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.