Ecological Economics 122 (2016) 111–120
Contents lists available at ScienceDirect
Ecological Economics
j ourna l homepage: www.e lsev ie r .com/ locate /eco leconSurveysEconomic and ecological trade-offs of agricultural specialization at
different spatial scalesStephan Klasen a, Katrin M. Meyer b,⁎, Claudia Dislich b, Michael Euler c, Heiko Faust d, Marcel Gatto e,
Elisabeth Hettig b,f, Dian N. Melati g, I. Nengah Surati Jaya h, Fenna Otten d, César Pérez-Cruzado g,
Stefanie Steinebach i, Suria Tarigan j, Kerstin Wiegand b
a Department of Economics, University of Göttingen, Platz der Göttinger Sieben 3, 37073 Göttingen, Germany
b Ecosystem Modelling, University of Göttingen, Büsgenweg 4, 37077 Göttingen, Germany
c Department of Agricultural Economics and Rural Development, University of Göttingen, Platz der Goettinger Sieben 5, 37073 Goettingen, Germany
d Department of Human Geography, University of Göttingen, Goldschmidtstr. 5, 37077 Göttingen, Germany
e Department of Agricultural Economics and Rural Development, University of Goettingen, Platz der Göttingen Sieben 5, 37073 Göttingen, Germany
f GIGA German Institute of Global and Area Studies, Institute of Asian Studies (IAS), Neuer Jungfernstieg 21, 20354 Hamburg
g Forest Inventory and Remote Sensing, University of Göttingen, Büsgenweg 5, 37077 Göttingen, Germany
h Forest Resources Inventory and Remote Sensing, Bogor Agricultural University, Kampus IPB Darmaga, 16680 Bogor, Indonesia
i Institute of Social and Cultural Anthropology, University of Göttingen, Theaterplatz 15, 37073 Göttingen, Germany
j Department of Soil Sciences and Natural Resource Management, Bogor Agricultural University, Indonesia⁎ Corresponding author.
E-mail addresses: sklasen@uni-goettingen.de (S. Klase
(K.M.Meyer), cdislic@uni-goettingen.de (C. Dislich),mich
(M. Euler), hfaust@uni-goettingen.de (H. Faust), mgatto@
elisabeth.hettig@giga-hamburg.de (E. Hettig), dmelati@un
ins-jaya@cbn.net.id (I.N.S. Jaya), fotten1@uni-goettingen.d
(C. Pérez-Cruzado), ssteine@gwdg.de (S. Steinebach), sury
(S. Tarigan), mail@kerstin-wiegand.de (K. Wiegand).
http://dx.doi.org/10.1016/j.ecolecon.2016.01.001
0921-8009/© 2016 The Authors. Published by Elsevier B.Va b s t r a c ta r t i c l e i n f oArticle history:
Received 14 April 2015
Received in revised form 25 November 2015
Accepted 6 January 2016
Available online 17 January 2016Specialization in agricultural systems can lead to trade-offs between economic gains and ecosystem functions.
We suggest and explore a conceptual framework in which economic gains can be maximized when production
activities are specialized at increasingly broader scales (from the household to the village, region or above), par-
ticularly when markets for outputs and inputs function well. Conversely, more specialization likely reduces bio-
diversity and significantly limits ecosystem functions. When agricultural specialization increases and moves to
broader scales as a result of improved infrastructure and markets or other drivers, ecosystem functions can
also be endangered at broader spatial scales. Policies to improve agricultural incomes may influence the level
of specialization at different scales and thus affect the severity of the trade-offs. This paper takes Jambi province
in Indonesia, a current hotspot of rubber and oil palm monoculture, as a case study to illustrate these issues. We
empirically show that the level of specialization differs across scales with higher specialization at household and
village levels and higher diversification towards the province level. We discuss ways to resolve trade-offs be-
tween economic gains and ecological costs, including landscape design, targeted policies, and adoption of long-
term perspectives.
© 2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license
(http://creativecommons.org/licenses/by/4.0/).Keywords:
Ecosystem Services
Economies of Scale
Indonesia
Monoculture
Oil Palm
Rubber1. Introduction
For poor smallholder households that depend largely on the use of
natural resources for their livelihood, increasing agricultural incomes
is critical to escape poverty (Lipton, 2005; World Bank, 2007; Klasen
et al., 2013). In an environment of well-functioning markets and infra-
structure, a possible economic option to increase incomes is ton), kmeyer5@uni-goettingen.de
ael.euler@agr.uni-goettingen.de
uni-goettingen.de (M. Gatto),
i-goettingen.de (D.N. Melati),
e (F. Otten), cperez@gwdg.de
a.tarigan@yahoo.com
. This is an open access article underspecialize on themost profitable crop for given soil, climate, andweath-
er conditions (Lambin and Meyfroidt, 2011; Ruiz-Perez et al., 2004).
At the same time, there are some costs and constraints to complete
specializationwhich partly relate to land tenure, farm size, social capital
stocks, and idiosyncratic decisionmaking of farmers, and partly relate to
the availability, access, and functioning of markets for inputs, outputs,
labor, and credit. For example, complete specialization often requires
highly seasonal labor demand which often cannot be procured locally;
similarly, concentration on one crop exposes farmers to high risk against
which they can only imperfectly insure themselves (Di Falco and Chavas,
2008; Abson et al., 2013); third, jointness in production can also lead to
advantages of diversified production (Allen and Lueck, 1998; Ballivian
and Sickles, 1994; Klasen and Waibel, 2012; Kurosaki, 2003).
However, the better labor, capital, insurance, input, and outputmar-
kets function, the lower are these constraints to specialization. If, forthe CC BY license (http://creativecommons.org/licenses/by/4.0/).
112 S. Klasen et al. / Ecological Economics 122 (2016) 111–120example, seasonal labor demand can bemetwithmigrant labor, farmers
have access to insurance, and improved infrastructure promotes intra-
regional and international trade in competitive input and output mar-
kets, these constraints to specialization at increasingly broader scales
are much less serious and specialization at increasingly larger scales be-
comes an important route to improve farm incomes, also for small-
holders (Kurosaki, 2003). In the extreme, this could lead to
monocultures not only at the level of the individual household, but at
the level of the village, or even region. Hence, the degree of specializa-
tion may change along spatio-organizational scales depending on mar-
ket functioning (Fig. 1).
To be sure, this discussion so far focuses on the economic rationale
for specialization of the individual farmer. Of course, other drivers of
specialization can often also be operative and they often relate to poli-
tics and power. For example, large and politically well-connected land
owners might push specialization through evicting subsistence farmers
or specialization might be promoted by subsidies for particular cash
crops, again benefiting particular groups of farmers (e.g. Pritchard,
2013; Binswanger and von Braun, 1991; Binswanger et al., 1995).
Thus policies, politics, and power can also influence the degree of spe-
cialization either directly or indirectly via their influence on market
functioning (Herath and Weersink, 2009). While these instances can
be important drivers of specialization in particular circumstances, we
want to focus here on the possible dilemma posed that improvements
in the functioning of markets can provide increasingly powerful eco-
nomic incentives for specialization even without such political interfer-
ence by the powerful.
This can pose a dilemma since, at the same time, there can be substan-
tial ecological and also socio-cultural costs in terms of reduced ecosystem
functions and services if suchmonoculture agricultural systems emerge at
the level of a village or an entire region. Ecosystem functions are the ca-
pacity of natural processes to provide goods and services that directly or
indirectly satisfy human needs (De Groot et al., 2002). There might be
losses in plant and animal biodiversity (Foster et al., 2011), but also reduc-
tion of pollination services (Priess et al., 2007) or biological pest control
(Stamps and Linit, 1997) as well as hydrological functions (Comte et al.,
2012; Nedkov and Burkhard, 2012; Ojea et al., 2012). Decomposition ser-
vices and carbon sequestration may possibly be impaired, too.Fig. 1.Market functioning can drive the level of scale at which specialization occurs (a), which
(not depicted here) such as policies, politics and power may influence the scale of specializatio
(grey arrows): In the poor market functioning scenario (dotted grey arrows), specialization is o
ecosystem functionality (see b). In the scenario with goodmarket functioning (solid grey arrow
ecosystem functions and high economic benefits compared to the poor market functioning s
arbitrary. The general message is that there is a scale-dependent trade-off between specializatFurthermore, information functions or cultural services may be lost
(Gasparatos et al., 2011; Millennium Ecosystem Assessment, 2005).
These losses crucially depend on the level of scale at which specialization
onmonoculture crops occurs, with specialization at broader scales gener-
ating more problems. There can also be a mismatch on a temporal scale:
In the short term, the progressive loss of ecosystem functions and associ-
ated services may only have a small impact on the profitability of special-
ized monocultures; in the longer-term, the sharp reduction or entire
disappearance of important functions might, however, undermine the
profitability of monocultures at broader spatial scales.
The economic, socio-ecological, and cultural consequences depend
therefore, to a large extent, on the spatial scale at which specialization
occurs. For example, specialization within a village at the level of an in-
dividual farmmight already generate some benefits of specialization for
the respective farmer with few ecological costs compared to broader-
scale specialization if the diversity of crops remains high within a vil-
lage. Fig. 1 illustrates this point by showing two scenarios: one where
poorly functioning markets allow only specialization at the household
level; economic benefits of specialization are low but ecosystem func-
tions are high. In scenario two, well-developed markets allow speciali-
zation at the regional level generating higher benefits but
specialization at this broader scale reduces ecosystem services (see
also Timmer, 1997). This development of specialization can also be driv-
en or exacerbated by policies, politics and power. For example, policies
can actively promotemonocultures through supporting and subsidizing
the development of cash crops in particular regions; in the case of
Indonesia discussed below, the promotion of the palm oil sector was
supported by various policies of the government, including migration
policies, land policies, or infrastructure (McCarthy and Cramb, 2009).
In addition, however, policies aimed primarily at promoting growth
and poverty reduction may also affect this trade-off between economic
benefits and socio-ecological and cultural consequences of specializa-
tion. For example, policies to improve access and functioning ofmarkets
(e.g. through improved infrastructure, information systems) are likely
to increase the economic benefits of specialization as theymay increase
the scope for specialization for poor producers, but such policies might
cause harm from an ecological point of view as they push specialization
to a broader spatial scale.in turn drives economic benefits and ecosystem functions (b; black arrows). Other drivers
n either directly or via their influence on market functioning. Two scenarios are illustrated
nly possible at the household level (see a) which leads to low economic benefits and high
s), specialization is possible at broader scales such as the region (see a). This leads to loss of
cenario (see b). Note that in this illustration the location of the crossing of the arrows is
ion and ecosystem functions driven by market functioning.
113S. Klasen et al. / Ecological Economics 122 (2016) 111–120Some of these issues have been studied individually in both the eco-
nomics (e.g. Belcher et al., 2004; Hazell and Wood, 2008; Kurosaki,
2003; Ruiz-Perez et al., 2004; Timmer, 1997) and ecological (e.g.
Lambin andMeyfroidt, 2011; Smith et al., 2008) literature.Many studies
have also commented on the general trade-offs between intensive agri-
cultural production and the loss of ecosystem services (e.g. Evans, 2009;
Hazell and Wood, 2008; Lambin and Meyfroidt, 2011; Millennium
Ecosystem Assessment, 2005). However, the interplay of specialization
and ecosystem functions and services at different spatial scales, and
how they are influenced by markets and policy has not been studied
at any level of detail so far. The purpose of this conceptual paper is to
lay out these issues and the ensuing trade-offs between economic ben-
efits and ecosystem functions at different scales and illustrate themwith
examples from the literature and with on-going research on oil palm
plantations in the province of Jambi in Indonesia.
2. Optimal Specialization from an Economic Perspective
Economic benefits of specialization are very closely linked with the
presence of economies of scale in production. Economies of scale are de-
fined as the advantage of large-scale production that results in lower
costs per unit of output (Kislev and Peterson, 1996). Hence, the total
production costs are spread over more units of output. Economists
tend to distinguish between internal economies of scale and external
economies of scale (Hallam, 1991; Marshall, 1920). Internal economies
of scale are cost advantages due to conditions inside the production unit
(e.g. the farmor thefirm),while external economies of scale are cost ad-
vantages fromgreater production of a sector or region (or even an entire
economy, Caballero and Lyons, 1990). In the case of agriculture, both in-
ternal as well as external economies of scale can be present.
For the case of cash crop agriculture, we identify four most relevant
internal economies of scale. Firstly, the increasing scale of production
can reduce outlays per unit of output, for example in purchasing chem-
ical inputs or in reducing transportation and processing costs - especial-
ly, if distance to input and output markets is high. Second, internal
economies of scale can result through the indivisibility of machines
since the use of a more powerful machine, e.g. a tractor, is only profit-
able for larger plantations. Third, larger production units can sometimes
employ workers with more specialized knowledge, for example in the
application of chemical inputs (even though this seems not to be the
case in our example in Jambi, see Section 4). Lastly, a finer division of
labor is possible which might increase the efficiencies of performing
tasks and facilitate the monitoring of labor in completing these tasks.
Given these potentially large internal economies of scale, the ques-
tion of optimal farm size arises. If these economies of scale are so sub-
stantial, why does cash crop production not take place exclusively on
large plantations? And why do smallholders survive in the face of the
cost advantages of large plantations? This is because large production
units in agriculture also have to contend with substantial diseconomies
of scale (e.g. Allen and Lueck, 1998; Binswanger et al., 1995; Lipton,
2005). They are due to the need for large farms to rely on hired labor
where principal-agent problems (Levinthal, 1988), information and in-
centive problems might lead to high costs of monitoring labor and/or
low labor effort and productivity. As a result, the family farm has
remained a competitive production unit where these information and
incentive problems are much less prevalent. As argued by Binswanger
et al. (1995), large plantations will prevail if the economies of scale in
processing are substantial (as is the case, for example, with bananas
and tea) and/or when smallholders cannot easily be linked to larger
processing facilities, as is possible in some cases in our case study (see
Section 4). A keymessage emerging from this discussion is that internal
economies of scale generate substantial benefits for farms to specialize
on one output, even if it is not optimal for production to take place ex-
clusively on large plantations (see also Herath and Weersink, 2009).
A key driver for external economies of scale in cash crop agriculture
is the total growth of the respective crop industry in a particular region.This facilitates the development of local processing industries and the
development of transportation facilities; both reduce transport costs
and promote trade. Growth of the industry in a local area can also
help develop and improve the functioning of input, output, and factor
markets by ensuring more volume of transactions in these markets
which will increase the number of participating actors, thus promoting
competition as well as lowering transaction costs. Lowered transaction
costs further promote trade and allow an increasing separation between
production and consumption of agricultural households (Timmer,
1997): production is specialized on the most profitable crop given soil
and climatic conditions, while consumption of food and other needs is
procured through trade.
Despite these substantial scale advantages in production, there are
barriers and limits to specialization on one output. One limit can be
product-specific. For example, joint production of several outputs can
be technically optimal (e.g. in the case of inter-cropping or crop rotation
to optimally use existing soil resources or preserve/improve soil fertility,
e.g. Ballivian and Sickles, 1994). It may also be the case that local hetero-
geneity of soil, water, andweather conditions recommend amore diver-
sified portfolio of optimally adapted outputs. Second, resilience in
production over time is usually a key concern of smallholders (Chuku
and Okoye, 2009). A resilience-oriented strategy would promote a di-
versified output portfolio. Third, there may be an intrinsic value at-
tached to maintaining a diversified portfolio of output, particularly
also if these portfolios ensure adequate provisioning of households
with the most important necessities and/or the diversified portfolio
has itself ethnic or cultural significance (Laird et al., 2011). Socio-
cultural ecosystem services have been recognized in many studies (de
Groot et al., 2002;MillenniumEcosystemAssessment, 2005). Neverthe-
less, cultural aspects too often have been neglected in the ecosystem
services assessment (Chan et al., 2012; Schaich et al., 2010) and there-
fore the analysis of land-use and landscape development may produce
misleading results. Altogether, however, non-material benefits and in-
trinsic values related to culture and ethnicity as well as the social em-
bedding or sentimental attachment to places usually constitute limits
to specialization.
Apart from these technical and socio-cultural limits to specialization,
themain other basic constraint to complete specialization relates to the
functioning of markets and the associated transaction costs of engaging
heavily with input, output, and factor markets. If transport costs are
high and labor markets absent, farmers will maintain a diversified port-
folio of outputs at a local scale that includes all major food necessities
(Timmer, 1997). Production decisionswill then also bemade depending
on the availability of family labor; and a diversified portfoliowill be ben-
eficial if labor demands can then be spread over the year. Moreover,
concentration on one crop can be risky as there are high output and
price risks; in the absence of functioning markets for credit and insur-
ance, such risks can devastate farmers if production fails or prices fall
(Klasen and Waibel, 2012; Morduch, 1995; Ray, 1999; Di Falco and
Chavas, 2008; Abson et al., 2013). Since poor farmers live close to subsis-
tence, the absence of well-functioning credit and capital markets will be
one reason for them to rely on a diversified production portfolio to re-
duce these risks (Morduch, 1995). Also choosing crops that are particu-
larly resilient to shocks and risks will then be an important concern for
farmers (Chuku and Okoye, 2009).
Conversely, this implies that improvements in the functioning of
these markets could reduce those constraints to specialization, which
could enable also smallholder farmers, including poor ones, to specialize
much more. They can then increasingly rely on credit and insurance
markets to deal with production and price risks, they can rely on labor
markets to dealwith seasonal labor demand problems, and they can en-
sure reliable access to food and other needs through trade. With well-
functioning markets, potential competitive advantages due to local en-
vironmental conditions favoring one particular crop can be realized at
the level of scale that shares these conditions. If the local or regional var-
iability in environmental and soil conditions is low, or a particularly
114 S. Klasen et al. / Ecological Economics 122 (2016) 111–120lucrative crop can profitably be grown in landscapes with some envi-
ronmental and soil variety, this could lead to complete specialization
at quite a broad spatial scale.
Of course, these markets will never function perfectly and not all
farmers may benefit from improved physical access to markets due to
unfavorable power relations, prevailing societal structures or high
transaction costs for access (Poulton et al., 2010), but the point to em-
phasize here is that as the functioning of these markets improves, spe-
cialization may become economically more attractive. Moreover,
specialization can then move to a broader spatial scale. In particular, if
input, output, and labor markets improve substantially, complete spe-
cialization on one cash crop may move from the household and the vil-
lage level to the regional or even national level.
A related point of note is that policies that improve the functioning
of input, output, labor, capital, and insurance markets are likely to pro-
mote this specialization at an increasingly broader scale. Thus, while
these policies may be beneficial to smallholder producers as they pro-
mote higher and more stable incomes (while also providing benefits
to traders and international investors), they will come at a cost of in-
creasing specialization and monocultures at broader spatial scales
with important consequences for ecosystem functions and services.
3. Ecological Consequences of Specialization
Specialization leads to monocultures, and monocultures are usually
less beneficial for ecosystem services and associated biodiversity than
more diverse polycultures. In addition, specialization often leads to in-
tensification which is typically accompanied by higher inputs and the
removal of remnant vegetation, and may lead to ecosystem simplifica-
tion and loss of quantity and quality of products and services (Günter
et al., 2012). A range of provisioning, regulating and supporting ecosys-
tem services can potentially be affected by the reduction of crop diver-
sity towards monocultures. Provisioning services such as crop
production may suffer significant losses due to reduced crop diversity
(Di Falco et al., 2007; Smith et al., 2008). In the long run, high fertilizer
inputs may lead to eutrophication (Tilman et al., 2001) and altered
soil physical characteristics and microbial communities. This may also
reduce production services. Mediated by reduced crop production fol-
lowing low crop diversity, specialization could thus even threaten
food security (see also Palmer and Di Falco, 2012), at least for subsis-
tence farmers and at local scales unless product markets are, as
discussed above, able to provide sufficient food diversity at affordable
costs. Regulating ecosystem services such as biological pest control
may also be more efficient in polycultures or when remnant vegetation
is present. For instance, most insect herbivore species have lower densi-
ties in polycultures than inmonocultures (review on 287 species in 209
studies by Andow, 1991). Complex agronomic multicropping systems
have lower pest insect populations than simpler systems (Stamps and
Linit, 1997). Temperate forests that consist of multiple tree species
have fewer pest outbreaks than single-species stands (Stamps and
Linit, 1997). However, supporting services such as soil fertility and reg-
ulating services such as nitrogen-use efficiency have been shown to de-
pend more on management than on crop diversity (Snapp et al., 2010).
A reduction of coffee yields due to declining pollination services under
diversity loss due to deforestation may be counteracted by preserving
patches of forest (Priess et al., 2007). Hence, specialization can have pos-
itive or neutral effects on some ecosystem services, but in most cases,
specialization reduces ecosystem services.
Associated biodiversity is often, but not always enhanced in
polycultures as compared to monocultures. For instance, polycultures
of different annual crops harbored greater weed species richness than
monocultures of these crops (Palmer and Maurer, 1997). However, in
Malaysia, bird species richness was found to be higher in monoculture
oil palm plantations than in polycultures (Azhar et al., 2014), probably
due to higher human disturbance during weeding and harvesting in
polycultures.With increasingly broader spatial scales at which specialization oc-
curs, the spatial extent of the resulting monocultures and their ecologi-
cal effects will likely also be scaled up. This means that not only crop
diversity may be lost over larger areas, but also that landscape configu-
ration might be affected. For instance, technological and environmental
factors (e.g. road access, topography) may cause the few crop types to
be clustered in space. This causes large-scale heterogeneity in the land-
scape and may augment the loss of associated diversity because species
that depend on a certain uncommon crop type are less likely to find the
remnants of this crop type. Moreover, landscape fragmentation has
non-linear effects on species survival, with extinction setting in long be-
fore the last remnants of this crop type have vanished (Bascompte and
Sole, 1996). Thus, specialization at broad scalesmay exacerbate the eco-
logical consequences of specialization at local scales.
4. Illustrating Specialization Trade-Offs in Jambi, Indonesia
4.1. The Case Study of Jambi
Indonesia is the country with the largest increase in forest cover loss
from 2000 to 2012 (Hansen et al., 2013). At the same time,monoculture
cash crops expand rapidly. Since 2007, Indonesia has been the largest
palm oil producer in the world (Coordinating Ministry of Economic
Affairs, 2011), and it is also the second largest producer of natural rub-
ber. Seventy percent of the palmoil area in Indonesia is located in Suma-
tra and approximately 42% of palm oil land is managed by smallholders
(Coordinating Ministry of Economic Affairs, 2011: 53) of which more
than 50% have some kind of contract with a company. Similarly, thema-
jority of the rubber production is produced by smallholders
(Coordinating Ministry of Economic Affairs, 2011: 57). The province of
Jambi has a total land area of 5,300,000 ha (BPS Provinsi Jambi, 2011:
3; Fig. 2) and is a showcase of high dependency on the agricultural sec-
tor. The total area under oil palm and rubber cultivation are approxi-
mately 936,500 ha and 1,284,000 ha, respectively (BPS Provinsi Jambi,
2011, updated after personal communication with an Indonesian gov-
ernment representative). The average per capita income in Jambi prov-
ince is roughly 17.5 million RP/year (equivalent to about 1200 USD/
year; BPS Provinsi Jambi, 2011), which is substantially below the na-
tional average of 26.8 million RP/year (equivalent to about 1850 USD/
year; Kopp et al., 2014: 2). Fifty-two percent of the workforce in Jambi
is employed in the agricultural sector. An increase in the number of
large plantations has contributed to reducing the area of farmland ac-
cessible to smallholders. Government promotion of the forestry and
later the oil palm sector has contributed to agricultural intensification
(Potter, 2001) and induced an agricultural transition towards oil palm
(Rigg, 2005). More specifically, subsistence strategies of smallholders
in the province shifted from extensive swidden farming to cash crop
production. But this specialization has also been supported by rising
global demand for cash crops, especially for oil palm, improved access
and infrastructure, and the suitability of this crop to the area. Rubber re-
mains the secondmost-important cash crop and currently, 99.6% of the
rubber in Jambi province is cultivated by smallholders (Estate Crop
Services of Jambi Province, 2012).
Transformation of the Jambi lowland forests started in the 19th cen-
tury when the Dutch colonial power exploited the natural resources in
the region. In the early-1970s, the Indonesian state sold almost the en-
tire lowland rainforests of Jambi Province as logging concessions. While
the earlier concessions exploited already existing timber resources, the
current concessions accommodate cash crop plantations, primarily oil
palm and industrial timber. This change from a predominantly
extracting economy to a production economy resulted in the establish-
ment of an agricultural frontier zone where government-led transmi-
gration programs were implemented from 1983 to 2002 to meet the
demand for labor force on oil palm plantations (Hauser-Schäublin and
Steinebach, 2014). Migration resulted either from state-organized
transmigration projects or from ‘informal rural migrants’ (Bock, 2012)
Fig. 2.Map of Jambi province on Sumatra, Indonesia, where our case studywas conducted, indicating the locations of the two example regions Bukit Duabelas and Harapan and the official
boundaries of the five example villages per region selected for the specialization-scale study whose results are reported in Fig. 3.
115S. Klasen et al. / Ecological Economics 122 (2016) 111–120and led to strong increases in population size. The population in Jambi
grew from 1.1 million people in 1971 (16 people/km2) to 2.4 million
people in 2000 and reached 3.4 million in 2014 (63 people/km2)
(Drake, 1981: 473; BPS Provinsi Jambi, 2013: 136–137). Between 1967
and 2007 reportedly 96,401 families or 394,802 people were resettled
to Jambi by transmigration projects as a measure of poverty alleviation
and regional economic development (Pemerintah Provinsi Jambi,
2008). These households received parcels of land (about 2.5 ha each)
and contracts with agribusiness companies to cultivate oil palm within
a smallholder-contract-system. In summary, land-use transformation in
Jambi province is closely linked to immigration because immigration is
essentially triggered by the rising agro-business and oil palm economy
to which migrants either act as a workforce for plantations or hope to
be set up with land and begin production by themselves. In 2012 the
share of residents with migratory background reached about 80%
(Suara Pembaruan, 2012).
In the case of Jambi, specialization on oil palm or rubber plantations
has been considered the (economically) best land-use option because
returns to land and labor are higher compared to rubber agroforests
(Feintrenie and Levang, 2009) and other non-commercial land-use sys-
tems (Zen et al., 2005).While Belcher et al. (2004) found higher returns
to land in oil palm plantations compared to rubber agroforests and rub-
ber plantations in East Kalimantan, Feintrenie et al. (2010a, b) observed
the opposite in Jambiwhere returns to land are higher in rubber planta-
tions than in palm oil plantations and rubber agroforests. All authors
found higher returns to labor in oil palm than in rubber plantations.
However, these plantations rarely provide any non-material benefits
or other cultural services, nor do they provide intrinsic values.Interestingly, this coincides with the fact that in the native habitat of
oil palms in Western Africa, socio-cultural importance is not related to
monocultures but to the palm individual, or parts of it (Atinmo and
Bakre, 2003).
On the contrary, non-financial considerations such as ethnic (and
thus also migratory) background can play an important role (Belcher
et al., 2004): ethnic-specific perceptions of the environment apparently
have a serious impact on land and resource management (Manik et al.,
2013; Pfund et al., 2011; Reenberg and Paarup-Laursen, 1997;
Steinebach, 2013). Indigenous households often also depended to a
much greater extent on a diverse range of habitats and species than
non-indigenoushouseholds (Laird et al., 2011). Differences in livelihood
dependency on forest can cause varying conservation attitudes
(Mainusch, 2010). In Jambi province, the local indigenous communities
of Orang Rimba and Batin Sembilan feel that they have suffered from
large-scale land transformation due to their historically strong liveli-
hood dependency on forest resources (Manik et al., 2013). Such liveli-
hood dependency on prevailing land-use systems constitutes an
important factor determining land use and specialization.
4.2. Specialization Across Scales in Jambi
As predicted by our conceptual framework, the level of specializa-
tion differs by the level of scale considered (Fig. 3). To assess scale de-
pendence, we analyze land-use types based on the Land Use/Land
Cover (LULC) maps derived by visual interpretation (GOFC-GOLD,
2013; Liu et al., 2005) of the most cloud-free mosaics of Landsat and
RapidEye images with the guideline of land cover mapping produced
Fig. 3. Land-use types in the province of Jambi in Indonesia in 2011 show that specialization decreases from the fine to the broad scale, i.e. from the village level (five example villages per
region, bottom rows) to the region level (two example regions Bukit Duabelas and Harapan, second row) to Jambi province (top row; see also map in Fig. 2). Data source: Landsat and
RapidEye images analyzed according to Indonesian ministry guidelines (Ministry of Forestry, 2008).
116 S. Klasen et al. / Ecological Economics 122 (2016) 111–120by the Indonesian Ministry of Forestry (Ministry of Forestry,
2008, Fig. 3). This analysis does not cover the household level, but the
village, region, and province levels. We find that specialization on
one or a few crops is strongest at the village level, whereas differentia-
tion increases at the region level and is highest at the province level
(Fig. 3).
More detailed data are available for the household and village
levels from a household survey (N = 701 smallholder households
in 45 villages) and a village survey (N = 98, containing the 45 vil-
lages of the household survey) conducted in 2012 in the provinceFig. 4.Number of smallholder households (a) and villages (b) that fall into different categories o
land-use types with a minimum share of 10% of the total cultivated area per household or villa
villages that specialize on one or two crops than households or villages that grow a more diver
village level (b). Data source: own calculation.of Jambi with structured interviews (Faust et al., 2013). For the pres-
ent study, we analyze the main land-use types in the area, i.e. oil
palm, rubber, paddy, fruits, and vegetables. At the household level,
we find very strong specialization (Fig. 4a). Most households special-
ize on a single crop and only very few grow two or three crops. Most
cultivated land is owned by pure rubber farmers and by households
that focus on rubber and oil palm plantations. Similarly, at the village
level, there are more villages that specialize on one or two crops
than villages with more land uses (Fig. 4b). However, specialization
is much weaker at the village level than at the household level.f Shannon diversity (Magurran, 1988), an inversemeasure of specialization. The number of
ge, respectively, is indicated in grey shades. Overall, there are more households and more
se portfolio of crops. Specialization is much stronger at the household level (a) than at the
117S. Klasen et al. / Ecological Economics 122 (2016) 111–120Hence, overall, specialization decreases fromhousehold via village to
province level. In itself, this is not surprising, because villages are nested
in regions which are nested in provinces, so that the level of specializa-
tion can only stay constant or decrease towards broader levels of scale.
However, our conceptual framework predicts that well-functioning
markets lead to the possibility of high (not necessarily maximal) levels
of specialization at the broadest scales. When we interpret this finding
in linewith our conceptual framework, this would suggest that markets
are not functioning well enough (yet) to allow for a greater specializa-
tion at broader spatial scales. At the same time, there is, as expected, al-
ready considerable specialization at the household and village levels
which appears to be the optimal economic strategy for households (at
least in the short term). Of course, leaving our conceptual framework
aside, other causes than the absence of well-functioning markets
could also explain these patterns, such as heterogeneous environmental
conditions (as discussed in Hanspach et al., 2014) that prevent special-
ization at scales broader than the household, or that there are only siz-
able internal but no large external economies of scale. Resilience and
risk spreading strategies of individual farmers are less likely causes
here, because we found very high specialization at the household level.
To investigate further to what extent economies of scale drive spe-
cialization in the Jambi case study, we take the example of oil palm cul-
tivation and analyze both the production output and the production
costs of oil palm farmers. Since output and factor costs differ across
plantation age, we categorize the age in accordance to the yield cycle
of oil palms into four age groups. For each age group we determine
the median plot size and divide the plots into one group with smaller-
than-median plot sizes and one group with larger-than-median plot
sizes. As has been found in many studies (see, e.g. review by
Binswanger et al., 1995; Ray, 1999), output per unit land is larger for
small farms (Table 1). This is partly due tomore intensive input use (es-
pecially labor, but also other inputs) on small plots (Table 1). It can also
be due tomore intensive and improved use of these inputs as the incen-
tive problems afflicting large farms with hired labor are less prevalent
here (see discussion in Section 2).
Production costs are investigated in the form of labor and input costs
per hectare and year. Labor comprises operations such as land clearing,
pits taking, seedling transportation, planting and replanting, manure
and fertilizer application, chemical and manual weeding, harvesting,
and pruning and marketing. Input costs refer to costs for seedlings,
plant and animalwaste, soil amendments, fertilizer, herbicides,machin-
ery, and input and output transportation. Results for input and labor
costs suggest lower costs for larger-sized plots (Table 1). This isTable 1
Yearly values on mean yield, mean factor costs (costs for labor and inputs), and mean profits o
group contains plantation ages 0 to 3 years, becausemost trees start to produce harvestable frui
23 years). Standard deviations are shown in parentheses. The number of observations is given p
source: own calculation.
Small plantations i.e. ≤ 50% percentile
Plantation age
group
Mean yield
[MT/ha]
Mean factor costs/ha Profit [US$/ha
Mean labor costs
[US$/ha]
Mean input costs
[US$/ha]
(NS = 244) (NS = 241) (NS = 244) (NS = 241)
1 0.23 184.00 114.85 −98.24
(NS = 46,
NL = 42)
(1.07) (271.56) (121.17) (930.20)
2 12.33 409.56 157.13 9680.01
(NS = 60,
NL = 59)
(9.66) (302.89) (131.65) (8095.78)
3 16.96 425.90 181.18 13,809.95
(NS = 87,
NL = 30)
(10.42) (403.14) (142.43) (8705.82)
4 20.43 377.65 269.59 16,720.72
(NS = 51,
NL = 4)
(7.50) (363.66) (271.02) (6311.65)especially apparent for labor costs in immature and young plantations
(age groups 1 and 2). However, profits per hectare do not support cost
advantages of larger farms in our study region. Only for the third age
group the profit per hectare of larger plantations exceeds the profit of
smaller plantations. Hence, our results for the Jambi case study suggest
only weak evidence for economies of scale for larger production units.
Thus, as discussed in our conceptual framework, we can confirm the
finding frommany other countries that there are gains from specializa-
tion at the farm level but that this specialization does not inevitably lead
to a consolidation of smallholder farms to ever-larger units; instead spe-
cialization is taking place among smallholders at the household and, as
we have shown above, increasingly at broader scales such as the village
level as well. However, such lower-level specialization could maintain
regional diversity, and this could be valuable for sustainable develop-
ment in multiple dimensions.4.3. Policy Influence on Agricultural Specialization in the Jambi Case Study
Two main policies affected the agricultural specialization process in
Jambi fundamentally, the transmigration programs and the current
master plan of the Indonesian government. The Indonesian
government's transmigration program played a key role for the start
and spread of oil palm cultivation in Jambi and the significant involve-
ment of smallholder farmers (Gatto et al., 2014). The oil palm cultiva-
tion was organized in so-called nucleus-estate and smallholder (PIR-
NES) schemes. The government support in terms of technical and finan-
cial assistance and land titles provided to the oil palm NES schemes was
instrumental for increasing the specialization of transmigrant small-
holders on oil palm.
The master plan for Indonesian Economic Development designated
Jambi as part of the Sumatra Economic Corridor as a ‘Center for Produc-
tion and Processing of Natural Resources and as Nation's Energy Re-
serves’ (Coordinating Ministry of Economic Affairs, 2011: 46). The
economic development strategy for the corridor focuses on three main
economic activities: palm oil plantations, rubber plantations, and coal.
To support the development of the main economic activities within
the corridors the government will contribute around 10% of the devel-
opment costs. The remaining costs will be provided by state-owned en-
terprises, private sector, and through public private partnership (PPP)
(Coordinating Ministry of Economic Affairs, 2011: 55). Furthermore,
regulatory requirements, infrastructure improvements, technology de-
velopment and research activities will be supported which willf oil palm plots per plot size category for plantations in different age groups. The first age
ts in the third year. Further age groups are group 2 (4–9 years), 3 (10–17 years), and 4 (18–
er column and per age group for small (NS) and large (NL) plantations in paratheses. Data
Large plantations i.e. N 50% percentile
] Mean yield [MT/ha] Mean factor costs/ha Profit [US$/ha]
Mean labor costs
[US$/ha]
Mean input costs
[US$/ha]
(NL = 135) (NL = 124) (NL = 135) (NL = 124)
0.34 70.28 103.70 138.75
(1.87) (91.07) (98.09) (1631.33)
9.88 208.49 132.70 7997.01
(7.65) (239.56) (111.86) (6519.13)
17.30 292.64 203.81 14,597.71
(8.54) (401.01) (164.47) (7166.60)
14.56 181.01 94.88 12,100.11
(6.08) (80.25) (69.56) (5216.16)
118 S. Klasen et al. / Ecological Economics 122 (2016) 111–120altogether lead to further specialization on palm oil and rubber planta-
tions from the household to the province levels of scale.
Thus, policy has strongly supported and driven specialization direct-
ly through the economic development strategy in Jambi and indirectly
through the provision of infrastructure and improvements in the func-
tioning of markets. This has surely contributed to raising incomes in
the region, but the associated specialization at increasingly broader
scale is exacerbating precisely the trade-off that we have discussed
above.
5. Conclusions: How can the Trade-Offs Caused by Specialization be
Addressed?
Specialization causes trade-offs between economic benefit and eco-
system functions that increase with the spatial scale of specialization
which, in turn, can be influenced by market functioning. When testing
this concept in a smallholder landscape in Indonesia, we indeed found
differences in the level of specialization across scales, but with high spe-
cialization only at household and village levels and high diversification
at broader levels of scale. Beyond market functioning, other drivers
such as heterogeneous environmental conditions or only weak external
economies of scale in our study area could have caused this cross-scale
specialization pattern. However, smallholder farmers are not the only
stakeholders influencing the specialization of agricultural productions,
there are also large companies, international investors, conservation
managers, and politicians; those actors have tended to promote special-
ization through the various policy actions and initiatives we have
discussed above. Since economic benefit and ecosystem functions and
services are both legitimate concerns, a solution that satisfies all stake-
holders is not straightforward. Such a solution must address the spatial
distribution of agricultural production in the landscape, be consistent
with policy goals, and should also consider long-term consequences
that are not necessarily considered in specialization debates.
The concept of mosaic landscapes with intensive plantations
intermingled with both agroforestry zones and high conservation
value areas (Koh et al. 2009; based on earlier ideas by Noss, 1983)
might illustrate how agricultural production can be distributed in the
landscape across scales with both economic and ecological benefits. In-
tensive plantations cover areas of high specialization and high ecologi-
cal costs while agroforestry would reflect areas with a greater crop-
and biodiversity. Mosaic landscapes would be especially promising in
areas where both large companies and smallholders are present, as is
the case in Jambi. Companies with their efficient work schemes would
benefit from economies of scale, could engage in intensive plantations
and set some land aside for conservation (Koh et al., 2009; Tscharntke
et al., 2012). Smallholders may often prefer the less specialized and
more diverse agroforestry systems, also due to cultural or historical
backgrounds, livelihood dependencies or sentimental attachment, and
especially if supported by policy incentives.
Policies should not directly promote specialization, but rather aim at
improving incomes, lowering poverty, and safeguarding ecosystem ser-
vices. This might or might not lead to increased specialization at differ-
ent spatial scales. Certification programs such as the Roundtable on
Sustainable Palm Oil may help to reconcile economic benefits with eco-
logical functions by supporting sustainable production modes. These
might include diversification to a certain degree and at some levels of
scale. Furthermore, it has been shown that the promotion of landscape
heterogeneity should be included in the certification schemes to the
benefits of both agricultural production and biodiversity (Azhar et al.,
2015). Payment for Ecosystem Service Schemes can also more directly
support the maintenance of ecosystem services. Taking the example of
oil palm, lowland plantation owners could be asked to compensate up-
land farmers beyond 600 m elevation, where oil palm cannot grow, for
water-related ecosystem services. These services, such as the provision-
ing of drinking water and electrical power generation, might be com-
promised in the lowland oil-palm plantations otherwise. Such policiesmight be able to turn the specialization-driven ecological-economic
trade-off into win-win situations at least for some spatial scales and
over longer temporal scales.
Temporal scales and especially long-term consequences of speciali-
zation were not the focus of this paper, but could provide a worthwhile
perspective for future research on the topic. Specialization may have
long-term costs as it may destroy vital ecosystem services required for
the long-term viability of crop production. Furthermore, diversification
incentives may lead to a greater sustainability also in economic terms,
e.g. via improved biological pest control or pollination services, when
considering sufficiently long time horizons. This would then also be in
the long-term interest of smallholder producers, so that the mostly
small-scale specialization-driven trade-offs between economic benefit
and ecosystem functions can be converted into win-win situations.
Acknowledgements
This study was financed by the Deutsche Forschungsgemeinschaft
(DFG) in the framework of the collaborative German - Indonesian re-
search project CRC990. We thank the Deutsches Luft- und
Raumfahrtzentrum DLR who provided the RapidEye satellite data
through the RapidEye Science Archive (RESA).
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