Obidzinski, K., R. Andriani, H. Komarudin, and A. Andrianto. 2012. Environmental and social impacts of oil palm plantations and their implications for biofuel production in Indonesia. Ecology and Society 17(1): 25. https://doi.org/10.5751/ES-04775-170125

The expansion of oil palm plantations in Papua province, Indonesia, involves the conversion of forests, among other land types in the landscapes, which are a source of clan members’ livelihoods. The way in which this expansion occurs makes it necessary to understand the factors associated with why companies look for frontier lands and what externalities are generated during both the land acquisition and plantation development periods. Using a spatial analysis of the concession areas, along with data from household surveys of each clan from the Auyu, Mandobo, and Marind tribes who release land to companies, we find that investors are motivated to profit from timber harvested from the clearing of lands for plantations, activity that is facilitated by the local government. Land acquisition and plantation development have resulted in externalities to indigenous landowners in the form of time and money lost in a series of meetings and consultations involving clan members and traditional elders. Other externalities include the reduced welfare of people due to loss of livelihoods, and impacts on food security.

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.

The fast-growing palm oil economy has stimulated a significant expansion of oil palm plantations in Indonesia. The uncontrolled development of large oil palm plantations has raised complex socio-ecological issues, including changes of ecological landscapes, organization of production, and farming household livelihood systems. For two oil palm villages with different ecological settings, this article describes changes in land cover, how production is organized, and the income structure changes due to rural economic development. The research used survey approaches and analysis of earth maps, assisted by data obtained from satellite imagery. A qualitative approach was also used to support a survey via in-depth interviews. The research was carried out in two oil palm economy-based villages of Kutai Kartanegara District, of the Province of East Kalimantan of Indonesia. The first village is located very close to the center of regional administration and has evolved into a non-farming economy. In contrast, the other village is more isolated and solely relies on farming activities. The study found that changes of land cover caused by oil palm expansion could be categorized into two types, concentrated and spotted, following the influence of oil palm investment activities. It was also found that organization of the production of most smallholders existed in two types of arrangements, partial and total integration of production. From the perspective of livelihood, two different types of income structures emerged, diversified and uniform. This article concludes that responses of smallholders to palm oil spread varied depending on the ecological setting, the existence of the already established plantation economy in the region, the capacity of the smallholders to diversify economic activities based on palm oil, and the exposure to external economic activities.

The expansion of oil palm plantation has caused adverse impacts on the ecosystem. It has been associated with deforestation, biodiversity loss, disturbances to environmental services and livelihood change. The government of Indonesia has made an effort to control the negative effects by issuing relevant policies. One of the policies is Indonesian Sustainable Palm Oil (ISPO)’s sustainability standards to which large-scale plantations and smallholders are obliged to adhere. This study assesses the readiness of two types of smallholders, namely, the nucleus–plasma scheme and independent smallholders to adopt ISPO standards. Using a case study research approach in two oil palm plantation villages in East Kalimantan, the study found out a number of ISPO implementation challenges, grouped into structural and socio-cultural challenges, which make smallholders less ready to adhere to this mandatory policy. Coping with these challenges, this study proposed that land and business legality programs be expedited to strengthen property rights, and that training and education programs be intensified to enhance awareness, knowledge and capacity of smallholders to enable them to comply with sustainability standards.

Palm oil is considered a key commodity in supporting the Indonesian economy, generating both domestic revenue and foreign exchange. Such revenue needs to be distributed equally for the benefit of the government and society. This paper discusses the opportunities and challenges of the proposed revenue-sharing scheme, DBH Sawit, sourcing from palm oil, particularly between central and local governments. It examines how the proposed scheme can be implemented and what strategies can reward regions for moving toward environmental sustainability practices. Research methods used in this paper include a literature study, stakeholder interviews, the SWOT method and analytical hierarchy processes. Results indicate that DBH Sawit is one of several fiscal instruments that could potentially incentivize sustainability. It has both strengths and anticipated opportunities, such as increased CPO production and global demand for palm oil. It faces, however, serious weaknesses, such as unauthorized oil palm plantations and the absence of traceability systems. It is also threatened by unfair market and global policies. This paper recommends diverse strategies to increase palm oil productivity, accelerate sustainability certification and develop a tracing system. To accelerate the adoption of environmental sustainability, the paper advocates an ecological-based fiscal transfer system.