Smallholders' preferred attributes in a subsidy program for replanting overaged oil palm plantations in Indonesia

Abstract

Around 2.4 million hectares of smallholder oil palm plantation in Indonesia are overaged and must be replanted to avoid future production decline. Suboptimal production from overaged plantations would not be able to keep up with the globally increasing demand for palm oil, but replanting costs are expensive for smallholders. Using a discrete choice experiment, we examine how a subsidy program could be designed to encourage smallholders to replant. Results show that smallholders are more likely to choose a subsidy program when the amount is greater and the registration scheme is group-based. We find that age, farming experience, education, postponed replanting, risk attitude, non-oil palm income, and total farm area are among factors that influence smallholders' willingness to participate in a replanting subsidy program. Additionally, willingness to accept estimation illustrates that when replanting is subsidised, smallholders are willing to trade off oil palm designated space and plant trees to enhance the biodiversity of the plantations. This empirical study provides recommendations for policymakers to improve the design of a replanting subsidy program to support smallholders and offers insights into an innovative replanting subsidy program. Boosting replanting through subsidies potentially fills the production yield gap, reduces deforestation, and improves the well-being of smallholders. • Replanting oil palm plantation is expensive for smallholders. • Sociodemographic characteristics influence smallholders decision-making in replanting. • Smallholders are willing to transform their oil palm plantations when financially incentivized. • Subsidies for replanting provides more opportunities to boost replanting rate and redesign oil palm plantations.

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