Agrarian change, livelihood dynamics and welfare outcomes: Evidence from plantation crop farmers in Indonesia

In the tropical belt of Africa, Asia, and the Americas, smallholder farming is undergoing a significant transformation from subsistence-oriented to highly specialized and market-oriented plantation systems. While understanding the transition of livelihoods of plantation farm households over time is an important development goal, available empirical evidence is scant. This study provides the first quantitative evidence on the dynamics, transitions, and determinants of livelihood strategies linked to the crop choices of commercial farm households in the tropics. We use three-wave panel data of oil palm and rubber farmers from Indonesia for the empirics. Particular emphasis is placed on the trade-offs smallholders face in growing these two crops. Employing the dynamic livelihood strategy framework and Latent Markov Model estimations, we reveal that even highly specialized farm households pursue diversified livelihood strategies, and they actively switch between the identified strategies. Over time, significant changes are observed in the composition of strategies, which continue to be dominated by oil palm-oriented and off-farm-based activities. Inter alia, climate anomalies and a decline in oil palm and rubber prices influence the dynamics and trajectories of the livelihood strategies. We also find that a larger farm size possibly hinders households' labor allocation to more remunerative off-farm activities, implying that possessing a larger farm-land alone may not suffice for improving farmers' wellbeing. We conclude by discussing the generalizability of our findings and providing implications for future research and policymaking.