Oil Palm in Indonesian Socio-Economic Improvement A Review of Options

The Indonesian government has used oil palm as a major tool of rural socio-economic improvement, doing this through 'nucleus estates' operated by estate companies and through assisting individual smallholdings. The initiatives have together raised the incomes of more than 500,000 farmers, and may be judged successful market interventions which are far superior to laissez faire. But although the average economic and social performances of both initiatives have been reasonable, their outcomes have been variable. The nucleus estates have sometimes suffered from faulty management, bad community rapport, difficult land conversions, and the mistakes of government agencies and settler cooperatives. They were also discontinued in 2001, due to scarce finance. The assistance to individual smallholdings has always had short funding, limiting its scope. Both initiatives were commenced under the New Order, and face new challenges in the present era of democracy and otonomi daerah. The analysis of this paper nonetheless shows that these Indonesian interventions should be continued, albeit with more capital being provided and their deficiencies being remedied. It denotes that the interventions compare well with official efforts in other countries, strengthening the general case for public action to assist poor rural dwellers.