Indonesia’s Palm Oil Paradox: Why Smallholder Productivity Remains the Weakest Link

 

Why smallholder productivity remains the weakest link by AI.

In the global race for palm oil supremacy, Indonesia’s smallholder farmers — the backbone of the nation's production — are falling dangerously behind. Despite the country's status as the world’s largest exporter of palm oil, a growing gap in productivity between corporate plantations and independent smallholders is threatening to erode Indonesia’s competitive advantage.

The numbers are stark. Smallholder plantations in Indonesia, particularly in Kalimantan, produce just 2 tons of crude palm oil (CPO) per hectare per year — a figure dwarfed by the 4 to 8 tons per hectare achieved by private sector plantations. This discrepancy points to a deep structural challenge: while large agribusinesses have perfected the science and practice of palm cultivation, independent farmers have been left without the tools, knowledge, or support to keep pace.

At the heart of the problem is a culture of "shortcut farming." In an effort to minimize costs and labor, many smallholders opt for quick, inexpensive planting methods, often using uncertified or poor-quality seeds. Experts say this sets farmers up for chronic underperformance right from the start.

Productivity is not an accident

“Productivity is not an accident,” said Bayu Krisnamurthi, Chairman of the Perhimpunan Ekonomi Pertanian Indonesia - Indonesian Agricultural Economics Association (Perhepi). 

“It is the result of careful choices — in seed selection, fertilization, and maintenance. Without attention to every link in this chain, farmers will always be left behind.”

The productivity crisis is not simply a matter of seeds. Across the production cycle, smallholders face knowledge gaps. Many are unfamiliar with proper harvesting techniques — such as identifying optimal fruit ripeness or cleaning the plantation's gawangan (row spaces) effectively. Moreover, old plantations, with palm trees aging well past 25 years, have often been neglected, their replanting delayed due to a lack of resources and guidance.

Even when replanting is attempted, it is rarely systematic. Without enough capital, farmers resort to injecting herbicides to kill old trees while trying to replant new ones between them — a practice that, while pragmatic, rarely leads to optimal yields.

The stakes are global

This smallholder stagnation comes at a perilous time. Malaysia, Indonesia’s closest rival, continues to push the frontier of palm oil efficiency. Meanwhile, global scrutiny over sustainability and deforestation pressures major producers to demonstrate not just high output, but responsible farming practices.

Bayu Krisnamurthi stresses that to maintain its dominance, Indonesia must ensure a minimum production of 25 tons of fresh fruit bunches (FFB) per hectare annually — a target far beyond the current output of many smallholders.

“It’s not just about sustaining palm oil,” Bayu explained. “It’s about sustaining our competitiveness.”

The government and industry players agree: focusing on yield improvement among smallholders is no longer optional — it’s a necessity. Because large private plantations have already reached high productivity levels, any significant future gains must come from empowering the millions of independent farmers who collectively control around 40% of Indonesia's palm oil acreage.

Path forward: education and support

Solutions, experts say, must begin with a robust, systematic extension of support services: training on best practices, access to certified seeds, affordable financing for replanting, and ongoing technical assistance. Without such interventions, smallholders will remain locked in a cycle of low productivity, poor incomes, and dwindling relevance in the global market.

Some pilot programs have shown promise. Cooperative models, where farmers pool resources and receive professional management support, have boosted yields dramatically. But scaling such models nationally remains a daunting challenge.

Still, time is short. As the world demands more sustainable, high-quality palm oil, Indonesia’s smallholders must evolve — or risk becoming the Achilles' heel of an industry they helped build.

-- Rangkaya Bada