Intensification model of smallholder oil palm plantation to achieving sustainability and prosperity, Riau Province, Indonesia

Intensification of smallholder oil palm plantations is still a challenge that needs to be achieved in line with ISPO’s target for smallholders in 2025. The current problem is that not all smallholders have implemented Best Management Practices (BMP), resulting in low productivity and poor performance toward sustainability targets. During the previous several years, Indonesia could achieve self-sufficiency in rice through a rice intensification program from the 1960s to the 1980s. This success is expected to be an example for Indonesia to achieve ISPO in all Indonesian oil palm plantations, especially for smallholders. This paper aims to analyze the effect of fertilization, oil palm age, harvest period, and institutions on the productivity of smallholder oil palm plantations to achieve sustainability targets. The analysis was carried out agronomically using multivariate regression, socially using t-test, and economically using NPV and IRR. According to the study, the harvest period has a stronger influence than fertilization, and institutions do not significantly affect productivity. The results of the NPV and IRR analysis, smallholder oil palm plantations are classified as profitable, with an NPV of USD 161,724 and with an IRR value of 12%.


Introduction
For Indonesia, smallholders have an important role, considering the proportion of the total area of oil palm plantations reaches 41.24% nationally [1].The production increased rapidly.Production of oil palm by smallholders was 1,34 million in 1998 and increased to 16,22 million tons in 2019.so, production in 2019 grew 12,06 times as much as the production in 1998.During that time, the area of oil palm planting by small farmers increased tremendously from 850 thousand ha in 1998 to 6,04 million ha.The area of oil palm planting grew 6,78 times as much as the area in 1998.On the other hand, productivity of the oil palm per ha of land increased from 1,51 tons CPO/ha in 1998 increased to 2,69 tons CPO/ha, which means the productivity of palm oil production in 2019 increased 1,78 times as much as the productivity in 1998.These data show that the increase of oil palm production by small farmers is largely realized by the expansion of oil palm fields, rather than the increase of productivity of oil palm produced by small farmers (BPS serial data on oil palm production).This stagnation of productivity increase of smallholder oil palm production resulted in low productivity of smallholder's oil palm plantations.
Compared to the proportion of land area, the total CPO produced from smallholders is still lower, namely 34.36% of Indonesia's total CPO production [1].According to the data, CPO productivity for smallholders is still relatively low compared to other types of plantations, namely private plantations, and state plantations.Palm oil productivity is assessed based on the yield gap between actual and potential yield, known as a yield gap analysis study.The bigger the gap, the lower the productivity.Various efforts have been made to reduce the resulting gap, one of which has been extensively researched, namely the intensification program through implementing Best Management Practices to achieve business sustainability and the welfare of smallholders.
As small farmers produce, the performance of paddy production intensification can be compared.The area of wet rice fields in Java Island was 3,487 million ha in 1963.The area in 1981 was 3,487 million ha.That means there was no increase in wet rice fields in Java at all from 1963 to 1981.However, the production of rice increased from 4,755 million tons in 1965-1967 average to 15,305 million tons in 1983-1985 average.That means the productivity increased 4,03 times during 1965-1967 to 1983-1985 (BPS various data on rice production).This rapid increase was realized by the introduction of HIV of rice, improvement of irrigation, and top-down style agricultural extension service involving the BLP (Balai Penyuluh Pertanian, Agricultural Extension Center), PPL (Petugas Penyuluh Lapangan, Field Extension Officer), and PPM (Petugas Penyuluh Madya, Senior Extension Officer).Rice seed breeding centers, supply of lower priced fertilizers, the leading role played by the Government.Those efforts achieve self-sufficiency in 1984 although short-lived.Development of oil palm production can learn many lessons from the successful experience of rice production from 1964 to 1984 [2].
The current problem is that not all smallholders have implemented Best Management Practices (BMP), resulting in low productivity and poor performance toward sustainability targets.Studies on productivity in the Yield Gap Analysis and Best Management Practices in smallholder plantations have been carried out by previous researchers [3]  Source : [6] Other research states that the Yield Gap stages in the cultivation of smallholder oil palm plants are divided into four phases, starting from Farm Yield (FY), Attainable Yield (AY), Water-limited Potential Yield (PYw) and Potential Yield (PY) [9].The results of the Yield Gap Analysis are important variables that will be attempted to support crop productivity through Best Management Practice (BMP).BMP is an agronomic method and technique found to be the most cost-effective and practical means to reduce the gap between actual and site yield potential and minimize the impact of the production system on the environment by using external inputs and production resources efficiently [3].
Concerning intensification to achieve sustainability, the Indonesian government has shown its support through mandatory Indonesian Sustainable Palm Oil (ISPO) certification for smallholders starting in 2025 or 5 years since regulations were enacted in 2020 (Ministry of Agriculture Regulation 38 of 2020).Problems related to productivity in smallholder oil palm plantations are classic things to discuss.Problems related to cultivation and social techniques still need to be improved.Among the things related to cultivation techniques are fertilization, plant age, and harvest period, while social factors are institutions.This paper aims to analyze these four factors, namely fertilization, oil palm age, harvest period, and institutions on the productivity of smallholder oil palm plantations to achieve sustainability targets.
Much research has been conducted on intensification in smallholder oil palm plantations, but only a few have combined the technical and social aspects of cultivation in a comprehensive study.This research will comprehensively study cultivation and social factors in creating a model for the intensification of smallholder oil palm plantations.

Method 2.1. Study area
The research was carried out on smallholder oil palm plantations in Rokan Hulu Regency, Riau province, on 90 independent smallholder respondents with a total land area of 199 ha.The soil types in the observation estate are all mineral soil with mature planting status.

Data collection
Primary data collection was carried out employing structured interviews with 90 respondents of oil palm smallholders, all of whom are independent smallholders.Quantitative data is collected in the same period or is called a cross-section.Data collection includes plantation area statements (area and year of planting), crop productivity, fertilization, institutions, maintenance costs, harvesting costs, plantation asset values, and FFB prices at the smallholder's level.

NPV dan IRR
This research uses two economic indicators, namely Net Present Value (NPV) and Internal Rate of Return (IRR) [13].This economic analysis is calculated up to the sale of FFB because the smallholders sell the product in the form of FFB.
Calculation of Net Present Value (NPV) using Equation 2.1.NPV+ = NPV when positive; NPV -= NPV when negative r1 = estimated discount rate that causes a positive NPV r2= estimated discount rate that causes a negative NPV.

Data analysis
Cross-section data were analyzed statistically using multivariate regression and t-test to determine the agronomic effect of each factor and NPV and IRR calculations to determine business feasibility from an economic perspective.Multivariate regression was used to determine the effect of the independent variables on fertilization, plant age, and harvest period on the dependent variable, namely plant productivity.The t-test is used to determine the effect of institutions' presence on smallholders' productivity.The statistical program used is Eviews 12.For economic analysis, we employ NPV and IRR calculations to determine the economic feasibility of smallholder oil palm plantations.Calculations are performed using Microsoft Excel.

Factors Supporting Plant Productivity
The actual productivity of the respondents' palm oil as a whole is relatively high.Compared to the production standards of IOPRI, the average productivity of smallholder plants reaches 75% of their production standards.This achievement of high productivity can occur due to the type of soil that supports it, namely mineral soil, and the location of smallholder plantations adjacent to state plantations.
Even though they are not part of the plasma system, independent smallholders can gain knowledge from employees of large state plantations because they know them directly.In addition, the strategic location of the plantation from the main road is also advantageous because assistance from outside the area, such as NGOs, can easily access it.However, this achievement is calculated based on the average value of 90 respondents.There are still smallholders who only reach 50% of their production standards and are even below that.The wide variation in the gap is due to several factors, including cultivation, technical and social factors.
Of the factors analyzed, the authors highlight that fertilization, harvesting period, plant age [10] and institutions have an important role in crop production.Institutional factors are also the variables studied because the results of previous studies have highlighted that collective action in institutions can increase the productivity of smallholder oil palm [14].Multivariate regression analysis was performed to determine the magnitude of the influence of these factors.The results of the analysis are shown in Table 1.  1 shows that fertilization and harvest period have a significant effect on plant productivity, while plant age has no significant effect on productivity.The R-squared value of the regression calculation is 0.16, meaning that the effect of fertilization and harvesting period on productivity is only 16%, the remaining 84% is influenced by other factors.Plant age has no significant effect because the planting age in the respondent's gardens is all classified as mature plants.When viewed from the value of the coefficient, the harvest period has a more important influence than fertilization.The equation model formed is log (Yield) = 2,21 + 0,15 log X1 + 0,55 log X2 X1 is fertilization (kg/tree), and X2 is the harvest period.Fertilization significantly affects plant productivity, but the effect is greater than the harvest period.The harvesting strategy has a very important effect on the productivity of smallholder oil palm.Awareness of fertilization among research plantation smallholders is quite high; as much as 79% of smallholders still apply fertilization, although the dose applied is still relatively small.Types of fertilizers and dosages used are shown in Table 2.As much as 21% of the farmers do not apply inorganic fertilization.The cause of the smallholders not applying fertilization is the farmers' perception that fertilization is not important.The other reason is that the plantation is not a priority because it is not the main source of income.
The harvest period also significantly affects productivity, even more, influential than fertilization.Previous research [15] [8] showed that the harvest period is an important factor in determining yields.Large-scale oil palm plantations have shown that a relatively short harvest period of 7-10 days can stimulate plant recovery, resulting in higher yields per hectare per year [16] [7].The variable includes the harvest period because, based on previous research [15],a decrease in the harvest period/rotation can reduce the production of smallholder oil palm plantations.The range of harvest periods in the respondent's garden is 1-4 harvests per month.The various harvest periods for the farmers are caused by considerations of the area and the cost of harvesting.Smallholders with larger garden areas tend to harvest more frequently per month.Related to this, the authors conducted a causality analysis for harvest costs with the harvest period of 90 farmer respondents.The statistical analysis results stated that the harvest period had no significant effect on harvest costs (IDR/kg harvest).This result means that the addition of the harvest period remains profitable.
This research also analyzes institutional factors to determine their effect on crop productivity.Smallholder oil palm can contribute to supply chains on advantageous conditions and substantially increase productivity under strong institutional arrangements, thereby contributing to rural development and land sparing.As many as 84% of the respondent smallholders have joined the institution.The institution referred to here is the participation of farmers in the minimal organization of farmer groups or larger forms, for example, the Farmers Forum.At the research location, a farmer organization already oversees the farmers, namely the Forum Semarak Mudo.This organization serves as a medium for smallholders for consolidation and as a liaison when there are institutions from outside the plantations that will assist smallholders.The existence of this institution is a forum for smallholders to exchange information and knowledge of BMP to realize collective action.However, the results of this research show that the average productivity of smallholders affiliated with institutions and those not affiliated shows no significant values (Table 3).The participation of smallholders in the institution does not mean that the smallholders will implement the BMP principles in the cultivation system.The non-participation of independent smallholders in applying the BMP principles can be due to many factors, generally due to a need for knowledge on how to apply the BMP principles.The BMP principle is a common practice that has been widely published and is believed to be able to increase oil palm production.Local institutions act as a bridge to increase the knowledge of independent smallholders in applying the BMP principles.As many as 14% of the smallholders who participated in the institution still needed to apply for fertilization.

Economic Feasibility of Smallholder Oil Palm Plantations
Based on the results of NPV and IRR calculations, it is known that the smallholder's oil palm plantation in the respondent's plantation location is economically profitable because it has a positive NPV value of USD 161,724 and with an IRR value of 12%.The IRR value shows that the plantation business is profitable because the IRR value is greater than the existing interest rate, which is 9.74%.

Conclusion
Under Business as Usual (BAU) conditions, smallholder oil palm plantations in research locations are profitable.It can be seen from the positive NPV of USD 161,724, with an IRR value of 12%.However, the average productivity of smallholder oil palm reaches 75%, with a fairly wide distribution.Based on the results of statistical modeling, it is known that the harvest period and fertilization have a positive and real influence on crop productivity.In this research, harvest period has a stronger influence than fertilization.It is such an anomaly.The participation of smallholders in the institution does not mean that the smallholders will implement the BMP principles in the cultivation system.Palm age and institutions have a nonsignificant effect on crop productivity.
[4][5][6][7][8][9][10][11][12].Yield gap analysis is studied from several influential stages.[6](Figure1) describes it in five stages namely Yield potential of progeny for a given soil and climate (Site Yield Potential / Y-syp), Yield reduced for the duration of the planting cycle because of poor plantation establishment (Maximum Economic Yield / Y-mey), Yield reduced because of incorrect nutrient diagnosis (Y-nd), Yield reduced because of inadequate crop agronomic management (Yield limited by agronomic management / Y-am) and Yield reduced because of poor crop recovery (Actual yield / Y-a).

Fig 1 .
Fig 1.The Scope for reducing or eliminating the four yield gaps flow in year t ; R = Discount Rate; Cfo = Cash flow in year 0 or initial investment Calculation of the Internal Rate of Return (IRR) using Equation 2.2. 4 NPV + IRR = r 1 + |NPV +| + |NPV − | × (r 2 − r 1 )

Table 1 .
Multivariate Regression of Plant Productivity Factors

Table 2 .
Fertilizer application by smallholders

Table 3 .
Productivity T-test of smallholders who are affiliated with institutions and not affiliated at the same plant age