‘Smallholding for Whom?’: The effect of human capital appropriation on smallholder palm farmers

This study explores how contract farming agreements between smallholder farmers of palm oil and futures traders of palm stocks impac t the long-term economic development of smallholder palm oil farming in Indonesia. We examined the relative impact of transnational palm oil corporations on smallholder assets in the Indonesian palm oil industry using annual financial data (2003–2019) from Indonesian commodities trading firms. Tem poral trends indicated that oligopolistic market conditions were strongly associated with a growing comparative advantage in palm oil, the asymmetric accumulation of land resources by transnational firms, and excessive firm revenues from palm farmer activities. Our regression modelling results sugge sted that the comparative advantage in Indonesian palm oil was driven by state-oriented policies such that benefit palm traders but disadvantage smallholder farmers. And, through non-metric multidimensional scaling, we demonstrated that smallholder farmers were inefficiently used by firms to produce palm oil, but that smallholder assets were a significant driver to firm revenue growth. Notwithstanding the adverse consequences on palm farmers, these results indicate a set of unique effects of palm oil contract farming on land and labor security in Southeast Asia. The paper reasons that a syste m of inequitable contract farming is operating in the Indonesian palm oil industry, whereby smallholder palm oil farmers are trapped by transnational firms into soc...
Source: Agriculture and Human Values - Category: Food Science Source Type: research