C06 - Understanding the certification and replanting behaviour of Indonesian smallholder farmers

Firstly, an analysis will be undertaken to examine if and how the certification behaviour of Indonesian smallholder farmers can be influenced by price premiums and green nudges. As well as this, keeping the life cycle of oil palm plantations in mind, it will be examined how these are chosen by the smallholder farmers in line with normative benchmarks. In each case, corresponding economic experiments will be designed. The individual risk attitude and time preference will be measured using the Holt and Laury, and the Coller and Williams tasks.

Phase 2 was divided into three working packages (WPs) involving smallholder oil palm and/or rubber farmers of the Jambi Province in Sumatra, Indonesia. In WP1, we investigated three possible policies encouraging smallholders’ acceptance of sustainable palm oil (SPO) certifications, i.e., price premium, provision of environmental information, and communication of group norms. We utilised a social dilemma experiment to examine the effectiveness of these policies ex-ante. In WP2, individual risk and time preferences were measured experimentally to obtain a promising database. This allows us to analyse the determinants of risk and time preferences. This knowledge enables a deeper understanding of production and investment decisions of Indonesian farmers in Jambi Province. In WP3, risk and time preferences of people living in rural areas are compared using a cross-country dataset from India and Indonesia.

In Phase 3, we will extend WP1 of Phase 2 by examining two policies that aim to encourage participation in certification schemes to a greater extent. First, to obtain a better understanding of the effect of a price premium, we will widen the research by implementing a price premium with different levels. Secondly, we will examine the effect of green nudges on the acceptance of SPO certifications. In doing so, we will focus on the use of low quality seeds which often prevents participation in SPO certification. As we have been successful in conducting a social dilemma experiment in Phase 2, we will use a similar methodological procedure to conduct the policy impact analysis in Phase 3. Furthermore, to understand abandonment and replanting behaviour of Indonesian smallholders for oil palm plantations we aim to include a comparison between experimentally observed and normatively determined profit-maximising abandonment/replanting time. We will achieve this by conducting a replanting experiment and developing a normative benchmark for optimal replanting. Identifying bounded rationality in replanting behaviour might deliver important insights for smallholders as well as policy makers to stimulate or hamper replanting of oil palms. This is relevant to increase the efficiency of oil palm cultivation with the objective to use scarce resources sustainably. Finally, we will once again measure the risk and time preferences of the smallholders using (i) a Holt and Laury task (HL-task, Holt and Laury 2002) and (ii) a Coller and Williams task (CW-task, Coller and Williams, 1999). The resulting panel dataset will be used to examine the stability of risk and time preferences over time. We will collaborate with other projects from A and B groups to obtain information on rainforest transformation and to estimate yield functions which depict the relationship between oil palm plantation age and harvested output (e.g. A03 Knohl, A07 Knohl/Veldkamp, B09 Westphal/Graß), and also from the C group to combine information on socio-economic dimensions of farmers’ household (e.g. C07 Qaim, C08 Wollni).

Trennblatt C06 a
Fig. 1. Rubber farmer and his house in Desa Lubuk Beringin, Bungo.
Trennblatt C06 b
Fig. 2. Questionnaire sheet and colored balls for Holt and Laury task.