Agribusiness does not help the rural poor

Tejo Pramono, Researcher, Center for Agricultural Policy Studies (CAPS), Jakarta

Minister of Agriculture Bungaran Saragih has expressed his concern over our poverty problem and has suggested that facilitating agribusiness would go a long way toward a solution. Alleviating poverty, he writes, is one of the main instruments to achieve other developments, such as food, health and education security; also a better livelihood, environment and political participation (The Jakarta Post, Feb. 20).

Moreover, the minister suggested an economic political campaign on agribusiness: It should become the new architecture for a global economic structure based on the comparative advantage in natural resources. He writes that the developed countries have a comparative advantage on technology and do not have a comparative advantage in natural resources.

The argument looks reasonable, but such a neoliberal view ignores the history of the development of agribusiness. Hence, it might not alleviate poverty but may, instead, unwittingly sustain or even increase it.

Agribusiness was long implemented during the Dutch colonial period, which led to the opening of sugar cane, rubber, coffee, and cocoa plantations. The Dutch took over people's land and forced peasants to grow certain commodities. Through the aristocrats, appointed as regents, the Dutch operated their agribusiness activities.

Agribusiness became popular in the local economy and also became a favorite subject of study at university level, such as at the Bogor Institute of Agriculture. Particularly during the 1980s agribusiness was encouraged to contribute to high economic growth, which was then accounted for largely by industry. With large investments, agribusiness run by private companies opened up extensive plantations and also operated in forest and marine resource utilization.

Such practices indeed contributed to economic growth, following the increase in value and increased exports of agricultural commodities. Yet, this was at the cost of the loss of livelihood of many people, apart from environmental destruction.

Public savings were channeled to large agribusiness companies rather than to the people's economy -- some of the companies are now under the control of the Indonesian Bank Restructuring Agency. Credit for the poor was allocated in very small amounts: As banks would not lend without collateral the poor depended on informal loan sharks. The productive assets of plantation areas, forest and coastal areas were also given to the large agribusiness companies. And worse, large agribusiness companies still control the entire line of business, from on-farm to off- farm activities, leading to a virtual oligopoly.

There is some cooperation between agribusiness companies and farmers, namely contract farming. But almost all of the contracts in farming, according to the experience of the smallholder system show the disadvantaged position of farmers.

Theoretically, agribusiness is usually based on comparative advantage, although this theory, by David Ricardo, has been criticized for its failure to address inequalities in the relations between agents of production.

Agribusiness plantation labor wages are the lowest in the country; hence they will not alleviate poverty. Also unaddressed is the lack of ownership of production factors, such as land.

The first step in agricultural development should provide the poor access to such ownership. During the period 1983 to 1993, the number of landless households increased from 5.032 million to 9.054 million.

While household ownership of land was less than 0.3 hectare per household during the same period, landless homes increased from 9.5 million to 10.9 million -- and this was well before the economic crisis.

Thus, the agribusiness approach in developing agriculture and alleviating poverty is no longer relevant. Instead, what is needed is agrarian reform, especially to give the poor access and ownership to productive assets -- mainly land.

Land ownership would lead to employment opportunities, thus giving the poor access to credit and helping their confidence to speak out on issues that affect their interests.

The agrarian law was enacted in 1960 but has faced political controversy, as the reform of land ownership has hit the interests of privileged groups.

Today, cooperation of the Ministry of Agriculture with tens of millions of peasants and the poor in gaining political support for agrarian reform would be a concrete program in combating poverty. Food supply would increase, along with increasing productivity and welfare of the poor.

The writer also coordinates the advocacy division at the Institute of Agriculture Development (Lembaga Pembangunan dan Pengembangan Pertanian) affiliated to the Islamic Nahdlatul Ulama organization in Jakarta.