The rapid expansion of the oil palm area in many tropical countries has raised concerns about its negative impact on local communities, food security, biodiversity, and climate change. While the expansion of oil palm in early stages was mainly driven by large private and public companies, smallholder farmers have increasingly started to cultivate oil palm as well. It is expected that smallholders will outnumber large private and state companies in production as well as oil palm acreage in the near future. For policy formulation it is hence important to better understand who these smallholders are and why they have started to cultivate oil palm. In this paper, we used a rich dataset collected in the province of Jambi, which is one of the most important production areas for oil palm, to analyse smallholders’ decision making by combining qualitative, quantitative, and experimental methods. In fol-lowing such a multi-dimensional, we provided empirical evidence that allows for an in-depth understanding of smallholders’ land use choices, which is intended to support politicians in formulating appropriate regional policies. In particular, we wanted to better understand the major constraints and reasons for farmers to engage in oil palm cultivation, and explore be-havioural differences between oil palm and non-oil palm farmers.
Building on a conceptual framework of land use choice, we differentiate between internal and external factors. The latter refer to macro-level variables at the international and na-tional level, which affect through different transmission channels the internal drivers of oil palm cultivation. Government policies, such as the transmigration program, promoted the uptake and spread of oil palm. But also prevailing property-rights regimes determine the ac-cess to private land and thus who is able to further expand oil palm cultivation. Another fun-damental factor that influences land use choices is the prospective demand for palm oil and related international prices for the commodity. Currently, the world is experiencing a sharp decline in crude palm oil prices which negatively affects profitability and likely disincentive smallholders to invest in oil palm. The price-effect, however, seems to be location depend-ent. In Africa, where palm oil production is dominated by large-scale estates the price drop creates opportunities for smallholder farmers. Estates increasingly contract-out their pro-duction and thus spread the associated risks with farmers (Ghazoul et al., 2015).
At the household level we identified internal factors that influence smallholders’ choices to cultivate oil palm instead of rubber, which is still the dominant crop in our study region. For instance, compared to rubber farmers, oil palm farmers cultivate more area and own more land, and also have more formally titled land. Partly, this may be explained by being sup-ported by the government or companies. Another reason are the lower labour requirements in case of oil palm, which allow the farmer to expand agricultural activities without hiring additional labour. The lower labour requirements have also been identified as a major rea-son for smallholders to grow oil palms. We further showed that returns to land are higher for rubber than for oil palm. Due to the differences in labour requirements, the returns to