Effects of oil palm expansion and other related land-use changes on the livelihoods of rural households in Indonesia

The demand for agricultural land is globally increasing due to population growth and dietary diversification. As the availability of agricultural land is limited, much of the cropland expansion is occurring at the expense of tropical forests. During the past few decades, oil palm has become one of the most rapidly expanding agricultural crops in the world, especially in Southeast Asia. In Indonesia, the land area grown with oil palm grew by almost 50% over the last 10 years. While some of the new oil palm plantations were established on recently deforested land, oil palm has also replaced other agricultural crops such as rubber. About 60% of the oil palm land in Indonesia is managed by large-scale public or private companies; the rest is cultivated by smallholder farmers. The rapid expansion of oil palm in Southeast Asia has given rise to various environmental and social concerns. While implications of such land-use change for the environment and for local farm households were already examined in previous research, possible effects on the livelihoods of rural non-farm households and on rural inequality are not yet well understood. This dissertation addresses this gap in the literature by analyzing the role of different types of agricultural and non-agricultural employment income for non-farm households. In addition it examines the effects of oil palm and rubber on income inequality among rural households in rural Jambi, one of the hotspot regions of Indonesia’s recent oil palm boom. These aspects are analyzed in two separate papers, which are embedded into broader introduction and conclusion chapters. The first paper shows that employment in rubber and employment in oil palm are important livelihood components for non-farm households. Employment in oil palm is more lucrative than employment in rubber and is positively associated with total household income. Regression models show that whether or not a household works in oil palm is largely determined by factors related to migration background, ethnicity, and the size of the village area grown with this crop. Oil palm and rubber are the most important agricultural crops in Jambi, cultivated by large companies as well as smallholder farmers. The data show that employment in both crops accounts for 70% of total household income on average. Poorer households depend much more on employment in rubber, whereas for richer households employment in oil palm is of larger importance. For many autochthonous households of the Melayu ethnicity, working in rubber as sharecroppers has a long family tradition. Hence, autochthonous households are less likely to be involved in oil palm employment than migrant households who do not have a tradition of working in rubber. However, due to higher wages and longer working hours, employment in oil palm is more lucrative than employment in rubber. Apart from working in oil palm, the expansion of the oil palm area at the village level also contributes to significant increases in income from self-employed activities. This can be explained by oil palm developments being associated with general infrastructure improvements and growth in the local village economy, leading to a boost in demand for locally produced goods and services. The second paper shows that oil palm does not seem to have significant effects on overall rural inequality. While oil palm cultivation contributes to increasing inequality among farmers, it tends to decrease income inequality among non-farm households through labor-market and employment effects. In other words, via employment opportunities, oil palm is contributing positively to the welfare of the poorest segments of the rural population. Proceeding further with the results of the second paper, rubber income is found to be inequality-reducing; suggesting that further growth of rubber income would lead to decreasing inequality. However, as more expansion of oil palm is expected to happen in forest areas, fallow land, and even in existing rubber land, an increase in the oil palm area may possibly be accompanied by a decrease in the rubber area and therefore rising overall inequality. Further, the data show an unequal distribution of income among rural households over the survey period. On average, farm households are significantly richer than non-farm households. This is also reflected in a lower poverty rate among farm households. Non-farm households might be characterized by a lower level of income inequality, but they still belong to the poorest segments of the rural population in Jambi. As a concluding remark, this study suggests that further expansion of the oil palm area will likely benefit farm and non-farm households economically through gains in farming and employment income. These benefits should not be ignored when designing policies towards sustainable land use. Moreover, a better understanding of the possible ramifications of land-use change for these households is of particular relevance for development policies. Besides, these findings add to the understanding of the role of oil palm expansion for rural inequality, which might help in designing policies towards maximizing the economic and social benefits of land-use change, while minimizing its negative externalities. It should be stressed that this study only analyzes partial aspects of the palm oil sector in Indonesia, leaving environmental issues and also other social challenges, such as conflict over land, largely unaddressed. These other issues are important but beyond the scope of this dissertation. Nevertheless, the research provides new insights into areas that have not been well addressed in the literature so far.