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date: 27 April 2017

Social and Environmental Implications of Plantation Agriculture in Malaysia and Indonesia

Summary and Keywords

Plantation farming emerged as a large-scale system of specialized agriculture in the tropics under European colonialism, in opposition to smallholding subsistence agriculture. Despite large-scale plantations in the tropics, smallholdings have consistently formed the backbone of rural economies, to the extent that they have become the main producers of some of the former plantation crops. In the early 21st century, oil palm has become the third most important cash crop in the world in terms of area cultivated, largely due to the expansion of this crop in Malaysia and Indonesia. Although in these countries, oil palm is primarily cultivated in large plantations, smallholders cultivate a large share of the territory devoted to this crop. This is related to the programs set up by governments of Malaysia and Indonesia during the second half of the 20th century, to provide smallholders with land plots in capital intensive large-scale oil palm schemes. Despite the relative success encountered by these programs in both countries, policymakers have continued to insist on the development of private centrally managed large-scale plantations. Yet, smallholding family farming has remained the most resilient economic activity in rural areas of the tropics. This system has proven adaptive to environmental change and, given proper access to markets and capital, particularly responsive to market signals. Today, many small-holdings are still characterized by the diversity of crops cultivated, low use of chemical inputs, reliance on family labor, and high levels of ecological knowledge. These are some of the main factors explaining why small family farms have proven more efficient than large plantations and, in the long term, more economically and ecologically resilient. Yet, large-scale land acquisitions for monocrop production remain a current issue, highlighting the paradox of the latest stage of agrarian capitalism and of its persistent built-in disregard for environmental deterioration.

Keywords: plantation, smallholders, oil palm, tropics, environment

It is more useful to characterize the plantation as something foreign introduced into the geographical environment. The plantation is ‘foreign’ in respect of its cultivated plants […]. The plantation is also ‘foreign’ in the economy that it creates; in unexploited areas or in areas devoted to subsistence agriculture the plantation is a foreign enterprise, a response to the demand of a far-off buyer for a commodity that he cannot produce; the consumers are in the temperate world, the plantation in the tropics or subtropical belt.

—Pierre Gourou

Introduction: What is Plantation Agriculture?

Plantation agriculture is usually considered distinct from subsistence agriculture, which refers to food crop production, while the former is generally devoted to commercial crops. But that distinction appears insufficient, as plantation agriculture can also involve the production of food crops, such as bananas or sugarcane, while food crops are increasingly produced largely for commercial purposes. Such is the case with the world’s three major crops: wheat, corn, and rice. And, on the other hand, commercial crop production can be combined with that of food crops: this is a widespread practice among small cash crop producers in the developing world.

A good example of the dual or ambiguous nature of commercial agriculture is provided by the case of banana cultivation. Bananas, as distinct from plantains, represent an important source of staple food in the world. Like plantain, they are cultivated primarily as a subsistence crop, by smallholders who often practice multiple cropping. China and India are among the major producing countries and are by far the two most populous ones. Yet, banana plantations primarily devoted to exports are widespread, for example, in the Philippines and in several African and Latin American countries. However, compared with bananas, other plantation crops such as cocoa or rubber, grown by either large or small producers, are largely intended for export after being processed or as raw material.

Overall, so-called plantation crops are usually cultivated on large tracts of land, in the form of monocultures and, at least until recently, have relied on the use of large numbers of manual laborers. But even that statement must be qualified, since, depending on the crop and the region considered and evolving market trends, smallholders remain major contributors to plantation crop production. This occurs despite state policies which often favor the dominance of large capital intensive farms. In this regard, the distinction between plantations understood as large capital intensive monocultures and plantation crops per se, which can be integrated into smallholders’ agro-ecological systems, must be insisted upon. By definition, plantation crops are largely confined to the tropical regions of the world, with some of them, such as sugarcane, tea, and cotton also present on their subtropical margins, as pointed out long ago by Pierre Gourou. In terms of cultivated area, the most important plantation crops are cotton, sugarcane, oil palm, coconut, rubber, coffee, cocoa, banana, and tea (see Table 1).

Finally, as is the case with much of subsistence agriculture throughout the world (but on a larger scale) plantation agriculture has long been the object of scientific research aimed at improving yields and leading to increasing reliance on agro-chemical inputs. This is particularly the case with the cultivation of oil palm trees. Oil palm comes third in importance in terms of global area cultivated but appears of particular importance given its recent and fast expansion in Southeast Asia, especially in Indonesia and Malaysia (Figure 1).

Social and Environmental Implications of Plantation Agriculture in Malaysia and IndonesiaClick to view larger

Figure 1. Major palm oil producing countries by hectarage.

(Source: FAOStat, 2016.)

In fact, in Southeast Asia, while during the late colonial era rubber had become the dominant plantation crop and remained so for several decades, by the late 1990s the cultivation of Elaeis guineensis or oil palm trees had overtaken it. Since then the region has been responsible for producing and exporting more than 80% of global output of palm oil and palm kernel oil, Malaysia and Indonesia providing the bulk of that production (Figure 1). Territorial expansion and yield increases have since been so systematic and substantial, particularly in Southeast Asia, that palm oil has become the world’s number-one vegetable oil, fulfilling nearly 40% of global demand. The latter is also rising rapidly, as is the demand for numerous other uses of oil palm products in the food, cosmetic, and energy industries, palm oil having become one of the world’s leading source of biodiesel. Finally, over recent decades, the phenomenal expansion of oil palm cultivation in Southeast Asia has been largely achieved at the expense of tropical forests and has relied increasingly on migrant labor.

Hence, the purpose of this article is to look at the social and environmental implications of oil palm production, comparing smallholdings and large plantations and focusing on the two largest palm oil producing countries, Malaysia and Indonesia. But to better situate and understand these closely related implications of booming Southeast Asian palm oil cultivation and production, we need to look at the historical background of plantation agriculture as a whole and of oil palm cultivation in particular. We will then be able to appraise the relation between large plantation and smallholding agriculture, while looking at the forms of competition and collaboration between large and small farming units. Finally, we will look more closely at the environmental implications of oil palm agribusiness, especially in Indonesia, by taking into account the respective characteristics of large and small farms.

The Colonial Origins of Plantation Agriculture

Plantation farming emerged as a large-scale system of specialized agriculture based on the bureaucratic management of labor, in opposition to smallholding subsistence agriculture, which is a basic feature of most human societies. Starting in the 16th century, European powers grabbed less densely populated lands in tropical and semitropical areas of the Americas to establish plantations. In a situation of labor shortage, Americas’ planters relied on slave labor from Africa. Similar processes were at play in tropical Asia and Africa much later in the 19th and 20th centuries when the plantation system was expanded on pioneer fronts in newly acquired European colonies, albeit at a time of “free” yet largely indentured labor. As such, plantation agriculture profoundly reshaped the demography, ecology, and economy of large areas in the tropics. Large areas of arable lands throughout the tropical and subtropical ecosystems are still allocated to plantation crops (Table 1).

Table 1. Major plantation crops and cultivating countries in 2013


Global area harvested in ha

Major producers (area harvested in ha)



India (11,700,000); China (4,800,000); USA (3,783,001); Pakistan (2,899,000); Uzbekistan (1,299,850)



Brazil (10,195,166); India (5,060,000); China (1,816,490); Thailand (1,321,595); Pakistan (1,128,800)

Oil palm


Indonesia (7,080,000); Malaysia (4,526,089); Nigeria (3,000,000); Thailand (602,774); Ghana (318,760)



Philippines (3,550,491); Indonesia (3,000,000); India (2,159,000); Tanzania (680,000); Sri Lanka (394,836)



Indonesia (3,555,800); Thailand (2,420,800); Malaysia (1,057,271); China (685,900); Vietnam (548,095)



Brazil (2,085,552); Indonesia (1,240,900); Columbia (771,728); Mexico (700,117); Vietnam (584,600)



Ivory Coast (2,500,000); Indonesia (1,774,500); Ghana (1,600,300); Nigeria (1,200,000); Brazil (689,276)



India (796,000); Brazil (485,075); Philippines (445,935); China (430,000); Ecuador (188,659); Burundi (175,553)



China (1,750,000); India (563,980); Sri Lanka (221,969); Kenya (198,600); Indonesia (122,400)

Sources: FAOStat Online; and National cotton council of America. Online.

To better understand the contrast between plantations and smallholdings, as well as their complementarity, we first explore the origins of the former in relation with European colonial expansion. According to Cosgrove (2001, p. 21), the term “plantation” describes the action of “rooting culture in a newly native soil.” It appears only normal that “colony” and “plantation” are used interchangeably in 16th century accounts of British settlements in Ireland (Courtenay, 1980, p. 9). However, it is in the tropical latitudes that large-scale plantation agriculture as we know it today became most widespread. Being among the first Europeans specializing in tropical geography to adopt a critical stance toward colonialism, Pierre Gourou devoted a substantial part of his chapter on “Problems due to European Interventions in the Tropical World” to the plantation. For Gourou, the great transfer of populations and large-scale land grab that took place through the constitution of the plantation economy since the 16th century left lasting social and environmental problems. However, plantation agriculture also presented new economic opportunities for smallholders.

At its very origin, the plantation can be seen as a manifestation of European colonialism in the tropical and subtropical areas of the world. Gourou (1966, p. 146) captured the nature of the colonial project when he wrote that “European ‘planters’ came to believe that Africa had been created to provide them with labour and America to provide them with land.” In fact, the plantation economy that came to expand over a significant part of the tropical and subtropical regions of world was made possible through land grabbing, followed by transfers of peoples and plants. This is true for sugarcane and cotton, which originated from Eurasia, and slave labor from Africa, both transferred to America from the 15th century onward, as part of what was termed the “Columbian exchange” (Nunn & Qian, 2010). This can also be said about crops such as rubber, Hevea brasiliensis and oil palm, Elaeis guineensis, the former being from South America and the latter from West Africa. These crops have been transferred, or rather smuggled in the case of rubber, to Southeast Asian colonies in the 19th century, where they were cultivated on a large scale in plantations relying on migrant labor from other parts of Asia (Brockway, 1979). It is only later in the 19th century that parts of sub-Saharan Africa were integrated in the plantation economy as sites of production, albeit on a smaller scale than in other tropical regions of Asia and America.

As mentioned in the introduction, defining the plantation in the postcolonial era is problematic, not only because the term encompasses an important number of production systems which have been changing over time, but also because many crops such as rubber, tea, coffee and cocoa are predominantly cultivated by smallholders. Although quantitative criteria vary, characteristics of land area and size of labor force are habitually used by state administrations to differentiate plantations from smallholdings1. A brief review of key contributions on the subject provides elements of definition. The nature of labor involved in large plantations was considered as the main feature that distinguished this type of farming from others, since large plantations rely traditionally on unskilled labor organized through a bureaucratic management structure (Cooper, 1980, p. 31). Of course, this has not necessarily been the case since the mid-20th century, for instance with highly mechanised cotton and sugar cane production in large-scale industrial farms. Originally, as an institution, the plantation was characterized by large-scale operations, in terms of labor size, area, and capital but also by the high degree of specialization, intensive monoculture being the norm (Courtenay, 1980).2 Plantation agriculture was also described as standardized, by distinction, smallholdings generally lacked the degree of organization and capacity of standardization that characterizes the plantation. Although plantation crops were by tradition produced exclusively for export markets, this is no longer the case.

Smallholding versus Plantation: Competition or Cooperation?

Despite the periodic expansion of plantations, smallholding systems have endured and pursued their development, while often successfully integrating plantation crops. If plantations have always depended on smallholders for food supply, and by extension for the reproduction of labor, the two systems found themselves competing for land and labor. This competition also took the form of cooperation in other circumstances. Despite the persistence of large-scale plantations in the tropics, smallholdings have consistently formed the backbone of rural economies, to the extent that they have become the main producers of some of the long-established plantation crops.

The literature on colonial agriculture has been positing a dualism between plantation and smallholder. The plantation was originally conceived as the exact opposite of subsistence farming, as a settlement and production institution whose purpose was to assemble a captive or accessible labor force to produce export crops (Wolf, 1959). Whether it is trough slavery (in preindustrial plantation systems), peonage or contract labor, the colonial plantation has tended to become, even for “free labor,” a system based on economic dependence. Situations of semi-proletarianization of plantation workers were an important aspect of agrarian debates regarding plantation agriculture (Brass & Bernstein, 1992). It describes a situation in which free laborers become utterly dependent on plantation employment, given that subsistence farming on their plots does not meet basic requirements, while plantation wages remain too low for them to completely abandon subsistence agriculture.

Some historical accounts appear less dualistic and to some extent, cooperative, when dealing with the relation between small and large industrial farms. As Kautsky (1988, p. 173) states, with the development of capitalist farming or large-scale agribusiness, “The small farm ceases to compete with large farms; in fact … it (small farms) fosters and supports them (large farms) by providing wage-labourers and a market for their produce.” In fact, the relation of dependence described in some accounts is not necessarily the most important feature in the relation between smallholding and plantation in the postcolonial era, especially as economic structures enabling cash cropping become more accessible to the peasantry (Hayami, 2002).

It appears that despite the enclosure and ecological simplification that take place in plantation development, the infrastructures laid down by plantation companies may benefit the larger society and smallholding agriculture. In many circumstances, as pointed out by Hayami (2002), smallholders can derive benefits from access to plantation transport and industrial infrastructures. This partly explains why, even when postcolonial states nationalized foreign owned plantations (as happened in Vietnam), interests in maintaining the plantation system of production outweighed social demands for land redistribution (Fortunel, 2013). In fact, the growth in smallholders’ shares of some commodity production, traditionally controlled by estates, has been noticed in different parts of the world and for a large number of sectors (Herath & Weersink, 2007). It appears that, in many cases, large plantations pioneer cash crop production, which is then taken up by smallholders as transport and processing infrastructures are gradually put in place.

Despite widespread policy bias in favour or large-scale plantation agriculture, smallholding family farming has remained the most resilient economic activity in rural areas of the tropics. As a matter of fact, smallholding agriculture has been increasing its share in rubber and palm oil production, but also in many other types of production (Byerlee, 2014). Smallholding systems have proven adaptive to environmental change and, given proper access to markets and capital, particularly responsive to market signals. In the 21st century, a large number of smallholdings are still characterized by the diversity of crops cultivated, low use of chemical inputs, reliance on family labor, and high levels of ecological knowledge. Smallholders have a historical track record of adaptability, resilience, and especially better capacity to adapt to local environmental conditions. These are some of the main factors explaining why small family farms have often proven more efficient than large plantations and may prove, in the long term, more economically and ecologically resilient.

Are Smallholders’ Practices more Economically and Ecologically Sound?

To truly assess the distinction between plantation and smallholding in terms of environmental implications, we turn to the case of oil palm in Southeast Asia, with a focus on Malaysia and Indonesia. Some state smallholder support programs are now notable in the region for the success they achieved. From the 1960s onward, the governments of Malaysia and Indonesia, aware that plantation crop production by smallholders represented an adequate instrument of rural development, designed programs to improve the production capacity of smallholders through various forms of assistance and service provision. Even before those state programs, smallholders throughout Southeast Asia had rapidly engaged in plantation crop production during the colonial era, in some cases despite policies that were clearly adverse to them (Bauer, 1948; Lim, 1977). When postcolonial governments devised pro-poor policies for smallholders, they extended in situ technical advices, distribution of improved varieties of crops and loans to smallholders (Barlow & Jayasuriya, 1984). However, in parallel, a more costly avenue has been pursued in the formation of agribusiness schemes for the resettlement of smallholders. This model was based on characteristics of the plantation monoculture and was described as a “guided yeomanry” combining central supervision of “certain processing and other general services with quasi-independent small farm units in the production phase” (Barlow & Jayasuriya, 1984, p. 643). It was meant to open up the plantation, which had been perceived under colonialism as a capitalist enclave.

The literature from Asia has been highlighting that family-owned smallholdings are more efficient economically and ecologically than large farms. Smallholder rubber agroforests in Southeast Asia had a limited impact on environmental degradation notably by reducing soil erosion and loss of biodiversity (De Koninck, 1979, 1983; Hazell et al., 2010). Myint (1965) and Lewis (1970) pointed out that smallholder production of plantation crops in Southeast Asia from the late 19th century onward had significantly contributed to economic development in the region (Hayami, 2002, p. 69). Although independent smallholders outside state-sponsored schemes have been characterized by much lower yields than plantations, their production expenses remain inferior, despite diseconomies of scale (De Koninck, 1986). This has been highlighted by studies comparing production costs for oil palm smallholders and estates in Malaysia (Malek & Barlow, 1988; Ismail et al., 2003). In these studies, although the costs of maintenance and harvesting are higher for independent smallholders, their overall production costs remain lower given that management expenses are practically inexistent. In fact, reliance on family labor is usually the main factor explaining why small family farms are more efficient than large ones relying on hired labor that necessitates costly supervision (Muyanga & Jayne, 2014, p. 4). In the case of rubber in Indonesia, low production costs derive from agroforest production systems that require less maintenance costs (Budiman, 1996). Moreover, smallholders’ capacity to engage in complex agro-ecological practices has meant higher overall yields and more resilient production systems (Shiva, 2016).

Moreover, crop characteristics also determine the extent to which they can be integrated into smallholder agro-ecological production systems. It has been argued that commodities with less constraining seasonal cycles, less demanding technical characteristics, as well as lower investment requirements—as is the case with many perennial tree crops, such as rubber, and to some extent oil palm—are more suited to a decentralized system of independent growers and processors (Hayami, 1996). Therefore, besides policies and factors of production, specific crops, due to their biological characteristics, are particularly suitable to independent smallholder production. However, this does not imply that smallholders can be responsive to market opportunities if agricultural policies are unfavorable to them, which might still mean that large-scale plantations benefit from policy bias and can outmatch smallholders, despite the clear production advantages of smallholders.

The Oil Palm Production System

From Smallholding to Plantation in the Congo

The plantation system took shape under colonialism in territories with a low population density, where large tracts of arable lands were appropriated by colonial administrations and mainly entrusted to private investors through a concession system. The establishment of plantations through the practice of tabula rasa in “empty” lands depended on military and political power that allowed for new forms of enclosure. These territories were to be developed as plantations, usually for the cultivation of nonindigenous crops, and by securing access to labor, which usually originated from distant places. This pattern common to all plantation agriculture and large-scale agribusiness can be better exemplified with the case of oil palm.

Oil palm is native to West Africa, where it has been integrated into agro-ecological systems of subsistence and traded at different scales since 3000 bc. By the mid-19th century, small oil palm growers in West Africa supplied a part of the demand for vegetable oil necessary for soap, candle, and machinery lubricant production created by the British Industrial Revolution (Berger & Martin, 2000). West African brokers in palm oil trade were able to impose their own commercial modalities to British traders during most of the 19th century until further regulation of the trade through treaties and colonialism (Lynn, 1997, p. 164). At this stage, palm oil produced in West African peasant economies for the European markets extended the reach of regional trade systems. Oil palm could be accessed through traditional trade networks without the formation of plantation economies. The European conquest of Africa pushed aside West African and especially Nigerian palm oil brokers. The growing demand for oils and fats in industrial European societies and large companies’ search for capital outlets at the turn of the 20th century, triggered important investments in plantation agriculture in colonies.

The colonial administration of the Belgian Congo conducted experiments on oil palm varieties at the Yangambi botanical research station in the first decades of the 20th century (Berger & Martin, 2000). The botanical garden of Buitenzorg (Bogor) in the Netherlands Indies, nowadays Indonesia, received oil palm seeds from West Africa in 1848. A Belgian entrepreneur established the first oil palm plantation in Sumatra, East Indies in early 20th century. Meanwhile, the colonial administration of the Belgian Congo facilitated investments in palm oil mills (huileries) while it allocated free concessions to investors. A number of large private companies engaged in speculative investments and land surveys to exploit palm oil in the Congo at the turn of the 20th century. In 1911 the colonial administration granted multiple concessions to William Lever, founder of Uniliver. Lever established the company Huileries du Congo Belge (HCB) through which he was provided with a monopoly over wild oil palm fruits. But the oil palm supply remained problematic for Unilever who in the first phase refused to set up costly plantations. HCB instead relied on its monopoly over wild oil palm fruits harvested by local peasants through a system of labor tax recognized by historians for its extreme brutality (Fieldhouse, 1978, p. 505). The labor tax led peasants to planting more oil palm trees on their plots to increase production. However, this system provided only partial control over the production process. Wild palm oil produced within peasant economies yielded unstable vegetable oil qualities and yields, and the transportation of fruits to the mill before desiccation remained problematic.

Considering the search for greater control over production, and following some technical innovations in the extraction of palm oil in large mills (Corley & Tinker, 2003, p. 7), oil palm was brought within an industrial production system. Despite the large investments required to set up oil palm plantations, the estate structure allowed more regular supply through direct managerial control over the entire production process. Under the impetus of large estate companies’ investments, plantation production surpassed that of peasants in the Belgian Congo in the 1930s (Berger & Martin, 2000). Consumer demand of industrial societies in the postwar context of the 1950s fueled the rapid expansion of oil palm plantations that extended over some 147,000 hectares in 1958. The plantation model for oil palm in the Congo entailed the systematic substitution of previous agro-ecological systems with radically simplified monoculture that maximized control over production as Baumann (2000, p. 19) sums up:

Oil palm was part of subsistence based production systems as food, cash, medicine, construction, soap, and fuel. A genetic breakthrough changed palm oil from a low yielding but integrated crop into a high yielding commercialised crop. Modern oil palm production lends itself to estates because of its positive response to weed and bush control, regular employment of labour force and the need to process soon after harvesting.

Once oil palm became a plantation crop, securing access to sufficient labor remained a practical problem in the Congo. Oil palm as a perennial tree crop depends on intensive and continual manual labor investments for maintenance, harvests and transportation tasks. Oil palm plantation companies in the Belgian Congo remained concerned about labor scarcity, as large mining and plantation companies had allegedly emptied out whole regions of the Congo’s men through labor “recruitment.” Indentured and forced labor arrangements were the norm on plantations. Companies tried to tie male workers into extended contract periods of four to seven years, and these systems were officially regulated by the colonial administration (Dresch, 1947, p. 80). However, for reasons related to institutional instability and political turmoil following independence in the Congo, oil palm as a plantation crop was subsequently developed in Southeast Asia, especially in Malaysia and Indonesia.

Oil Palm Cultivation in Malaysia

Oil palm crops have been established in British Malaya since the early 20th century after seeds were imported from Sumatra. These crops expanded in plantations slowly during the first half of the 20th century, while rubber remained the most important plantation crop in the peninsula. From the 1960s onward, especially in postcolonial Malaysia, government and corporate actors based in Malaysia progressively reached a dominant position in global technical and managerial innovations in oil palm agribusiness. By 1966 Malaysian palm oil exports had already surpassed the combined exports of the Congo and Nigeria, while the production in Indonesia remained marginal until the 1980s (Martin, 2003, p. 158). This growth was also attributable to state-funded initiatives targeting smallholders.

Preceding the rapid emergence of the oil palm plantation economy in Malaysia, plantation research infrastructures in Peninsular Malaysia were gradually geared toward oil palm as part of a strategy to diversify the plantation economy that had been heavily reliant on rubber production (Tate, 1996, p. 51). At the moment of Malaysian independence in 1965, oil palm had already been integrated into the plantation economy developed for rubber production under British colonialism. The colonial administration had established a land tenure system highly favorable to European investments in Malaya that reserved lands for Malay smallholders, yet opened up large territories for plantation agriculture. Moreover, networks of labor recruitment were already extensive in the British Empire and provided workers from resource strapped regions of south India and southern China and later on from Indonesia, as work for plantation companies in Malaysia took place through contract arrangements (Ramasamy, 1994).

In Malaysia, oil palm became the object of an integrated political and economic strategy for agro-industrial expansion planned at the state level (Tate, 1996, pp. 582–583). In part to address social inequalities created by colonial policies and considering growing global demand for vegetable oils, the postcolonial Malaysian government articulated a socioeconomic development strategy based on rubber and, gradually, largely on oil palm. The plantation model developed through colonial experiments was redeployed for populist objectives according to new modalities around smallholding contract farming. In the early 1960s the Federal Land Development Authority (FELDA) was empowered by the government to open large agro-industrial oil palm schemes. Impoverished Malay smallholders would be resettled to newly planted oil palm schemes in the hinterland and integrated into the production system. These smallholders had always been involved in rubber cultivation without much support from the state. However, in the 1960s demographic growth had led to uneconomic plot size, which in turn was causing underemployment and growing poverty (Hussin & Abdullah, 2012). FELDA3, by launching a resettlement program in less densely populated lands, provided smallholders with new oil palm plots within an agribusiness that granted access to the most intensive cash crop production system (MacAndrews, 1978, pp. 13–15). Despite some controversies, FELDA remains until nowadays an example of how plantation agriculture was rendered amenable to a project of socioeconomic development for smallholders.

Table 2. Distribution of oil palm according to type of ownership in Malaysia, 1999 and 2011







Private Estates




















State schemes





Ind. Smallholders










Source: Malaysian Palm Oil Board cited by Simeh and Ahmad (2001); and MPOB cited by Omar et al. (2012).

Public investments in oil palm in Malaysia for social purposes also fostered the rapid expansion of private estate companies. Mostly due to the impulse provided by FELDA, between 1965 and 1970, Malaysia became by far the world leading producer of palm oil. Between 1965 and 1990 FELDA alone accounted for a third of all newly planted oil palm trees in the country (Gustafsson, 2007, p. 66). As shown in Table 1, although private plantations remain dominant in the country, public sector smallholding schemes such as FELDA’s and others, as well as independent smallholders owning plots of less than 40 hectares outside of estates hold a significant share of production (Fox & Castella, 2013). In tandem with FELDA’s large-scale investments, private estates fell in behind by engaging in massive oil palm plantation expansion. With extensive integration between government and private investments, Malaysia became the cradle of technical innovations for oil palm production, where continuous expansion of production was envisioned.

This economic context led to the formation of large Malaysian conglomerates backed by a public-funded agro-industrial research complex. This allowed Malaysia to allocate over five million hectares to oil palm cultivation, a large part of which was the consequence of forest land conversion, especially in the states of Sabah and Sarawak, long considered land banks for Peninsular Malaysia’s investors. However, oil palm is still expanding in Malaysia, albeit at a much slower pace than in neighboring Indonesian. This is largely due to environmental regulations, labor shortage, and high operation costs (Bissonnette, 2012). By the early 21st century, a growing class of independent smallholders were cultivating oil palm as part of a sustainable livelihood strategy (Cramb & Sujang, 2013).

From the mid-1990s onward, Malaysian oil palm companies launched an important expansion phase in Indonesia after further liberalization of laws on foreign direct investments in this country. Malaysian investors were attracted by large land concessions rendered available by the Indonesian government, lower currency rates, weak environmental regulations and minimal wages that enabled low production costs.4 Concomitantly, private Indonesian companies invested massively in oil palm agribusiness starting in the 1990s. Although Indonesia has been expanding its production quickly, a large proportion of Indonesian crude palm oil production has until recently been exported to Malaysia for further processing (Gustafsson, 2007). The Indonesian-Malaysian Palm Oil Group (IMPOG), led by Malaysian conglomerates, accounts for the strong integration that exists between actors of the oil palm industry in the two countries5 in a context where, in the majority of Southeast Asian countries, governments are handing over the frontier to agriculture multinationals (De Koninck & Rousseau, 2012).

Oil Palm Cultivation in Indonesia

While important tracts of forested land along with a large labor force were made available to agricultural expansion, Indonesia replaced Malaysia in 2006 as first global palm oil producer (Gustafsson, 2007, p. 68). It has since kept this status, as production and areas allocated to this crop have been growing steadily and are expected to reach nearly 11 million hectares in 2015, from less than 300,000 hectares in 1980 (Directorate General of Estate Crops, 2014). This extraordinary expansion rests on particularly favorable resource endowments and highly enabling policies. Despite the major environmental impacts related to this sustained boom—namely, forest cover loss and water and air pollution—oil palm agribusiness expansion did not only benefit large firms, smallholders having also been involved in the sector’s growth.

Two decades after Indonesian independence, which was followed by a period of economic instability, the New Order regime (1967–1997) adopted aggressive economic development policies partly based on plantation crop expansion. The corporate model of the plantation economy, largely abandoned after independence, swiftly reappeared. The New Order, while upholding nationalization of the plantation sector, suppressed independent peasant and labor organizations and reverted to corporate plantation agriculture and agribusiness schemes. The Basic Agrarian Law of 1960 and Basic Forestry Law of 1967 legalized enclosure of communal landholding for logging concessions, mines, and plantations. However, despite the important problems that plagued them, some of the plantations that were developed allowed for the emergence of a class of cash crop smallholders.

The transmigration program was developed under Dutch colonial rule to redistribute population from densely populated islands such as Java to “Outer Islands.” However, under the second Five-Year Development Plan of 1969–1974, the transmigration program was geared toward agribusiness development, and oil palm quickly became the most important crop cultivated. As Hardjono (1977, p. 31) puts it, from the late 1960s onward, “Transmigration is now seen more as a land development programme in areas outside Java rather than as a means of reducing population pressure in Java.” As early as 1967, the Indonesian government with World Bank assistance made direct investments in large-scale oil palm schemes through state-owned companies. As discussed by Dove (1996), the objective of political elites and oligarchs of privileging large-scale agribusiness development over preexisting independent smallholding systems was motivated by political economic calculations. Large estates and smallholding contract schemes were better suited than preexisting indigenous systems to the “overarching government imperative of centralised control and extraction of resources” (Dove, 1996, p. 47). What is more, the transmigration program based on large-scale agribusiness allowed for the densification of population and intensification of industrial activities by forcing indigenous populations to shift from an extensive mixed economy based on swidden cultivation and rubber agro-forests, to oil palm monoculture (Bissonnette, 2013).

The conditions for a surge of investments in oil palm expansion were laid down with the promulgation of the Foreign Investment Law in the early 1970s (Anderson, 1990, p. 112), which was part of a number of new regulations to facilitate foreign direct investments in Indonesia. Already in the early 1970s, oil palm, due to its profitability, started replacing rubber in transmigration schemes. The crop expanded in the 1970s with a rapid surge in private investments channelled through the PTPN (National Plantation Company Limited) in both plantation activities and smallholding programs (Wijardjo & Trisasongko, 2003). Until the mid-1980s, oil palm cultivation was mainly confined to state-owned plantations or PTPN. The international rise in the demand for palm oil coupled with transmigration led PTPN plantation companies to implement the first smallholding oil palm agribusiness scheme program in 1984, Perkebunan Inti Rakyat or PIR (literally translated as People’s Nucleus Estate Scheme) (Zen et al., 2006). According to the New Order regime, new agribusiness smallholding schemes would harness international investments in agribusiness to foster the creation of a class of prosperous smallholders. The purpose of smallholding agribusiness as defined by the regime was to open up the plantation economy enclave for the general welfare of the population (Mubyarto, 1992, p. 125). According the World Bank, as reported by Baumann (2000, p. 11) it provided a way of “creating dynamic partnerships between private capital and smallholders” to encourage “technology transfer, innovation and market growth.” Moreover, smallholding schemes and their centralized organization for capitalist production suited the Suharto regime’s vision of modernity.

The PIR was based on principles of smallholding agribusiness promoted by the World Bank in the 1980s. This agribusiness model was founded on the agrarian argument associated with agrarian economist Chayanov, according to which the small family farm is a more productive unit than large estates (Booth, 1988, p. 21). With the PIR, Indonesian authorities and experts sought to provide transmigrants or local impoverished smallholders equal access to two-hectare land plots as part of modern agribusiness smallholding schemes centrally planned. The PIR program was fueled by government and private investment provided by the Asian Development Bank and the World Bank. As implemented in Indonesia, PIR schemes were directly influenced by oil palm cultivation resettlement schemes implemented in Malaysia by the Federal Land Development Agency (FELDA) (Sutton, 1989). The transmigration program based on oil palm agribusiness (PIR-Tran), which lasted from 1986 to 1994, merged two government objectives: increased capitalization through smallholding schemes and creation of growth centers outside Java, where most of the economic activity is concentrated in Indonesia. From 1978 to 1997, the PIR and PIR-Tran programs together led to the establishment of over 800,000 hectares of oil palm schemes (Levang, 1997, p. 248).

The start of the PIR-Tran program in 1986 coincided with further liberalization of the estate sector. It was implemented by the Department of Transmigration and Manpower along with the Directorate General of Estates in collaboration with oil palm estate companies. According to researchers who worked as foreign consultants for the Ministry of Transmigration, through liberalization measures, the transmigration program became instrumental to private economic growth (Levang, 1997, p. 248). As Li (2011, p. 287) observes, the transmigration program in the 1990s “repositioned itself as the partner of investors seeking free land and abundant cheap labour in order to grow industrial mono-crops.” In parallel, the state encouraged large-scale oil palm plantation development through access to credit at concessional rates for both land conversion and palm oil extraction facilities (Gautam et al., 2000, p. 26). In this regard, development objectives were explicitly merged with objectives of economic growth.

Table 3. Oil palm area (ha harvested and non-harvested) by type of ownership in Indonesia 1980–2015

















Government estates







Private estates














Source: Directorate General of Estate Crops, Ministry of Agriculture 2014.

*Preliminary data.

According to many analysts, the PIR programs, despite implementation problems, have successfully harnessed “commercial and technical expertise toward socio-economic goals” (Zen et al., 2006, p. 27). Smallholding schemes have provided an expansive productive base, which seems generally beneficial to the improvement of the local population’s welfare. However, despite the large share of smallholding schemes, the dominance of private estates largely owned by a few conglomerates and public estates was clear by the end of the New Order regime and still persists (Gautam et al., 2000, p. 26) (Table 2). Large plantations account for 58% of total oil palm cultivated area in the country. Moreover, a bias remains in Indonesian policies in favor of large plantations, as the investments of plantation companies provide much needed resources for Indonesian regional administrations. In 1996, according to the Central Bureau of Statistics of Indonesia, 457 oil palm companies, many from Malaysia, controlled 3.2 million hectares of land for actual production and speculative purposes, despite attempts made by the government to limit the size of land owned by plantation companies.6 In fact, for state officials involved in oil palm agribusiness in Indonesia, indigenous agro-ecological systems would manifest the triple absence of productive land uses, modernized agriculture and disciplined labor force (McCarthy & Cramb, 2009).

The economic context in Indonesia has also allowed independent smallholders to benefit from infrastructures laid down by plantation companies to cultivate oil palm. Beyond schemes planned by the state, oil palm expansion is also the outcome of the formation of endogenous land markets by smallholders stimulated by robust international demands for agricultural commodities (Li, 1999). Due to its profitability and geographical spread, the oil palm boom in Indonesia has conferred value upon large tracts of land owned by smallholders, located within reasonable distances from oil palm mills. Although their exact number is not known, independent smallholders cultivate 1.8 million hectares (Suharto, 2009). Some cultivate both a plot in a scheme and another one independently, which renders the evaluation of their numbers difficult. The share of palm oil produced by smallholders in the country has been increasing over the past decades and is expected to keep on expanding as large contiguous tracts of land necessary for the establishment of a plantation are becoming increasingly scarce (Molenaar et al., 2013).

Environmental and Socioeconomic Implications of Oil Palm Agribusiness

The Ecological Footprint of Oil Palm Agribusiness

As demonstrated in previous accounts on plantation agriculture, this large-scale intensive production system annihilates previous economic and ecological systems. Environmental impacts of oil palm plantations have been the subject of many publications in the past years, especially because of the magnitude of changes observed. Most studies, which do not distinguish between large and small landholdings, conclude that oil palm monocultures have had major impacts on the environment, especially in terms of air quality (Marlier et al., 2015), in Sumatra as well as Kalimantan (Borneo) where the crop is mainly cultivated. In addition, because of the extent of cultivated areas, which cover millions of hectares, environmental change has a wide ripple effect. Yet, due to the lack of reliable scientific data (McCarthy & Zen, 2010), which is related to the limited capacities of Indonesian authorities in terms of environmental monitoring, attempts to properly control rapid environmental change have remained largely unsuccessful (Sheil et al., 2009).

The well-documented use of fire for land clearing by contractors hired by large plantation companies in Indonesia has caused recurring haze problems affecting large areas of Southeast Asia. The burning of peat lands for oil palm expansion has had a major impact on carbon emissions. As a result, Indonesia has become the third largest carbon emitter in the world, with international environmental institutions voicing their concern over Indonesia’s role in climate change (Varkkey, 2012). Moreover, according to estimates, peat swamp forest conversion into oil palm monoculture would have contributed to biodiversity reduction of 3.4% in Sumatra (Koh et al., 2011). Although large-scale forest burning is now prohibited by environmental laws in Indonesia, the practice allegedly goes on (Agus et al., 2013). Large private plantation companies and schemes would have been responsible for nearly 90% of forest loss in Sumatra between 2000 and 2010. As for smallholders, their own practices apparently have limited impacts on the forest cover (Lee et al., 2014).

Differentiated Ecological Impacts for Large and Small Farms?

Land clearing for oil palm expansion by both large and small farms has also localized environmental impacts such as soil erosion, chemical contamination, and water pollution—impacts that are only partially documented. However, the impact of large-scale land clearing for plantation companies is more significant than smallholders’ (Lee et al., 2014). Forest clearing, land leveling and road construction on tropical forest soils cause important soil erosion in the first stages of plantation development, before the formation of a closed oil palm canopy. Intensive palm oil production is dependent on the use of herbicides and fertilizers, whether in small or large landholdings. While this raises concerns among civil society organizations over risks of long-term contamination and health hazards, it remains understudied (Sheil et al., 2009, p. 36). Moreover, palm oil mills located near rivers use large amounts of water, and the contaminated effluents released can represent a threat to aquatic ecosystems. Palm oil waste deposited near mills and industrial processing sites lead to chemical run-offs, which have been linked to high concentrations of heavy metals in rivers (Yusoff & Hansen, 2007). Moreover, solid waste created by the extraction process at the mills, empty fruit bunch and mesocarp fiber are usually burned to fuel the mill, which produces air pollution (McCarthy & Zen, 2010). Most scientific data on pollution from palm oil production originates from studies realized in Malaysia, which highlights the fragmented character of data for Indonesia (Mercer et al., 2014; Chuah & Fakhru’l-Razi, 2014).

Widespread adoption of oil palm cultivation by smallholders raises environmental concerns, but to a lesser extent than large-scale plantations. In fact, rubber agroforests cultivated by smallholders have been described as ecologically sound and favorable to biodiversity conservation (Dove, 1993). However, the same environmental benefits have not been demonstrated regarding oil palm smallholdings. In fact, the current trend in which large and small oil palm farms replace rubber agroforests seem to pose a new threat to biodiversity and ecosystem resilience in the region (Koh & Wilcove, 2008). However, oil palm smallholders’ practices vary greatly across a vast territory. Some forms of oil palm cultivation by smallholders may pose environmental challenges as they rely on intensive agriculture and the use of chemical inputs. However, studies have found that smallholders’ practices are generally less intensive, therefore have a lesser environmental footprint. A recent study (Molenaar et al., 2013, p. 12) among oil palm smallholders highlighted that, on average, they display much lower yields than large companies—which is related to less intensive use of chemical fertilizers. This underlines the less intense use of land by smallholders and thus may suggest that their production is more ecologically sound. Moreover, lower palm oil output on the part of smallholders must be put in perspective. Most family farms or smallholdings are involved in forms of agro-ecology that allow them to hedge market fluctuations of some cash crops with food crops and hence remain more resilient to potential shocks (Rigg et al., 2016). This also speaks to greater ecological resilience of oil palm smallholders’ production systems.

Oil Palm in Smallholders’ Livelihood Strategies

Environmental questions related to oil palm agribusiness can be analyzed in relation to socioeconomic implications. Some research findings indicate that oil palm plays a significant role in poverty reduction in regions of production (Teoh, 2010, p. 8). World Bank (2011) stated that oil palm revenues represent over 60% of smallholder income in parts of Sumatra and Kalimantan. This is an indication of the large share of revenue derived from this crop considering that most smallholders traditionally derive income from different sources (Rigg et al., 2016). Moreover, among oil palm smallholders in different regions studied, the incidence of poverty has been lower than 10% (Susila, 2004). Strong correlations have also been found between decline in poverty rates and oil palm smallholding activities in specific regions (World Bank, 2011, p. 15).

Oil palm plays a major role in livelihood strategies among large rural populations. Livelihood studies have shown that in many circumstances oil palm is more attractive financially to smallholders than other cash crops available in Indonesia. Although the crop requires more chemical inputs, it can provide higher return to land and investment than rubber, and is potentially more profitable in situations of relative land scarcity (Feintrenie et al., 2010). In addition, oil palm cultivation has a greater return to labor than rubber cultivation since it requires only about ten full days of manual labor per month for the maintenance and harvesting of two hectares, while rubber tapping requires at least double that amount (Bissonnette, 2012). However, it seems that sustained and intensive capital investments in chemical inputs (especially fertilizer) to obtain sufficient yields, turns out to be a deterrent for many. Also, insufficient access to technical expertise and quality seedlings prevent populations from engaging in this sector (Feintrenie et al., 2010). However, the trend clearly shows the constant attraction of oil palm cultivation for smallholders that nevertheless rely on less intensive practices than large-scale plantations while still drawing meaningful benefits from it.


Throughout history, large-scale plantations have been considered as risky business due to the large investments required for the creation of a production system relying on a radical simplification of ecosystems (Li, 2015). It might be useful to remember Thompson’s insight on the plantation which he depicted as an institution of the frontier, a manifestation of dynamics of capital accumulation in the periphery of the world economy (Thompson, 1959). As such, access to labor has always been an issue for planters who needed to generate revenues to sustain large investments. It is not surprising that smallholders or peasants rooted in one place, who have often practiced agriculture for generations, are in a better position to cultivate cash crops while maintaining more diversified ecological and economic systems. This has been proven eloquently with rubber cultivation in Southeast Asia, a crop now largely cultivated by smallholders, although it was originally a plantation crop. Oil palm being newer to Southeast Asia, and still predominantly cultivated in large plantations, may follow a similar path, provided public policies further encourage smallholders.

When looking at the relation between smallholding and plantation, or small and large plantations, the tension between competition and cooperation must always be kept in mind. In this regard, some continuity can be observed between colonial and postcolonial plantations. Wolf (1959) describes the tendency of plantation companies to accumulate land during times of boom until the territory becomes saturated. In doing so, plantation companies often benefit from favorable policies, as land is handed to them by colonial or postcolonial institutions. Land accumulation by planters, corporations or estates goes along with accumulation of capital and labor. However, land being the only limited factor of production, once it is subtracted from common resources by plantation expansion, causes enclosure and dispossession (Vasudevan et al., 2008). In fact, monoculture and specialized techniques of production required by plantation agriculture create conditions of capital accumulation, yet constrain agro-ecological possibilities. This necessarily has important implications, in terms not only of environmental sustainability but also of economic possibilities for agrarian populations. Rural populations, unless they have already been totally dispossessed during the land transfer to the plantations, may find themselves unable to continue to access land with demographic growth.

Malaysian and Indonesian governments, through programs such as FELDA and PIR, managed to create a new class of smallholders involved in intensive cash cropping. This was done by taking up the plantation model to transform it into smallholding schemes. These programs remain notable examples of the cooperation potential between smallholding agriculture and large plantations, although this cooperation has not prevented forms of dependence, exploitation and exclusion. If programs such as DELDA and PIR have come under justified criticism, their limitations do not change the fact that on a general level, they have generated wealth and improved population welfare in the countryside. In light of the information available, oil palm smallholding remains a valid option to maximize socioeconomic benefits while limiting environmental impacts. Therefore, what remains most problematic in the Global South, and exemplified by the case of Indonesia, and to a lesser extent Malaysia, is the persistence of state policies that still favor large plantations while not fully recognising the potential of smallholders to offer a more resilient agricultural system economically and ecologically.


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(1.) We do not wish to engage here directly with specific definitions of the plantation at the scale of the administrative unit or the states. But it is worth emphasizing that, for instance, in Malaysia and Indonesia dimension of area cultivated is used as criteria to define whether it is plantation or smallholding. In the case of Malaysia land holding over 40 hectares is considered a plantation, as it is 25 hectares in Indonesia (Fox & Castella, 2013).

(2.) Although Courtenay (1980) distinguishes between the modern/industrial and the traditional plantation, the main differences lie in the abolition of slavery along with the development of new economic systems. These new economic systems are allowed by liberalization in the late 19th century and technological innovations relying on scientific methods.

(3.) FELDA worked through a system in which loans and technical and marketing services were granted in order for smallholders to achieve standardized agricultural production. This system was criticized for being “settler-owned plantations under capitalist management” (Goldthorpe, 1988).

(4.) According to current legislations in Indonesia, a plantation company that operates in one province is allowed to own 20,000 hectares of land according to regulation No. 2/1999, and 100,000 hectares throughout the country according to regulation No.26/PermentanOT.140/2/2007 (Directorate General of Plantations, 2007).

(5.) The two most prominent Malaysian conglomerates involved in palm oil production are Sime Darby, renamed in 2007, Synergy Drive Sdn Bhd (a merge between Golden Hope Plantations Bhd, Kumpulan Guthrie Bhd, Mentakab Rubber Company (Malaya) Bhd, Guthrie Ropel, Highlands & Lowlands Bhd) and Industrial Oxygen Incorporated Sdn Bhd.

(6.) See A. Casson (1999, p. 26) referring to “Plantation Use Permit Regulation, 107/Kpts-II/1999” Although the success of its application appears limited, this measure was intended to limit the power of former large Chinese-Indonesian monopolistic enterprises closely related to the New Order regime.