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

Abstract

"From 1967 through to 1997, oil palm was one of the fastest growing sub-sectors of the Indonesian economy, increasing 20-fold in planted area and showing 12 percent average annual increases in crude palm oil (CPO) production. While the growth of the oil palm sub-sector has conferred important economic benefits, it has posed an increasing threat to Indonesia's natural forest cover. Local communities have also been displaced by the large scale oil palm plantations and social conflict has resulted.

"At the beginning of the economic crisis, there was every expectation that the oil palm boom would not only continue, but would 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. For 1999, the government estimated that only 177,197 hectares of oil palm would be planted. While this is a large area increase, it is a 33 percent decline in plantation expansion compared to the 266,565 hectares planted in 1997. CPO production also declined for the first time since 1969 and reached only 5 million tonnes in 1998. This was a 7 percent decline in production from 1997 when it reached almost 5.4 million tonnes.

"...While the government is committed to emphasising oil palm development in Eastern Indonesia, particularly in Kalimantan and Irian Jaya, most expansion can be expected to occur in Sumatra in the near future. Oil palm companies will, however, continue to apply for concession areas in Kalimantan, Irian Jaya and Sulawesi in the near term to gain access to forest land. Unless there are fundamental changes in the way forest land is allocated in Indonesia, further expansion in the oil palm sub-sector will continue to pose a significant threat to Indonesia's forest cover."