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

1. INDONESIA 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

2. Indonesia ROA Team • Min.of.Agriculture • Effendi Pasandaran • Fahmudin Agus • Made Oka M. (Agric.Research and Dev. Agency) • University : • Bayu Krisnamurthi (Bogor University of Agriculture) • Ary Indrayono (University of Indonesia) • NGO : • Budisantoso (CAPS) • Sudarno Sumarto (SMERU)

3. Papua Kalimantan Sumatera Sulawesi Bali Java Population : 210 mill, 4th in the world (1997) 27 % are poor 17.300 islands, west-east ≈ London-Istanbul INDONESIA Java : 60 % of population, 60 % of food production 13 % of land

4. 42 million Indonesian farmers ….

5. Historical perspective ….

6. 1. ROA, Economic Role  STRATEGIC Agriculture Share in the Indonesian Economy (%)

7. Agriculture Share in the Indonesian Economy (%) • 1970-2000 : agriculture growth < national economic • < industry+services • Agriculture 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)

8. 2. ROA, Environmental Role  IMPORTANT Environmental Roles of Agriculture • “POSITIVE” roles • Flood mitigation • Erosion Control • Water preservation • Biodiversity • Carbon Sequestration • Organic waste disposal • “NEGATIVE” roles • Soil erosions • Water and soil pollution • Loss of biodiversity • Environmental pressure: over-utilization

9. Land use Sediment yield t ha-1yr-1 Rainforest 4-7 Logged pine plantation forest 34 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)

10. 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)

11. 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 fallow Rotation 74 45 Continuous cassava 39 15 Carbon sequestration and plant biodiversity under different land uses in Indonesia (Tomich, 1999)

12. Marketable and Non-Marketable value (%) using Replacement Cost Methode, cases of 3 river-basin in Indonesia Sekampung, Sumatera 30%forest, 60% Agriculture, 10% housing+industry Citarum, Java 10%forest, 50% Agriculture, 35% housing+industry Brantas, Java 15%forest, 65% Agriculture, 20% housing+industry Flood mitigation 6.718.9 1.2 Water conservation 18.713.0 8.3 Soil conservation 1.00.1 3.4 Landslide prevention n.e11.0 74.7 Organic waste disposal 0.31.3 0.5 Air purification n.e 6.8 1.2 Rural amenity preservation 6.62.5 0.3 Heat mitigation 1.5n.e n.e Total Non Marketable Value 33.861.9 91.6 Total Marketable Value 66.2 38.1 8.4

13. 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.

14. 3. ROA, Poverty Reduction Role  SIGNIFICANT

17. ( ) = z-values

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

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

20. 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.

21. 4. ROA; Food Security Role  UN-REPLACEABLE • Agriculture is the source of food through production and distribution activities, or related with national food supply management and the food import dependence condition. • 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.

22. National level food security ….. Total Availability of Food Supplies in Indonesia (Total Calories/caput/day) * Production approach ** Cases of 117 household

23. Yet, still problems for some districts …. Incident of Low Calorie Intake and Hunger 1993 : total 92 region (kabupaten), 1999 : 42 region. Calorie Intake Recommendation = 2150 kcal/cap/day. The importance of food securityat national, district, and household level.

24. 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.

25. Rice Production and Availability, 1990 – 2001 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)

26. The Big 10 in World’s Rice Economy

27. Import dependency …. • Portion of Import • in 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

28. Food Insecurity among Food Farmers Farmers need income from their food-farming to buy food.

29. Share of Food Expenditure The importance of real-income approach to achieve food security

30. (Domestic) agriculture role for food security : -- Production (and price) of food -- Income for farmers • Major Issues : • Food security, human right, and social stability • Real-income and access to food •  real-income of net-consumers farmers • Real-income and incentive for farmers to keep producing (domestic) food • Domestic production and supply; and the risk of import-dependency condition •  ‘tin-and-distorted international food market’

31. ROA; Buffer Role  SIGNIFICANT, • BUT “MISUSED” GDP Growth in Indonesia (%)  Source : BPS AFC

32. Change of Community Income, Consumption, and Actual Saving 1995 –1999 (%/year) Source : BPS, Susenas data

33. The agriculture / rural economy in years of crisis … 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

34. 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

36. 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.

37. 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

38. 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

39. 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.

40. 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’

41. ROA Project : • -- Agriculture is important ! • -- Agriculture : economically important, • socially weak, politically sensitive ! • So, what next ? •  Political decision ? • Issue of economic development paradigm: “agriculture  industry  services” vs. modern-prosperous-agricultural-based economy ? • Communicate with ‘non-agriculture’ people • (FAO facilitating communication with IMF, WB, others ?)

42. Next agenda? • 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. • Regional approach (Asia, Africa, South-America; large/small population country, food imported/exported country) • 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

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