|
Sunday, January 6, 2008 |
| Prices soar, but when will farmers roar?
|
Opinion News - Thursday, January 03, 2008
H.S. Dillon and Steven R. Tabor, Jakarta, Leiden
The Indonesian economy appears to be steaming along, apparently oblivious to an array of global market shocks and stresses, but meanwhile agriculture sputters and spurts, as if bearing truth to Boeke's colonial hypothesis of a dualistic economy, where capitalist and native economies have their own dynamics.
To predict the path agriculture and the rural economy will take over the coming years we must try to delve into this seeming disconnect.
Global commodity prices for many of Indonesia's most important agriculture products have been on the steady rise since 2002. For example, between October 2002 and October, 2007 the price of Thai Rice (5 percent broken) almost doubled from $175 to $325 per ton, Arabica coffee doubled from $1.50 to nearly $3.00 per kg and palm oil prices went from $410 to $900 per ton. Over the same period, tea prices rose from $1.60 to $2.25 per kg, coconut oil escalated from $425 to $1,025 per ton and rubber almost trebled from 75 to 225 cents per kg.
Given Indonesia's rather liberal trade regime, one would expect to have seen the global price increases inspiring higher agricultural productivity. Five years of consistent strong global markets should have unleashed a powerful upturn in domestic supply. Such a supply response, in turn, would have considerably elevated farm incomes, boosting rural labor demand, and helping the rural poor escape the clutches of continuing poverty.
Let us see whether the data backs this up.
While global commodity prices have soared, farm incentives have not necessarily improved. In fact, between 2001 and 2007, the average index of prices received by farmers increased by a whopping 54 percent, but the index of prices the farmers had to pay rose even more (by 58 percent), resulting in a decline in their terms of trade.
Actually, agricultural terms of trade registered modest gains between 2001 and 2004, increasing with an annual average of 2.2 percent per year. However, 2005 saw them falling sharply and by 2007 they were below levels reached at the start of the decade, as seen in the following data.
Recent wage data revealed the rural wage index actually declined by approximately 12.5 percent between 2005 and 2006.
It is an anomaly that despite booming commodity prices, very little progress has been seen in reducing rural poverty levels during the past five years.
Interestingly enough, the most recent data indicates the incidence of poverty in rural areas is around twice as high as in cities. Indeed, the share of the rural population classified as being poor is almost the same in 2007 as it was in 2006. In 2002, when the Indonesian economy began its upturn, some 25 million rural inhabitants were classified as living below the poverty line. At the end of 2006, some 24.8 million rural persons were still in the same position -- essentially showing no development despite four years of strong economic expansion.
The table below makes it very difficult to argue that the current administration, even through a period of soaring agricultural commodity prices, has not made a substantial dent on rural poverty.
Why is agriculture failing to generate growth, productivity, income and employment that would be instrumental in pulling the rural population out of poverty?
For several years, successive governments have wagered that market forces would be sufficient to get agriculture moving. But agriculture has been hobbling along -- certainly not booming, and, other than a few export oriented commodities (notably palm oil), both output and export performance has been sluggish. Is this part of the globally observed phenomenon of rural populations unable to escape poverty traps?
The answer to this is that by and large agriculture remains constrained by structural problems; tiny holdings, farmers locked into low-return paddies by virtue of the watershed wide nature of irrigation systems, a dearth of viable new technology, weak rural infrastructure which has been allowed to deteriorate even further over the last decade and costly farmer-to-urban market supply chains.
One could also add low levels of agro-industrial development to the above list, along with a rural labor force hollowed out by the migration of its most capable members to urban areas. Thus, if poverty traps do exist, they are linked to a combination of market and government failings. Escape from such traps requires concerted and effective public intervention, and for many years the government has had neither the resources, the institutional arrangements-cum-capacity nor the requisite leadership to design and deliver public goods and services needed to put Indonesian agriculture onto a higher growth and socio-economic development trajectory.
The increasing income of billions of Chinese and Indian consumers is bound to drive up agriculture prices in future, which could mean the era of cheap food prices will draw to a close. What are the prospects then, for Indonesian farmers?
As 2008 would be the final year preceding the presidential elections, one need not be surprised if ministers in this coalition cabinet are seen marching to beats of different drummers. If memory serves us well, the President's launch of the 'Revitalization of Agriculture' initiative in June 2005 was heralded as a serious attempt to keep his promise to transform rural economies.
Boosting rural labor productivity was believed to be an effective instrument used to simultaneously achieve all three objectives of growth, employment, and poverty alleviation. However, low growth in agricultural productivity and little progress in rural poverty reduction suggests there has been more continuity than change in the countryside.
Why? Because, it seems, presidential directives are being blown away in the wind. The current coalition cabinet coalesces but on occasion. If farmers continue to cry while agricultural prices soar sky-high, the blame for non-performance would have to be posted on the door of the President himself.
Although elected by a popular vote, strongly endorsing his agenda, the President inexplicably selected a cabinet based on principles of political expediency. Approaching the final stretch he thus finds himself presiding over a government which has failed to live up to campaign promises he made to the farming community, with absolutely no reason to believe it fulfill them in 2008.
Therefore, we anticipate export-oriented tree crop producers will continue to expand production at a robust pace, but sadly, the great bulk of agriculture -- regardless of the global market -- is bound to continue hobbling, largely unaided this year. It may be some time yet before our farmers begin to roar.
-----------
*HS Dillon is the director of the Centre for Agricultural Policy Studies (CAPS), Jakarta and Steven R. Tabor is a director of EMSI Inc., an economic consultancy firm in Leiden.
|
|
| 0 Comments: |
|
| |
 |
| |
|
|
