Analysis of the foreign direct investment, oil palm expansion, and food security in Indonesia: Sumatra and Kalimantan case studies

Abstract

Abstract The continuing oil palm expansion on food security has prompted fierce debate. On one side, analysts argue that local community incorporation in the oil palm sector can increase food purchasing in the market. However, the expansion has also brought unprecedented consequences of losing highly nutritious food due to forest conversions. This study aims to analyze oil palm expansion and local food security in various regions in Indonesia by tackling the following questions: (a) Which factors influence palm oil expansion, and does foreign investment play a role? (b) How does palm oil expansion affect food security in Indonesia? Socioeconomic methods have been applied in this study, including a systematic literature review and qualitative interviews with key stakeholders from various domestic and international organizations. These two methods help us triangulate the academic literature findings with real-world situations as perceived by the actors in the related field. Results indicate that, firstly, foreign investors have not only made a direct investment to facilitate oil palm expansion, but also indirect financial intermediaries are held without holding financial equities to upstream oil palm companies (e.g., supply chain financing contracts, channeling using local financial institutions such as credit union). Secondly, while large corporations asserted monoculture oil palm expansions, some smallholding farmers use mixed cropland expansion to share food and oil palm crops in their own smallholding terms. With the oil palm expansion, farmers can secure a cash flow from palm oil, but an unintended outcome is less nutrition diversification, and often because of the distance to markets, some commodities are favored over a more diverse diet. The outcomes of oil palm development vary and are multifold, as some stakeholders report that some studies show improving cash flows at the farm level, but other studies insist that food insecurity still prevails.