Description:

Audrey Tiew (Harvard): E.U. Trade Restrictions and Heterogeneity among Malaysian Oil Palm Farmers

Abstract: Focusing on the 2017 European Union resolution to phase out palm oil in all biofuels, I consider how heterogeneity among upstream oil palm farmers interacts with a coarse environmental policy that does not distinguish among upstream producers. Upstream oil palm producers include both small farms for which oil palm has played a historically important role in poverty reduction and large estates owned by publicly traded corporations. Differences in land-clearing technologies across farm types imply that the resolution may: (i) have distributional consequences and (ii) be mistargeted in terms of minimizing deforestation. Leveraging Malaysian government data on aggregate regional land use by farm type from 2006 to 2019 and a dynamic model of oil palm cultivation decisions, I find that smallholders may have experienced a disproportionately large fraction of the resulting long-run losses, relative to their portion of reduced land area expansion. I further find that a targeted per-unit tax on large estates could potentially have both increased smallholder payoffs and preserved more primary forest.