World market price influence on producers prices for cash crops : palm oil tree in Indonesia

This work analyzes the impact of crude palm oil (CPO) world price on producer prices for palm oil in Indonesia. For the analysis, a panel data set was implemented using monthly data from 2011 to 2019. The local price used was the average price of 14 Indonesian provinces. The analysis also studied the influence that other variables have on the local price, such as productivity and maturity of the crop. The scenario presented from the results does not look bright for smallholders, despite in this agricultural system they occupy 40% in the production of palm oil. After testing for stationarity and cointegration an Error Correction Model (ECM) was built to assess the transmission of prices for the short and long time period. Using empirical results and theory as support, it was possible to understand better what happens in the upstream chain of this sector. Maturity of land influences negatively producer price and one of the main reasons that explain that is the corruption operating at a high level leading to a situation of state capture at the national and regional level. The presence of few big refineries, that also own plantations and mills, without competing with each other is another issue that does not bring benefit to small producers both independent and under scheme.