Long-term trends in oil palm cultivation and recommendations for policy intervention

Palm oil has become the most important vegetable oil globally over the past two decades. Its versatility in industrial applications, food, and fuels as well as the high productivity per plant favor it over other comparable oils. Today, over 40% of all vegetable oils are sourced from Elaeis guineensis in countries across the globe. While initial developments of oil palm plantations from the 1960s onwards happened in Africa, especially Nigeria, global industrial production only started when Malaysia began establishing large-scale plantations. Through state-led expansion and migration programs, Malaysia and Indonesia became the global leaders in palm oil production. In 2009 Indonesia surpassed Malaysia as the largest producer and has since established its role, producing roughly 60% of all palm oil globally. As a crop best cultivated in tropical lowlands, the expansion of oil palm plantations has been associated with a transformation of landscapes across countries along the equator. Where monoculture oil palm plantations replaced forests, wetlands, or less intensive cultivation forms like jungle rubber, oil palm expansion has led to a decline in biodiversity, ecological functions, and ecosystem services generally. Despite more recent efforts to make palm oil production more sustainable through certification and diversification of plantations, the crop is still largely cultivated in monoculture systems and expansion into pristine environments continues – albeit at a smaller scale. In Indonesia, smallholders produce around 35% of all palm oil and cultivate around 40% of all oil palm area. Households adopting oil palm cultivation have profited from the low maintenance and high returns on labor that oil palm plantations offer. These profits have led to increased spending on education, nutrition, and health among smallholders. At the same time, these investments have opened opportunities outside farming and the home village to many children of oil palm smallholders, potentially leaving a generation of ageing smallholders behind. Much research has been dedicated to finding pathways for a sustainable transformation of the oil palm sector, where ecosystem services and biodiversity could be restored while upholding the benefits for smallholders and oil palm companies. Incorporating native trees has been identified as a possible means to accomplish this goal but earlier research suggests that economic incentives are required for smallholders to comply with this measure. This dissertation aims to assess changes on the household-, plantation- and policy-level induced by these long-term trends in the oil palm sector. It comprises three essays, where the first investigates current trends of ageing among farmers, while the latter two are focused on long-term considerations for policies aiming to induce sustainable practices. All three essays are based on primary data collected in Jambi Province, Indonesia as well as Costa Rica. Ageing smallholders and their plans for intra-household succession are the topics of the first essay. Following the educational attainments of oil palm smallholders’ children, many of them are left without a successor or with successors who are not actively involved in the family plantation. This leads to an ageing population of smallholders, as fewer young people enter the oil palm sector. Ageing smallholders, especially across Southeast Asia, have been associated with a lower likelihood of adopting new technologies, disinvestment from plantation operations, and lower productivity generally. The essay investigates these trends for oil palm smallholders in Indonesia by looking at the relationship of age and farm investments, replanting, and the productivity of their plots. Furthermore, stated succession plans of smallholders are used as a mediator of these effects to understand, if and how plans of succession can offset the negative consequences of ageing smallholders. The results confirm trends observed across South-East Asia. Generally, older smallholders are associated with a lower productivity, but this trend is mainly driven by older smallholders without a successor. For households with a successor – even a passive one – no negative effect of smallholder age on productivity can be observed. More interestingly, households with a successor use less fertilizer to achieve the same levels of productivity as those without one. Additionally, households with a successor are more likely to invest in replanting and thus preserving the future productivity of their plantation. These findings are substantiated and discussed using qualitative evidence from focus group discussions conducted with smallholders in the data collection area. The second essay of this dissertation builds on the idea of incentivizing smallholders to establish more biodiverse plantation layouts. As previous studies have shown that payments-for-ecosystem-services (PES) could provide a viable way to incentivize more sustainable forms of oil palm cultivation, this essay assesses if this proposed policy could potentially change social norms, and thus long-term pro-environmental behavior in the targeted population. Drawing on data from a framed field experiment conducted with smallholders in Costa Rica, the essay finds that exposure to PES increases both the receivers’ uptake of agroforestry in oil palm monoculture as well as their injunctive normative beliefs toward it. Furthermore, the experiment now confirms that changes to injunctive normative beliefs can spill over to non-PES-receivers through peer influence. While peer influence highlighting the positive, pro-environmental behavior does not show an effect on the behavior of non-PES-receivers, peer influence reinforcing monoculture oil palm as the superior choice does reduce the uptake of agroforestry among non-receivers significantly. These findings add an important perspective to the literature on the long-term consequences of monetary incentives to induce pro-environmental behavior. Re-designing plantations into more biodiverse layouts as a potential policy to restore some biodiversity and ecosystem functions on monoculture plantations is the topic of the final essay of this dissertation. Using primary data from a decade-long tree enrichment experiment in Jambi Province, Indonesia, the essay assesses the economic impact of planting tree islands in monoculture oil palm plantations. Yield effects of establishing tree islands on former monoculture oil palm plots form the basis of this assessment. A mixed effects model shows that over the 10 years of this experiment, yields and thus revenues per palm are higher inside and adjacent to tree islands compared to palms managed conventionally. Even though per-area yields are lower for palms inside tree islands due to lower planting densities, yields on the plot level are not lower where tree islands were established as increased yields from palms neighboring tree islands offset the losses of lower planting densities. Furthermore, incorporating the operating costs of the plots shows that the profitability of enriched plots is higher than that of conventionally managed ones. Based on these findings, the essay uses qualitative evidence from semi-structured interviews as well as primary data from household surveys conducted in the same region, to discuss why native tree planting is so rare in the oil palm sector despite its profitability. Lingering misconceptions of competition between oil palm and native trees, missing knowledge regarding species compatibility and potential difficulties of managing enriched oil palm are identified as the main barriers to adoption. The essay closes by recommending policy-makers to offer training and monetary incentives to oil palm plantations to reap the benefits of this ecological-economic win-win situation. Jointly, the results of this dissertation highlight the need to understand long-term trends within the oil palm sector as well as the potential long-term consequences of policy intervention. Smallholders are ageing while a significant share of plantations requires replanting. Policies aiming to support replanting will need to take this shift in decision-making into account to prevent an over-ageing of plantations in the upcoming years. The replanting of oil palm could be used as an opportunity to diversify monoculture plantations using monetary incentives. If PES is considered as a policy to diversify plantations, the long-term consequences of this policy need to be considered closely. Especially in a country like Indonesia, where smallholders are closely connected and information is readily spread, any experience could spread to the larger population through peer influence or and thus affect the adoption of pro-environmental policies. At the same time, establishing tree islands in monoculture plots can provide an ecological-economic win-win situation, which the sector direly needs.

2025-07-18