Decentralization and the environment: Assessing smallholder oil palm development in Indonesia


Indonesia’s oil palm expansion during the last two decades has resulted in widespread environmental and health damages through land clearing by fire and peat conversion, but it has also contributed to rural poverty alleviation. In this paper, we examine the role that decentralization has played in the process of Indonesia’s oil palm development, particularly among independent smallholder producers. We use primary survey information, along with government documents and statistics, to analyze the institutional dynamics underpinning the sector’s impacts on economic development and the environment. Our analysis focuses on revenue-sharing agreements between district and central governments, district splitting, land title authority, and accountability at individual levels of government. We then assess the role of Indonesia’s Village Law of 2014 in promoting rural development and land clearing by fire. We conclude that both environmental conditionality and positive financial incentives are needed within the Village Law to enhance rural development while minimizing environmental damages.

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Fig. 1


  1. 1.

    Our focus in this article is on smallholders, despite the important role still played by plantations in producing and milling palm oil. The plantation sector has been covered extensively in the literature (see for example, Cramb and McCarthy 2016; Gaveau et al. 2016a; Seymour and Busch 2016). Many of these documents deal with the dynamics of certifying sustainable-production practices, which, because of cost and complexity, are of limited relevance to independent smallholders. The plantation story is related, but because of length restrictions we have largely excluded it in this article.

  2. 2.

    By comparison, the value of US soy exports was nearly identical at USD 21.5 billion for the 2017 calendar year (USCB n.d.).

  3. 3.

    B30 refers to a 30% biodiesel content requirement in diesel fuel mixes. CPO exports are taxed according to a variable levy, and the tax revenues go into a CPO fund that is used for investments in Indonesia’s biodiesel industry and smallholder producers (Byerlee et al. 2017).

  4. 4.

    For example, Ribot et al. (2006) discuss impediments to decentralization of resource management in six countries: Senegal, Uganda, Nepal, Indonesia, Bolivia, and Nicaragua.

  5. 5.

    The Indonesian government is split into five levels of administration: central government, provinces, districts (kabupaten), subdistricts (kecamatan), and villages (desa). In 2017, there were 34 provinces, 416 kabupaten, 7492 kecamatan, and 74 851 desa (Kementerian Dalam Negeri 2017). Kota (98 in 2017) and kelurahan (8500 in 2015) refer to cities and urban villages (wards), respectively, and will not be discussed in this paper. The term “regional” is used as a general term referring to subnational governments, usually districts. The terms “village government” and “local government” are used interchangeably.

  6. 6.

    A maximum of 90% of natural forests within an oil palm concession can be converted legally (Lawson et al. 2014).

  7. 7.

    For information on the regulations for splitting districts, see Law 22/1999 on Regional Governance or Law 32/2004 on Regional Autonomy.

  8. 8.

    Recent examples of district police complicit in illegal oil palm development are well documented (EIA 2014). In 2014 then-Governor of Riau Province Annas Maamun was arrested for accepting roughly USD 150 000 in bribes from a major oil palm company in exchange for issuing 2432 ha of land-conversion permits for new oil palm development. The former governor was convicted in June 2015 and sentenced to 6 years in prison.

  9. 9.

    Legally, a smallholder can manage up to 25 ha. If a farmer acquires greater than 25 ha, they are supposed to register as a small business, although this rarely occurs. Some “smallholders” manage several hundred hectares of land in various locations (Jelsma et al. 2017).

  10. 10.

    After harvest, FFBs must be milled within 48 h to meet international quality standards. As a result, each mill creates a “supply shed” defined by its capacity utilization and its distance/time from oil palm areas (Byerlee et al. 2017).

  11. 11.

    In addition, research on comparable systems in Malaysia (Martin et al. 2015), along with evidence from our field interviews in Indonesia, indicate that independent smallholders receive up to 25% lower prices by weight for FFB than plasma smallholders selling to the same mill, mainly as a result of inferior fruit quality and their reliance on intermediaries to transport and sell FFB to the mills.

  12. 12.

    A wide variety of village-owned enterprises have already been launched under the Village Law, many of which target problems facing smallholder farmers. Our field survey revealed, for example, that the village of Batu Rijal, Dharmasraya, West Sumatra launched a nursery for high-quality oil palm seedlings, which are sold to smallholder farmers at a reduced price. Other villages, such as Sungai Besar and Sungai Pelang in the District of Ketapang, West Kalimantan operate crop aggregation companies that enable villagers to bargain collectively for higher prices. Some villages (e.g., Muara Siran in Kutai Kartanegara District, East Kalimantan and Samurangau in Paser District, East Kalimantan) also use Dana Desa funds to provide microcredit services to villagers.

  13. 13.

    The “One Map” initiative seeks to merge existing regional, local, and ministerial maps in order to create a single reference map for the entire country although “One Map” was first proposed in 2010, little progress has been made as of November 2018 because many regional governments, corporations, and ministries have been reluctant to provide concession data out of fear that these data will reveal instances of illegality or corruption.

  14. 14.

    For reference on Indonesia’s Grand Design, see


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The authors thank Sudarno Sumarto, Paul Heytens, James Leape, John Hartmann, Donald Emmerson and two anonymous reviewers for helpful feedback on the manuscript, and Gracia Hadiwidjaja for her comprehensive assistance in the field.

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Correspondence to Rosamond L. Naylor.

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Naylor, R.L., Higgins, M.M., Edwards, R.B. et al. Decentralization and the environment: Assessing smallholder oil palm development in Indonesia. Ambio 48, 1195–1208 (2019).

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  • Decentralization
  • Indonesia
  • Oil palm
  • Smallholders
  • Village Law