International Social Science Journal (Chinese Edition)

No.1, 2018

An analysis of the externality problems of rice field conversion into oil palm plantation in North Sumatera Province, Indonesia (Abstract)

Eva Anggraini

The appeal of oil palm production has encouraged rice farmers in Indonesia to convert their rice fields into oil palm plantations. However, due to the connectedness of rice fields, the presence of oil palm plantations adjacent to the rice plantation has created externality problems. This study conducted a crop-choice game to understand farmers’ farming decisions on arable land use and to analyze the kind of institutions (i.e., sanctioning versus leading by example) that might be effective to solve the externality problems emanating from rice-field conversion. The game also aimed to determine the extent to which spatial dimension influences farmers’ decisions. A total of 212 observations consisting of rice and oil palm farmers in two districts in Sumatera Utara province (i.e., Serdang Bedagai district and Langkat district) participated in the experiment. The results showed that the baseline had the highest conversion rate (2.59), followed by the leading by example (2.39), and then by the sanctioning (1.78). This result indicates that institutional mechanism is required to solve the externality problems, and that sanctioning makes a more significant influence than leading by example in reducing the conversion rate. However, the conversion rates of the rice plots located at the center and at the borders did not significantly differ from one another in all treatments. To prevent further externality problems in arable land use, we suggest establishing local institutions (i.e., informal rules agreed by farmers through sanctioning mechanism) and enhancing formal rules on land use through specifying spatial planning at the village and district levels.