CHAPTER FOUR DEVELOPMENT OF OIL PALM PLANTATIONS IN JAMBI PROVINCE

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1 CHAPTER FOUR DEVELOPMENT OF OIL PALM PLANTATIONS IN JAMBI PROVINCE The development of oil palm plantations in Jambi province is fully supported by the local government because they believed it would increase provincial income and at the same time eradicate the problem of unemployment. This can be seen from invitation extended to foreign investors to establish oil palm plantations and from the many permits readily issued for new oil palm plantations. This chapter discusses the increase of oil palm area in Jambi as a result of this government support, which will be compared to the other provinces in Sumatra and to the other crops in this province. The implementation of two schemes as well as the availability of infrastructure to back up this expansion will complete the picture of oil palm development in this province Plantation Area In Sumatra, oil palm was first introduced in North Sumatra in the early 1900s (Okamoto, n.d). However, Alamsyah (2002) states that oil palm was first introduced in Jambi as recently as 1983 with the total area at that time being 500 hectares. Compared to the other provinces in Sumatra, the development of oil palm in Jambi was rapid. Table 4.1 shows that the total area of oil palm plantations in Jambi province was the fourth largest in Sumatra in This emphasizes the rapid development of oil palm plantations in this region. 33

2 Table 4.1 Area of Oil Palm and CPO Production of Five Provinces in Sumatra, 1997 Provinces Area (ha) Production (ton) North Sumatra 584,746 2,281,413 Riau 522,434 1,185,949 South Sumatra 247, ,582 Jambi 195, ,502 Aceh 176, ,309 Source: Casson (2000) The rapid expansion of oil palm can also be seen if we compare it with the other plantation crops in Jambi Province. According to data released by the Industrial and Trade Office of Jambi Province (2003), in 1995 the area of oil palm plantations was only 146,295 ha but in 2002 the area had reached 302,152 ha (Table 4.2). If it is compared to rubber plantations, it means that the area of oil palm plantation increased by 155,857 ha or 107% while in the same period rubber plantation area increased only by 40,502 ha or 8%. Areca was considered to be expanding rapidly since the area of plantations in 2002 had increased by more than seventeen times over the area in 1995 but from a low base. The only plantation crop that experienced a decline in area was cocoa. Table 4.2 Comparison of Seven Estate Crops in 1995 and 2002 in Jambi Province Crops Plantation Area (ha) Increase (ha) Rubber 520, ,162 40,502 Oil Palm 146, , ,857 Coconut 122, ,192 12,971 Cassia Vera 52,483 62,128 9,645 Coffee 25,565 28,532 2,967 Areca 297 5,420 5,123 Cocoa 9,531 2,971-6,560 Source: Industrial and Trade Office of Jambi Province (2003). 34

3 The Government of Jambi Province is planning to increase further the oil palm area. In 2003, the oil palm area had reached 350,000 hectares with total production of CPO as much as 850,000 tonnes. In 2007, it is predicted that the area will reach 500,000 hectares with the total CPO production as much as 1.5 million tonnes. In 2010, the total area is expected to be 600,000 hectares with the total CPO production increased to 2 million tonnes (Thahar, 2004b). From the data released by the Estate Crop Office of Jambi Province, there were three types of development schemes for oil palm: smallholder estates, private large estates, and government estates. The smallholder estates can be established independently or by involving the farmers in partnerships with a plantation company in one of two schemes: (1) rural cooperative (KPPA) schemes or (2) nucleus estate and smallholder (NES) schemes. Table 4.3 shows that as a whole the smallholder estate area is the highest among the other development schemes even though there was a decrease in the total area from 2001 to The involvement of farmers in the schemes also declined significantly during that period, while the area of non-scheme smallholders has shown a substantial increase. The government estates recorded the smallest number and have remained relatively constant, while the private estates have shown a significant increase. Table 4.3 Total Area of Oil Palm Plantations According to Type of Development Schemes, Development Total Area (ha) Schemes Smallholder estates -KPPA/NES scheme 144, , ,151 -non scheme 11,837 18,306 20,216 Total in schemes 156, , Government estates 14,817 14,085 14,585 Private estates 124, , ,220 TOTAL 296, , ,152 Source: Estate Crop Office of Jambi Province (2003) 35

4 The declining area of smallholder schemes may be caused by the many difficulties faced in looking after their plantations. However, there are no data showing the area of oil palm abandoned by farmers. On the other side, the increasing area of non-scheme smallholders may indicate the interest of local farmers to plant oil palm independently. It may also relate to a shift from rubber into oil palm. Rosalina (2003) reports that in Tebo, one district in Jambi Province known as the main area for rubber plantations, there has been a decrease in the area of rubber plantations. She predicts that the glorious era of rubber in this region would terminate soon since most of rubber trees are aged more than 25 years and there is no government program to encourage farmers to replant their rubber trees. In Jambi, there is only one state company that plants oil palm, called Perseroan Terbatas Perkebunan Nusantara VI (PTP Nusantara VI). It mainly plants oil palm in the districts of Muaro and Batang Hari. Its production details are shown in Table 4.4. The area reported in Table 4.4 is much higher than the total for government estates in Table 4.3. Table 4.4 Oil Palm Plantation Area and Production by PTP Nusantara VI, Year Total Area Production (kg) (ha) FFB CPO , ,544,000 44,367, , ,972,000 45,239,000 Source: PTP Nusantara VI (2004) Figure 4.1 depicts the approximate location of oil palm areas in Jambi Province. Of the area that surrounds transmigration areas, some belongs to transmigrants and rest to private and government companies. It seeems that these areas were previously forests and have now been converted into resettle and plantation areas. 36

5 Figure 4.1 Approximate Location of Oil Palm, Transmigration, and Forest Areas in Jambi Province 4.2. Infrastructure According to Thahar et al. (2001), the development of oil palm in Jambi Province has focused on expanding the area of plantations (the on-farm aspect) while ignoring the off-farm aspects such as establishing more roads and CPO processing units. As a result, the FFB cannot be processed on time, which is detrimental to the incomes of farmers. However, the Estate Office of Jambi Province argues that the number of CPO processing units is adequate to process all FFB produced in the province. Currently, there are 15 CPO processing units owned by private oil palm companies and 4 units owned by entrepreneurs who have no oil palm plantations. The total processing capacity of the CPO processing units owned by private oil palm companies is 4,290,000 tonnes per year (Estate Office of Jambi Province, 2004). 37

6 Therefore, it seems that lack of CPO processing units is not the reason why some FFB cannot be processed on time. Lack of adequate road infrastructure is actually the main problem since oil palm plantation areas are spread over the countryside and are often far from the CPO processing units. In bad weather conditions such as heavy rain and flood, the farmers face difficulties in bringing their production to those units. According to the Estate Office of Jambi Province (2004), any oil palm company that owns around 12,000 ha of oil palm with production of at least 2.5 tonnes per month has to establish its own CPO processing unit. Among 48 oil palm companies, only nine of them have CPO processing units (the total of 15 units mentioned above). The others have no CPO processing unit as the total area and production have not reached the above requirement. The presence of four CPO processing units that do not have their own plantations has created controversy. They obtain all FFB from farm households by setting a price higher than the price set fortnightly by District and Provincial Government. The presence of these CPO processing units clearly breaks Regulation No. 357/2003 released by the Minister of Agriculture, but no penalty has been imposed on the owners (Thahar, 2003b) Despite controversy about the operation of these CPO processing units, some parties support their presence. Smallholders and oil palm companies that do not own their own CPO processing units mainly perceive the positive impacts. Besides receiving a higher price, they also receive payment in cash at the time of the transaction and there is not too much selection of FFB. On the other hand, the nucleus estate companies suffer adverse impacts such as the decline of FFB supply and the increase of FFB theft. The most negative impact is the increase of farmers debts since the companies cannot deduct them from the sale values as previously done (this is part of the scheme contract between the smallholders and the company). In general, the CPO quality becomes lower since the farmers harvest their palms earlier than the standard time. 38

7 The other infrastructure that has been forgotten is factories to process oil palm by-products as is done in Malaysia. Currently these by-products remain unused Implementation of NES and KPPA Schemes The implementation of NES and KPPA schemes has many critics relating to the weak position of the smallholders, the land status, conversion of forestland, and the emergence of white collar farmers, perceived as an indicator of the inability of farmers to maintain their farms. But not all farmers are interested to participate in the schemes. One case in Jambi demonstrates this, as reported by Suyanto et al. (2000). The farmers felt that KPPA schemes were unfair since they have to release 5.6 ha of their land to the company in order to get 2 ha of oil palm plantation with a credit of around Rp14 million (US$6,478). To pay this credit, the output has to be sold to the company which deducts 30% of the sale for the repayment. Dharsono (n.d) describes bad implementation of both NES and KPPA schemes in Jambi Province. Many farmers who should get extension and assistance from the nucleus estate (in a NES scheme) or the rural cooperative (in a KPPA scheme) are in fact working individually. In turn, this leads to adverse impacts to either the farmers themselves or the nucleus estates. For examples, the quality and productivity of FFB becomes lower since the farmers do not look after the trees at the standard required and the farmers sell the FFB to the other CPO processing units and/or a third party, which in turn means the debts of the farmers in the scheme cannot be paid. As a consequence, many farms are now sold to urban people. The aim to improve the welfare of villagers is not achieved since finally they give up their farms to people considered to be more prosperous than them. 39

8 4.4. Conclusion The development of oil palm plantations in Jambi Province, mainly by private companies, has been rapid, especially compared to the other provinces in Sumatra. However, the development still focuses on expanding the area planted but ignoring the infrastructure needed to back up production or harvest. It may explain why the smallholder estate area decreased in 2002 since the problem of lack of infrastructure is mainly encountered by the farmers more remote areas. The number of CPO processing units is enough in Jambi Province. However, the road infrastructure is inadequate; hence, the farmers face difficulties in dispatching their crop to the CPO processing units. The presence of other factories to process the by-products of oil palm is badly needed, which in turn can increase the income of farmers. The implementation of two schemes, NES and KPPA, has led to more complex problems. The farmers should have a stronger bargaining position because they account for almost half the total oil palm area in the province. The presence of white collar farmers or urban people who have taken over the oil palm farms suggests that oil palm cannot be relied on to provide a sustainable livelihood for poor farmers. 40

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