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A Socio-economic and Policy Analysis of the Role of Agriculture in Indonesia

Budisantoso, Effendi Pasandaran, Sudarno Sumarto, Bayu Krisnamurthi, Fahmudin Agus, I Made Oka, Ary Indrayono

INDONESIA

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Indonesia ROA Team

University : Bayu Krisnamurthi

(Bogor University of Agriculture) Ary Indrayono

(University of Indonesia)

Min.of.Agriculture Effendi Pasandaran

Fahmudin Agus Made Oka M.

(Agric.Research and Dev. Agency)

NGO : Budisantoso

(CAPS) Sudarno Sumarto

(SMERU)

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INDONESIAPopulation : 210 mill, 4th in the world(1997) 27 % are poor 17.300 islands, west-east ≈ London-Istanbul

Java

Sumatera

Kalimantan

Sulawesi

Papua

Bali

Java : 60 % of population,60 % of food production13 % of land

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42 million Indonesian farmers ….

  Land-less+ verysmall +

small farmers

Medium scale +

corporate + estate

Food crops+ horticulture

62 % 96 % 4 %

Tree crops 16 % 78 % 22 %

Poultry 4 % 83 % 17 %

Dairy 3 % 64 % 26 %

Cattle 1 % 41 % 59 %

Fisheries 9 % 87 % 13 %

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Historical perspective ….

Period Policy

< 1945 Colonial

1945-1970 Political turbulence

1970-1985 Agriculture lead development strategy, oil-boom, import substitution

Green revolution; government driven : support, subsidy, institution; self-sufficient for rice

1985-1997 Industrialization, supported by agriculture

Liberalization, financial deregulation, promoting FDI, export promotion

1997-2002 Economic crisis + social and political un-rest, amendment of national constitution, decentralization of governmental function, 4 president in 4 years

IMF-liberalization, bail-out for financial sector, fiscal deficit, diminishing subsidy, privatization

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1. ROA, Economic Role STRATEGIC

Agriculture Share in the Indonesian Economy (%)

1971 1980 1990 2000

Gross Domestic Product 45 25 22 17

Employment 67 55 50 45

Ratio of GDP to employment share

0.67 0.45 0.44 0.38

Non-oil net-export 72 61 53 58

Agriculture price on inflation 22 17 12 13

Food price on inflation 18 15 11 11

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Agriculture Share in the Indonesian Economy (%)

1970-2000 : agriculture growth < national economic <

industry+servicesAgriculture work through linkages :• Financial surplus : (1999) rural saving 112% higher

then rural credit• Human capital : (1996) 61% rural educated young

people see their first job in urban/industry: 38% in labor intensive industry, 49% informal sector, 23% return to rural area.

• Market for industrial product: (1999) 38 % rural HH expenditure for industrial product (including process-food, durables, and imported)

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Environmental Roles of Agriculture

“POSITIVE” roles

•Flood mitigation•Erosion Control•Water preservation •Biodiversity•Carbon Sequestration•Organic waste disposal

2. ROA, Environmental Role IMPORTANT

“NEGATIVE” roles

•Soil erosions•Water and soil pollution•Loss of biodiversity•Environmental pressure:

over-utilization

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Land use 

Sediment yield t ha-1yr-1

Rainforest 4-7

Logged pine plantation forest

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Mixed (agriculture, forest) 10-12

Annual agriculture on bench terraces

19-40

Vegetables on steep terraces

42-75

Sediment yield different land uses in Indonesia (from van Dijk, 2002)

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Sediment transport into and out of 18 rice terraces with a total area of 2515 m2 during two season rice crops(Agus et al., 2003)

Observation Rice crop

First Second

Duration of observation (days) 62 69

Sediment transport

Tot. sediment entering the system with irrigation water

864 kg(3.4 t/ha)

1,567 kg(6.2 t/ha)

Total sediment leaving the sediment 347 kg(1,4 t/ha)

210 kg(0.85 t/ha)

Sediment net gain 517 kg(2 t/ha)

1,357 kg(5,4 t/ha)

Sediment leaving the system during soil tillage

181 kg(0.72 t/ha)

165 kg(0.65 t/ha)

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Carbon sequestration and plant biodiversity under different land uses in Indonesia (Tomich, 1999)

Land use Carbon sequestration

Biodiversity

  Time averaged(Mg/ha)

Plant species/Standard plot

Natural Forest 254 120

Community- based forest management

176 100

Commercial Logging 150 90

Rubber Agroforest 116 90

Rubber agroforest w/ clonal planting Material

103 60

Oil palm monoculture 91 25

Upland rice / bush fallowRotation

74 45

Continuous cassava 39 15

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Marketable and Non-Marketable value (%) using Replacement Cost Methode, cases of 3 river-basin in Indonesia

Citarum, Java10%forest, 50%Agriculture, 35%housing+industry

Brantas, Java15%forest, 65%Agriculture, 20%housing+industry

Sekampung, Sumatera30%forest, 60%Agriculture, 10%housing+industry

Flood mitigation 6.7 18.9 1.2Water conservation 18.7 13.0 8.3Soil conservation 1.0 0.1 3.4Landslide prevention n.e 11.0 74.7Organic waste disposal 0.3 1.3 0.5Air purification n.e 6.8 1.2Rural amenity preservation 6.6 2.5 0.3Heat mitigation 1.5 n.e n.eTotal Non Marketable Value 33.8 61.9 91.6Total Marketable Value 66.2 38.1 8.4

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Indonesian agriculture plays important roles in environmental issues.

Positive or negative ?

It depends ….

Ex : Lowland rice farming and smallholder plantation (agroforestry) systems sustain various positive roles, but annual upland farming system, especially vegetable farming system, being mostly distributed in steep slope areas and applying relatively high chemical inputs, poses various negative externalities.

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Figure 3. Headcount Poverty Rate

29.3

24.3

16.6

10.2

7.1

16.3

65.1

54.1

39.7

32.9

23.3

33.9

56.7

45.9

32.7

25.3

17.4

27.0

0

10

20

30

40

50

60

70

1984 1987 1990 1993 1996 1999

Po

vert

y R

ate

(%)

- Urban - Rural - Total

3. ROA, Poverty Reduction Role SIGNIFICANT

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Figure 4. Poverty Gap Index

9.0

7.3

3.3

1.8

2.9

17.2

9.1

6.9

4.4

6.9

20.3

14.5

7.3

5.2 5.4

1.1

23.8

3.2

0

5

10

15

20

25

1984 1987 1990 1993 1996 1999

Po

vert

y G

ap (

%)

- Urban - Rural - Total

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Figure 5. Poverty Severity Index

4.0

3.1

9.5

1.0 0.30.5

0.8

3.0

11.2

2.1

1.2

2.1

7.5

6.3

2.4

1.6 1.6

0.9

0

2

4

6

8

10

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1984 1987 1990 1993 1996 1999

Pove

rty S

ever

ity (%

)

- Urban - Rural - Total

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The Probability of Agricultural Households to be Poor

1987 1996 1999

Agricultural household

0.1609(27.75)

0.1064(37.49)

0.1249(32.85)

( ) = z-values

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The Contribution of Agricultural Growth to Poverty Reduction, 1984-1996

Poverty Headcount Urban Rural Total

- Observed change in poverty (% point)

- 22.14 - 44.82 - 39.24

- Impact of agriculture growth (% point)

- 12.16 - 31.12 - 25.74

- Contribution of agricultural growth (%)

54.94 74.40 65.58

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The possible ‘channel’ for agriculture growth to poverty reduction …

1970-1984

Productivity through technology Agriculture-dev. role in rural-development

(infrastructure, etc) Economic opportunity (business + employment)

through extensification (expansion of agriculture area) and comprehensive component of agriculture dev. support (techno, inputs, price, institution)

Capital surplus Market for industrial product

1985-1996

Continuity from previous stage Export drive High value agriculture production activities: poultry,

estate crops/palm-oil, horticulture, etc1996-2000

Continuity from previous stage Gain from exchange-rate devaluation ‘Buffering’ capability: economic activities (business +

employment), land market, remittances.

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Most of the poor in Indonesia are located in rural areas and have a livelihood in the agricultural sector.

As the industrial sector expanded, the movement of people out of the agricultural sector into the industrial sector has not occurred as fast.

The strategy of industrialization should be directed at developing industries that have strong linkages with the agricultural sector, so that industrial growth will have bigger impact on reducing poverty.

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1. Agriculture is the source of food through production and distribution activities, or related with national food supply management and the food import dependence condition.

2. Agriculture provides income for farmers and rural population, and as the majority of the population farmers’ income determines national food security level as well as the most important factor of household food security.

4. ROA; Food Security Role UN-REPLACEABLE

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Total Availability of Food Supplies in Indonesia (Total Calories/caput/day)

Average Cal/cap/day From Domestic

Production

Role of Rice

1970-72 2.090 62 % 56 %

1980-82 2.510 88 % 61 %

1990-92 2.698 94 % 58 %

1998-99 3.194 92 % 63 %

2000-2001* 3.026 93 % 60 % **

* Production approach ** Cases of 117 household

National level food security …..

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District with Average Calorie Intake Below Recommendation

District with Incident of Hunger

1993 26 % 11 %

1999 19 % 9 %1993 : total 92 region (kabupaten), 1999 : 42 region. Calorie Intake Recommendation = 2150 kcal/cap/day.

Incident of Low Calorie Intake and Hunger

The importance of food security at national, district, and household level.

Yet, still problems for some districts ….

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RICE remains a strategic commodity:

• Rice cultivation provides work opportunity and income for 21 million farmer households.

• Rice is the main food commodity of 95% of the population in Indonesia, which is around 205 million people.

• The consumption share of energy and protein from rice is more than 55%.

• Around 30% of total expenditure of poor households is allocated to rice.

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Rice Production and Availability, 1990 – 2001

Year Production(000 Ton)

Import(000 Ton)

Availability(000 Ton)

Population(000

People)

Availability/ capita (Kg)

1990 29,361 29.8 29,391 177,923 165.19

1991 29,047 178.9 29,226 181,043 161.43

1992 31,356 634.2 31,990 183,487 174.35

1993 31,318 - 31,318 185,964 168.41

1994 30,321 876 31,197 188,474 165.52

1995 32,334 3,014 35,348 191,019 185.05

1996 33,216 1,232 34,448 193,598 177.94

1997 32,095 782 32,877 196,211 163.03

1998 32,004 6,076 38,080 198,860 187.04

1999 33,063 4,183 37,246 200,746 180.98

2000 32,734 1,512 35,246 203,456 166.41

2001 32,563 1,396 33,959 206,203 160.31

Growth in 10 years 1990 – 2001 (%)

0.77 151.49 1.35 1.35 0.00

Growth in 5 years1990 – 1995 (%)

2.04 346.96 3.43 1.43 2.48

Growth in 5 years1996 – 2001 (%)

(0.91) 107.56 (0.47) 1.27 (1.27)

Source / Remark:- Production Data : Statistics of Agriculture 1990 – 2000; ARAM III 2001- Import Data : Bulog (1990-1996); The Rice Report (1997-2001)- Population Data : BPS “Penduduk Indonesia”, Census Results 2000 (Mid Year Population)

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Producer Importer Exporter

1990s 2001 1990s 2000 1990s 2000

China China Iran Indonesia Thailand Thailand

India India Philippine Iraq USA Vietnam

Indonesia Indonesia Brazil Iran Vietnam China

Bangladesh Bangladesh Senegal Saudi Arabia Pakistan USA

Vietnam Vietnam Bangladesh Nigeria Italy Pakistan

Thailand Thailand Iraq Brazil India India

Myanmar Myanmar Hong Kong Japan Australia Uruguay

Japan Philippine Ivory Coast Philippine China Italy

Philippine Japan Malaysia Senegal Uruguay Australia

SouthKorea Brazil USSR South Africa Myanmar Argentina

PCt P: 88 % PCt P: 87% PCt I : 34 % PCt I : 39 % PCt E : 90 % Pct E: 93 %

The Big 10 in World’s Rice Economy

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Import dependency ….

Portion of Importin Consumption

• Wheat 99 %• Soybean 57 %• Sugar 42 %• Maize 32 %• Rice 6 %

With high domestic support, export subsidy, and others domestic policy, international price not always representing

economic efficiency of the production process.

≈ 9 % of total rice in international market

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Number Poor farmers as % of total farmers 18 %

Number Poor farmers as % of total population 11 %

Net-consumers food farmers as % of total food farmers 74 %

Food farmers household with hunger incidence (cases, n : 117 hh)

9 %

Food Insecurity among Food Farmers

Farmers need income from their food-farming to buy food.

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Food Expenditure

Non-Food Expenditure

1996 59,02 40,98

1999 65,09 34,91

Share of Food Expenditure

The importance of real-income approach to achieve food security

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Major Issues :1. Food security, human right, and social stability2. Real-income and access to food

real-income of net-consumers farmers3. Real-income and incentive for farmers to keep

producing (domestic) food 4. Domestic production and supply; and the risk of

import-dependency condition ‘tin-and-distorted international food market’

(Domestic) agriculture role for food security :-- Production (and price) of food -- Income for farmers

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GDP Growth in Indonesia (%) 

  1996 1997 1998 1999 2000 2001

IDR/USD 2342 2450 14900 6726 8735 9030

GDP 7,8 4,7 -13,1 0,8 4,8 4,0

GDP Non-Fuel 8,2 5,2 -14,2 1,1 5,2 4,6

Household Consumption

9,7 7,8 -6,2 4,6 3,6 3,7

Investment 4,9 6,3 -39,0 -23,3 8,9 4,2

Export 7,6 7,8 11,2 -31,6 16,1 9,7

Import 6,9 14,7 -5,3 -40,7 18,2 11,5

Agriculture 3,1 1,0 -1,3 2,7 1,7 2,2

Industry 11,6 5,3 -11,4 3,8 6,2 5,9

Industry Non-Fuel 11,7 6,1 -13,1 3,5 7,2 6,4

others 7,6 5,4 -16,7 -1,0 5,1 4,9Source : BPS

4. ROA; Buffer Role SIGNIFICANT, BUT “MISUSED”

AFC

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Change of Community Income, Consumption, and Actual Saving 1995 –1999 (%/year)

Community Group Total Income Total Consumption

Saving

Farmer 15,81 14,57 2,17

Non-Farmer 14,32 17,28 -4,41

Rural 16,22 15,97 1,57

Urban 14,31 17,77 -5,44

Agriculture worker, rural 13,77 14,63 -5,51

Farmer < 0,5 ha, rural 13,54 14,27 -6,28

Farmer 0,5-1,0 ha, rural 14,38 14,35 -3,21

Farmer > 1,0 ha, rural 17,92 15,32 4,97

Non-farmer, low-income household, rural

10,33 14,23 -8,21

Non-farmer, high-income household, rural

18,41 15,88 6,31

Non-farmer, low-income household, urban

9,12 17,73 -11,76

Non-farmer, high-income household, urban

19,22 18,31 5,87

Source : BPS, Susenas data

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1998-1999

The urban economy suffered more seriously then its rural counterpart. This reflects the condition that the crisis (Rupiah devaluation) was really an “urban phenomena”.

Part of the rural community – particularly who produce cash crop for export such as cocoa, rubber, coffee or oil palm ‘enjoyed a high exchange rate’, so that with the constant price of their product (in dollar), they earned higher value in local currency (rupiah).

Bayu Krisnamurthi

The agriculture / rural economy in years of crisis …

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1999-2001

Rural community started to experience greater pressure. The rural community felt the crisis through the inflation, input prices, commodity price, and job competition pressure due to the reverse migration.

The increased price of the agricultural product resulting in the decreased of demand for agricultural product; and the tight monetary policy, as a respond to the crisis, had also given double pressure for agriculture due to the removal of agric subsidy.

Bayu Krisnamurthi

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Variable %

Growth of Gross Agric. Domestic Product 1998-2001

1,51

Growth of Agric. Labor Force 1997-2000 6,49

Growth of Agriculture Land (Wetland) -2.26

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Agriculture has ‘buffering’ capabilities, but was also suffering – later-on – from the crisis.

New ‘brand’ for agriculture as “an anti-crisis sectors” have serious implication to fiscal allocation, ‘… government allocate limited fiscal resources to other sectors at the cost of agriculture…’ (“why fix it when it aren’t broke” way of thinking)

Buffering capabilities of agriculture need to be more appreciated by others sectors, and not taken for granted.

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5. ROA; Social and Cultural Viability QUESTION FOR THE FUTURE

All ‘positive’ role and externalities exist when the existence of agriculture preserve.

Economic importance ≠ economic incentive to preserve ?

Avrg farmers-age, 1990 : 39 yrs old, 2000 : 46 yrs old

Dilemma ? ‘reducing number of farmers and preserving agriculture process’

Importance : social and cultural perception of agriculture

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Social and cultural perception on agriculture

Toward sustainability

- A profitable business (for high value comdty)

- Cultural identity, a personal / family heritage; the way of life

- A ‘romantic’ perception: activities that

could provide ‘a peaceful way of live’ and ‘imbalance with nature’

- A ‘back-to-nature’ way of life for the rich

Toward diminishing future

- As an ‘inferior’ job, high risk and low income,not a ‘prestige’ job

- ‘Related’ with poverty, remote rural area,

‘un-modernized’ activities- To many pressure and difficulties in the past, (‘have to get out of it’)- Related with other factors (land, skill) no longer exist

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Agriculture existence related with degree of ‘social and cultural value’ in the community:

- Tolerance and trust- Friendship and brotherhood- Traditional ‘team-work’ spirit- Traditional social safety-net- Other cultural symbol : art, dance, show

Without agriculture, society will lose those value greatly.

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Government strategy in promoting ‘a new way to look agriculture’ as ‘agribusiness’ has ‘pro-and-con’ :

‘Agribusiness’ mean more business like approach, and more ‘modern’ image; attract more young people to agriculture

Lose the ‘culture’- side of ‘agriculture’ activities.

Almost always means ‘big-business’

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ROA Project :

-- Agriculture is important !-- Agriculture : economically important,

socially weak, politically sensitive !

So, what next ?

Political decision ?1. Issue of economic development paradigm:

“agriculture industry services” vs. modern-prosperous-agricultural-based economy ?

2. Communicate with ‘non-agriculture’ people (FAO facilitating communication with IMF, WB, others ?)

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Next agenda?1. Disaggregate the analysis to specific issues (food

security, poverty reduction, environment; food crops, tree crops,

fisheries, etc); but important to maintain inter-relation among issues.

2. Regional approach (Asia, Africa, South-America; large/small population country, food imported/exported country)

3. New issues ? -- “Trade after Cancun” and the international

externalities of agriculture;-- Pro-poor growth of agriculture; -- National and regional level of agric. techno. and institutional break-through for the poor

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The distance between this building and farmers’ field is getting narrower, and they are always waiting for our real-positive-support …

Thank you.