The Institutional Arrangements in Oil Palm Sector as an Effort to Spur Economic Growth in Rural Areas

International Research Journal of Business Studies, Volume 4 No 3 December 2011-March 2012

Oil palm is an excellent plant for the people of Riau Province. It can be seen from the rapid development of plantations, in 2001 oil palm plantations covered an area of ​​1,119,798 ha and in 2010 it increased to 1,925,341 ha with growth of 36.02%. Oil palm plantation activities brought economic impact on society, both the people directly involved with the activities of plantations and the surrounding community. To anticipate the rapid development, a model to avoid inequality of income among farmers needs to be designed, especially for farmers in partnership pattern and self-supporting farmers. Institutional model aims to increase the welfare of rural farmers in the form of Oil Palm Based Agroestate (ABK). The concept of Oil Palm Based Agroestate collaborates between farmers, cooperatives, and business enterprises. Through the ABK program, farmers have the opportunity to buy/have shares of the Oil Palm Factory (PKS). There are two main business activities of ABK model; first, business activities that build oil palm plantations and factories of the derivative industry, and if necessary the settlement of participant farmers will be established by the developer; second, business activities that manage plantations and participant farmers-owned factories as well as market the products which are carried out by a managing business enterprise or a cooperative which is formed by the participant farmers.

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