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Oil Palm Industry In Indonesia Environmental Sciences Essay

Paper Type: Free Essay Subject: Environmental Sciences
Wordcount: 3639 words Published: 1st Jan 2015

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Palm oil industry gives main contribution for economic development in Indonesia. The industry is expected to be able to increase the income of a large number of poor in rural Indonesia. However the increasing demand for palm oil will give incentive for Government of Indonesia to increase national production. In some developed countries, oil palm is used as a substitute for trans fats, which is one of the highly saturated vegetable fat semi-solid form at room temperature. Palm oil is cheaper than other vegetable oils (World Growth, 2011). Palm oil from the oil palm (Elaeis guianensis) is being used for cooking and biodiesel, soaps, cosmetics, pharmaceuticals, industrial and agro-chemical products (USDA 2010).

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The growing demand of oil palm in global market especially in the world trade vegetables oil encourages Indonesia to develop oil palm plantation areal. The development of oil palm plantation will be thread for some forest in Indonesia and causing deforestation and biodiversity (Manurung, 2001). Government of Indonesia set of some policies such as the designation of large land tracts to the expansion of palm plantations, decentralizing control over land-use licensing to provincial governments, and subsidizing credit and establishment costs for smallholders to promoted rapid expansion of oil palm area. The expansion which was done by deforestation had significant impacts on forest dependent communities who rely on forests for a wide range of good and services (Sheil et al, 2006, Belcher et al 2004). Oil palm also was criticized of disturbing human health, destroying cultural heritage, destroying ecosystem, and leading to the loss of autonomy and self-sufficiency (Brown and Jacobson, 2005). All these may lead to social conflicts which were recorded by NGOs (Sawit Watch, 2008). In contrast, the oil palm is considered one of the most envioronmentally friendly oil crops because oil palms are more productive than other oil crops and to produce the same amount of oil are needed small areas than the other crops such soybeans or rapeseed (Arhem, 2011).

There are many studies about aspects of oil palm plantation; contract farming, supply and demand oil palm in global market and environmental impact of oil palm. Contract farming in oil palm has conducted by Susila (2004) and Syahza (2004). Susila (2004) showed the oil palm has positive contribution to economic growth. This is indicated by growth of investment, output, and foreign exchange earning. Around Rp. 5 – Rp. 11 Milion or more than 63% of household income of smallholder in Kampar and Musi Banyuasin. Furthermore, Oil palm has significant contribution to poverty alleviation (less than 10% off poor people in oil palm communities) and equity improvement (gini coefficient around 3.6).However, Syahza (2004) showed different between plasma farmers income and independent farmers. The different is caused of price distortion, skill, high cost production and monopsonistic market. Rifin (2010) studied about oil palm Indonesia in the world trade. The result show palm oil products from Indonesia and Malaysia are complementary rather than competing. The increase in the world income compared to Malaysia as reflected by higher income elasticity value can give more benefit to Indonesia.

Some authors study about environmental impact of oil palm. Obidzinski et, all found the development of oil palm in West Papua (Manokwari), West Kalimantan (Kubu Raya), and Papua (Boven Digoel) has caused deforestation, water pollution, soil erosion, and air pollution and the household survey showed significant economic gains from oil plantations, however these were not available to all stakeholder and were not distributed evenly. The other study Sawit Watch (2008) showed impact of oil palm plantations on the environment in South East Asia is already well-documented. Indonesia is the third highest contributor of CO2 emissions in the world because fires used to clear the land and peat bogs are drained to plant oil palms, releasing hundreds of millions of tones of carbon dioxide. Plantations are one of the main drivers of deforestation in Indonesia, destroying the habitat of endangered wildlife, including the orangutan and the Sumatran tiger. The unsustainable expansion of Indonesia’s palm oil industry is leaving many indigenous communities without land, water or adequate livelihoods, destroyed of traditional costumes and culture and human rights.


Indonesia is located between 6° N- 11° S and 95° E – 141° E. It is between Hindia Sea and Pacific Sea, among Asia continent and Australia continent. Indonesia consists some islands, such as Sumatera Island, Sulawesi Island, Java Island and Kalimantan Island (fig.1).

Indonesia map.png

Figure 1. Location of geography Indonesia, adapted from wikipedia (http://wikipedia.org,Access on 26 September 2012)

Since 2008, Indonesia has been the most world’s producer and exporter of palm oil. Aceh, Java, Sumatera and Kalimantan are producer of oil palm in Indonesia. Palm oil industry in Indonesia a main agricultural industry and national economy.It is contributing 4.5% og GDP and employing over 3.0 million people (USDA, 2010).

Oil Palm can grow well in the tropics andin the an altitude of 0-500 m above sea level with a humidity of 80-90%. Oil palm requires a stable climate with rainfall, 2000-2500 mm a year, which is the area that is not flooded when it rains and drought when dry. Annual rainfall patterns influence behavior oil palm flowering and oil palm fruit production. The oil palm fruit are small. It is about 6-20 gr and bunches of about 10 -40 kg, which a bunch holds about 200- 4000 fruits (Tengnas and Sveden 2002 in Arhem 2011). The fruit is orange-red in colour that comprises a kernel enclosed in a shell (endocarp) surrounded by pulp (mesocarp) (fig2). Yusoff and Hansen (2007) divided palm oil into three stages : plantation, transportation to the mill and milling.

C:UsersErnah TangimPicturesjambi oil palm harvest.jpg

Figure 2. The fruit oil palm (in bunches). Source : own picture


Various problems faced in the development of Indonesia palm oil from the technological, economic, social and environmental aspects. Technological issues related to the productivity and value added. Weak government policies in the provision of incentives and the implementation of the policy itself will affect the increase in value added and product development for the strongly structure of the palm oil industry.

Economic issues related to competitive oil palm product in the international market and resources access. Basiccally, Palm oil has more competitivenes than the other vegetable oils. Oil palm is the most efficient plants that produce oil in the world.It is around 0.25-0.28ha for produce 1 tonne CPO as raw material palm oil, meanwhile soybean,sunflowers and rapeseed need 1.5-2ha for produce 1 tonne oil seeds. Lack of access resources can be a threat to the sustainable development of oil palm estate plantation. To increase the productivity, Oil palm plantation need a good maintenance management and supported by efficient use of inputs, especially fertilizer and harvest handling of fresh fruit bunches. Oil World inside Bappenas 2008, showed the productivity of oil palm around 18-20 tonne FFB /ha/years (3,6-4 ton CPO/ha),meanwhile produktivity of soybean/seeds around 2-2,5 ton/ha/years (0,45-0,67).

The emergence of social problems in the areal of ​​oil palm development is about ownership, land use and how to transfer their rights. Vermoulen dan Goad (2006) showed the main constraint covers difficulty farmers to obtain capital because it can not qualify for the collateral relationship financing through a bank, a lack of technical development and market information. There is a problem about the uncertainty of land tenure plasma plantations that have been allocated by the government to communities of the village. There is no official document that can be used as legal basis for public ownership. It is only by agreement between the villagers and the company that the company will build a palm oil plantation to the plasma of 20% of the total area of ​​HGU (Plantation permits to use state land (leasehold)). The communities of village want the clarity of the status and location of their land because it greatly affects the value of the land. At first, tends to increase the price of land, but increasingly blurring the certainty of status and time of handover of land / credit agreement makes the land prices tend to decline again.

The issues of environmental in the oil palm is about deforestation, biodiversity and climate change. Recent times, the transfer function natural forests and peat lands contribute to the negative form of deforestation, land degradation peat, water resource degradation, and loss of biodiversity. Development palm oil is also claimed to be incompatible with the spatial regulation, and there are coconut groves plantations in areas with high conservation value. Regardless of the issue, basically has many oil palm plantation companies while considering environmental aspects in conduct their business and become a member of the Roundtable on Sustainable Palm Oil (RSPO) (Theo,2010).


This chapter deals with literature review to provide the necessary context in the current research. This includes literature of theory of environmental aspects.

Environmental Aspects

In economic the environment is viewed as a composite asset that provides a variety of services, such as provides the economy with raw materials and services directly to consumers (Tietenberg, 2006). An element of an organization’s activities, products or services that can interact with the environment called environmental aspects. An environmental aspect describes the relevant issues that management needs to address, irrespective of level of abstraction e.g. waste management, global warming, resource extraction, lack of knowledge about process emissions, toxic material management, and biodiversity (Flemstrom, 2003). In addition, Munasinghe (1993), there are some issues of environmental that are related to global and transnational, natural habitats, land, water and urban industrial areas. In the other words, this is called the environmental system. There are some tools to assessing environmental impacts or aspects which called environmental system analysis tools (ESATs), such as Environmental Impact Assessment (EIA), System of Economic and Environmental Accounting (SEEA), Life-Cycle Assessment (LCA), Strategic Environmental Assessment (SEA), Environmental Management System (EMS), Cost Benefit Analysis (CBA), Risk Assessment (RA) (Ahlroth et all,2011); Finnvede, Asa Moberg (2005)).

Significance of the Study

There are many issues in the oil palm production in Indonesia such as contract farming, environmental issues and social issues. Teoh (2010) show the environmental issues are deforestation, loss of biodiversity, climate change and use pesticide and fertilizer.

Cahyadi and H.Waibel (2011) studied about contract farming in the oil palm in Jambi. Using the probity model and 245 smallholders who are respondents showed the contract participation significant with age of household head, indigenous, size of oil palm plot, and particular planting period. Overall, contract farming has a significant positive effect on smallholder income; it discriminates against the poorer smallholders.

Primadona (2011) argue that the implementation of RPSO P&C still have opportunities for companies to rectify their behavior by altering management practice in the palm oil Industry, especially for the countries which have poor implementation of regulations. Companies are forced to fix their management or otherwise risk being excluded from the competitive market for market completion and prospects of oil pam in the future. The researcher remains essential to implement of RSPO standards at the national level. Simon (2006) studied to identifiy most significant impacts of il palm cultivation on land,air and water and examines them appropriate to Principles and Criteria for Sustainable Oil Palm by RSPO. World Bank (2010) showed expantion of oil palm plantation can give positive impact to to local people through employment opportunities, improved infrastructure, increases in land value, and income from cultivating oil. However,it can give negative impacts to environment such as loss of access to land without adequate compensation, loss of the benefits of mixed livelihood strategies, and loss of environmental services from natural forests (e.g., water, game, medicinal plants) and deforestation. Oil palm expansion also yields indirect or national level poverty alleviation benefits through government spending.

Basiron and Chan (2004) argue three evidences of oil palm, sustainability: (1) oil palm can be used a vehicle for rural poverty eradication in Malaysia, astedy supplier of affordable food,non-food, biocomposites, nutritional and pharmaceutical products and a showcase for environmental improvment.Study by Obidzinki et all (2012) found that the development of oil palm in West Papua (Manokwari), West Kalimantan (Kubu Raya), and Papua (Boven Digoel) has caused deforestation, resulting ini significant secondary external impacts such as water pollution, soil erosion, and air pollution. Meanwhile, in the social impacts, many stakeholder group (employees,out-growers and investing households) report significant gains that were not evenly distributed.

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The earlier research has analyzed vulnerability of oil palm farmers to potential shock and poverty in several stages and scheme of contract farming. In the contract farming, there will be a share of benefit and risks each others between the company as nucleus estate and smallholders as plasma. Meanwhile in the second phase of this research will analyze about environmental aspects. Generally,this research will be to assess the environmental implications oil palm development using two plantations sites, namely the Bakri Sumatera Plantation and the Agro Astra Lestari as case studies.Analyze of framework is starting from the adoption in contract farming and its determinant factors than analyze environmental aspects in the oil palm industry.


Based on the problem analysis and literature review previously, we formulate three following research questions that will be addressed in the current research.

How are the perceptions of smallholder farmers about the long term environmental consequences of oil palm plantation in Jambi?

How to asses the opportunities and constraints of sustainable oil palm management practices? And what are the environmental impacts in the oil palm industry?

What is the degree of awareness of stakeholders group in Jambi province about the environmental implications oil palm development? How to develop of a set of policy recommendations to implement a more sustainable oil palm production system?

The general objective of this research is to assess the environmental implications oil palm development using two plantations sites, namely the Bakri Sumatera Plantation and the Agro Astra Lestari as case studies. It is anticipated that research will have three major output :

A better understanding of the perceptions of smallholders farmers about the long term environmental consequences of oil palm plantation in Jambi.

An assessment of the opportunities and constraints of sustainable oil palm management practices. Analysis environmental impacts in the oil palm industry.

An assessment of the awareness of stakeholders group in Jambi province to about the environmental implications oil palm development. Development of a set of policy recommendations to implement a more sustainable oil palm production system.


Data Analysis

To achieve the research outputs outline above the study will follow some methodology such as household survey, case study and key informant interviews. For the analysis of environmental aspects, applied consistently in Muora Jambi and Merangin for the purpose of comparison.

As a first step: existing literature and secondary data about environmental aspects of oil palm plantation will be reviewed. For analysis of environmental aspects, different sources of data collection, i.e. smallholder surveys, focus group discussion, and key informant interviews will be used. Some stakeholders will be selected to represent various actors that are directly or indirectly affected by oil palm industry. The smallholder surveys will be repeated in order to update the information of the 2010 survey and to establish a panel data base. As a new aspect in the questionnaire a module on perception of the environmental impacts of oil palm will be added to the questionnaires. To complement information collected smallholder households and to get additional relevant data FGD (Focus Group Discussion) method will be used. Prior to the FGD semi-structure interviews will be conducted with key government official, company representatives, and civil society organizations to complement the site specific survey data. Finally, this study will analyze environmental aspects using some econometric models.

The data will be used to understand the perceptions of smallholder farmers about the long term environmental consequences of oil palm industry in Jambi. In this research, some questions are the same with the phase-1 research such as age, education, and household information, land and crops, oil palm production, off farm employment, asset, saving, oil palm contract participation, investment and future plan and as addition several questions about knowledge and perceptions smallholder farmers of environmental aspects. This information will be included in the smallholder questionnaires. The respondent farmers will be selected by multi stage and random sampling technique.

The assessment of opportunities and constraints of oil palm management practices and awareness of stakeholder groups in Jambi province about environmental implications oil palm development will include qualitative approach analysis. The stakeholders group consist of Ministry Agriculture, NGO’s local, Company oil palm, Association oil palm, Ministry environmental, research/academies, RSPO, ISPO and palm oil society. Finally, some econometrics models such as OLS (Ordinary Least Square) will be used to develop of a set of policy recommendations to implement a more sustainable oil palm production system.

V.2. Data Collection


Research conducted on oil palm smallholders farmers in the Province of Jambi since has established a data base of some smallholders farmers, 291, in two districts of Jambi province. A household surveys has been conducted in 2010 in three village in Merangin distric and one village in Muaro Jambi district. Province of Jambi is one of the main estate regions in Indonesia that produces rubber, coconut, coffee, tea, cinnamon oil palm, and cacao. Jambi is located in Sumatra which is still home to the majority of the national palm crop, with 75 percent of total matures palm area and 80 percent of total palm oil production. Jambi is chosen because it is one of the largest oil palm producers in Indonesia. There are totally 159,583 households cultivating oil palm in Jambi. It is noted that 59 percent of them are contractual smallholders and 41 percent are independent smallholders. They are distributed in 9 districts, namely Batanghari, Muaro Jambi, Bungo, Tebo, Merangin, Sarolangun, West Tanjung Jabung, East Tanjung Jabung, and Kerinci. Generally, contract scheme in Jambi consists of PIR and KKPA scheme. For this project, we decided to select Muaro Jambi and Merangin districts. Locations are chosen purposively representing several stages, schemes, and geographic conditions which promote various problems.

Source of Data

To obtain the required information and meet the aims, it is essential to combine some methods to collect data. This study used primary data and secondary data. Primary data were gathered through field visits to the research area. The method used was surveyed and in depth interviews.


A formalized, pre-coded questionnaire will be developed and pre-tested. The questionnaire will include questions on household characteristics, assets, inputs and output of oil palm production activities and marketing, other sources of income, factor and product prices, credit, contractual arrangement, perception of contract farming and the partner (nucleus estate), and perception of changes over the previous five years and environmental aspects will be spread in two districts for totally 291 oil palm farmers in Jambi. The respondent farmers will be selected by multi stage and random sampling technique.


Interview will be done to explore concept, process, problems and players behavior in the oil palm contract farming. It also allows us to obtain qualitative data deeply and comprehensively. The interview will involve stakeholders and key players in contract farming in the oil palm industry. Several key stakeholders will be interviewed regarding the partnership policy in the oil palm supply chain in contract farming including: Ministry of agriculture, The Association of Oil, Palm Plantation Companies, Bank, NGO, and Roundtable Sustainable Palm Oil (RSPO).


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