The Agricultural Development Consensus

KOMPAS/ADITYA DIVERANTA

Residents harvest agricultural cultivation products in Jakarta, Monday (30/11/2020), in a series of simultaneous harvests with the Jakarta Food, Maritime and Agricultural Security Service (KPKP). This time, simultaneous harvesting was conducted with virtually 1,135 participants in 228 locations.

Indonesia cannot evade the law of economic transformation. The role of the (upstream) sector of agriculture will keep declining in line with economic advancement.

Modernization signals economic transformation in the form of a shift in economic activity toward manufacturing and services. The change goes through the stage of processing that creates the chain of added value. Daily economic practice teaches that the biggest economic margin comes from the added value gain that generates welfare.

Nevertheless, many policymakers (as well as economists) mistakenly think that the upstream sector has to be abandoned, while in fact what is meant is the process of shifting and creating added value that remains dependent on the basic sector. That’s why the economic progress here is wobbling and giving rise to discrepancy as there’s no agenda of linkage with the agricultural sector. At least five areas of consensus should be promoted to make this sector the basis of economic transformation.

Consensus on production factors

Since Pelita III (third five-year plan around 1983), attention to agriculture has gradually decreased and no comprehensive policies have been adopted to overcome the condition. The weakening continued, thus inducing latent issues. The most important production factors, land and capital, became even more distant to agricultural players (people).

The institution that should have strengthened farmers was utilized by its executives to rise to power.

Farmers were left without land or land became limited, as was access to capital. The immediate implication was that economies of scale kept shrinking. The bargaining position could not be jacked up due to the slim economies of scale. Next, economic orientation with added value (agroindustry) could not be achieved so that the process leading to manufacturing economic activity was unrealized. The supply chain was also unsteady due to the long line of distribution. Farmers’ organizations got even more vulnerable because of the “all-single politics” during the New Order period. The institution that should have strengthened farmers was utilized by its executives to rise to power.

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Based on this problem, agricultural development consensus should be reached by now. First: the consensus on the control and ownership of production factors. Farmers, should own sufficient land so as to be able to produce with vigor and promote their welfare. According to latest agricultural census data (2013), farmers’ households (RTP) controlling land under 0.5 ha totaled 14.7 million (55.9 percent of total RTP). The land they controlled covered 2.6 million ha (11.9 percent of total land).

If the controlled land is divided by the RTP, each RTP only owned 0.18 ha of land. This situation is of course very tragic as farmers are left to live on the subsistence level. The same is true of capital proportion and access.

KOMPAS/RENY SRI AYU

Farmers in Salassae, Bulukumba, South Sulawesi inspect their rice fields. Over the last five years, farmers in the region have developed organic rice to help restore their passion for agriculture. Aside from returning to organic crops, farmers are also actively working together and discussingways to solve agricultural problems.

When the agricultural sector contributed 14.6 percent (quarter III-2020) to the gross domestic product (GDP), bank credit allocations to this sector only constituted 6.8 percent (Financial Services Authority/OJK, August 2020) of total credits. Without strongly favoring production factors, it will be difficult to restore the dignity of farmers and agriculture.

Second: the consensus on economies of scale. The future of agriculture in upstream production, but rather in processing. Yet it will never be carried out if the economies of scale are not fulfilled. Production should focus on certain commodities grown in large quantities so that they will be sufficient for processing into manufactured goods (half-finished and finished). The problem is that farmers’ land is very limited (plus the fragmentation of commodities planted).

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The short-term solution is that the RTP should be consolidated so that the land for certain commodities (already agreed upon) reaches the economies of scale for further processing of manufactures. So, collectivity should be strived for and the scale of planting is at the level of (rural) zones. If this model is supported by the government’s acceleration programs like the Agrarian Reform and Social Forestation, the prospects for its achievement will be more convincing.

Established organizations

Third: the consensus on added value. The economic transformation language is to create added value that enables commodities to turn out a bigger economic margin. The economic characteristics of being pivoted on basic material production are perishability, fluctuating prices and low added value. Conversely, commodities already entering the processing stage will be durable, have stable prices and a bigger margin. Therefore, farmers should not be left to only be engaged in primary production activity, but rather should further undertake activity with added value.

In the initial phase there should be firm government intervention to provide understanding, access and collaboration.

This process is not simple as it requires a business mindset, established organization and strong capability. In the initial phase there should be firm government intervention to provide understanding, access and collaboration. The government should unnecessarily start from scratch because so far there have been many programs (of agroindustry) launched by relevant ministries/institutions.

Fourth: the consensus on the supply chain. This is actually an old story and cliche. Agricultural commodities have to pass 5-7 supply lines to reach consumers. Farmers’ position is always weak in the face of middlemen or those playing downstream. Selling prices are very low and they become price takers. On the other hand, downstream players always have a strong bargaining position so that they become price makers. Consumers buy at very high prices although the commodities are not yet processed (such as mangoes).

The pandemic now prevailing seems to execute the slow-going old idea involving the role of information technology (applications and digitalization) in slashing the supply chain so that such applications curtail the marketing chain to only three lines. If this is massively applied and covers all economic players operating upstream, the selling prices taken will be higher and consumers will buy at lower prices.

Fifth: the consensus on established economic organizations. All the above moves need the presence of solid organizations at the level of farmers. Farmer groups should be solid, besides their more advanced economic orientation. Economies of scale, added value and the supply chain demand established organizations as they are impossible to implement on an individual basis. A collective movement becomes inevitable. Economic organizations like cooperatives constitute a node and major consensus in the agricultural sector. Cooperatives enable every farmer to become the owner, player of and one benefiting from (and responsible for) the economic movement being embarked upon.

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In several aspects, village-owned enterprises (BUMDes) can also join to support this movement, such as in matters related to the supply chain. Collaboration between people’s/community organizations (cooperatives) and state (village) economic institutions is a reasonable scheme in anticipation of village (farmers’) economic welfare.

Thailand and Ethiopia

One of the countries regarded as making agricultural advancement over the last 20 years is Thailand. At least five measures have been taken by Thailand (FFT-APR, 2019). First, enhancing the quality of farmers and their institutions by promoting smart farmers (farmer specialization) and smart agricultural groups (farmer communities) through the implementation of innovations and technology (applications). Second, increasing the productivity and commodity quality standards of products needed by society.

Kompas/Vina Oktavia

Young farmers Deni Tazwan (left) and Wahyu Cahyadi (right) of Jati Mulyo village in Jati Agung district, South Lampung regency, Lampung, harvest lettuce on Thursday (11/1/2018). A number of Lampung youths have started agriculture businesses in the village. The youths’ interest in the agriculture sector grew after they received coaching on cultivation and the use of agricultural technology.

Third, providing information technology/communication access for farmers as well as developing research and commercial information. Fourth, creating balance between sustainable agricultural development and environmental protection. Fifth, developing a system of public administration that integrates all agents of all sectors with a modern system and mechanism (farmers, researchers, entrepreneurs, investors and the government).

Other than Thailand, an African country intensively reforming its agriculture is Ethiopia, which over the last ten years has deepened its agricultural development with three main bases (ATA Ethiopia, 2017). First, undertaking a structural reform of farmers by setting up farmer communities and conducting an agrarian reform. Small-scale farmers have adequate assets and access to handle the process of production so that they can achieve welfare.

Second, granting land ownership to farmers through the farmer communities already formed. Farmers owning their land can employ other people for cultivation or rent out their land, but they aren’t allowed to transact the land. Third, making the strategy of Agricultural Development Leads to Industrialization (ADLI): the policy to develop the sector of industry, build villages and create a green economy. This is a smart and important move to maintain the continuity of agricultural development.

The ADLI strategy is overlooked by many countries, including Indonesia. Linking agricultural development issues with the industrial sector, villages and the green economy is a vital step for the future. Five things have been executed by Ethiopia in this respect: (i) identifying surplus and high-value agricultural commodities so that the agricultural approach to each category can be described; (ii) building water infrastructure and management to support the promotion of agricultural productivity (via irrigation channels); (iii) increasing productivity in regions with reliable rainfall; (iv) supporting specialization in animal husbandry activity; and (v) boosting investments in agriculture through agricultural services, productivity improvement, agricultural research escalation and agricultural market invigoration. In several cases they have in fact been applied in Indonesia, but their consistency has not yet been maintained.

Institutional innovation

One of the basic issues in the execution of policies and implementation strategies is institutional innovation. Hargave (2006) has implicitly stated that institutional innovation is part of institutional change. In several countries institutional innovation has also been considerably realized in agriculture, such as in China, South Korea, South Africa and the U.S. (especially food institutional innovation). Agricultural institutional innovation aims at heightening the effectiveness and efficiency agricultural policies in raising agricultural production.

At present, research and development (R&D) have abounded in the institutional innovation effort expected to bear an impact on the effectiveness of agricultural production (Maredia et al, 2014). Technically, agricultural institutional innovation that needs to be conducted in Indonesia is the development of agriculture through technology, including the utilization of applications for production and distribution.

The next institutional innovation is institutional change at the community level. The institutional innovation of philanthropic communities in Britain and the U.S. was done by the institutional change of each regulation (Daly, 2008).

The institutional innovation of the philanthropic community in Britain adopted the regulations and development strategies of philanthropic communities in the U.S. and the Netherlands so that it produced efficiency in the funding mechanism and increased the number of donors.

The development of a community should be done through institutional change adopted from the regulations and development strategies of other successful communities. The institutional innovation of the philanthropic community in Britain adopted the regulations and development strategies of philanthropic communities in the U.S. and the Netherlands so that it produced efficiency in the funding mechanism and increased the number of donors. In the case of Indonesia, institutional innovation at the community level can be realized via two paths: (a) activating the role of farmer groups and research on farmer groups’ strategy application; and (b) the strategy of “collective planting mechanism” (in a cluster of land) in response to very limited land ownership, especially in Java.

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The most challenging homework in agricultural institutional innovation is the agrarian reform agenda. This policy has a high degree of intricacy as it involved land distribution, the mechanism of land distribution, the preparation of infrastructure (roads, irrigation, dams and others), production support at the start of the program, the distribution chain and so forth. In in case of provision of land, the institutional innovation of land distribution acceleration and legal certainty become an urgent agenda.

Next, the development of infrastructure will be hampered by budget limitations and operational management. Likewise, the institutional innovation of production and marketing needs the government’s accuracy because it’s not simple to design market creation. In spite of this, the entire plan is required to be implemented because the prevailing situation demands the execution of the agrarian reform policy.

The agriculture development consensus should thus be maintained with more integral policy acclimatization (as already done in Thailand and Ethiopia) and holistic institutional innovation (as in South Korea, Britain and the U.S.). The core lesson from Ethiopia is linking agricultural development with villages, strengthening the industrial sector and conserving the environment. This situation is very relevant to that of Indonesia.

Kompas

Ahmad Yustika Erani

Then comes the arrangement of institutional innovation, particularly in agriculture and industry. Agricultural institutional innovation is done through R&D, farmer community reinforcement and a series of instruments to support the agrarian reform agenda. Rather than an easy and simple agenda, this is a giant undertaking that requires resoluteness and the power of reason. This is a moral mandate instead of a mere desire for material accomplishment.

Ahmad Erani Yustika, Professor, School of Economics and Business, Brawijaya University; Senior Economist of Indef