm frmer GTZ staff during the field visits. The majrity f fieldwrk was carried ut in West Pasaman and in Padang, West Sumatra. In Padang infrmatin was btained frm Friends f the Earth and the Prvincial Bureau f Statistics, and cntact was established with Andalas University, a majr university in West Sumatra. In West Pasaman bservatins were made and relevant stakehlders interviewed during visits t the Ophir plantatin. Field visits als included interviews with frmer GTZ prject leaders in Wuppertal, Germany and Jakarta, Indnesia and NGOs cncerned with il palm develpments in Indnesia such as Sawit Watch and HuMa were interviewed in Bgr, Indnesia. Fr this research 45 semi structured interviews were cnducted. These interviews cnsisted f grup interviews as well as individual interviews depending n the preferences f the interviewees. Several interviewees were interviewed several times and in ttal arund 50 peple were interviewed, ranging frm frmer prject staff, NGOs, prject members and prject leaders. Beside these semi structured frmal interviews, there were als many casual cnversatins with peple in the area that were afterwards dcumented. These cnversatins als prvided a wide range f insights. The survey cnsisted f 105 questinnaires that were cnducted ver a fur day perid by five Andalas University students. In rder t btain a spread f participants frm the whle prject area a stratified sampling methd was applied in which 21 kelmpks were selected (20% f all kelmpks in the Ophir prject). In each kelmpk five husehlds were randmly selected (20%) by ne f the researchers. The questinnaire is included as Annex XV. 2.2 Scpe and limitatins Althugh we attempted t make a thrugh appraisal f the prject, it must be recgnised that the research was dne ver a perid f five mnths, with tw mnths f fieldwrk in Indnesia, and is therefre nt exhaustive. During fieldwrk there was nly limited pssibility t visit the field as it was electin time which made the plitical situatin rather tense. The authrities in the regin are wary abut research int il palm develpments as these are sensitive issues and perceived t be a cause f scial cnflict. Fr thrugh research int cmplex scial relatins it is necessary t remain in the field fr a prlnged perid and becme familiar with the lcal peple and develp trust. A key advantage in this research was that ne f the authrs (Thmas Fairhurst) had wrked in Ophir during the 1990s which created a significant amunt f trust amngst Ophir members and leaders and prvided access t inside infrmatin. Als cllabratin with Andalas University staff, in particular with Dr Afrizal, prvided necessary assistance in implementing the survey and gave many insights int the scial relatins in the prject area. 2

13 3. Structure f the reprt This reprt cnsists f an verview f the NESP Ophir smallhlder il palm prject and a set f guidelines fr smallhlder il palm develpments, based n the experiences f this prject. The largest sectin describes the prject, based n literature studies and fieldwrk. In the last sectin guidelines will be prvided n setting up smallhlder il palm plantatins. We start with a brief histry n the develpment f il palm in Indnesia and a current state f the Indnesian palm il industry in Sectin 4. This is fllwed by a brief verview f the different mdels f smallhlder prgrams in Indnesia in Sectin 5. These sectins illustrate the cntext in which the prject was implemented and prvide sme backgrund t where cncepts in Ophir find their rts. Sectin 6 prvides an verview f the prject lcatin including infrmatin n lcal climate, sils, and tpgraphy and a shrt descriptin f previus land use In Sectin 7 we prvide infrmatin n previus develpment activities in the direct vicinity f the prject, and the gals f the prject are highlighted and Sectins 8 and 9 and an indicatin f the institutins invlved, what phases and trainings were implemented and what the csts f the prject were. The structure f the smallhlder rganisatin and the strengths assciated with this system are described in Sectin 10. This sectin prvides an verview f the whle smallhlder rganisatinal structure and the respnsibilities within the rganisatin. Infrmatin n plantatin services are cvered and include issues as crp transprt, fertilizer prcurement and distributin, pest and disease cntrl, and labur arrangements. This sectin highlights the current situatin in Ophir and hw it functins, and thereby is the cre f ur research. Sectin 11 prvides the results f the prject and highlights the remarkable prductivity achieved by the smallhlders and infrmatin abut their credit repayment. Sectin 11 als includes infrmatin n envirnmental and sci ecnmic impact that the prject had n the regin. These lcal sciecnmic aspects include fd security and jb creatin. We als include a cmparisn between the participatry Ophir smallhlder rganisatinal structure and ther smallhlder il palm develpments in the area. This sectin cncludes with findings cncerning the difficulties encuntered in transferring knwledge frm the NESP Ophir t ther prjects. The level f cmpliance with RSPO criteria is dealt with in Sectin 12. Althugh the prject is still peratinal and has prved t be successful, the prject des face significant challenges which are nted and discussed in Sectin 13. Sectin 14 prvides the cnclusins n the Ophir prject and highlights the lessns learned. This dcument cntains several Annexes that prvide the reader with mre details n particular tpics and are referred t in the text. Annex II prvides a cncise verview f key factrs cntributing t the success and sustainability f NESP Ophir prject and a visual verview f the prject is prvided in Annex XVI. 3

14 4. Oil palm develpment in Indnesia Oil palm was intrduced t Indnesia in 1848 when fur palms were established in the btanical gardens in Bgr. In the 1850s trial plantings were established all ver Indnesia and sn after a reprt appeared n the cultivatin f il palm fr the prductin f sap and candles in Muara Inem in Suthern Sumatra (Bickmre 1869). The first cmmercial plantatin was develped in Sumatra, Indnesia in 1911 and the area planted in Indnesia increased t abut 31,600 ha by 1925 and t 92,000 ha by Wrld War II (Crley and Tinker 2003). Mst il palm develpment tk place in Nrth Sumatra where Dutch entrepreneurs gained access t large tracks f highly suitable land and develped il palm estates. Many f these il palm estates were abandned during Japanese ccupatin and the subsequent struggle fr independence in Indnesia. Freign investment in estate agriculture was nt encuraged during the Sekarn régime, during which time the State s limited resurces were used t prmte agricultural develpment (mainly lwland rice prductin fr fd security) n Java with little attentin given t the develpment f Indnesia s s called uter islands (Cassn 2000; Zen, Barlw et al. 2005). The il palm industry stagnated until the late 1970s when a perid f expnential grwth began that has cntinued until the present (Figure 1). With the start f the New Order in 1967, Sekarn s Java centralism plicy was abandned and mre attentin was given t reginal develpment in the uter islands. The New Order régime, supprted by the Wrld Bank and the Asian Develpment Bank, capitalized n cmparative advantages fr the develpment f il palm cultivatin in Indnesia including the availability f labur and suitable land with favurable climatic cnditins cupled with grwing dmestic and internatinal markets fr edible ils due t ppulatin grwth and increasing per capita incmes, particularly in China, India and Pakistan (Cassn 2000). Figure 1 Area planted t il palm by smallhlders, state wned plantatins and private sectr plantatins in Indnesia, (Badan Pusat Statistik 2008). The New Order régime created state wned plantatin cmpanies, r Perseran Terbatas Perkebunan s (PTP s) that fcused n the cultivatin f exprt crps such as cffee, ccnut, rubber and il palm. These cmpanies were usually established n excellent agricultural land, previusly develped by Dutch planters, that was natinalized after Indnesia gained independence. By the mid 1980s and after a perid f further expansin almst 70% f the area planted was managed by 4

15 PTP s. During the perid the Gvernment f Indnesia (GOI) supprted the private sectr in the develpment f PIR Trans prjects. Since then, il palm develpment has been driven by private sectr investment and private cmpanies have been required t allcate part f cncessins fr smallhlder develpments, knwn as KKPA. Thus, expansin f the il palm industry can be gruped int five phases: <1942 expansin by Dutch planters perid f stagnatin in il palm develpment expansin frm gvernment investments via PTPs and including NES/PIR BUN 1 prjects jint gvernment private sectr investments knwn as PIR Trans, prviding land and jbs fr transmigrants present gvernment supprted private sectr and cperative investment knwn as KKPA (Kperasi Kredit Primer Anggta, Prime C perative Credit fr Members). Oil palm develpment in the 1990s has been referred t as a hesitant bm because f the impact ecnmic crisis and plitical change n industry develpment (Cassn 2000) but, n the ther hand, the palm il sectr was ne f the few industries that suffered relatively little frm the ecnmic crisis in the 1990s (Susila 2004). This may be explained by the fact that palm il is traded in US dllars whilst many il palm develpments at the time f the crisis were financed in lcal currency and the value f lans in real terms was greatly reduced fllwing the massive devaluatin f the Indnesian Rupiah in 1997/1998. Expansin was mst rapid after the mnetary crisis f 1997, when the ttal area mre than dubled in 10 years frm 2.9 M ha in 1997 t 6.5 M ha in In 2006, Indnesia prduced abut 16.5 millin tns f palm il, f which 11.9 M t was exprted and, fr the secnd successive year, Indnesia surpassed Malaysia as the largest palm il prducer in the wrld (Figure 2). Palm il exprts presently prvides an exprt incme f almst USD 8 billin equivalent t abut 15% f the value f Indnesia s exprts (Badan Pusat Statistik 2008; CIA 2009). Malaysia (41.6%) Indnesia (44.6%) Thailand (2.7%) Nigeria (2.2%) Clmbia (2.1%) Others (6.8%) Figure 2 Prductin f crude palm il by cuntry (Badan Pusat Statistik 2008) With 40% f the planted area, smallhlders represent a very imprtant and, as yet, still neglected part f Indnesia s il palm prductin base. With imprvements t rganisatinal and technical aspects f plantatin management there is tremendus scpe t imprve prductivity, exprt earnings and, the livelihds f the 1.25 M smallhlder farmers and their 6.4 M dependents that represent abut 3% f the ppulatin f Indnesia. 1 Nucleus Estate Smallhlder/Pryek Inti Rakyat. BUN stands fr Berbetuan and indicates the prgram was supprted by freign dnrs 5

16 5. Sme characteristics f il palm and their effect n smallhlder develpment in Indnesia Unlike cffee, cca and rubber, where crp prcessing can be carried ut efficiently by independent smallhlders using small scale pst harvest technlgies, fruit bunches prduced by il palms grwn fr the prductin f standard crude palm il must be prcessed prmptly after harvest in large scale prcessing plants r mills 2. This explains why, until quite recently, smallhlder il palm develpment tk place mainly in s called nucleus estate smallhlder schemes, where the cmpany develps il palm plantings n a land cncessin, part f which is subsequently managed as estates (nucleus) and part is sld t farmers under credit schemes spnsred by the gvernment. Typically, the nucleus estate and assciated prcessing factry is sufficiently large t justify prfessinal management. The farmers (ften referred t as the plasma) are then under cntract t sell their prduce t the nucleus estate under mnpsnistic market cnditins. Nucleus estate/ut grwer prjects have been implemented in the Caribbean and Latin America, Africa, Suth East Asia and the Pacific islands fr sugarcane schemes as well as tree crps such as il palm, ccnut, rubber, tea, cca, cffee and bananas (Gldthrpe 1987). In the cnventinal apprach t implementing nucleus estate/smallhlder schemes the nucleus estate guarantees t supply prcessing fr ut grwer crp but the ut grwers are subject t clse supervisin in their husbandry practices. This ensures the raw crp is prduced in sufficient quantities and f adequate quality fr the prcessing mill t exprt a high quality prduct and recver the investment csts f installing a prcessing plant with sufficient capacity t prcess bth nucleus estate and smallhlder crp. The nucleus estate management sets standards fr crp management in their wn estates and prvide agrnmic, management and cmmercial services (lan payment recvery) t farmers grwing the same crp as the plantatin. The smallhlders prvide a fcal pint fr further ut grwer develpment, and the smallhlder develpment carries nly sufficient staff t prvide services nt prvided by the nucleus estate. The nucleus estate prvides the fllwing (Gldthrpe 1987): Physical and scial infrastructure such as rads, husing, market centres, schls and medical facilities; Management f nurseries high quality planting material fr the plantatin's wn use and fr the ut grwer farmers; Frest clearing, and blck planting f the perennial crp and maintenance t maturity, befre handing each area ver t the smallhlders t be perated either as individual hldings r as a cmmunally wned (c perative) estate; Cntinuing inspectin and advisry services; Training f farmers; Cllectin, prcessing and marketing f prduce; Bulk buying, strage and sale t farmers f material such as fertilizers and pesticides; and Supply f credit and lan repayment facilities. The Nucleus Estate Smallhlder/Perusahaan Inti Rakyat (NES/PIR) schemes intrduced in the 1980s were based n r influenced by earlier successful smallhlder prgrammes in Malaysia (FELDA) (Lim and Drall 1992) and Papua New Guinea (Land Settlement Schemes, r LSS) (Kczberski, Curry et al. 2001) (Annex III). The first FELDA scheme was set up in the 1960s by the Malaysian gvernment t 2 Smallhlders in Africa still prcess fruit bunches in using simple technlgy but the il has very high free fatty acid (FFA) cntent and is 6 nt traded n wrld markets.

17 prvide pprtunities fr pr farmers and, during the early years, frmer cmmunist insurgents and t cntribute t exprt incmes and natinal develpment, and prved t be quite successful (Zen, Barlw et al. 2005). Oil palm LSSs were initiated in Papua New Guinea in the 1960s as part f an effrt t reduce land pressure in the highlands and increase exprt earnings (Harries and Benjamin 1991). As we shall see, the NESP/PIR BUN Ophir prject challenged many f the standard assumptins fr nucleus estate smallhlder prject develpment by emphasizing principles f participatry develpment where the farmers are the subject and nt the bject f develpment initiatives. Frm the utset ne f the gals f the prject was t explre hw far farmers culd becme a viable, prgressive, and self reliant farming cmmunity. As the number f palm il mills has increased, a cmpetitive market fr smallhlder prduce has develped and many smallhlders nw sell their prduce t the mill ffering the highest price even thugh they may be under a legal bligatin t sell t the nucleus estate in the scheme t which they are attached at the utset. Until tday, farmers generally lack the capital and technical expertise required t recapitalize the lw fertility status sils in degraded land where there are pprtunities fr il palm develpment that meet the guidelines f RSPO (RSPO 2007). 7

18 6. The lcatin f the Ophir prject 6.1 Gegraphy The Ophir prject ( N, E) is lcated in the District f West Pasaman ( N, E) in the Prvince f West Sumatra, Indnesia. The tpgraphy in the prject area is characterized by flat lwlands in the western part t gradually mre hilly and dissected terraces at higher elevatins in the East (Table 1). Altitudes in the prject site vary frm 60 masl in the western part t 400 masl in the eastern part f the plantatin. Table 1 Area planted, altitude and tpgraphy f plasmas in NESP Ophir (BMZ 1992; Fairhurst 1992; KfW 2000). Plasma Area (ha) Altitude Tpgraphy Planted 3 1, 2, 3 2, Flat 1982/83 3, 4, 5 1, Flat/undulating 1984/ Undulating steep 1985/92 Ophir 4, / Climate Climatic cnditins in the prject area are extremely favurable fr palm il. The mean minimum mnthly rainfall is greater than 150 mm and ttal rainfall ranges frm 3,000 in the West t 5,000 mm year 1 in the fthills f Gunung Talamau n the East side f the prject (Figure 3; fr map see Annex I). There was cncern in an early site appraisal that slar radiatin wuld be sub ptimal because f excessive clud cver assciated with high rainfall (Rsenquist and Andersn 1975) but in reality, rainfall ccurs mstly in late afternn and evening s there is relatively little day time clud cver (Fairhurst 1992) Rainfall (mm) Raindays Rainfall (mm) Raindays J F M A M J J A S O N D Mnth 6 Figure 3 Mean mnthly rainfall and number f raindays in NESP Ophir (after Purba and Lubis 1993) Day time temperatures vary frm 26 C t 38 C with a mean f abut 31 C and night time temperatures vary frm 19 C t 24 C. Temperatures are slightly lwer at higher elevatins in the East side f the prject. The prject area is nt affected by strng winds and there has been n significant wind damage t the il palm plantings since the start f the prject. 3 Including significant replanting because f pr quality first plantings. 8

19 6.3 Sils The sils in the prject area were derived frm basic vlcanic ash frm eruptins frm Munt Talamau in the Hlcene perid. Under the revised Keys t Sil Taxnmy (USDA 2003), the Ophir sils cme under the rder Andisls and the great grup Melanudands, reflecting their dark r melanic surface hrizn, the lack f seasnality in rainfall r udic misture regime, and the presence f andic prperties. At lwer altitudes the sil is frmed almst exclusively frm vlcanic ash whilst in sme f the upper reaches f the prject basaltic bulders can be seen at the surface and in the sil prfile. A cmprehensive sil survey was carried ut by the Dutch ver the entire prject district t investigate the suitability f the area fr il palm cultivatin (Sieverts 1938). The survey reprt remarked n the sil's large rganic matter cntent but small exchangeable K cncentratin. Althugh the amunt f available P in sil was small, serius P deficiency was cnsidered unlikely since the sil physical prperties favured extensive rt develpment. Sil analysis was als carried ut in 1975 as part f the feasibility study f the present prject (Rsenquist and Andersn 1975) and a summary f the results is presented in Table 2. Table 2 Sil chemical prperties in the Ophir plantatin site measured in 1975 (Rsenquist and Andersn 1975) Depth ph C N C/N P Bray K Na Ca Mg Cm % mg kg 1 cml kg These analyses cnfirmed the earlier assessment that the amunt f sil available P was small but indicated that there was a large cncentratin f exchangeable K. The sils have excellent physical structure such that they drain well and allw excellent rt develpment. Whilst the lwer elevatins f the prject site prvide almst perfect cnditins fr il palm, the dissected terraces at higher elevatins n the East side f the prject are less favurable due t steep tpgraphy alng creeks and rivers that flw east t west frm the Gunung Talamau, higher rainfall ( 5,000 mm year 1 ) and higher altitude ( 425 masl). 6.4 Site suitability Yield ptential varies alng an East West gradient with a larger yield ptential n the flat, fine textured sils with lwer rainfall and less clud cver in the West t smaller yield ptential in the undulating t hilly, carser textured sils with high rainfall in the East. Overall, the Ophir site is well suited t il palm cultivatin and, with current planting material, has a very high yield ptential f t ha 1 fruit bunches r 7 8 t crude palm il ha Histry f land use At the turn f the last Century the Ophir area was sparsely ppulated and relatively undevelped. In 1914 the first erfpacht 4 agreement between Dutch entrepreneurs and the lcal ppulatin was signed and the first plan was t establish a 2,100 ha cffee plantatin. In 1933 the NV Cultuurmaatschappij fund the lcatin t be very favurable fr il palm after establishing a 2 ha 4 Legal agreement fr land use by a cmmercial enterprise used during the clnial era. Erfpacht agreements prvided the user with a 75 year land lease after which the lease is either extended r the land is returned t the lcal cmmunity (Afrizal, M. (2007). The Nagari Cmmunity, Business and the State: The rigin and Prcess f Cntemprary Agrarian Prtests in West Sumatra. Bgr & Mrtn in Marsh, Sawit Watch Frest Peples Prgramme. 9

20 trial plt. In 1937 the area was extended t 4,750 ha, with a new erfpacht agreement, and a palm il mill was cnstructed. Laburers fr the plantatin were brught in frm Java, wrked as kelies in the plantatin and resided in villages Sidmuly, Bandar Rej and Pujarahay (see map in Annex I). Subsequently sme f these laburers became Ophir farmers. By 1941, a mill was perating and the il palm plantings were in prductin but all land titles were transferred t the NV Klniale Bank (later the NV Cultuur Bank) in Surabaya. During the war the plantatin was neglected and milling facilities dismantled and destryed. In 1955 the cmpany s assets were sld t the Ministry f Defence wh attempted unsuccessfully t cnvert the area int a smallhlder prject fr retired military persnnel. Mst f the Javanese laburers stayed n and started cultivating ther crps in the plantatin but were later regarded as illegal squatters. 10

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