Does investment in palm oil trade alleviate smallholders from poverty in Africa? Investigating profitability from a biodiversity hotspot, Cameroon

Abstract

In this study we investigate whether the increasing investment in smallholder oil palm plantations that contributes to deforestation is motivated by financial gains or other factors. We evaluate the financial viability of smallholder farmers selling fresh fruit bunches (FFBs) to intermediaries or agro-industrial companies with mills, or processing the FFBs in artisanal mills to produce palm oil. We use data collected in four oil palm production basins in Cameroon and carried out a life cycle assessment of oil palm cultivation and CPO production to understand financial gains. We use payback period (PBP), internal rate of return (IRR), benefit cost ratio (BCR) and net present value (NPV) for 1 ha of oil palm plantation over 28 years at a base discount rate of 8% to asses viability. Our results show that smallholders make more money processing their FFBs in artisanal mills to produce CPO than selling FFBs to intermediaries or agro-industrial companies with mills. The sensitivity analysis show that land ownership is the single most important parameter in the profitability of investment in palm oil cultivation and trade. In addition to land cost, smallholders suffer from borrowing at high interest rates, high field management costs, while recording low on-farm FFB/processing yields. To improve the financial viability of smallholders investing in oil palm cultivation, measures are needed to encourage them to access land, get loans at reduced interest rates, reduce the cost of field management, adopt good agricultural practices to improve on-farm FFB/processing yields, as well as to generate additional revenue from the sale of other products.

The Prosperity Level of Plasma Palm Oil Farmer’s Family in the State Border Area during the New Normal Era

“…No variables that may likely distort the prosperity level was identied in the recent study. Further, similar study also found the land access as an essential factor of financial performance improvement among the small farmers (Ayompe et al, 2021). Previous study also discovered the influence of total land plantation area on the farmer's income.…”

Complexities of sustainable palm oil production by smallholders in sub‐Saharan Africa

“…We also found that cultivating oil palm alone may not lift smallholders out of poverty due to the low revenues. This is supported by a recent study by Ayompe, Nkongho, et al (2021) that showed that unless you own land, the benefits of oil palm cultivation are minimal.…”

“…Only a small percentage sell internationally (11%). A recent study by Ayompe, Nkongho, et al (2021) reveals that farmers make more money from selling CPO than FFBs.…”

Mapping social impacts of agricultural commodity trade onto the sustainable development goals

“…The references demonstrate where empirical studies have tested the various arrows in the framework that specify conceptual (sometimes causal) relationships and allow evaluation of their link to specific SDGs. Most of the references in these tables were primarily taken from systematic literature reviews focused on impacts on wellbeing (outcomes) of soy (Dreoni et al, 2022), coffee (Watts et al, 2021), cocoa (Dreoni et al, 2021) and palm oil (Ayompe et al 2021) production. In addition, we included literature from the evidence base of other commodities to fill in gaps related to the links between the resource and systems/settings concepts of the SIAT framework to relevant SDGs and their targets, as well as to demonstrate the wider applicability of the framework.…”