Indonesia’s new replanting subsidy is insufficient to empower smallholder farmers to replant aging oil palms

The rapid expansion of oil palm plantations in Indonesia during the 1990s and early 2000s has resulted in an increasing number of aging palms with declining yields. Replanting is urgently needed, particularly for smallholder plantations, to sustain or enhance productivity. In response, the Indonesian government launched the smallholder palm replanting scheme in 2016, providing 30 million rupiah (~$1815) per hectare in subsidies, with a goal of replacing 2.5 million hectares of old trees by 2025. However, as of 2023, only 326,308 hectares had been approved. To accelerate replanting, the government doubled the subsidy to 60 million rupiah (~$3631) per hectare in 2024. However, a significant knowledge gap remains regarding the economic implications of delayed replanting from the smallholder perspective. This study evaluates the economic impacts of different replanting strategies using scenario analysis. Our findings indicate that smallholder farmers often delay replanting because it provides greater economic stability and comparable long-term returns in the absence of access to replanting subsidies and certified seedlings. While subsidies can improve long-term profitability (by 30% when replanting at age 25), the 7–8 year income recovery period remains a major deterrent. Thus, subsidies alone are insufficient to accelerate replanting, and additional financial support is needed to help farmers navigate the unproductive years of newly planted palms. Moreover, smallholders face multiple barriers to access subsidies, including the lack of land ownership certificates, the requirement to be part of a farmer group with at least 50 hectares of aging oil palm, and land legality issues in forest zones. Our study provides valuable insights into smallholder replanting decisions and highlights strategies to incentivize faster replanting of aging oil palms.