The agribusiness system approach

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

The egalitarian Agrarian Law of 1960 is not easy to enforce. To my knowledge, there has been no egalitarian land reform successfully implemented in developing countries. Besides difficulty in gaining political support, its enforcement is socially sensitive and expensive.

Even if all the available productive land is redistributed equally among more than 20 million farmers, the average plot would be less than 0.3 hectares. Land reform will not significantly reduce poverty and may even increase the absolute number of the poor.

The simple reason is that the presently large number of households just hovering slightly above the poverty line and with land holdings around the average size (0.3 hectares), they would dip into real poverty because after the land redistribution the amount of land for each would decrease, while most of the poor households with below the average size of land holding would still remain poor because the gains from the land redistribution would still not be enough.

With present land availability, access to sufficient size of productive land for all farm households cannot be achieved through land reform.

There are two alternatives to increase the average size of land holding: Area expansion through new land development, and a reduction in the number of farmers through job provision in off- farm sectors. The latter can be achieved through rural agroindustrialization and the appropriate strategies, in short, the agribusiness system approach.

Third, the agribusiness system approach is a logical framework of agricultural sector policy formulation. It has nothing to do with ideology such as neoclassical liberalism or capitalism. It is a positive rather than normative prescription. It should be judged based on positive, scientific reasoning rather than on subjective political or ideological orientation.

Fourth, the agribusiness system approach is farm scale neutral. It does not discriminate against the small family farms in favor of the large corporations. It is a policy framework rather then a policy itself, and hence is intrinsically neutral.

Fifth, the agribusiness system approach suits developing countries where small family farms are prevalent. Small family farms are mostly single enterprise (farming only) and hence are highly dependent on the other components in its commodity chain.

Commodity system coordination through the government's helping hand is vital for small family farms. Large corporations are vertically integrated or are themselves the commodity chain coordinator. They generally can manage themselves.

The agribusiness system approach views that small farming of a particular commodity in a particular area can get moving only if they are consolidated, and connected with all actors in the commodity chain, and well supported by public infrastructures. This can be said to be an industrial agribusiness unit, where all actors in the commodity chain are unified just like an integrated industrial enterprise.

A real example of an industrial agribusiness unit is the poultry business partnership coordinated by Herry Santoso in Sukamulya Village, Ciamis (Kompas, April 4). Pak Herry gains a captive market order from McDonald's food chain group in Jakarta and Bandung which requires a supply of chicken parts with total quality assurance. He then cooperates with pesantren or Islamic boarding schools to arrange a convenient and fair business partnership with some groups of small poultry farmers.

Pak Herry provides all supplies such as feed and medicines, and hence working capital, as well as market assurance. The farmers only provide barns and labor for the daily care of their respective farms. Pak Herry links up with factories of the farm supplies and hence the chicken production costs are minimized. He also has a slaughterhouse, and thus the whole chain of the poultry commodity chain is completely under his coordination. Without such a coordinated agribusiness system, those small poultry farmers may not have access to the lucrative McDonald's market, whereas the McDonald's group, a multinational corporation, fails to benefit the rural poor population.

A down-to-earth implementation of the agribusiness system paradigm is the development of local specific industrial agribusiness units for all prospective agricultural commodities. This is basically an institutional development of the agribusiness system.