Rural-Urban Economic Relations
Rural communities that act as producers are usually producers of agricultural commodities because 82 percent of villages in Indonesia rely on the agricultural sector.
Economics describes the interaction between economic actors in a circular flow of economic activity. It is assumed that there are two actors—households and companies—that interact in two markets, namely the product market and the market for factors of production (input). In both markets, the two economic agents act as producers and consumers in turn.
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In this framework, we can replace the two economic actors with villages and cities. Rural residents and urban residents act as producers as well as consumers alternately, interacting in a product market and an input market.
Villages as producers and consumers
Rural communities that act as producers are usually producers of agricultural commodities because 82 percent of villages in Indonesia rely on the agricultural sector. Rice villages are rice producers; fishing villages are producers of fish and other marine products and plantation villages are producers of farm products, such as vegetables, coffee, rubber, cocoa and tobacco.
In this context, rural residents become part of production factors in the input market.
Not all villages rely on the agricultural sector. In the villages bordering a city, many residents work in the city, for example as a factory worker. In this context, rural residents become part of production factors in the input market.
As consumers, rural communities are buyers of products from outside their territory, both consumer goods for daily needs and capital goods to support livelihoods, such as farming and fishing equipment. In a village where the majority of the population are factory workers, almost all goods purchased are consumer goods.
Talking about economic relations between people living in rural areas and people in urban areas is interesting if you look at the value of goods and services and factors of production that flow from villages to cities, and vice versa, from cities to villages.
There is no quantitative data that can describe the relative rate of goods and inputs that flow between rural-urban communities. However, it is interesting to observe which party has more power in determining the price of goods and services consumed and produced.
At a training session for villagers, we asked them to bring goods sold at local stalls. These goods were divided into two groups: commodities produced by local villages and products purchased from outside. Then, they had to identify who determined the price.
Almost all goods that were put into the basket "comes from outside the village", were industrial products from the city such as cigarettes, soap, cooking oil, sugar, snacks, instant noodles, bottled water and drinks, fertilizers and rice seeds. The only commodity "produced by the village" was rice, as indeed, the village was a rice producer.
When analyzing who determined the price, almost all of the trainees agreed they did not have the power to determine the price. As a consumer of daily necessities, the price is generally determined by the seller. As consumers of capital goods for their livelihoods, villagers are also price takers. As rice producers, the prices of farmers' crops are determined by parties apart from the farmers. A similar situation occurs in vegetable farming.
They are just like workers of the owners of the capital.
The bargaining position of villagers who are collectors of natural resources, such as fishermen or forest product seekers, can be lower because the equipment they used to go to sea or go to the forest is often purchased with a loan from a local boss. They are just like workers of the owners of the capital.
The lower bargaining position of the villagers causes the rural-urban economic relationship to be unequal. This could be one of the reasons why the poverty rate in rural areas is always higher than in urban areas. According to Statistics Indonesia (BPS) data, in the second quarter of 2021, 12.53 percent of the rural population was categorized as poor, while the poverty rate for urban areas in the same period was 7.6 percent. The figure was better if compared with previous years (except 2019). The trend of decreasing poverty rates has occurred for the past 20 years, but rural poverty rates have never been lower than urban areas.
The welfare of rural residents can be improved by, among other things, solving the problem of their low bargaining position as compared with urban residents. As consumers, farmers should begin to fulfill their needs for farming capital goods independently, for example by producing fertilizers (usually compost) and seeds themselves. In addition to increasing sovereignty, self-made factors of production usually result in higher productivity.
One of our partners, a group of organic rice farmers who uses seeds they produce themselves, was able to produce 12 tons of rice per hectare per planting season (BPS 2021 data show the average productivity of rice fields in Indonesia reached only 5.2 tons per hectare). Sadly, Law No. 22 of 2019 concerning sustainable agricultural cultivation systems means there is still a "gray" area between allowing farmers to produce seeds independently and considering the action to be against the law. An incident where a farmer was arrested for planting the seeds he produced himself should not be repeated.
As producers, farmers and fishermen in rural areas can form groups or cooperatives to fight for their interests, including keeping product prices from falling excessively when the harvest comes. The effort to increase the bargaining position is not only intended to improve the welfare of the villagers, but also for the sake of justice and equality in economic relations between rural residents and urban residents.
SIWI NUGRAHENI,Lecturer at the School of Economics, Parahyangan Catholic University.
(This article was translated by Hendarsyah Tarmizi).