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Research Report

The Hesitant Boom:: Indonesia’s Oil Palm Sub-Sector in an Era of Economic Crisis and Political Change

Anne Casson
Copyright Date: Jun. 1, 2000
Pages: 55
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Table of Contents

  1. (pp. 2-2)

    Oil palm has been one of the most dynamic of Indonesia’s agricultural sub-sectors. Dating from the late 1960s, the oil palm sub-sector expanded from around 106,000 hectares to 2.5 million hectares in 1997. This prolific growth has conferred important economic benefits, inasmuch as it has become an important source of foreign exchange and employment. However, it has also become a source of concern, because much of the oil palm expansion has happened at the expense of Indonesia’s humid tropical forest cover.¹ Oil palm expansion has also been held partly responsible for the 1997/98 forest and land fires that affected more...

  2. (pp. 3-7)

    The Indonesian oil palm sub-sector has experienced remarkable growth since the late 1960s. The area of oil palm plantations has increased from 106,000 hectares in 1967 to 2.5 million hectares in 1997, implying an average growth rate of 11.2 percent per annum (See Appendix 2). Most of this oil palm plantation area is concentrated in the six provinces of North Sumatra, Riau, South Sumatra, West Kalimantan, Jambi and Aceh (Figure 1). While North Sumatra could be perceived as a traditional area,² the others are areas of new development, having experienced sharp growth in the last decade. For example, Riau and...

  3. (pp. 7-17)

    From the beginning of the economic crisis (mid-1997) through to early 1998, it appeared that the Indonesian oil palm sub-sector would continue to expand. Indeed, it seemed as if changes resulting from the crisis would not only allow continued growth but even encourage faster growth. Most important were windfall profits made possible through depreciation of the rupiah against the dollar and a low export tax of 5 percent. By increasing sales to the export market, companies were able to take advantage of high international CPO prices and low production costs. The government then issued a directive removing barriers to foreign...

  4. (pp. 17-28)

    In the foregoing we have seen that the Indonesian oil palm sub-sector grew at a phenomenal pace in the three decades prior to 1998, and then entered a period in which CPO production declined for the first time since 1969 and area growth began to slow down. The relevant questions to pose at this juncture are: (1) What are the prospects for renewed area growth?; and (2) If growth does resume, what potential impacts will this have on Indonesia’s remaining natural forest cover?

    It is difficult to answer the first question with any degree of certainty because economic and political...

  5. (pp. 28-29)

    The Indonesian oil palm sub-sector expanded rapidly after 1967. Much of this growth has occurred in the last decade and posed a significant threat to Indonesia’s existing forest cover. It has also displaced local communities and increased social conflict. At the beginning of the economic crisis in 1997, there was every expectation that the oil palm boom would not only continue, but also be propelled by the currency depreciation and lifting of foreign investment constraints. But a slowdown in area expansion and CPO production took hold instead. From early 1998 through to mid-1999, oil palm area expansion slowed significantly and...