Will teaching sustainability standards to oil palm smallholders in Indonesia pay off?

This study presents an ex-ante cost-benefit analysis of introducing sustainability standards to smallholder oil palm farmers in the province of Jambi, Sumatra, Indonesia. Sustainability standards are defined as a set of oil palm management practices derived from the Indonesia Sustainable Palm Oil (ISPO) scheme. Economic and environmental benefits of ISPO are derived from a panel data set from some 185 oil palm smallholders collected in 2010, 2012 and 2013. We explore two basic strategies for the introduction of ISPO namely: (1) a conventional extension campaign and (2) a farmer field school approach. Our calculations show that the farmer field school approach results in a higher economic rate of return compared to conventional agricultural extension campaigns. A major conclusion from this analysis is that the Government of Indonesia should invest if ISPO standards are to be adopted on a large scale by smallholder farmers.