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Agustira and Ranola    

Full length Research Paper

Economic Gains and Losses of Sustainable Smallholder Oil Palm (Elaeis guineensis Jacq.) Plantations on Peatlands in Indonesia

Muhammad Akmal Agustira1*, Roberto F. Raņola2

1Researcher, Indonesian Oil Palm Research Institute, 51 Brigjend Katamso Medan North Sumatera, Indonesia.
2Professor, College Economics and Management University of the Philippines, Philippines

Corresponding Email Address: agustira_akmal@yahoo.com;Tel: (062061)7862477

Received March 13, 2017; Accepted April 14, 2017


Oil palm smallholders on peatlands have contributed significantly to economic development in rural areas by augmenting income and reducing poverty, among other developments that increase economic growth. However, they also cause adverse environmental impacts such as carbon emission, haze and peat fires, deforestation, water supply disruption, and biodiversity loss. The objective of the study was to determine the economic gains and losses of developing sustainable smallholder oil palm plantations on peatlands in Siak District Riau Province, Indonesia. A cost-benefit analysis was used to determine the economic impacts of the smallholder oil palm plantations. Results revealed that development of 94,726 ha oil palm smallholder plantation on peatlands has generated an estimated 37,326 jobs and increased the average total income of smallholder households to USD 4,556 per year. Total benefit from smallholder oil palm plantations was computed at USD 604,360,885 per year. However, smallholders have not implemented sustainable oil palm cultivation on peatlands, which has led to negative effects on the environment. It was estimated that USD 1,115,694,242 is lost per year due to the adverse environmental impacts such as carbon emission, deforestation, water supply disruption and biodiversity loss, among others. Economic analysis showed that the total economic value is USD -511,333,357. It indicated that the current situation of smallholder oil plantations on peatland in Siak leads to be greater social cost than social benefit. Proposed policies should encourage sustainable oil palm plantations characterized by a synergistic relationship among legal, social and financial aspect in order to provide optimal economic impacts to communities and minimize adverse effects on the environment. Total economic value of implementation of sustainable smallholder oil palm plantations on peatlands was computed at USD 636,629,211. This indicates that the development of sustainable smallholder oil palm plantations can provide a positive impact on the economy and the environment.


Keywords: Oil Palm, Smallholders, Peatlands, Sustainable.

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