Part 1 of 2 The Agribusiness system approach to agriculture

Part 1 of 2 The Agribusiness system approach to agriculture

Pantjar Simatupang, Director, Center for Agro Socio Economic,
Research and Development, Bogor

The agribusiness system paradigm was first outlined by Davies
and Goldberg in 1957, and was declared as the new strategy of
agricultural development in Indonesia in the late 1980s. It was
translated into sectoral policy framework by Bungaran Saragih,
the current Minister of Agriculture.

The true meaning of the agribusiness system paradigm remains
widely misperceived; it is confused with large farm enterprises.

The agribusiness approach is then misinterpreted as a strategy
which focuses merely on promoting large agricultural corporations
to achieve high economic growth and high export figures, ignoring
the small family farms and hence, is no help to the rural poor.
While the approach may be good for high growth it would be at the
cost of the loss of livelihoods of many apart from environmental
destruction (Tejo Pramono, The Jakarta Post, March 27).

Second, the agribusiness system approach is misperceived as
part of the neo-liberal economic policy which blindly advocates
the free market, ignores agrarian institutions and hence will
fail to address issues such as fairness in division of surplus,
participation and income equity.

Third, the agribusiness system approach is a misfit with the
present context of Indonesian agriculture. The agribusiness
system is identical with the Dutch colonial policy that promoted
large plantation enclaves, created a dual agrarian structure,
pushed out small family farms and created a situation wherein the
laborers were exploited by greedy capitalists.

This argument further says that as long as small family farms
are still predominant, readoption of the agribusiness system
approach can only repeat the above colonial history.

The basic tenet of the agribusiness paradigm may be summarized
as follows. First, farms, small and large, are profit-oriented
business enterprises. This is why Davies and Goldberg introduced
a new word "agribusiness", agriculture-related business, to
replace the old term "farming".

The agribusiness system approach assumes that even a very
small family farm is actually a profit-oriented business, hence
all government policies must be based on this basic premise.

This premise is now accepted as a universal truth. Policy
wise, it has two important implications. The prime objective of
agricultural policy must be to increase farming profit and thus
farmers' income. Here this implies a policy paradigm shift from
production orientation, adopted during the Soeharto
administration, to farmers' income orientation.

If increasing farm profits, including and especially of the
small ones, is a key to poverty alleviation in rural areas, then
the agribusiness approach to agricultural development is
consistent with this objective. By focusing on increasing
farmers' income, the agribusiness system approach puts the
farmers, rather than officials, at the center of agricultural
policies. The agribusiness system approach is a farmers', or
people-driven approach to agricultural development.

Second, farming is a key link in the chain of the commodity
system, thus farming performance is determined by the commodity
system's performance. A commodity system can be divided into
input suppliers, on-farm, output processors and distributors, as
well as supporting infrastructure and services. The performance
of the farming (on-farm) component depends on the other factors.

Most farming constraints are off-farm, characterized by an
inefficient input supply system (insufficient availability, low
quality, high price of agricultural inputs), underdeveloped
agroprocessing industries and inefficient marketing systems (low
farm gate price), and insufficient supporting infrastructure
(lacking irrigation system, credit availability, agrarian
institutions).

The agribusiness system approach is an integrated commodity
system based on development: "How to get the commodity system
right", rather than "how to get the farming right".

Access to a sufficient size of productive land is indeed a key
to uplift the marginal farmers out of the poverty trap. A
seemingly plausible policy option for this is agrarian reform.
But it is misleading if agrarian reform is said to be
inconsistent with the agribusiness system approach.

Agrarian law is part of the supporting infrastructure or
institutional policies in the above commodity system. Mistakes
would not have been caused by the agribusiness system approach
but in the implementation of the strategy.