Agrarian Change, Livelihood Dynamics and Welfare Outcomes in Plantation Farm Households in Indonesia

Livelihood dynamics in rural areas are poorly documented. Using three-wave panel data from the period 2012 until 2018 covering 580 rubber and oil palm smallholders in Jambi province in Indonesia, this study quantitatively investigates their livelihood strategies, trajectories, as well as the associated covariates influencing the processes and changes. The sustainable rural livelihood approach acts as the framework for analysis. Special emphasize is given to the trade-offs smallholders face in the production of oil palm and rubber and how these affect their livelihoods. With the help of activity choice variables and the estimation of a latent markov model, eight distinct livelihood strategies are detected. Smallholders moved actively between strategies. Over time, significant changes in the composition of strategies towards more oil palm oriented and off-farm diversified livelihoods can be observed. Various state led policies and market forces, including a substantial price decline of nearly 50% faced by rubber farmers, are driving these changes. In addition, smallholders with more financial and human capital as well as location advantages have a higher probability of being engaged in more remunerative strategies. Previous studies have shown a positive association between farmsize and smallholder welfare. In the current case, land alone is not enough to improve welfare and even negatively associated with upward mobility. A larger farmsize might restrict labor allocation to off-farm activities that are generally found in the more remunerative livelihood strategies. The results emphasize that improved access to financial capital and education together with enhanced opportunities for off-farm income diversification could lead smallholders to take, on average, a path of improved household welfare.