Oil palm plantation investments in Indonesia’s forest frontiers: limited economic multipliers and uncertain benefits for local communities Krystof Obidzinski • Ahmad Dermawan • Adi Hadianto Received: 22 July 2013 / Accepted: 2 February 2014 Ó Springer Science+Business Media Dordrecht 2014 Abstract This paper examines the implications of oil palm estate development in Indonesia’s frontier province of Papua. Government planners believe that oil palm investment will develop the local economy, create jobs and reduce poverty. Using the input–output approach, we find that, in aggregate terms, oil palm investments boost the economic output in the province, generate jobs and increase worker salaries. However, the oil palm subsector operates in isolation and has limited economic multipliers. The number of jobs is potentially large, but those best positioned to benefit from them are mostly skilled migrants, not local poor. The government should reduce the size of plantation investments and plan their implementation as part of a broader development package to allow greater economic integration and skill acquisition by local communities. The priority areas for plantation development should be degraded, non-forest land. Keywords Oil palm Frontier Economy Poverty Papua Indonesia 1 Introduction Over the last decade, Indonesia’s oil palm subsector has experienced tremendous growth. Between 1990 and 2011, the area of plantation estates increased sevenfold from 1.1 million ha to 7.8 million ha (Sheil et al. 2009; Direktorat Jenderal Perkebunan 2011; Slette and Wiyono 2011). In 2006, Indonesia became the world’s largest grower of palm oil and the K. Obidzinski (&) A. Dermawan Center for International Forestry Research (CIFOR), Bogor, Indonesia e-mail: [email protected]A. Dermawan e-mail: [email protected]A. Hadianto Faculty of Economics and Management, Bogor Agricultural University, Bogor, Indonesia e-mail: [email protected]123 Environ Dev Sustain DOI 10.1007/s10668-014-9519-8
Transcript
Oil palm plantation investments in Indonesia’s forestfrontiers: limited economic multipliers and uncertainbenefits for local communities
Krystof Obidzinski • Ahmad Dermawan • Adi Hadianto
Received: 22 July 2013 / Accepted: 2 February 2014� Springer Science+Business Media Dordrecht 2014
Abstract This paper examines the implications of oil palm estate development in
Indonesia’s frontier province of Papua. Government planners believe that oil palm
investment will develop the local economy, create jobs and reduce poverty. Using the
input–output approach, we find that, in aggregate terms, oil palm investments boost the
economic output in the province, generate jobs and increase worker salaries. However, the
oil palm subsector operates in isolation and has limited economic multipliers. The number
of jobs is potentially large, but those best positioned to benefit from them are mostly skilled
migrants, not local poor. The government should reduce the size of plantation investments
and plan their implementation as part of a broader development package to allow greater
economic integration and skill acquisition by local communities. The priority areas for
plantation development should be degraded, non-forest land.
Oil palm plantation investments in Indonesia’s forest frontiers
123
output (I–O) approach. The I–O approach is adopted here to assess a government policy on
oil palm expansion that features assumptions about expected output, employment and
income targets. While I–O describes interactions within and between economic sectors in
linear fashion, thus simplifying reality, it still allows for a reasonable understanding of the
economic contribution in question.
3.1 Sources of data
The data for the study come from secondary sources from various sources, such as Central
Statistical Agency (BPS), Ministry of Agriculture, Investment Agency of Papua province
and other relevant sources. Specifically, the following data are collected, they are follows:
1. Input–output (I–O) table of Papua province of 2005 with 50 sectors classification,
which is aggregated into a 26-sector I–O table. For the purpose of this study, oil palm
subsector is classified as a sector.
2. National socioeconomic survey (Survey Sosial Ekonomi Nasional—Susenas) of 2008.
Susenas is a survey that is regularly carried out by BPS. The survey for core data is
carried out every three years, while the survey for specific modules (i.e. sociocultural
issues; education, housing and health; and household consumption and expenditure).
The data from Susenas are used to build Miyazawa I–O table.
3. National manpower survey (Survey Ketenagakerjaan Nasional—Sakernas) of 2008.
Sakernas collects data on manpower situation in Indonesia. BPS carries out the survey
quarterly. Similar to data from Susenas, data from Sakernas are also used to build
Miyazawa I–O table.
4. Exchange rate was assumed at IDR 9,200 per 1 USD (the rate in 2010).
5. Scenarios of forest conversion for oil palm (Suebu 2009).
6. Employment data of Papua province (BPS Provinsi Papua 2009).
7. Size of oil palm area in the Papua province (Ministry of Agriculture 2007).
8. The costs of establishing oil palm plantation are assumed at IDR 24,181,000 per
hectare (equivalent to USD 2700), based on the Director General of Estate Crops
Decree No. 03/Kpts/RC.110/1/107/2007.
3.2 Input–output approach
In this study, the input–output (I–O) approach was used to analyse the economic impacts of
oil palm development in Papua. The I–O model can be used to analyse the impact of
changes in the final demand against regional output (output impact), employment
(employment impact), household income impact and sectoral links (linkages) (Miller and
Blair 2009; West 1993). The general economic structure in the I–O table is presented on
Table 4.
Notes:
• Fi is the amount of outputs from sector i, which is used as the final demand. Final
demand (Fi) consists of household consumption, government consumption, gross fixed
capital formation, depreciation and exports.
• xij is the amount of output of sector i, which is used as inputs for sector j
• vj is the value added of sector j
• Ei is the amount of labour
• 1 - n is the aggregated economic sectors from 1 to 26
K. Obidzinski et al.
123
A balance occurs between the volume of input (Xi), written in the columns, and the
volume of output, written on the lines (Xj) (McCann 2001), which is written as follows:
Row:Xn
j¼1
xij þ Fi ¼ Xi 8i ¼ 1; . . .; n ð1Þ
Column:Xn
i¼1
xij þ vj ¼ Xj 8j ¼ 1; . . .; n ð2Þ
where xij is the value of the flow of goods or services from sector i to sector j; Fi is the total
final consumption; vj is the added value. Meanwhile, the input–output coefficient (aij) is
written as follows:
aij ¼ xij=Xj ð3Þ
xij ¼ aijXj ð4ÞXn
j¼1
aijXj þ Fi ¼ X ð5Þ
With transformation, the following equation is obtained
AX þ F ¼ X ð6Þ
I � Að Þ�1F ¼ X ð7Þ
where (I - A)-1 constitutes the Leontief Inverse Matrix (output multiplier).
In the interest of analysing income distribution, we developed a Papua Miyazawa I–O
model from the Papua I–O table by using data from the 2008 National Manpower Survey
(Survey Angkatan Kerja Nasional—Sakernas) and the National Socioeconomic Survey
(Survey Sosial Ekonomi Nasional—Susenas) (BPS 2008a, b).
Sonis and Hewings (2001) state that the Miyazawa I–O model constitutes a further
development of the Leontief I–O model by generalising Keynesian income multipliers in
the form of interrelational income multiplier matrices. Meanwhile, the lines in interrela-
tional income multiplier matrices can be obtained from income received by households for
their products or services (Lenzen and Schaeffer 2004; Hadianto 2010). Column cells are
filled by multiplying the proportions of household consumption in every sector by total
Table 4 Basic framework for the Papua input–output table
Selling sector (i) Purchasing sector (j) Final demand Total output
1 2 … n
1 x11 x12 … x1n F1 X1
2 x21 x11 … x2n F2 X2
: : : : : : :
n xn1 xn2 xnn Fn Xn
Added value v1 v2 … vn
Total input X1 X2 … Xn
Labour E1 E2 … En
Source BPS (2000)
Oil palm plantation investments in Indonesia’s forest frontiers
123
household consumption according to income category. In the Miyazawa matrix, Variable A
constitutes an input–output coefficient matrix, X constitutes total output, F is net final
demand, vector Y constitutes total income, matrix V is household income ratio, g is
exogenous income and matrix C shows household consumption expenditure.
X
Y
!¼
A
V
C
0
!X
Y
!þ
F
g
!ð8Þ
M ¼A
V
C
0
!ð9Þ
M is the Miyazawa matrix, constituting the input–output coefficient matrix in the Leontief
model (Papua I–O), symbolised by A. Therefore, the Leontief inverse matrix for the
Miyazawa matrix, B, is written as follows:
B ¼ I �Mð Þ�1 ð10Þ
3.3 Impact analyses
To analyse the impacts of oil palm estate development on Papua’s economy, we use the
Papua Province input–output (I–O) Table for 2005. An impact analysis was used to
examine how changes in final demand in the oil palm sector influence regional output,
employment and household income distribution in Papua. It is written as follows:
DX ¼ ðI � AÞ�1DFi ð11Þ
where DX shows the change in output, (I - A)-1 is the Leontief inverse matrix and DFi
constitutes the change in final demand in the oil palm estate subsector.
To assess how the income from new plantation jobs is likely to be distributed among the
low-, middle- and high-income level households in Papua, a Miyazawa Papua I–O model
was constructed based on the Papua I–O table (Miyazawa 1976), using data from the 2008
Susenas and Sakernas (BPS 2008a, b). In the Miyazawa I–O model, impact analyses used
to calculate the impacts of changes in final demand of a given sector on household income
distribution are written as follows:
DYl;m;h ¼ ðI �MÞ�1DFi ð12Þ
Meanwhile, analyses of the impacts of investment in oil palm estate development on
employment are written as follows:
DEj ¼ LjDFi ð13Þ
where DE shows the total number of jobs created while Lj indicates the manpower
multiplier.
3.4 Linkage analysis
Clements and Rossi (1991) and Cella (1984) state that linkage analysis is used to look at
links to a sector—in this case oil palm estate—to other economic sectors, either to the front
(forward linkage) or to the back (backward linkage). The mathematical formula is as
follows:
K. Obidzinski et al.
123
BLj ¼nPn
i¼1 aijPni¼1
Pnj¼1 aij
and FLi ¼nPn
j¼1 aijPn
i¼1
Pnj¼1 aij
ð14Þ
where BLj = total backward linkage index for sector j, FLi = total forward linkage index
for sector i, aij = Leontief inverse matrix.
Backward linkage refers to the demand from a sector j on the sectors whose goods are
used as inputs to the production of j. Meanwhile, forward linkage refers to the supply from
sector i to other sectors that use output from sector i (Miller and Blair 2009).
3.5 Oil palm development scenarios in Papua
In this study, scenarios for oil palm development in Papua were based on Suebu (2009)
(Table 5). The scenarios assume the availability of land for palm oil cultivation. These
scenarios were developed by government planners in Papua, taking into consideration the
land zones available for agriculture and options to limit deforestation from developing new
plantation estates. The size of investment is estimated by using the standard cost of new oil
palm estates of IDR 24,181,000 per hectare (equivalent to USD 2700), based on the
Director General of Estate Crops Decree No. 03/Kpts/RC.110/1/107/2007. The start-up
costs of commodity plantations actually vary, and not all standard costs associated with
plantation estate development are spent at the outset. However, in the case of oil palm in
Papua, we are confident that most costs are incurred at the beginning for two reasons. First,
most of the costs of oil palm plantation development are due to land preparation and
planting, which occur in the first 2–3 years (Pardamean 2011; Pahan 2010; Manurung
2001). Second, the National Index of Construction Cost (Indeks Kemahalan Konstruksi)
shows that the costs of construction and land preparation in Papua are more than twice the
national average. We assume the investment is linearly proportional to the size of land. The
Table 5 Scenarios for forest conversion and oil palm development in Papua
Scenario Level ofconversion(%)
Description Area of oilpalm estate(million ha)
Investmentrequired (IDRtrillions)*
I 87 All forest areas that can be used areconverted to oil palm estates
5.2 125.7
II 60 Only marginal lands are converted to oilpalm estates, excluding peat and other land
3.6 87.1
III 25 Only degraded land and degraded forest areconverted to oil palm estate excluding peatand other land, primary forest andmarginal land
1.5 36.3
IV 16 Only degraded land and degraded forest areconverted to oil palm estate, excludingpeat and other land, primary forest,marginal land and savannah
0.83 20.1
V 0 No forest areas are converted to develop newoil palm estate, restoration of secondaryforest
0.043 1.0
Source Suebu (2009)
* Assuming an investment cost of IDR 24,181,000/ha
Oil palm plantation investments in Indonesia’s forest frontiers
123
increase in investment for each scenario was considered a shock variable in the increased
final demand in the I–O model.
3.6 Employment coefficient
One of the stated goals of the government-supported oil palm expansion in Papua has been
to address unemployment problems by creating jobs and increasing wages and incomes of
plantation workers, as well as reducing poverty in remote areas. To calculate the number of
jobs that could be created under different scenarios, we first established the coefficient for
the average number of people working per ha of oil palm (k) in Papua. Oil palm plantations
in Papua in 2005 occupied 33,920 ha, employing 10,176 workers (Dinas Perkebunan
Provinsi Papua 2007). Therefore, the employment coefficient for oil palm estates in Papua
is k = 10,176/33,920 = 0.3 person/ha. It is assumed that the productivity is linearly
correlated with the outputs. The projected employment impact from the expansion of oil
palm estates in Papua can therefore be determined by multiplying the employment coef-
ficient k by the area of plantations to be established under each scenario.
4 Results
4.1 The impacts of oil palm development on regional output
The analysis of the outcomes of five possible scenarios for oil palm expansion in Papua
first examines the extent to which investment in oil palm plantation estates would increase
the provincial economic output (Table 6). The analysis shows that under Scenario I, in
which the entire 5.2 million ha of Convertible Forest is clear-cut for plantations, the
investment of IDR 125.7 trillion (USD 14 billion) would increase provincial economic
output by IDR 195.1 trillion (USD 22 billion). Of this, IDR 145.2 trillion (USD 16 billion)
would come from the expanding oil palm subsector itself. On the other end of the spec-
trum, under Scenario V (where only 43,000 ha of forest would be converted to oil palm),
the impact on regional economic output would be an increase of IDR 1.6 trillion (USD 180
million), of which IDR 1.2 trillion (USD 130 million) would come from increased output
in the oil palm subsector.
Overall, the analysis shows that investment in new oil palm estates on the province’s
economy under all five scenarios shows an average multiplier effect of 155 %, and about
116 % of this increase comes from the oil palm subsector. Hence, about 74.5 % of the total
Table 6 Impacts of oil palm development on output in Papua
Scenario Investment Increase in Papuaprovince’s output
Increased oil palmsector output in Papua
(USD billion) (USD billion) (USD billion)
I 13.97 21.68 16.14
II 9.68 15.01 11.17
III 4.03 6.26 4.66
IV 2.23 3.46 2.58
V 0.11 0.18 0.13
Source Authors’ calculation from Papua I–O Table
K. Obidzinski et al.
123
regional output increase would occur in the oil palm subsector itself, while 25.5 % would
occur in other economic sectors.
In aggregate terms, oil palm subsector development would result in a substantial
increase in regional economic output in Papua. However, in terms of disaggregated output
multipliers, oil palm estate development in Papua would not significantly encourage output
growth in other sectors.
Two key factors influence projected outputs. Firstly, Papua lacks facilities to process
CPO into value-added products. Secondly, the oil palm subsector in Papua has weak
linkages with downstream and upstream sectors. Hence, increased output from the oil palm
subsector in Papua is unlikely to be absorbed by other sectors in the province and thereby
stimulate economic growth.
The I–O analysis results show a low value for the forward linkages index (FL \ 1) for
the oil palm subsector, i.e. 0.83. This low value demonstrates the oil palm subsector on its
own cannot stimulate downstream growth in other economic sectors, as these simply
cannot absorb the CPO output. The only sector in Papua that potentially may have some
capacity to respond to the growth in the oil palm subsector is the food industry, but it
currently uses only 13 % of the CPO output (Fig. 1). As other food or chemical processing
industries are small and underdeveloped, the remaining 87 % of CPO is transported to
processing plants outside the province, particularly to Java (Development Alternatives
2009).
The oil palm subsector also has a low value for backward linkages index (BL \ 1), i.e.
0.97. The low value indicates this sector is unable to drive upstream growth in sectors
whose output it uses as input. Figure 2 shows the oil palm subsector’s links, particularly to
machinery and chemicals industries. Most inputs into the oil palm subsector in Papua
Fig. 1 Forward linkages for the oil palm sector outputs in Papua. Source Authors’ calculation based onPapua I–O Table
Oil palm plantation investments in Indonesia’s forest frontiers
123
(around 69 %) originate from within the subsector itself. This illustrates the relatively low
capacity of the oil palm subsector to support growth in other sectors that provide it with
inputs.
4.2 Impact of oil palm development on employment
One of the main problems in Papua’s provincial economy is relatively high unemployment
and widespread underemployment. According to official statistics, in 2009, only about
4.08 % of the total workforce was unemployed (BPS 2009). However, a closer exami-
nation of the data for the same year reveals that 76 % of the workers were employed in
agriculture, which is largely informal and likely dominated by low wages. Other problems
include large discrepancies in income and wages between the agricultural and non-agri-
cultural subsectors, and between Papuan and non-Papuan workers (Hafizrianda 2007).
Table 7 shows that new oil palm estates in Papua would have a substantial impact on
employment. If the level of unemployment in Papua in 2009 was 4.08 % or 46,008 people
from the total workforce and 76 % of the workers in agriculture and forestry relied on part-
time jobs only (BPS 2009), then the expansion under Scenario IV would be more than
sufficient to overcome Papua’s unemployment problems. In fact, the number of jobs
created would probably be two- to three times higher than what is needed to address
unemployment and underemployment. Given the lack of familiarity with oil palm among
indigenous groups and the proliferation of conflict with plantation investors over land
compensation, it is doubtful whether local Papuans would benefit in a meaningful way
from these employment opportunities.
Scenarios III, II and I require extremely large pools of labour to match the plantation
expansion targets. It is highly unlikely that such large pools of workers can be found in
Fig. 2 Backward linkages for oil palm sector outputs in Papua. Source Authors’ calculation from PapuaI–O Table
K. Obidzinski et al.
123
Papua; large-scale import of labour would be required. As experience shows elsewhere in
Indonesia, influx of workers often leads to conflicts over land rights and competition for
jobs (Wulan et al. 2004; Yasmi et al. 2006). However, the government expansion plans do
not specify how such large labour needs could be met, where such a large workforce would
come from or how potential conflicts might be managed.
4.3 Impacts of oil palm development on income distribution
Another stated goal of the development of new oil palm plantation estates is to improve the
wages of rural workers and secure the incomes of their families. Unequal distribution of
income across the entire population of Papua is an acute problem. Table 8 shows the
disparity in employment distribution among different household income groups. A large
portion of low-income households (43 %) works in the agricultural sector. Most high-
income households are involved in mining, finance and government service sectors, all of
which employ a relatively small number of people.
Table 9 shows the projected changes in household incomes across three household
income ranges under five different plantation expansion scenarios. Analysis shows the
greatest impact (i.e. increase) on household income would be for the high-income
household category, regardless of the scenario. On average, income in high-income
households would increase three times as much as it would in low-income households
and twice as much as it would in middle-income households. In all likelihood, the gap
could be even larger, as indigenous Papuans have so far had only minimal engagement in
the oil palm sector and their income generation from this sector has so far been limited
to land compensation payments from investing companies. For all income levels, the
projected income increases diminish as the level of investment declines. Only under
Scenarios I, II and III are there significant annual increases in household income, which
means that large-scale investments are needed to improve household income. However,
the concentration of income increases among high-income households would remain
unresolved.
These results show the government’s plan to clear land for oil palm in Papua in order to
reduce rural poverty is unlikely to be successful due to the minimal income improvement
among low-income households. The main reason for this is that most jobs in oil palm
plantation estates require unskilled labour, and the wages available to unskilled workers
would do little to improve overall earnings for low-income households.
Government plans for expansion could lead to income increases for low-income
households greater than those shown in the projections. However, for this to occur, new oil
palm estates would need to engage communities in NES outgrower schemes, especially
Table 7 Impact of the expansion of oil palm development on employment in Papua
Scenario Area of oil palm estatedeveloped (million ha)
Employment created(million people)
Employment created in all regions(million people)
I 5.2 1.56 1.72
II 3.6 1.08 1.19
III 1.5 0.45 0.50
IV 0.83 0.25 0.27
V 0.043 0.01 0.01
Source Authors’ calculation from Papua I–O Table
Oil palm plantation investments in Indonesia’s forest frontiers
123
Plasma, as much as possible. There are numerous examples of successful Plasma schemes
in Sumatra and Kalimantan under which rural communities have managed to increase their
incomes and acquire plantation management knowledge (Bunyamin 2008; Feintrenie et al.
2010; Rist et al. 2010). Some of them eventually became independent smallholder growers
Table 8 Employment distribution per sector in Papua by income category
Sector Household income category
Low income Middle income High income
Agriculture 0.43 0.37 0.20
Mining and excavation 0.14 0.26 0.60
Industry 0.23 0.45 0.32
Electricity and water 0.08 0.23 0.69
Construction 0.38 0.35 0.27
Commerce, hotels, restaurants 0.24 0.44 0.33
Transportation and communications 0.15 0.34 0.51
Finance and company services 0.06 0.24 0.70
Services (government and individual) 0.17 0.19 0.64
Source Authors’ calculation from Papua Miyazawa I–O Table, BPS (2008a, b)
Table 9 Impacts of oil palm development on household incomes in Papua
Scenario, investment level (IDR trillion) Household income category
Low income Middle income High income
Scenario I, 125.7
1. Total initial household income (IDR trillion) 2,691.4 4,020.8 7,209.7
2. Household income increase (IDR trillion/year) 177.5 224.9 532.9
3. Household income increase (%/year) 6.6 5.6 7.4
Scenario II, 87.1
1. Total initial household income (IDR trillion) 2,691.4 4,020.8 7,209.7
2. Household income increase (IDR trillion/year) 122.9 155.7 368.9
3. Household income increase (%/year) 4.6 3.9 5.1
Scenario III, 36.3
1. Total initial household income (IDR trillion) 2,691.4 4,020.8 7,209.7
2. Household income increase (IDR trillion/year) 51.2 64.9 153.7
3. Household income increase (%/year) 1.9 1.6 2.1
Scenario IV, 20.1
1. Total initial household income (IDR trillion) 2,691.4 4,020.8 7,209.7
2. Household income increase (IDR trillion/year) 28.3 35.9 85.1
3. Household income increase (%/year) 1.1 0.9 1.2
Scenario V, 1.0
1. Total initial household income (IDR trillion) 2,691.4 4,020.8 7,209.7
2. Household income increase (IDR trillion/year) 1.5 1.9 4.4
3. Household income increase (%/year) 0.1 0.0 0.1
Source Authors’ calculation from Papua I–O Table
K. Obidzinski et al.
123
of oil palm. Based on the experience from these islands, NES outgrower schemes will be
beneficial to rural communities in Papua only if the cost and profit-sharing arrangements
with plantation companies are fair and in proportion to operational outlays (Elson 2009).
5 Discussion
This section discusses the results and places the problem into a wider socio-economic
context. In addition to economic issues, there are also social and environmental issues
related to the development of large-scale oil palm plantations in Papua, which is beyond
the scope of what a simple input–output analysis can offer.
5.1 Development of subsectors that lack economic integration
The development of oil palm estates does have an important role in developing frontier
regions such as Papua. All five oil palm development scenarios show a significant increase
in the total regional economic output. This means that, generally, oil palm development
creates substantial revenue flows and employment opportunities. However, the analysis
further points out several weaknesses, one of which is that about two-thirds of the projected
increase in economic output stays within the oil palm sector. This constitutes a serious
limitation and signifies that interaction of, and integration between, Papua’s various eco-
nomic sectors remain weak. Poor sectoral integration, where forward and backward link-
ages with other economic sectors remain weak, means that even large-scale investments
may not have as much impact on the provincial economy as if the sector is well integrated.
Considering poor economic multipliers caused by lack of economic integration, gov-
ernment planners should scale back oil palm investment plans and commit resources to
parallel stimulus packages for other subsectors of the economy (especially downstream
processing industries such as food and chemical plants that rely on CPO for raw material).
This would help ensure that economic multipliers from the oil palm sector have much
greater reach and lead to greater benefits. The recent announcement of the government
master plan 2010–2025 for the acceleration and expansion of economic development
through six priority geographical corridors, including Papua–Moluccas corridor, may
provide frameworks for consolidation and greater integration of oil palm investments into
other parts of the economy (Coordinating Ministry for Economic Affairs 2011).
5.2 Fulfilling demand for labour with a certain set of skill
Oil palm estate development has the potential to provide many jobs. Depending on the
plantation development scenario, the analysis shows that between 10,000 to more than 1
million jobs could be created. Given these potentially limitless employment needs, the
issue is how the demand for that much labour can be met. Local communities can only
provide a limited pool of unskilled workers. However, given the local population’s lack of
enthusiasm for low-paid plantation labour and ubiquitous conflicts over compensation for
land handed over to investors, it is unlikely that even this limited pool of labour force may
be available. Furthermore, training local communities to manage plantations might not be
the focus of investors’ activities. Therefore, it seems that every scenario would require
labour recruitment from outside the region. On paper, bringing labourers into Papua could
have indirect benefits of improving the skills of local workers through shared learning.
However, this practice often leads to social disparities and conflict.
Oil palm plantation investments in Indonesia’s forest frontiers
123
As with employment, oil palm estates have the potential to increase local community
incomes in Papua. However, such increases would not be distributed evenly. Analysis shows
the sharp rise in incomes would predominantly benefit the middle- and high-income groups.
These groups seem best positioned to take advantage of the potential plantation jobs that
require a certain level of skill and knowledge. In areas like Papua, where oil palm development
is nascent and most communities are new to this crop, the benefits of oil palm development
would not immediately translate into improved household livelihoods of local Papuans.
5.3 Land transfers from communities to large-scale actors
Another important implication from large-scale oil palm expansion in Papua is related to
land tenure and land compensation. Papua is a part of Indonesia with strong communal
rights over land (Marshall and Beehler 2007; Sirait et al. 2010). In this context, land
acquisition for oil palm estates frequently leads to conflict between customary land owners
and plantation developers over the terms of land acquisition and level of compensation
(Marti 2008; Potter 2008; Colchester 2010; Colchester and Chao 2011). One of the most
common misunderstandings leading to conflict in Papua is the belief by the investors that
one-off payments for land acquisition end any future claims. This is often not the case in
Papua because communities frequently believe that their land is rented not sold and that
corporate compensation should therefore be forthcoming regularly (Sirait et al. 2010).
One way to narrow the gap between these divergent views may rest in the effective
implementation of the Indonesian government regulation that requires the companies to
engage local companies in ‘partnership agreements’ (kemitraan). In practice, this means
that companies must allocate at least 20 % of the concession area to local communities
through plasma or other plantation schemes. It is therefore important to draw lessons from
other parts of Indonesia (e.g. Sumatra and Kalimantan) where the implementation of
kemitraan has been in effect for a longer period of time in order to build on the successes
and eliminate failures.
5.4 Environmental implications
One of the important implications of the expansion of large-scale oil palm plantations to
Papua is that the expansion may come at the expense of Indonesia’s natural forests. The
available studies show that between 50 and 85 % of the 8 million ha of currently productive
plantations in Indonesia, mostly in Sumatra and Kalimantan, have been developed through
prior deforestation (Casson et al. 2007; Fitzherbert et al. 2008; Gibbs et al. 2010; Boucher
et al. 2011; Miettinen et al. 2011; Miettinen et al. 2012). The strong links to deforestation
have led to difficulties for the Indonesian oil palm companies in marketing CPO in eco-
sensitive markets such as the European Union (Bruntse-Dahl 2011). Since oil palm plan-
tation development in Indonesia has a history of deforestation and other environmental
externalities, the long-term economic effectiveness of the plantation programme must not
ignore the lessons from the negative impacts of oil palm in Sumatra and Kalimantan. Thus,
the economic feasibility and effectiveness of the oil palm plantation programme in Papua
must be inseparable from environmental sustainability, the central piece of which should be
the government commitment to prioritise non-forest land for plantation estates. In order to
advance this objective, a clear and legally binding timetable for adherence to the principles
of the Indonesian Sustainable Palm Oil (ISPO) standard should be enforced. The Round-
table of Sustainable Palm Oil (RSPO) standard could also be an instrument with which to
push for more environmentally responsible new oil palm ventures in Papua.
K. Obidzinski et al.
123
The moratorium on forest conversion, which is in effect through 2015, is also a
potentially important measure to ensure that no permits are granted for plantation con-
cessions in primary forest areas and peatland. However, its major limitation currently is
that it does not cover secondary forests. The inclusion of secondary forests into the scope
of the forest conversion moratorium would go a long way towards ensuring oil palm
plantations with low carbon footprint in Papua and elsewhere in Indonesia.
6 Conclusions
This paper set out to examine whether developing oil palm estates in a frontier region such
as Papua constitutes an effective strategy to achieve economic growth, create employment
and alleviate poverty. By doing so, the paper aimed to contribute to the body of literature
about the role of frontier expansion in the economic growth of developing countries and
assess the conditions under which frontier development may be both economically efficient
and socially beneficial.
The government of Indonesia, as well as provincial government authorities in Papua, is
convinced that oil palm plantation expansion in Papua will speed up regional economic
development, create jobs, improve rural household incomes and reduce the number of rural
poor. This analysis confirms that, indeed, growth will take place in all target areas if oil
palm expansion is implemented. However, the range of scenarios examined indicates there
are limitations to current government assumptions, particularly in regard to poverty alle-
viation through the creation of plantation jobs, and suggests that policy adjustments are
needed.
The findings on employment and income distribution from oil palm also suggest that
policy makers should reduce the targets for oil palm plantation expansion and implement
plantation investment in phased, gradual fashion. In the long term, oil palm plantations
may well be capable of meeting stated economic and social development targets, but the
strategy towards this goal should be stepwise. Gradual implementation of the plantation
programme would allow time for greater integration of the subsectors of the provincial
economy and enable rural communities to acquire the skills and knowledge needed to
manage oil palm effectively. With plantation development implemented in stages, rural
communities would have ample time to build the capacity needed to compete for
employment. Better preparation and higher incomes among local communities would lead
to less tension over plantation investment plans and fewer conflicts.
Acknowledgments Data collection and analysis for this paper were carried out with support fromCORDAID of the Netherlands, USAID RDMA project ‘Economic choices and tradeoffs to REDD ? inAsia’ and the DFID project ‘Emerging countries in transition to green economy: will it make a difference forforests and people?’. The authors would like to express their gratitude for the financial support received andconvey their thanks to project partners in Papua for their participation and willingness to share data. Specialthanks are due to Sophia Gnych for painstaking review and editing of this manuscript. The drafting of thispaper was initiated during a sabbatical leave at the University of Wageningen in the Netherlands. Thehospitality of the Rural Development Sociology is gratefully acknowledged.
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