Financial development and performance of palm oil industry in Malaysia

Amin, Syajarul Imna Mohd; Abdul-Rahman, Aisyah; Janor, Hawati; Asri, Abdullah Khairi Mohd; Muchtar, Darmawati

doi:10.20885/ejem.vol11.iss2.art2

Cited by 4 publications

(1 citation statement)

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“…This "knowledge transfer process" thereby explains why a firm appropriates farmer assets, since farmers hold a diverse range of knowledge that is widely applicable to many industries. It also explains why a firm would use farmer assets to cheaply export their 'surplus-value' to foreign markets-helping firms replicate 'knowledge accumulation' strategies across vertical markets to gain knowledge-based advantages (Balakrishnan and Fox 1993, Amin and Graham 1997, Amin, et al 2019.…”

Section: Smallholder Asset Ratiosmentioning

confidence: 99%

‘Smallholding For Whom?’

Snashall¹

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Wage inequality and land and labor insecurity are prevalent in Indonesia's small-farm sector for palm oil. Palm oil contract farming, a pre-harvest agreement between palm oil farmers and transnational processors and traders, facilitates smallholder participation in global agrocommodities markets, improves smallholder livelihoods, and promotes local economic development. This thesis explores how contract farming agreements between smallholder farmers of palm oil and transnational palm oil traders impact the long-term economic development of smallholder palm oil farming in Indonesia. I use linear regression and non-metric multidimensional scaling (nMDS) of annual financial data (2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015)(2016)(2017)(2018)(2019) from Indonesian commodities trading firms to examine the relative impact of transnational palm oil corporations on smallholder assets in the Indonesian palm oil industry. Temporal trends indicate that oligopolistic market conditions are associated with a growing comparative advantage in palm oil, accumulated land resources by transnational firms, and firm revenues. Linear regression models suggest that the comparative advantage in Indonesian palm oil is driven by state-oriented policies that benefit transnational capitalists and disadvantage smallholder farmers. Finally, nMDS plots revealed that smallholder farmers were inefficiently used by firms to produce palm oil, but also that smallholder assets were a significant driver to firm revenue growth. These results suggest the negative effects of palm oil contract farming on land and labor security, as well as on land tenure and sustainable agriculture. The paper concludes that a system of inequitable contract farming is operating in the palm oil industry where smallholder palm oil farmers are trapped by transnational firms into socio-economic farming schemes of low oil yield and non-market activity that provide palm oil firms with substantial non-market value services. Large transnational firms are thereby implicated in the long-run commodification of smallholder land for marginal fruit production while exploiting a farmer's non-market advantages.

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Section: Smallholder Asset Ratiosmentioning

confidence: 99%