1. Vijesh Krishna University of Göttingen, Germany
Land Markets, Property Rights, and Deforestation in Sumatra ( )
Vijesh Krishna
University of Göttingen, Germany
Land and Poverty Conference 2017: Responsible Land Governance—Towards an Evidence-Based Approach
March 20-24, 2017, Washington DC

2. Deforestation in Indonesia
Indonesia accounts for 2.3% of global forest cover.
Home to extensive humid tropical rainforests.
Ranks 2nd for area deforested in the last two decades.
4/5th Indonesia’s GHG emission arises from land use changes involving deforestation.
A significant role in global carbon trading and REDD+ initiatives.
Land and Poverty Conference 2017

3. Decline of forest resources in Sumatra and project EFForTS
(lost 70% of the island's forested area by 2010). The extent of old-growth forest in Sumatra shrank by 40 percent over the past 20 years. . Today, about 70% of Indonesia’s oil palm plantations are located on the island (Coordinating Ministry for Economic Affairs of the Republic of Indonesia, 2011, p. 53) and about 84% of Indonesia’s smallholder rubber comes from Sumatra (Peramune & Budiman, 2007, p.9).
About 43 percent of the 2.7 million ha of primary forest in 1990 was lost in Jambi by 2010.
Margono et al. (2012).
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4. Deforestation and land governance in Indonesia
Indigenous legal systems based on customary law (adat) was prevalent.
Forestry Law (1967): Around 70% of the country’s territory was declared as “state forest land”.
All unregistered plots were regarded as part of it.
Most farmers do not possess land titles.
Even in the absence of any legal recognition, farmers claim de facto ownership rights over land.
Strong de facto rights, deforestation continued unhindered.
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5. Data source: farm household survey
Conducted farm survey among 700 farm households of Jambi Province, Sumatra, with stratified random sampling.
Two survey rounds: 2012 and 2015; Attrition rate: 6%
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6. Land markets: an important land acquisition pathway in Jambi
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7. Objectives of the study
What are the micro-level determinants of farmer decision to choose a land acquisition pathway? Does emergence of land markets cause deforestation?
Participation in the land markets
Direct appropriation of forest land
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8. Step 1: Analysis of household characteristics
Are land market participants different from those appropriate forest? (Bivariate probit model)
Market purchase
Forest appropriation
Time of acquisition of first plot [year]
0.016
–0.067***
(0.011)
(0.015)
Migrated to transmigrant village [dummy]
0.483***
–0.747***
(0.187)
(0.263)
Migrated to traditional village [dummy]
0.344**
–0.051
(0.157)
Javanese or Sundanese ethnicity [dummy]
0.418***
–0.316*
(0.152)
(0.186)
Presence of forest in the village in [dummy]
–0.225
0.627***
(0.166)
(0.223)
Correlation of error terms
–0.291***
(0.092)
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9. Relevance of household heterogeneity
Different set of farm households are involved in markets and forest encroachment.
But does the deforested land end-up in the markets?
Forest land
Markets
Local farmers
Migrants
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10. Step 2: Analysis of land prices
Would culling-for-trading be financially beneficial?
Land market prices are compared with financial outflow from plantations.
Price change during is examined in a hedonic pricing framework.
Explanatory variables include:
Land-use type (plantation crops, bush/grass, forest) at the time of transaction
Possession of land titles
Plot and village characteristics etc.
Land market prices are found affected by the output prices (through altering rent).
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11. Land market price across land-use types
(million IDR/ha)
Annual change in land price (%)
Plantation crops
23.16
35.91
1.33***
[3.84]
Forest
6.98
7.03
0.24**
[3.34]
Bush, grass etc.
10.83
15.68
0.83***
[5.60]
*p≤0.05; ***p≤0.01
Interest rate on bank deposites (2015) in Indonesia 7%
Annual inflation rate ( ) in Indonesia 4%
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12. Land values and property rights
Land market price
(million IDR/ ha)
NPV (million IDR/ ha)
at 10% discount rate
With titles
Without titles
Oil palm
77.16ns
24.91***
60.54
Rubber
83.85ns
36.18***
81.10
*** difference with NPV is significant at p≤0.01; ns: not significant at p ≤ 0.10.
Deforestation takes place mainly in the local villages, where only 2% of rubber plots and 16% of oil palm plots had titles.
Undervaluation of land due to lack of de jure right, makes “culling for the markets” not economically viable.
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13. Land and Poverty Conference 2017
No correlation between deforestation and market development at the village level
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14. Land and Poverty Conference 2017
Summing up
Strong de facto rights prompt farmers to clear forest land.
Weak de jure rights for land not eligible for titling
Weak de jure rights prevent market-induced deforestation by undervaluing the converted forest land.
Land markets co-exist with forest land appropriation without immediate interlinkages.
The major threat for forest lands in Sumatra lies outside the purview of land markets.
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15. Thank you!