Cost-Benefit Analysis of the Introduction of the Indonesian Sustainable Palm Oil Standards: A Case Study in Jambi Province, Indonesia

by Ernah

This study presents a cost-benefit analysis of the adoption of sustainability standards by small oil palm farmers in Jambi, Sumatra, Indonesia. A panel data set of 185 oil palm smallholders in the district of Merangin, Jambi was used to distinguish the adopters from the non-adopters. The author identified the per-hectare benefits of ISPO adoption by comparing the oil palm yield and production costs of the two groups. This study also developed a hypothetical project that introduces ISPO standards by means of two extension campaign strategies, namely, (1) a conventional extension campaign and (2) Farmer Field Schools (FFS). Another simulation model was developed to represent a scenario with full certification and additional price benefits. Results of the simulation showed that Strategy (1) would achieve an economic internal rate of return (EIRR) of 10%–32%, assuming that adoption rates of 0.1%–5.0% can be reached after 10 years. EIRR in Strategy (2) would be within 24%–37% with adoption rates of 5%–15%. In the certification scenario, project feasibility would depend on the price premium achieved. The calculations showed that with a minimum price of 25% over the current export parity price, an EIRR of 18% can be achieved.

  • Publication Year: 2015
  • Country: Indonesia
  • Research Area: Agriculture
  • Research Topic: IPM, Agrochemical and Health
  • Analytical Framework: Economic Analysis
Economy and Environment Program for Southeast Asia