This paper addresses the following questions. What are the empirical relationships among forest, poverty, agriculture and access to market and services in the Indonesian Outer Islands? What are the implications of these relationships for forest land reform? The analysis is based on: i) vegetation cover produced from remote sensing images for 2003, ii) population and poverty estimates respectively at the village and district levels, iii) the national forestry land use plan, and iv) spatial analysis. We show that the incidence of poverty is positively correlated with forest cover at the district level. The fact that agricultural suitability of land is negatively correlated with poverty jointly with the fact that agriculture provides higher financial returns than forestry indicates that clearing forests located on suitable agricultural land can contribute to poverty reduction. Smallscale forest management has positive financial returns and could also contribute to poverty reduction. This implies that forests not located on suitable agricultural land could be harnessed to contribute to poverty reduction or at least to support poverty mitigation. To conserve forests, appropriate policies to compensate the rural poor for the foregone benefits of deforestation will need to be developed.

This item was commisioned by The Crawford School of Economics and Government, ANU