The small that counts: The significance of smallholders in global economy.

PRODUCTIVITY OF SMALLHOLDERS. The largest challenge for palm oil is how to continue to meet burgeoning demand within developed and developing economies. The productivity of palm oil is such that it is the oil seed of preference to meet future demand as there are few or no “land banks” left for soy and rapeseed whose productivity lags far behind. The key in this respect is how to improve the productivity of oil palm smallholders.

Smallholders play a pivotal role in the economy of palm oil.  It is estimated that as much 40% of the work output of palm oil is cultivated by smallholders. Despite their significant portion, smallholders gain little economic benefits from oil palm sector, indicated by low income, that is partly linked to low productivity.

In case of Indonesia, oil palm smallholders, particularly independent smallholders, yield averagely 2,5 tons crude palm oil (CPO) per hectare per year, which is less than half of large plantation’s and is even far below potential productivity of 8 tons per hectare per year. It is generally accepted that the lower production is mainly due to the increase in the aged oil palm trees and cultivation of fake seeds.

The improvement of the productivity of smallholders is now considered to be at the forefront of sustainable efforts by ensuring that future demand for palm oil can be met on existing lands.  It is estimated that an increase in productivity of smallholders would contribute significantly on the supply side. This would alleviate pressure on land clearance as demand, but the income of smallholders will grow to which will also address inequality of the direction of income.

The problem faced in improving productivity include: the existence of considerable amount of unproductive, old and damage plants in the smallholders’ plantations; smallholders’ limited knowledge for implementing Good Agriculture Practices (GAP) that increases risk for pest and diseases; weak farmers’ institution, and limited access to financial institutions.

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