Collaborative Research Centre 990: Ecological and Socioeconomic Functions of Tropical Lowland Rainforest Transformation Systems (Sumatra, Indonesia) (Phase 2: 2016 – 2019)

C01 - Smallholder productivity, market access, and international linkages in rubber and palm oil production in Jambi Province

The transformation of smallholders` land use in Jambi province towards monoculture is largely driven by the expected superior income opportunities that smallholders perceive in palm oil and rubber production. The production techniques, however, in smallholder oil palm and rubber production are substantially more heterogeneous than in large-scale estates. Technical and environmental efficiency of smallholders in these production activities vary considerably, depending on the particular environmental good or service at focus. Among the drivers of technical efficiency, management practices play an important role. Those practices, which simultaneously contribute to mitigating environmental pressure and improve the economic outcomes, are of particular interest. Economic incentives for smallholder production are also affected more strongly by the variation in prices which the farmers face, both on the output and on the input side, compared to large-scale estates. For exportable cash crops such as rubber and palm oil, the farm gate prices derive from the international prices, after accounting for trade costs (marketing margin). Results from the first phase indicate that, particularly in the case of rubber, the marketing margin is affected by severe problems along the value chain, including both the trader and the crumb rubber factory levels. Hence, in order to understand fully the effects of the observed transformation on the well-being of smallholders, a holistic value chain perspective is needed.
The overarching objective in this project is to combine analyses of various stages along the value chains for rubber and oil palm in order to assess the long-term viability and the effects on sustainability of rubber and oil palm production in Jambi. In work package 1, the existing two rounds of plot level data will be augmented by a third round, in which we extend the scope of environmental data to be collected. The availability of panel data will allow us to analyse dynamic technical and environmental efficiency. From a production perspective, we will augment the standard efficiency models to incorporate the possibility of investments into the plantation. After the third round has been completed, productivity growth analysis in both economic and environmental dimension will be conducted.
In work package 2, the value chain for palm oil and rubber will be further analysed. The analysis will be based on the two rounds of data collected in the first phase, and a third round will be conducted in the second phase. Thus, panel data techniques and network analyses will allow us to shed light on the functioning of these value chains. We augment this trader level analysis by focusing on the functioning of the input markets, in particular the access to capital through credit by matching household data and small scale trader data. For rubber, alternative marketing channels will be analysed with respect to their potential for limiting the abuse of existing market power, e.g., auction markets, or direct marketing. The latter require certification of the rubber, which will be another important aspect.