Land-use change from market responses to oil palm intensification in Indonesia

Oil palm is a major driver of tropical deforestation. A key intervention proposed to reduce the footprint of oil palm is intensifying production to free up spare land for nature, yet the indirect land-use implications of intensification through market forces are poorly understood. We used a spatially explicit land-rent modeling framework to characterize the supply and demand of oil palm in Indonesia under multiple yield improvement and demand elasticity scenarios and explored how shifts in market equilibria alter projections of crop expansion. Oil palm supply was sensitive to crop prices and yield improvements. Across all our scenarios, intensification raised agricultural rents and lowered the effectiveness of reductions in crop expansion. Increased yields lowered oil palm prices, but these price-drops were not sufficient to prevent further cropland expansion from increased agricultural rents under a range of price elasticities of demand. Crucially, we found that agricultural intensification might only result in land being spared when the demand relationship was highly inelastic and crop prices were very low (i.e., a 70% price reduction). Under this scenario, the extent of land spared (similar to 0.32 million ha) was countered by the continued establishment of new plantations (similar to 1.04 million ha). Oil palm intensification in Indonesia could exacerbate current pressures on its imperiled biodiversity and should be deployed with stronger spatial planning and enforcement to prevent further cropland expansion.

Automated summary

This study examines the supply and demand of oil palm in Indonesia and explores the potential impact of market forces on intensification. The findings suggest that intensification may not effectively reduce crop expansion unless demand elasticity is low and crop prices are significantly reduced. It highlights the need for stronger spatial planning and enforcement to prevent further cropland expansion and protect biodiversity.