Oil palm plantation investments in Indonesia’s forest frontiers: limited economic multipliers and uncertain benefits for local communities

This paper examines the implications of oil palm estate development in Indonesia’s frontier province of Papua. Government planners believe that oil palm investment will develop the local economy, create jobs and reduce poverty. Using the input–output approach, we find that, in aggregate terms, oil palm investments boost the economic output in the province, generate jobs and increase worker salaries. However, the oil palm subsector operates in isolation and has limited economic multipliers. The number of jobs is potentially large, but those best positioned to benefit from them are mostly skilled migrants, not local poor. The government should reduce the size of plantation investments and plan their implementation as part of a broader development package to allow greater economic integration and skill acquisition by local communities. The priority areas for plantation development should be degraded, non-forest land.     

Pulp industry and environment in Indonesia: is there sustainable future?

The global demand for wood is set to increase significantly over the next two decades. The growth is to be particularly pronounced in the Asia Pacific, and timber plantations are expected to be a major source of wood fiber. Indonesia is taking steps to meet the global demand for wood by expanding its pulp production and timber plantations. However, there are concerns about the environmental trade-offs of this expansion. The pulp sector continues to rely on natural forests for timber. The size and productivity of timber plantations are uncertain because of unreliable data. The employment and poverty alleviation potential of the pulp sector are overstated. The pulp sector continues to attract large-scale foreign capital due to high returns on undervalued timber from natural forest. However, environmentally and socially, it is a high-risk investment. The pulp sector in Indonesia can be environmentally sustainable and economically profitable, but the conversion of natural forest must be stopped; the use of non-forest land for plantations must be maximized; and smallholder tree-growing schemes must be made simpler and more attractive. Careful revision of the pulp growth targets and greater investor due diligence are needed to ensure a more sustainable future.