In 2007, Indonesia took over Malaysia as the world’s largest producer of palm oil where its products (palm oil and kernel oil) are mostly exported to India, China and Europe.

The strategic role of oil palm in achieving economic growth is due to the Indonesian comparative advantage in terms of labor and land costs. The expansion of the industry was justified under the principle of the “right to development” and as the world’s largest producer of palm oil, Indonesia’s national policies are aimed at maintaining the country’s competitive advantage.

The palm oil plantations in Southeast Asia have been in operation since the colonial period. The rapid growth of oil palm plantations in Indonesia began around the 1990s, from roughly only 100 hectares in 1967 to approx. 10.5 million hectares in 2013 and reached 14.03 million hectares in 2017. The contemporary Indonesian oil palm production is concentrated in Sumatra and, since 1998 has been characterized by a large number of smallholder plantations. The percentage of smallholders grew from 32 percent of approximately 2 million hectares of Indonesian oil palm plantation in 1995 to 41.6 percent of 10.5 million hectares in 2013 and declined slightly to 40 percent of 14.03 million hectares of Indonesian oil palm plantation area in 2017. While the smallholding sector (perkebunan rakyat) is defined as individual-owned plantation on area less than 25 hectares, a comprehensive study of 1069 smallholders in various locations by IFC (2013), which covers both plasma and independent smallholders, shows that the average holding of oil palm smallholders is between 2 and 3 hectares.

With reference to Moore’s (2017) argument that capitalism is a system in which islands of commodification are surrounded by oceans of Cheap Nature, this paper identifies and analyzes different mechanisms which allow Indonesian oil palm industry to endlessly appropriate smallholders—scheme/contract/tied/assisted /plasma and independent—who supply the booming industry with cheap land, labor and raw materials. Particular attention is given to the changing schemes between the core plantation and plasma-smallholders which have evolved since 1977 as well as evolving terms of engagement with the industry which have been experienced by independent-smallholders since 1995.

Keywords: cheap land, cheap labor, oil palm, smallholders, Sumatra and Kalimantan