Oil Palm Industry Economic Journal Vol. 6 (1) March 2006 p. 18-29

Oil Palm in Indonesian Socio-Economic Improvement – A Review of Options

Zahari Zen; Colin Barlow and Ria Gondowarsito
Received:    Accepted:    Available Online:


The Indonesian Government has used oil palm as a tool of rural socioeconomic improvement, doing this through nucleus estates operated by estate companies and through assisting individual smallholdings. Over 900 000 ha of high yielding oil palm have been established in 2-3 ha settler blocks in nucleus estate plasma, and 250 000 ha have been planted on individual smallholdings. The initiatives have together raised the incomes of over 500 000 farmers, and may be judged successful market interventions which are far superior to laissez faire. Although the average economic and social performances of both initiatives have been reasonable, their outcomes have been variable. The nucleus estates have sometimes suffered from faulty management, bad community rapport and difficult land conversions, and from the mistakes of government agencies and settler cooperatives. They were discontinued in 2001, due to scarce finance. The assistance to individual smallholdings has always had short funding, limiting its scope. Both initiatives were commenced under the New Order, and face fresh challenges in the present era of democracy and otonomi daerah. The analysis of this paper nonetheless shows that these Indonesian interventions should be continued, albeit more capital being provided and their deficiencies being remedied. It denotes that the interventions compare well with official efforts in other countries, strengthening the general case for public action to assist poor rural dwellers.

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