Is contract farming in the Indonesian oil palm industry pro-poor?

This paper assesses the impact of contract farming in the oil palm industry in Indonesia on smallholders’ well-being and investigates its implication for poverty reduction. Data were collected randomly from 245 smallholders in the province of Jambi, Sumatra. A treatment effects model was applied in order to capture endogeneity and selection bias. Results show that participation in contract farming is significantly associated with type of household, age of household head, size of oil palm plot, and the time of plantation establishment. While overall, contract farming has a significant positive effect on smallholder income; it discriminates against the poorer smallholders. It is recommended that agro industry and government should review contractual arrangements in order to increase the chances of the poor to benefit from oil palm expansion in Indonesia.