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

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. Dat...

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Bibliographic Details
Published in:The Journal of development studies 2016-05, Vol.52 (5), p.681-695
Main Authors: Cahyadi, Eko Ruddy, Waibel, Hermann
Format: Article
Language:English
Subjects:
Agricultural economics
Agriculture
Economic models
Farming
Households
Income
Low income groups
Oils & fats
Participation
Petroleum
Poverty
Risk
Vulnerability
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Summary: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.
ISSN:0022-0388
1743-9140
DOI:10.1080/00220388.2015.1098627