Investing in oil palm: an analysis of independent smallholder oil palm adoption in Sumatra, Indonesia

Processes of globalization have generated new opportunities for smallholders to participate in profitable global agro-commodity markets. This participation however is increasingly being shaped by differentiated capabilities to comply with emerging public and private quality and safety standards. The dynamics within Indonesia’s oil palm sector illustrate well the types of competitive challenges smallholders face in their integration into global agro-commodity chains. Because of public concern over the poor social and environmental performance of the sector, many governments, companies and consumers are attempting to clean up the value chain through self-regulatory commitments, certification and public regulation. As a result, many of Indonesia’s oil palm smallholders face compliance barriers due to informality and poor production practices, and threaten to become alienated from formal markets, which could in turn lead to a bifurcation of the oil palm sector. Recognizing that many oil palm smallholders lack compliance capacity, myriad public and private actors have begun designing initiatives to address compliance barriers and enhance smallholder competitiveness. However, failure to properly account for the heterogeneity of the smallholder oil palm sector will undermine the effectiveness and scalability of such initiatives. By developing a typology of independent smallholder oil palm farmers in Rokan Hulu district, Riau province, this article reveals the wide diversity of actors that compose Indonesia’s smallholder oil palm economy, the types of compliance barriers they face and the sustainable development challenges they pose. In doing so, this article illustrates how global agro-commodity chains can drive agrarian differentiation and offer new insights into the complex dynamics of agricultural frontier expansion.

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