Upgrading in Palm Oil Value Chains: A Comparative Case Study of Cooperative Panca Eka Tama in Riau, Indonesia

Abstract
Indonesian palm oil smallholders play a significant role in the ongoing expansion of oil palm plantation to meet the increasing world demand of CPO for food and energy. The smallholders participate in the collective actions through cooperative as an organisation. However, their performance in term of productivity and economically haven’t yet optimum. Therefore, upgrading in the value chain offers a solution to strengthen their competitiveness in the market. This research investigates the effect of upgrading to the cooperatives by comparing the performances between upgrading cooperative (PETA) and non-upgrading cooperatives (SM and BJ). Those cooperatives are called ex-Bratasena, which located in Pelalawan, Riau, Indonesia. Furthermore, this research aims to contribute to a better understanding of how cooperative PETA has achieved upgrading by comparing with other cooperatives whereas the main research question is how can upgrading in value chains affect the success by comparing performances among palm oil cooperatives. The study reveals that PETA did upgrading by expanding business departments, increasing FFB production and oil extraction rate, removing middleman, and possessing contract market. The factors that induce those upgrading actions are from internal (members participation, trust, commitment, and democratic governance) and external (capital and competitor). However, the democratic governance also has a role as a barrier that select external factors since the cooperatives are vertically integrated cooperatives type. Furthermore, PETA has better results in all performance indicators (e.g., FFB price/kg, patronage refund/member, oil extraction rate, and members satisfaction). Hence, it concludes that upgrading is the key success to improve cooperatives’ performance by countering the major constraints faced by smallholders, which are productivity, production cost efficiency, create a market, and reduce agent.