Rice for Rising Indonesia Rural Economies

Agus Pakpahan

Ones who are now in the ages of 50 years or more and ever lived in the rural areas
30 years ago must be still remember how the life and life style in rice fields’ community
had changed dramatically. Introduction of new high yielding varieties which was
followed by introduction of chemical fertilizer had doubled rice production. A shorter
period of planting and harvesting season from six months to four months has increased
cropping intensity. All were supported by the development of irrigation and were
organized by mass-guidance organization (BIMAS) which was controlled by the
government. The peak, namely, rice self-sufficiency was reached in 1984. The process
was so called Green Revolution.

Indonesia’s rice production and productivity are above the average of the world’s
rice productivity. The significant changes in rice production have increased in both
national economic growth and the status of Indonesian food security. However, the
sustainability of continuing progress of productivity growth in rice production has been
disturbed by inherent factors in rice farming. One of the most intriguing factors is the
declining process of farmers’ welfare. Increasing rice production and productivity is good
for civilization such as indicated by food security, but it is not positively correlated with
improvement in farmers’ welfare.

Estimation of rice production in 2006 will reach about 55 million tons. It means
that the value of rice sales will be about Rp 110 trillion one year, excluding the value of
by products of rice. This is the direct result of farmers in their contribution to the rural
economy. In term of 2004 Gross Domestic Product (GDP) at 2000 constant price,
agriculture contributed Rp 253 trillion where Rp 124.5 trillion was contribution of food
crops which was mostly come from rice (CBS, 2005). As a comparison, at the same date,
the contribution of mining and quarrying was Rp 160 trillion, electricity, gas and water
supply was Rp 11 trillion, and construction was much lower than the above figure,
namely Rp 97 trillion.

Economic transformation will always reduce the relative roles of agriculture

within the economic structure. However, it does not mean that agriculture and farmers
should be lagging behind. We can learn from the path of evolution of successful countries
in making their socio-economic progress. In fact, the high productivity growth of
agriculture is the prerequisite for successful economic transformation. One of the most
important indicators of successful economic transformation is the growing welfare of
farmers.

Based upon the above data, rice is still one of the most important sources of
Indonesian economic welfare and growth such as what had happened in the last 30 year
period. In contradiction with empirical evidence founded in successful economic
transformation countries, instead of experiencing evolution in agriculture and rural
economies, we still have not been able to change what in the 1970s called involution of
rural economies.

The central area of rice production is in Java, even though Java is only 7 % of the
size of Indonesia. The total rice harvested area in Java is about 5.3 million hectare. The
latest Agricultural Census (2003) showed that the average rice field holding size per
household was only 0.2 hectare. In West Java, Central Java, East Java the rice field
holding size was 0.2, 0.17, and 0.18 hectares, respectively. The room for making farm
households’ income is so limited. One said that this type of agriculture is not a type of
farming, but is a type of peasantry.

What can we do to improve rice farmers’ welfare? Most analysts said that the key
factor to make improvement in agriculture is government. It is true that right mixed
government policies will determine the progress of farmers. However, the opposite cases
will take place if the government creates what we called policy failures. In addition, we
should not disregard the role of business. In fact, we have to create our own types of
business institution that is suitable for increasing our capacity to transform from
peasantry economies to the better rural economies.

Western developed countries had used the hand of government to subsidize

farmers as the main instruments in maintaining farmers’ welfare. China has changed from
commune types of farming to Household Responsibility Systems and supporting
agriculture through betterment agricultural commodity prices and technology. In addition,
Agricultural Bank of China plays a major role in China agricultural development. The
fundamental change of agriculture in the successful economic transformation countries is
the invention of suitable institutions that make farmers and agriculture can do their jobs
are done well.

We are lacking of suitable institutions for making progress of farmers. First, we

have to substitute peasantry institution types of farming by institution of corporation as a
means for both making collective action and at the same time leveraging or capitalizing
collective resources potentials. We have room for making profit through corporatizing
collective resources. Second, we link such collective resources into sources of societal
progress such as markets, financial and research institutions. And, third, we encourage
civic entrepreneurs to invest their mind, time and care in farmers’ owned collective
corporation (FOCC).

The FOCC is a type of social capital that will enable farmers to leverage their
potentials. By using FOCC, farmers will be able to endogenize price of rice and farming
technology that are external to their decision now. The size of FOCC can be 10.000
hectares that will produce revenue about Rp 240 billion a year. Within this size, FOCC
will be attractive to be managed by professional civic entrepreneurs.

The first step in FOCC development is introducing Farmers’ Saving scheme as a

means to organize farmers. If farmers’ saving is Rp 4 million per hectare, it will make a
financial source that can be leveraged by FOCC. The result can reach Rp 120 billion.
Such capital can be used to modernize rice milling industries and to capitalize other rice
based industries. The power of FC will enable an individual farmer to have pension,
shares, insurance, bonus, wages, etc. Seven state owned enterprises, namely BULOG,
Sang Hyang Seri, PT. Pertani, PT. Pupuk Kaltim, PT. Pupuk Pusri, PT. Pupuk Kujang,
and PT. Petro Kimia Gresik in the process of creating such the above farmers’
corporation. The basic role of government here is to assure that the corporation; private
business and state owned enterprise that are investing their resources in the above
schemes received proportional incentives.

Green Revolution has taught us how to increase rice production and productivity.
However, we are still facing our severer problem, namely declining farmers’ welfare. We
have to find our new path of evolution to solve our more important problem than just
increasing rice production. We must be able to invest and to find new ways to be able to
increase and to assure our future’s food problem. Rice is not only food. It is food that will
produce employment, income, economic growth and welfare, and finally peaceful
Indonesia. We have to revolutionize our farming business institutions. We have to start
with our revolution in our way of thinking.

The author is an institutional economist