Aug 30 2009
Keeping food price low or farmers wealthy?
THE correlation between food price and the wealth of the farmer has always been an interesting phenomenon.
Since the proclamation of Indonesian independence, Indonesia has jargon towards improvement of rural people, including small scale farmers, throughout the country.
Therefore, the initial stage of Indonesia’s development was prioritised for agricultural development.
The green revolution which was popular since the beginning of 1970s was one of Indonesia’s development strategies directed to improve farmer’s quality of life.
Although in practice, government’s priority on agricultural development has been consistently moving to others, issue of improving small farmers’ life through agricultural development has become one of the hottest issues especially at time of current general elections.
Favouritism on agricultural development issues has been designated to attract mass voters. By promising and promoting new variety of development programmes, campaigners say they will improve agricultural productions, and later will increase farmer’s income.
Looking back at the recent general election campaign, we witnessed something that was misleading: How farmers can get enough income if in fact the price of agricultural products has always being kept at a lower rate — that’s what most of the campaigners promised.
There is an inconsistency in the logic of thinking regarding to the matter.
Long history of agricultural development has shown that in average, Indonesia has been categorised among nations with the highest productivity in term of padi production by 5-6 tonnes/ha.
Indonesia’s productivity level is only below Japan, China, Korea and Taiwan, denying the fact that land ownership by Indonesian farmers is actually very small. Most of Indonesian farmers are small scale peasants. They manage only about 0.25 ha per farming household. In fact, some of them are hired labours, they did not have access to farming land (landless people).
They highly depend on wages by offering labour services during seasonal farming activities, and some of them are doing share cropping or share tenancy.
With the land ownership so small, improvement of agricultural production will not have significant impact on farmers’ received incomes.
The farmers’ income will be at worst if there is no change or improvement on received agricultural product price.
The ideology of cheap food price has been adopted by many countries especially in the initial stage of economic development. As noted by PC Timmer (2002), the approach has been delivered to support industrial sector.
By lowering food price, the average industrial wage can be managed at low level and as a result, the profitability of industrial sector will increase.
Theoretically, the profit of industrial sector is going to be reinvested and later on, in overall, it will speed up national economic growth.
However, with low food price policy, only the industrial sector gets much of the benefit, while there is not enough incentive for farmers to adopt new innovation and improvement of productivity.
Is it possible keeping farmers wealthy without changing price policy?
The answer is almost impossible, considering farmers own only limited resources, the possibility to boost farmers’ productivity will only be very narrow.
Improvement of food price will likely give benefit to farmers and producers alike as farmers will have higher income and purchasing power to industrial goods and other services.
Later on, it will also stimulate industrial production. The cycle in sum may increase national economic growth.
Of the effort to combat poverty, government can offer new scheme for urban and rural poor who traditionally are the beneficial parties under low food price policy.
The scheme can be implemented under social safety net programme through cheap food distribution and other related policies.
The success story of Japan — where farmers faced many difficulties during cheap food price policy and high land tax era — can be used as a lesson here.
They are now benefiting from government policies which protect agricultural product price. The policy of high agricultural product price stands strongly on the side of producers which could improve farmers’ income and wealth.
Recently, Japanese farmers — despite facing problem of lack of young labours — are economically among better off society members.
The author is a lecturer at School of Agriculture Gadjah Mada University, PhD Candidate at The University Tokyo and Chairman of Indonesian Agriculture Science Association (IASA)-Japan