Assessment of the sustainability of small holder oil palm farming in Sumatra, Indonesia

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1 Assessment of the sustainability of small holder oil palm farming in Sumatra, Indonesia EEPSEA Annual Conference, May 2014, Phuket, Thailand Ernah Institute of Development and Agricultural Economics Faculty of Economics and Management Leibniz University Hannover, Germany 1

2 EEPSEA Annual Conference,May Motivation and Background There are several challenges arising from the increase in oil palm areas in Indonesia The majority of Indonesia s oil palm plantations are in Sumatra Almost half of the oil palm area are operated by smallholders farmers The success of measures to increase sustainability in oil palm production e.g. RSPO (Roundtable Sustainable Palm Oil) and ISPO (Indonesia Sustainable Palm Oil ) is unclear. 2

3 Literature Review Development of oil palm: Sheil et al. (2009), World Bank (2010), Obidzinski et al. (2012) Cahyadi and Waibel (2013) Cost and benefit analysis in oil palm : Belcher et al. (2004), Lozada (2010) Sustainable standards of oil palm: RSPO (2007), WWF (2012), PwC (2012) ISPO Commission (2012), Harsono et al. (2012) Gender aspect in oil palm: Koczberski, G (2007), Julia (2012) 3

4 Research Objectives General Objective To identify costs and benefits of ISPO criteria from the view point of small holder oil palm farmers in Sumatra Specific Objectives 1. Assessment of stakeholders perceptions of sustainability standards (ISPO) 2. Identification of cost and benefit ISPO for smallholders 3. Assessment smallholders perception of environmental changes 4. Identification of the role women in smallholder oil palm production 4

5 Methodology and Data Methods: Village case studies Descriptive statistics with comparison of mean values and frequency distributions Sources of Data: Stakeholder survey Household survey (2012 and 2013) Focus Group Discussion (FGD) Key informant interview 5

6 Study sites Map of locations of oil palm plantations in Indonesia. Source: map.google.com accessed on 1 May 2014 ( modified). = location of oil palm plantation 6

7 Study sites Location: Merangin and Muaro Jambi districts In Jambi Province, Sumatra Four Villages: Mentawak Baru, Rawa Jaya, Dusun baru and Arang-arang Total number of respondents =291 HH 7

8 Stakeholder Views: Feasibility of ISPO Guidelines for smallholders oil palm farmers by different stakeholders technically infeasible technically feasible but too expensive for smallholders technically and financially feasible 1 0 Oil Palm Companies Farmer Association Government Agencies Non-Govermental Organization Researchers Source : Stakeholder survey

9 Stakeholder Views : environmental externalities Stakeholders view on effectiveness of fire protection measures carried out by oil palm companies (in frequent) Stakeholders Group Effective Not Effective Companies Oil Palm 4 1 Farmer Association 2 1 Government Agencies 3 7 Non-Governmental Organization 2 2 Researchers 3 0 Total Source : Stakeholder survey

10 Summary results of stakeholder perception of ISPO Large Variation in Stakeholder assessment of ISPO Main benefit of ISPO Standards is the price premium In principle increasing transparency and can reduce social conflict Cost of implementing ISPO standard including licensing are high. Lack of promotion of ISPO guidelines by government Oil palm companies lack commitment to ISPO standards (e.g. fire protection) 10

11 Socio economic condition of small holder oil palm farmers in four villages in Jambi province Variables Mentawak Baru Rawa Jaya Dusun Baru Arangarang Age of Household head (years) Education of HH head (years) Household size (number of population) Sources: Household survey 2012 and

12 Socio economic conditions by village Household Consumption Expenditures in % of total Food Non food Transportation and Communication Education Health Social Mentawak Baru Rawa Jaya Dusun Baru Arang-Arang Source: Household survey

13 Profitability of oil palm production by village (in IDR/Ha) Village Total Revenue Total Cost Net Revenue R/C Mentawak Baru Rawa Jaya Dusun Baru Arang-arang Source: Household survey

14 Summary results of small holder oil palm farmers socio-economic conditions Household characteristics quite similar across similar for all villages Food expenditures are major item among household expenditures Education and health are rather low Infrastructure conditions vary across locations Profitability of oil palm varies considerably across villages, i.e. Rawa Jawa highest and Arang Arang lowest; Dusun Baru costs are highest 14

15 Adoption of sustainable criteria for smallholders oil palm farmers at level village Criteria Mentawak Baru (n=88) Rawa Jaya (n=114) Dusun Baru (n=35) Arang-arang (n=38) Recording material inputs Use of protective clothing Apply integrated pest management practices Follow technical guidelines for crop maintenance Follow technical guidelines for harvesting FFB Source: Household survey 2013 Yes (%) No (%) Yes (%) No (%) Yes (%) No (%) Yes (%) No (%)

16 Summary results of smallholders adoption of ISPO standards Smallholders only adopt practices if these increase profits (e.g. technical guidelines for harvesting). There is almost zero adoption of documentation of management practices as required for certification Adoption of Integrated Pest Management is low Majority of farmers do not use protective clothing 16

17 Environmental changes Summary impact of changes in general environment per village Parameter Mentawak Baru Rawa Jaya Dusun Baru Arang-arang Weather lower yields lower yields lower yields impaired health Rainfall lower yields lower yields lower yields lower yields Temperature lower yields lower yields lower yields impaired heath Extreme Weather lower yields lower yields lower yields lower yields Available water decrease of source water (i.e. in river, wells) decrease of source water (i.e. in river, wells) decrease of source water (i.e. in river, wells) decrease of source water (i.e. in river, wells) Water Quality not polluted not polluted not polluted polluted reduced of reduced hunt reduced hunt Natural Resources fuelwood animals animals reduced fuelwood Source : Household survey

18 Smallholder farmers perception of changes during the past 10 years (% of respondents perceiving decline) Soil Quality Water Firewood Diseases Flora Fauna Source :Household survey 2012 Mentawak baru Rawa Jaya Dusun baru Arang-arang 18

19 Smallholder farmers perception of expected changes next 10 years ago (% of respondents expecting change) Soil Quality Water Firewood Diseases Flora Fauna Source :Household survey 2012 Mentawak baru Rawa Jaya Dusun baru Arang-arang 19

20 Summary results of perceived environmental changes Majority of respondents perceived changes in climate, i.e. increase in temperatures Decline in soil quality and reduction in firewood are the two major observed changes in all villages More variation in changes in water quantity and quality Changes in Flora (Plant species) are high, changes in fauna (e.g. snakes, wild pigs) are lower. Most smallholders expect changes in environment to continue during the next ten years 20

21 The role of woman involved in livelihood activities per village (in %) Activities Mentawak Baru Rawa Jaya Dusun Baru Arang-arang Housewife Collecting berondol Collecting firewood Rubber tapping Labor in oil palm companies Bussiness Civil servant Oil palm farmers Fishing Others Source :Household survey

22 Perception of women whether oil palm expansion has affected household conditions Woman perception on impact of oil palm (Yes) Woman perception on impact of oil palm (No) 0 Mentawak Baru Rawa Jaya Dusun Baru Arang-arang Source :Household survey

23 Summary results of role women in smallholder oil palm production Majority the role of women in all villages are housewife Women are involved in a range of income generating activities more than men The number of women as seekers of berondol and farmers in Rawa Jaya and as worker in oil palm companies in Arang-arang are high Most women attribute the higher household income to oil palm expansion 23

24 Conclusions Some of environmental changes such as climate and wildlife are perceived as negative by respondents Smallholders oil palm farmers only adopt those ISPO practices which increase their profit Large variation in stakeholders view whether ISPO criteria can help to increase profits and reduce negative impact of oil palm expansion In term of aspect genders, women have active as workers or seeker of berondol in smallholder oil palm plantation. 24

25 Policy Recommendations The government needs to play a stronger role in making the ISPO standard to be recognized by international market. Provide incentives for adoption of ISPO principles by smallholders Enforce stricter measures for large-scale plantations to follows ISPO guidelines Government should play a stronger role in shaping the contractual arrangements between smallholders and oil palm industries. 25

26 Expected Output Two papers for international academic journals : Socio-Economic and Environmental Conditions of Smallholder Oil Palm Farmers in the Province of Jambi, Indonesia (Under revision) Using data in 2012 and 2013 (KII), This paper show the relationship between natural resources and environmental conditions perceived by smallholders oil palm farmers. The paper provides a set of indicators that are believed to be important for sustainable oil palm production system in rural Indonesia. 26

27 Expected Output Sustainability Criteria Smallholders Oil Palm Farming in Indonesia: a Stakeholders View (in preparation). In this paper, we analyze the views of different stakeholder along the oil palm value chain in the oil palm industry including those small holders in the province of Jambi, Sumatra. The source of data is focus group discussions in our villages and a stakeholder survey in

28 Expected Output One Policy Paper Cost- benefit analysis of sustainability standards in small holder oil palm farming in Sumatra, Indonesia (in progress) This paper explain the actual costs and expected benefits of measures related to the ISPO criteria. This study use household survey in 2012 and

29 Acknowledgments Economy and Environment Program for Southeast Asia (EEPSEA) of World Fish Institute Development and Agricultural Economics Leibniz University Hannover Germany Directorate General of Higher Education Ministry of Education and Culture Republic of Indonesia 29

30 THANK YOU FOR YOUR ATTENTION 30

31 Principles of ISPO Principles of Indonesia Sustainable Palm Oil (ISPO) Standard 1.Permit and oil palm plantation management 2.The Implementation of Guidance for cultivation and processing of oil palm 3.Moratorium on location permit and the issue of land rights according to INPRES 10/ Environment management and monitoring 5.Responsibility on labor 6.Social responsibility and surrounding community 7.Sustainable business improvement Source: ISPO Commission (2012) 31

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