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Palm oil and its derivatives are some of the essential commodities in Indonesia. In 2008, it helped the country escape from the Asian financial crises and avoid global recess caused by a sub-prime mortgage (Henders et al., 2015; Lewis et al., 2010). Furthermore, palm oil generates more than 10% contribution to the country's export, and currently, together with Malaysia, Indonesia is the leading producer of palm oil. Smallholders contributed around 35% of kernel palm oil productivity in 2019. That productivity resulted in 40% production of the occupied palm oil land in 2019. There was an increase in smallholder productivity from 20% of the palm oil produced in 2015 to 34% in 2019 (Direktorat Jenderal Perkebunan, 2019; Jelsma et al., 2019). Thus, it is estimated that smallholders have annual productivity development (Euler et al., 2016a). Since the commodity is the primary growth generator, smallholders' productivity is considered as an essential factor.
Smallholders are generally defined as palm oil farmers who are limited by the size of their land, labor dependence on families, economic productivity conditions, access, and economic challenges (Jelsma & Schoneveld, 2016). The identification of land area ownership as a land boundary for the smallholder land category is very diverse. The various land ownership sizes include 2 ha to <50 ha (Jelsma et al., 2017a; Naylor et al., 2019; Nesadurai, 2017; Shukla & Tiwari, 2017). There is a difference in the system adoption between smallholders and companies. However, each system has its strengths and weaknesses. The system adopted by smallholders is generally a system where workers are family. Hence, they generally have a close emotional bond and low labor costs, resulting in high yield (Poulton et al., 2010).
Palm oil has been one of the leading prominent commodities to drive local exports from the 1990s to late 2015 (Henders et al., 2015). From then on, the global crude palm oil (CPO) price started to decrease, causing national trade balance to slump and struggle from deficit threat (Henders et al., 2015). Moreover, the European Union (EU) has recently banned palm oil imports, especially from Indonesia (Hinkes, 2019). To overcome the threatened commodity, the government declared mandatory biofuel development in response to the EU's palm oil ban (Koizumi, 2015). The program suggests that biofuel produced from palm oil is gradually mixed with conventional fuels (Mahmudul et al., 2017), which will be used in various sectors. In other words, the government planned an import substitution for conventional fuels to save foreign reserves and improve trade balances. As a result, palm oil production productivity becomes more important than before (Muralidharan and Senthilkumar, 2016). In addition, there is a potential increase in export for every year in the Association of Southeast Asian Nations (ASEAN) region (Devadason & Mubarik, 2019). It was estimated that 20 million tons of palm oil are needed in 2025 to meet domestic demands for palm oil. Hence, it can meet the needs of food, industry, and biodiesel targets. When totaled with international demand, this amount requires a total of 51 million tons of crude palm oil to be produced to meet the demand in 2025 (Khatiwada et al., 2018). A solution is needed to meet that demand, one of which is to increase productivity. Therefore, sufficient data regarding factors to increase agricultural production is required, from plants and planting processes until external factors such as farmer finance, local government support, central government support, and applied regulations and policy.