Investing in farmers' welfare

Investing in farmers' welfare

Agus Pakpahan, Jakarta

It was C. Geertz who in 1970 used the term involution to
describe Indonesia's agricultural industry. One of the meanings
of involution in Webster's' New Collegiate Dictionary is "a
shrinking or a return to a former size". Geertz used involution
in this way, to show that the increasing productivity of farms
was, in the end, hurting the farmers' welfare.

This has certainly been the case for rice farmers here,
particularly in Java.

In a broader context, economist J. S. Boeke described the
structure of the Indonesian economy as a "dualistic" one. Rural
communities face two economic cultures -- namely that represented
by large plantations and traditional or local economies. Even
though there are spillovers of commodities or technologies from
large plantations, for example, this process has not been
deliberate.

Over the past 30 years, for example, large plantation
companies have shifted from major tree crops, except in palm oil
plantations. But the expansion of oil palm plantations has been
directed by government policy.

The steady decline in the real prices of agricultural
commodities on the one hand, and the slow growth in the real
capabilities of modern economic sectors -- such as manufacturing
and trade to absorb laborers -- on the other hand, have made the
farming community suffer. The continuing inequality of employment
opportunities across rural-urban areas, and the lack of and
inequality of access to capital resources, will endanger farmers'
and rural people's welfare.

Therefore, an alternative strategy needs to be developed. In
the past, such a strategy has basically been founded upon command
and control or a top-down policy approach. Powerful parties --
such as the government or lending institutions -- control
farmers' opportunities. In fact, the government or lending
institutions have taken away their freedom of choice. As a
result, everything has been designed on the basis of the mind-set
of these powerful institutions.

Investment in physical infrastructure is necessary. However,
without investment in "what people or farmers can do", following
the terminology used by economist Amartya Sen for expressing
capabilities, investment in physical infrastructure can be a
boomerang, such as the impact identified by Geertz -- increasing
productivity that only hurts farmers.

Lack of access to resources and power worsens the inequality,
injustice and poverty experienced by the weakest part of
communities such as farmers.

This is particularly obvious, for example, in land rent --
unearned income -- which lines the pockets of powerful
landowners. The larger the portion of the community that become
rent seekers, the weaker the whole economy will be.

We must be blind not to see that farmers are the real
investors. They make fertile the land, plant it with crops and
raise livestock. What they do is mostly independent of financial
markets or banks. Unfortunately, the market is not friendly to
them. Traders or processors or speculators have monopolized the
market, to some extent.

That is why farmers are said to be price takers. The prices
of primary agricultural products have been on the decline. On the
other hand, the prices of the final products paid by consumers
have been increasing. So, farmers as both producers and consumers
have been put in a disadvantageous situation.

Bargaining is the main character of the basic functioning of
the market. We use the term "market" but what actually happens is
the exploitation of the weak by the strong. It is an unfair or
unjust institution.

It is fortunate that now there is a growing global movement
for new business ethics or values. The main issue here is how
large companies or powerful institutions increase their benefits
by increasing the benefits of their partners or consumers.

Farmers are both the partners and customers of companies. If
some day poor farmers become rich, there will be opportunities
for business expansion in the modern sector, such as
manufacturing.

The world commitment, such as formulated in the Millennium
Development Goals, will only be achieved if the new spiritual
capital is implanted as the soul of new institutions.

According to Fred Bergsten,"the new Asia challenge will be
political and especially institutional". We have learned from
history that a significant change in a nation is the product of
significant political and institutional changes.

Abraham Lincoln formulated the Homestead Act and the Morrill
Act in 1862 to expand the agricultural capacity of the United
States. Franklin D. Roosevelt formulated the Agricultural
Adjustment Act in 1933, which is, up until now, viewed as the
roots of the expansion of US agriculture. Likewise, Thailand
produced the Bank for Agriculture and Agricultural Cooperative
Act.

Good ideas can be internalized by farmers, as part of their
mind-set, if they are backed by a capable institution. This may
be a political decision and an institutional problem in this
country. But, farmers in all developed countries are supported by
labor unions or associations.

This gives farmers bargaining power and they are more able to
benefit from technological advancements, including in
communications technology.

Innovating and investing in such an institution is costly but
good leadership is the real key to success. Weak leadership has
been the main reason why past attempts to set up associations
have failed. We lack Linconians or Rooseveltians at all levels of
leadership.

The path may not be an easy one and we lack alternatives. For
example, if Indonesia's economy grows by 5 percent a year from
now on, by 2035 we will only reach the income level that Malaysia
now enjoys.

So, our economic structure will still be dependent on our
agriculture. Now, agriculture is lagging behind due to the lack
of real attention from our leaders. Innovating and investing in
setting up a real association of farmers would be very expensive
for individuals or groups of farmers. Therefore, this must be
made a priority of the country as it is the only way that
farmers' livelihoods can be improved.

The writer is Chairman of the Union of Associations of
Indonesian Estate Crops Farmers (GAPPERINDO). He can be reached
at agusp1@cbn.net.id