Rice For Rising Rural Economies

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