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Important Concepts and Effects of a Commodity Price Change in the Market.

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Oil palm plantation business models
As of early 2011, oil palm plantations covered 7.8 million ha in Indonesia, out of which 6.1 million ha were productive plantations under harvest (Slette and Wiyono 2011). In 2010, these plantations produced 22 million tons of CPO and the production increased further to 23.6 million tons by the end of 2011.

Most plantations, as well as CPO production, are located in Sumatra and Kalimantan (Indonesian part of Borneo). Between 1997 and 2006, 400,000 ha of oil palm plantations were established annually. Between 2007 and 2010, the size of annual establishment of oil palm plantations declined to 350,000 ha (Slette and Wiyono 2011). As new land available for plantations becomes more limited, annual development of plantation is expected to continue its gradual decline. However, over the next few years, land concessions already allocated for oil palm and not yet developed are sufficiently large to allow plantation estates to continue growing.

There are three main types of business models for oil palm cultivation in Indonesia: private large-scale plantations and two types of smallholder models, i.e., nucleus estate smallholders, or NES, and independent smallholders. Smallholders manage nearly half of the overall plantation area; unfortunately government statistics do not distinguish between different types of smallholders. It is believed that smallholder operations have contributed significantly to the expansion of oil palm estates in recent years (World Bank 2010).

Between 2006 and 2010, the area of oil palm plantations increased by 2.37 million ha, bringing the total productive area of plantation estates to 5.9 million ha (Slette and Wiyono 2011). This was partly because of biofuel and oil palm policies, which took effect in 2006 aiming to promote the production and use of biofuels. Overall, however, this expansion is more…...

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