The agribusiness system approach

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.