Supplement

Palm oil as an economic
pillar of Indonesia

In his inauguration speech as president of Indonesia for 2009 to 2014, Susilo Bambang Yudhoyono expressed his determination to improve the economy, giving priority to improving public welfare and reducing poverty. These goals will be done through economic programs that will focus on: **Economic development based on competitiveness of natural resources management and human resource improvement. **The creation of inclusive, fair and equal economic growth. (Kompas, Oct. 21, 2009).

The oil palm plantation is one of the development pillars in agriculture that is based on natural resources and the natural richness of Indonesia. The palm oil industry in Indonesia currently involves seven million hectares, with smallholder farmers accounting for 40 percent (almost three million hectares). In 2008 crude palm oil (CPO) production reached 19.2 million tons and generated US$12.4 billion in foreign exchange from exports, making CPO the most valuable non-oil and gas export last year.

It is also important to note that 3.5 million households (about 14 million people) of farmers and employees make a living from oil palms (on farm). The number of those indirectly involved in the palm oil industry (off farm) is even much bigger. Thanks to the development of local suppliers, contractors (transportation, construction, etc.) and village market workers.

Those who are involved (directly and indirectly) in the industry earn an adequate living. Just imagine, with the current CPO price ($700/ton), a smallholder partner or plasma farmer that owns a two-hectare farm can still enjoy a net income of Rp 3 million to Rp 4 million monthly. They live near the plantations in decent houses with satellite TV and at least one motorcycle. Employees who work on plantations also enjoy a good life. They receive a salary plus incentives each month, live in decent housing with health insurance and medical treatment provided by the oil palm plantations company for their family members.

The development of oil palm plantations also plays a key role in rural development. As we know, the development of oil palm plantations takes place in the hinterlands of Sumatra, Kalimantan, Sulawesi and Papua, which are barely touched by the central government and receive scant attention related to modern economic activities. With extraordinary multiplier effects, oil palm plantations in turn will become new centers of economic activities in rural areas. The development of road infrastructure provides access for isolated areas, allowing fast and dynamic economic activities. The establishment of oil palm plantations can often lead to the emergence of new districts, regencies and even provinces.

Indonesia still has vast tracts of land for future development of oil palm plantations. It is estimated that there are 18 million hectares of land that are available and suitable for oil palm plantations. If the government is serious in encouraging the development of oil palm plantations, it is expected that by 2020 Indonesia will produce no less that 40 million tons of CPO with 10 to 12 million hectares of plantations. This is feasible considering that the greatest growth in oil palm plantations come from smallholder farmers with an annual growth of 24 percent.

This could create new jobs for 1.3 million households, meaning that Indonesia could reduce the number of poor people by 1.3 million families, or at least 5.2 million people. Currently, about 30 million people live under the poverty line.

At the same time, the government would receive revenue from tax and foreign exchange from CPO exports. How amazing, an economic program that could reduce poverty and improve people's welfare without involving government spending, but instead bringing more money to state coffers. What's more, the economic program is competitive because it relies on the country's own natural richness and can be done by Indonesians without the help of foreign support, be it in terms of capital or technology.

We can rely on palm oil, which could be the hope of Indonesia in developing independently in the future for the sovereignty and dignity of our beloved country.

Regarding this, the government needs to do three things: **Create conducive policies, both fiscal and non-fiscal, for a conducive investment climate in oil palm plantations. **Encourage the acceleration of intensification and revitalization program of smallholder farmer's oil palm plantations. **Fight for the elimination of all barriers, both tariff and non-tariff, in international trade.

Those are the tasks of the government for the support of development acceleration, especially if it wants to realize the commitment to reduce poverty and improve public welfare. It would be understandable if we were to envy Malaysia. Palm oil has become a strategic sector in economic development in Malaysia, supported by the needed infrastructure, including ports and roads, with support of promotion to foreign markets and other "aid" from the government. Hopefully, Indonesia's palm oil industry will see a much brighter future.

The writer is the chairman of the Indonesia Palm Oil Association (GAPKI).

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