Agricultural sector mired in red tape and weak bureaucracy

H.S. Dillon is an internationally-recognized agricultural economist with an intimate knowledge of agricultural transformation in Asia. During the mid-to late 1980s he was active in commodity trade negotiations, both under GATT and UNCTAD, and until 1992 served as a member of the Amsterdam-based Common Fund for Commodities Consultative Committee. He is currently serving a three-term, ending in 1999, as vice president of the Asian Society of Agricultural Economists. Below are his views on the criticism recently leveled against the Ministry of Agriculture by the national press.

Question: The Ministry of Agriculture has come under heavy fire lately. What is the real state of affairs?

Answer:Well, the most objective approach in understanding this issue would be to evaluate the performance of the agriculture sector by pursuing available data. For the last three consecutive years, we have been importing rice in record numbers. And now, for the first time ever, we are running a deficit in the trade of food and live animals, further exacerbating the national current account deficit. It is evident that the agricultural situation is very serious. Therefore, the criticism reflecting the great apprehension shared by concerned citizens -- leading journalists among them -- is justified.

Q: We achieved self-sufficiency in rice in the mid-1980s and for that won world-wide acclaim. Why has the situation deteriorated so much, particularly over the last four years?

A: There are a number of factors responsible and it would be rash to attribute such rapid deterioration to any single cause. However, bureaucratic complacency and ineffective leadership would rank very high if one were to list all the factors in order of importance. This is actually one of the greatest tragedies, since no other country has such an enlightened top leadership like President Soeharto who has devoted so much personal effort to promote food self-sufficiency and enhance the livelihood of the rural populace.

Q: Could you elaborate on that?

A: Well, the agriculture bureaucracy is caught in a double bind. On the one hand, structural transformation has led to a sharp decline in the share of agriculture in the economy, while rapid development is giving greater ascendancy to the private sector on the other. Both these phenomena reflect the very rapid growth of the Indonesian economy, and, as such, should be welcomed by all. The senior bureaucracy, however, is unwilling to relinquish control, and is tenaciously clinging to the mode of behavior fashioned during the early days of the New Order, when agriculture was dominating the economy. Unable to break free from the arrogance of power, they are still patronizing our rural countrymen, unwilling to recognize that national economic success during the last three decades has greatly enhanced the capacity of a large number of small farmers. Furthermore, they are unable to accept entrepreneurs as equal partners, and still treat investors into agribusiness as "projects". No wonder, FDI (foreign direct investment) into our agriculture remains small even though the potentials are quite promising.

Q: How well prepared are we to compete in the upcoming free trade era?

A: On the basis of available data -- very poorly! Agricultural development requires adoption of the long view, whereas the senior agriculture bureaucracy --- currently on its last legs --- appears to be merely living for today. Not only have they been unable to satisfactorily address all the issues emanating from structural transformation, but they have actually undermined President Soeharto's efforts to render the Indonesia economy much more competitive. You see, given the current composition and quality of our resources, institutions, and technology, it is very important that we continue to generate meaningful employment in the rural economy itself, particularly in higher value-added activities.

Such an approach would have manifold consequences. Firstly, rising rural incomes would provide a demand-pull for services from the fledgling rural private sector, which would generate further meaningful employment.

Secondly, urbanization in the narrow sense, that is the movement of rural populace to cities, would slow down, alleviating pressure upon social amenities in the big cities as more opportunities for work open up locally.

Thirdly, with higher quality education and training provided in rural centers -- which would form part of the process of urbanization in the wider sense of the word, i.e., the evolution of rural hamlets and towns into urban centers with more varied and higher quality services, those who leave for the big cities would be able to get higher value-added jobs. Most importantly, if applied consistently, over time this policy would serve to ameliorate the sense of relative deprivation felt by the landless laborers on Java (wong cilik) and farmers on more marginal land in the eastern provinces.

Alas, we are already being besieged by food imports way before the free trade era has even come into effect, demonstrating our inability to transform potential into actual production. This bodes ill for our ability to face intense competition post-2003; therefore, our recent agriculture policy performance could be accurately described as an opportunity missed.

We have failed to capitalize upon the great success in achieving rice self-sufficiency in the mid-80s under President Soeharto's direct command. We have simply not managed to diversify our agriculture economy. Available data reveal that the share of rice in our food production has remained virtually unchanged over the last decade.

Q: This picture is really dismal, surely there must be some success stories?

A: Well, ironically, our agriculture trade is still in surplus on account of the commodities inherited from the colonial era. We should never forget that these plantation commodities were instruments of surplus extraction and exploitation of our poor countrymen by the colonial powers.

Furthermore, the two recent success stories -- cocoa and oil palm -- are largely attributable to private initiatives. But it is disheartening to note that we have actually lost ground in rubber -- where we should have a competitive edge. From being a lowly number three, Thailand has overtaken us as the world's largest producer of natural rubber. Just imagine the number of jobs we could have created if we had managed to capture that market share instead.

Q: What about the junior bureaucracy?

A: Some of it is very good, particularly those who have undergone higher training. Many researchers are turning out good work. By and large, however, even these highly qualified staff have to work long hours teaching or serving as consultants to make ends meet. You might not be aware that a PhD within the bureaucratic structure is only paid roughly 2.5 percent to 5 percent of what he could get if he were to work for an international organization, which many of our PhDs are qualified to do.

Some of them are also frustrated as they observe around them the low quality and technical incompetence of senior bureaucrats. Promotion does not appear to be based upon merit, but rather on an ability to appease superiors.

Partly as a consequence of the incentive system, many of these highly-trained bureaucrats do not possess an affinity with our small farmers.

Q: So you have very little faith in the ability of the present bureaucracy to lead our agricultural economy into the 21st century?

A: Well, to be competitive by 2003 our agriculture sector requires rapid transformation. But in order to reform the agricultural sector -- with millions of small, independent decision-makers -- the bureaucrats have to be able to transform themselves first. Are they up to it? Let us take some time to evaluate the most recent performance of the agriculture bureaucracy in an area over which it exercises a great deal of control -- state-owned enterprises. Four years ago a massive effort to render the state plantation companies more competitive was launched.

It was recognized that the command-and-control management practices with rigid hierarchies which had turned these companies into quasi-bureaucracies would have to be replaced by much more flexible, market responsive, and accountable management. Failure to transform the companies, it was felt then, would be condemning them to a slow death, as their efficiency was rapidly falling behind the competition (even though wages were around 30 percent of those offered in Malaysia).

In the initial stage, 26 state plantation firms were consolidated into nine groups, and re-engineering was attempted by involving lower-level management in the process. Many directors and board members lost their lucrative jobs, and efforts to render commodity marketing more transparent threatened the deeply entrenched vested interests. In mid-stream, this initiative lost its soul. The number of state plantation firms was almost doubled to 15, creating new directors and board members. Now, the companies' directors are merrily conducting business-as-usual, without any effort to adapt their imperial management style in response to changing circumstance.

At the same time the companies' board members -- senior agriculture bureaucracy -- seem content to serve out their terms without pushing for changes towards greater efficiency. They appear much happier to indulge in the bureaucrats' favorite pastime -- passing the buck!

Thus, the agriculture bureaucracy is currently more a preserver of the status quo than a guardian of the future for our rural countrymen. If we are to place our agriculture sector and rural populace on a more competitive footing by 2003, we have no other recourse but to replace the current agriculture bureaucratic leadership with one much more committed to transformation. (vin)