InfoSAWIT, JAKARTA – As a significant contributor to Indonesia's natural resource sector, the palm oil industry plays a vital role in advancing the economies of various regions, particularly in remote rural areas. The development of palm oil plantations not only optimizes land use but also creates tangible socio-economic impacts that gradually improve the welfare of local communities.
The presence of palm oil plantations in smaller, marginalized regions has successfully driven sustainable economic growth. As plantation areas expand, surrounding communities witness economic growth through more vibrant local commerce, service businesses, and essential supply chains for the plantations. Once the high-yield palm seedlings reach a maturity of 2.5 years, harvest activities begin, contributing directly to the local economy every month.
Economist Lincolin Arsyad highlighted that a region’s economic growth progresses with shifts in its economic structure. The development of the palm oil sector boosts regional GDP and employment, fostering greater prosperity. Furthermore, this industry fuels demand for supporting goods like fertilizers and agricultural tools, opening new business opportunities for local residents.
The synergy between palm oil plantations and local communities is key to sustained growth. Successful plantations help build rural areas, generating continuous socio-economic benefits. Focused on sustainable development, this growth supports not only the welfare of the companies but also establishes a stable economic foundation for surrounding communities.
Dedi Junaedi, Deputy Chairman of the Indonesian Plantation Entrepreneurs Association (GPPI), stressed the importance of collaboration among various stakeholders to advance the palm oil sector and enhance farmers' welfare, especially in transmigration areas. He emphasized that palm oil serves as a major economic driver for these regions, being Indonesia’s second-largest foreign exchange contributor after coal. However, the sector faces productivity, legal, and energy resilience challenges, which the government aims to address through initiatives like the B50 biodiesel program and support for smallholder palm oil rejuvenation.
According to Junaedi, independent farmers face challenges, particularly limited access to high-quality seeds and sustainable farming resources. "Seed quality greatly impacts yields, yet many farmers use substandard seeds," he noted during the 16th Sustainable Palm Oil Focus Group Discussion, entitled "Sustainable Oil Palm Plantations Grow the Economy of Rural Communities", held by InfoSAWIT in collaboration with BPDPKS on November 1, 2024. He added that high initial investment costs for palm oil plantations can burden farmers, especially if their seedlings are unproductive.
GPPI also promotes sustainable certifications such as RSPO and ISPO, which provide access to export markets and secure better prices. Nonetheless, funding remains a challenge for independent farmers seeking certification. “Government support is crucial to strengthen institutions and equip farmers with best practices in farming,” Junaedi stated. He further advocated for the establishment of farmer cooperatives to improve their bargaining power in selling produce, enabling farmers to move beyond selling fresh fruit bunches to producing value-added palm oil products.
GPPI aims to accelerate the implementation of a carbon certification program for palm oil plantations, supporting the government’s national carbon emission reduction targets. Junaedi concluded by underscoring the importance of collaboration among central and local governments and all stakeholders to ensure the sustainability of the palm oil sector. GPPI anticipates that these efforts will enhance farmers' welfare and elevate Indonesian palm oil as a globally competitive commodity.
Ignatius Ery Kurniawan, Editor-in-Chief of InfoSAWIT, highlighted how palm oil development has substantially impacted the economies of remote regions across Indonesia. He noted that palm oil plantations have transformed rural areas into progressive villages, with the potential to evolve into cities or provinces over decades.
“Palm oil’s focus today is not merely about cultivating plantations but creating positive economic impacts for communities,” Ery stated. He noted that palm oil supports regional income in the majority of Indonesia's 38 provinces, illustrating its strategic role in regional development. He emphasized the critical role of local governments in supporting farmers, particularly by forming cooperatives to improve farmers' welfare, given many still work independently without strong institutional support.
Ery also pointed out the substantial need for funding to rejuvenate smallholder plantations, especially through BPDP-KS subsidies, to boost productivity and facilitate sustainable practices. He expressed that current smallholder farming practices fall short of sustainability standards and require guidance and financial support to achieve maximum productivity.
Ery emphasized the need for balanced partnerships between farmers and palm oil companies. “Partnerships should be transparent and mutually beneficial. Without this, numerous obstacles will arise in the field,” he remarked, hoping these partnerships will fortify both farmers' and companies' positions in maintaining sustainable palm oil operations.
As demand from export markets grows, Ery underscored the importance of sustainable certifications like ISPO and RSPO as prerequisites. These certifications enhance not only cultivation practices but also the business value of palm oil products globally. He mentioned that adopting sustainable certifications could enable farmers to access broader markets and improve their welfare.
Marselinus Andry of the Oil Palm Farmers Union (SPKS) advocated for strengthening legal rights and institutional support to empower small-scale farmers. Many independent farmers, he said, face challenges regarding land ownership and bargaining power within the palm oil supply chain. SPKS assists farmers in obtaining stronger land ownership rights through data collection and land certification.
In partnership with palm oil companies, SPKS has initiated a supply chain integration program in several districts, facilitating farmers' direct market access. Marselinus urged government, companies, and civil society organizations to support small-scale farmers in overcoming challenges like legal access and capacity building to ensure the sustainability of Indonesia’s palm oil sector. "Support from government and business players is crucial in realizing the sustainability goals of the palm oil industry, aligned with the Sustainable Development Goals (SDGs)," he concluded. (T2)
