The Oil Palm Plantation and Poverty Reduction

The number of poor people in Indonesia has declined rapidly at least in the last 10 years. In 2005 the number of poor people was still around 36.8 million people or 16.7 percent of the total population. Of that number, about 23.5 million people or 64 percent were in rural areas, 13.3 million people were in urban areas. Through rural development, the number of poor people in 2016 had fallen to about 27.7 million people, 17.2 million people in rural areas and 10.5 million people in urban areas.

The decline in the poverty figures was mostly in rural areas. The number of poor people in rural areas in the period 2005-2016 declined by about 6 million people. Meanwhile, urban poverty in the same period fell by about 2.8 million people. This means rural development is more successful in reducing poverty than urban development.

According to the World Bank, the rapid growth of oil palm plantations in Indonesia has contributed to poverty reduction. Researchers at home also found the same thing. PASPI (2014), for example, found the increasing palm oil production at oil palm plantation centers was closely related to poverty reduction. Increased production of palm oil significantly reduces rural poverty.

The correlation between oil palm plantations and rural poverty reduction is easy to understand given all oil palm plantations in 190 regencies are located in rural areas. Oil palm plantations even serve as pioneers in remote areas whose economic activity has not yet developed. These areas, underdeveloped and isolated and not reached by government programs, have seen oil palm plantations flourish. For disadvantaged and remote areas that have not enjoyed road infrastructure, the current model of oil palm plantation development that combines infrastructure, education and healthcare with oil palm plantations appears to be effective in boosting the economy and assisting rural people out of poverty.

Rural poverty reduction with the help of oil palm plantations is made possible through a combination of direct and indirect impacts. Directly, the development of oil palm plantations creates employment opportunities that are appropriate to the working capacity of the poor. In addition, the development of oil palm plantations also involves local residents both in the nucleus-plasma and self-help patterns, so that many local residents own oil palm plantations. This is confirmed by the composition of national palm oil plantations, where 41 percent are independently owned palm plantations.

Indirectly the income generated at oil palm plantations (both for employees and owners) creates demand for food and non-food items. It attracts business activities that produce and provide food and non-food requirements in rural areas. Thus the rural people, including the poor who are not directly involved in oil palm plantations, also enjoy a slice of the “economic cake” created in these rural areas.

The people working at oil palm plantations are the consumers or markets for food produced by fishing communities, crop growers and livestock farmers in rural areas. Based on population expenditure data (BPS, 2016), it is estimated that the transaction value between the people in oil palm plantations and fishermen amounts to Rp 13.7 trillion/year, crop farmers Rp 54.6 trillion/year and livestock farmers Rp 24.1 trillion/year.

In other words, there is a mutual symbiosis among the people in oil palm plantations and rural fishermen/crop farmers/livestock breeders. The symbiotic mechanism may be part of the sustainability of crop farming/animal husbandry/fisheries in rural areas, including reducing poverty.

Such a combination of mechanisms contributes to reducing rural poverty. The effort to reduce poverty through the development of oil palm plantations is also more efficient because it does not burden the state budget as in poverty-alleviation programs, such as direct cash assistance. Besides, it is also more sustainable because it is based on productive, long-term economic mechanisms and does not create dependence on the government.

Various studies show that the development of oil palm plantations in Indonesia has succeeded in reducing poverty in rural areas. A PASPI study (2014) shows that palm oil production has a reductive impact on poverty. Increased CPO production significantly reduces rural poverty (Figure).

Various studies have also found that oil palm plantations are an important part of poverty reduction in Indonesia. Susila and Munadi (2008) and Joni et al (2012) show that increasing national palm oil production reduces poverty. Goenadi (2008) argues that more than 6 million people involved in Indonesian oil palm plantations have been lifted out of poverty.

World Growth (2011) argues that oil palm plantations in Indonesia play an important and significant part in reducing poverty. Furthermore, in addition to increasing revenue, palm oil production also helps reduce income inequality (Syahza, 2007).

 

Figure :          Impact of CPO production on rural poverty

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