Can Oil Palm Smallholders Become Financially Independent?

Abstract

Oil palm plantations are highly profitable, attracting producers from different backgrounds, including smallholders. However, the industry requires a high investment and long-term financial management. Unfortunately, most smallholders do not have both capacities and thus have limited capacity to self-finance their plantations. This study aims to analyze this condition using data from 964 oil palm smallholdings from 5 groups, namely (i) certified plasma/ex-plasma smallholders, (ii) certified independent partnered smallholders, (iii) noncertified plasma/ex-plasma smallholders, (iv) noncertified independent – partnered smallholders, and (v) noncertified independent – non partnered smallholders in North Sumatra, South Sumatra, Riau, and Jambi. The data were collected in 2013, 2016, 2018, and 2019 by purposive clustered sampling method. The data were descriptively analyzed using a financial calculation approach. All values were converted into the 2019 future value using a 7% interest rate applied for small-scale business loans. Self-finance is assessed in short- and long-term needs. The short-term refers to the minimum household needs, while the long-term is the certification and replanting cost. The minimum household needs were calculated based on the minimum regional wage. Certification refers to RSPO smallholder certification, withfour cost components, namely audit, surveillance, HCV, SIA, and EIA, and corrective actions. Replanting costs refer to Keputusan Direktur Jenderal Perkebunan. The estimation results show that smallholders cannot self-fund their short- and long-term financial needs, which could lead to additional land needs. Long-term financial needs can be managed through group collective action and regular saving within a minimum total group of 250 ha.