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Contract Farming and Vulnerability to Poverty among Oil Palm Smallholders in Indonesia

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  • Eko Ruddy Cahyadi
  • Hermann Waibel

Abstract

This article addresses smallholder oil palm farming in Indonesia and the risk of falling into poverty by comparing contract and non-contract smallholders. We use an asset-based approach to define vulnerability and apply propensity score matching analysis to assess the impact of contract farming. Data were collected from a cross-sectional survey conducted in 2010 of 245 oil palm smallholder households, 126 of which were contract smallholders. The study finds that approximately 40 per cent of oil palm smallholders can be classified as stochastic-transient poor. We also show that while contract participation reduces the negative impact of oil palm price shocks, this is not the case for production shocks. The study concludes that despite positive income effects, contract smallholders also remain vulnerable to poverty.

Suggested Citation

  • Eko Ruddy Cahyadi & Hermann Waibel, 2016. "Contract Farming and Vulnerability to Poverty among Oil Palm Smallholders in Indonesia," Journal of Development Studies, Taylor & Francis Journals, vol. 52(5), pages 681-695, May.
    • Handle: RePEc:taf:jdevst:v:52:y:2016:i:5:p:681-695
    DOI: 10.1080/00220388.2015.1098627
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    Cited by:

    1. Ogahara, Zoë & Jespersen, Kristjan & Theilade, Ida & Nielsen, Martin Reinhard, 2022. "Review of smallholder palm oil sustainability reveals limited positive impacts and identifies key implementation and knowledge gaps," Land Use Policy, Elsevier, vol. 120(C).
    2. Muhammad Masood Azeem & Amin W. Mugera & Steven Schilizzi & Kadambot H. M. Siddique, 2017. "An Assessment of Vulnerability to Poverty in Punjab, Pakistan: Subjective Choices of Poverty Indicators," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 134(1), pages 117-152, October.
    3. Arouna, Aminou & Michler, Jeffrey D. & Lokossou, Jourdain C., 2021. "Contract farming and rural transformation: Evidence from a field experiment in Benin," Journal of Development Economics, Elsevier, vol. 151(C).
    4. Sibhatu, Kibrom T. & Steinhübel, Linda & Siregar, Hermanto & Qaim, Matin & Wollni, Meike, 2022. "Spatial heterogeneity in smallholder oil palm production," Forest Policy and Economics, Elsevier, vol. 139(C).
    5. Gatto, Marcel & Wollni, Meike & Asnawi, Rosyani & Qaim, Matin, 2017. "Oil Palm Boom, Contract Farming, and Rural Economic Development: Village-Level Evidence from Indonesia," World Development, Elsevier, vol. 95(C), pages 127-140.
    6. Sagarika Dey & Ritumani Haloi, 2019. "Assets, Rural Livelihood Strategies and Welfare Outcomes: A Case Study from South Assam, India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 62(4), pages 595-620, December.
    7. Nguyen Hung Anh & Wolfgang Bokelmann & Ngo Thi Thuan & Do Thi Nga & Nguyen Van Minh, 2019. "Smallholders’ Preferences for Different Contract Farming Models: Empirical Evidence from Sustainable Certified Coffee Production in Vietnam," Sustainability, MDPI, vol. 11(14), pages 1-26, July.
    8. Keijiro Otsuka, 2021. "Strategy for Transforming Indonesian Agriculture," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 57(3), pages 321-341, September.
    9. Ola, Oreoluwa & Menapace, Luisa, 2020. "A meta-analysis understanding smallholder entry into high-value markets," World Development, Elsevier, vol. 135(C).
    10. Jian Li & Ping Qing & Wuyang Hu & Minglai Li, 2022. "Contract farming, community effect, and farmer valuation of biofortified crop varieties in China: The case of high‐zinc wheat," Review of Development Economics, Wiley Blackwell, vol. 26(2), pages 1035-1055, May.
    11. Nadjia Mehraban & Christoph Kubitza & Zulkifli Alamsyah & Matin Qaim, 2021. "Oil palm cultivation, household welfare, and exposure to economic risk in the Indonesian small farm sector," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(3), pages 901-915, September.
    12. Isaac Koomson & Renato A. Villano & David Hadley, 2020. "Effect of Financial Inclusion on Poverty and Vulnerability to Poverty: Evidence Using a Multidimensional Measure of Financial Inclusion," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 149(2), pages 613-639, June.
    13. Rashesh Shrestha & Ian Coxhead, 2018. "Can Indonesia Secure a Development Dividend from Its Resource Export Boom?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 54(1), pages 1-24, January.
    14. Mohan, Sarah, 2020. "Risk aversion and certification: Evidence from the Nepali tea fields," World Development, Elsevier, vol. 129(C).
    15. George Malindretos & Eleni Sardianou & Maria Briana, 2023. "Farmers’ Perception on Contract Farming in the Post-COVID Era: Empirical Study in Greece," Sustainability, MDPI, vol. 15(20), pages 1-14, October.
    16. Astari, Annisa Joviani & Lovett, Jon C., 2019. "Does the rise of transnational governance ‘hollow-out’ the state? Discourse analysis of the mandatory Indonesian sustainable palm oil policy," World Development, Elsevier, vol. 117(C), pages 1-12.
    17. Ayeduvor Selorm & D. B. S. Sarpong & Irene S. Egyir & Akwasi Mensah Bonsu & Henry An, 2023. "Does contract farming affect technical efficiency? Evidence from soybean farmers in Northern Ghana," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 11(1), pages 1-22, December.
    18. Iffat Abbas Abbasi & Hasbullah Ashari & Amin Jan & Ahmad Shabudin Ariffin, 2021. "Contract Farming towards Social Business: A New Paradigm," Sustainability, MDPI, vol. 13(22), pages 1-17, November.
    19. Angelo Frascarelli & Stefano Ciliberti & Gustavo Magalhães de Oliveira & Gabriele Chiodini & Gaetano Martino, 2021. "Production Contracts and Food Quality: A Transaction Cost Analysis for the Italian Durum Wheat Sector," Sustainability, MDPI, vol. 13(5), pages 1-12, March.
    20. Bellemare, Marc F. & Bloem, Jeffrey R., 2018. "Does contract farming improve welfare? A review," World Development, Elsevier, vol. 112(C), pages 259-271.
    21. Amrita Saha & Rachel Sabates-Wheeler & John Thompson, 2022. "Insights into smallholder capacity for agricultural commercialisation: Evidence from four African contexts," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(4), pages 1757-1802, August.
    22. Ba, Hélène A. & de Mey, Yann & Thoron, Sylvie & Demont, Matty, 2019. "Inclusiveness of contract farming along the vertical coordination continuum: Evidence from the Vietnamese rice sector," Land Use Policy, Elsevier, vol. 87(C).
    23. Sibhatu, Kibrom T. & Steinhübel, Linda & Siregar, Hermanto & Qaim, Matin & Wollni, Meike, 2021. "Spatial Heterogeneity of Oil Palm Production in Indonesia: Implications for Intervention Strategies," 2021 Conference, August 17-31, 2021, Virtual 315222, International Association of Agricultural Economists.
    24. Cadman, Tim & Sarker, Tapan & Muttaqin, Zahrul & Nurfatriani, Fitri & Salminah, Mimi & Maraseni, Tek, 2019. "The role of fiscal instruments in encouraging the private sector and smallholders to reduce emissions from deforestation and forest degradation: Evidence from Indonesia," Forest Policy and Economics, Elsevier, vol. 108(C), pages 1-1.
    25. Mettauer, Romane & Baron, Victor & Turinah, & Demitria, Puspita & Smit, Hans & Alamsyah, Zulkifli & Penot, Eric & Bessou, Cécile & Chambon, Bénédicte & Ollivier, Jean & Thoumazeau, Alexis, 2021. "Investigating the links between management practices and economic performances of smallholders' oil palm plots. A case study in Jambi province, Indonesia," Agricultural Systems, Elsevier, vol. 194(C).

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