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EMPOWERING FARMERS
25 Februari 2010

EMPOWERING FARMERS-STRENGTHENIG
INDUSTRIES: Toward more and more a harmonize
corporate-community relations


Agus Pakpahan
Director General of Estate Crops
Ministry of Forestry and Estates



I. INTRODUCTION

1. This paper discusses a future policy for estate crops sector development in Indonesia, which is proposed not only important in terms of economic point of view, but also strategic in terms of how we maintain social harmony and environmental sustainability. This proposal has been stimulated and reinforced by the fact that massive social conflicts between local communities and large estate companies have endangered the sustainability of both investment in estate crops and rural communities' social harmony.

2. Just for our reflection, the present of large-well organized plantations in Indonesia is closely related to the Dutch colonization period which begun on 17th Century. In the beginning of that century, the colonial government established a trade company, namely V.O.C that conducted trade monopoly for sugarcane and other estate crops commodities. After the fall of VOC in 1799, the colonial government proposed and implemented "Cultuurstelsel", a policy to push an increasing in production of exported agricultural products by implementing tied regulation for farmers to grow certain commodities. Foreign direct investment in estate crops might be the first investment conducted in Indonesia.

3. At the same time, farmers also planted the same commodities such as coffee, rubber, and other estate crops. However, the management, organization and technology used by farmers were not well developed. The above situations still persist up to the present time. The structure, which is composed of small holders and large corporation such as present in Indonesia, has been well known as "dualistic economic structure". The persistence of dualistic economic structure is not only endangering the economic sustainability of estates, but also socially and ecologically unworthy for our community future life. This argument is sufficient for making us to commit for empowerment of farmers or small holders.


4. The industrial structure of estates in Indonesia is also characterized by lack of capacity in downstream industries, namely the major products of Indonesian estate is just primary products. This situation reflects that added value generated from estate crops are captured by importing countries. Furthermore, the real price of primary products in international market tends to decline over time. This situation is sufficient to call for strengthening downstream industries in order to be able to capture future potential of estate crops in Indonesia. In fact this is a great opportunities for both foreign and domestic investors in the area of estate crops development.

5. Based upon the above arguments, we have to establish new values and to innovate new institutions and organization, which strengthen our capability not only in term of how to achieve efficiency but also to be able to reach social harmony and ecological sustainability. We have lessons that a good achievement of a physical performance of estate crops was not always bringing about the situation just mentioned. A new policy for future development of the estate crops sector should be applied. Indeed, in the new beginning of 21st Century have emerged some provoking ideas on how we renew our values, institutions and organization underlining our socio-economic affairs. For example. globalization, which means free market, will be our basic institution for resources allocation and which is assumed as our sources of welfare, facing critical challenge because "current organization of economic activity is intensifying economic inequity, ...eroding critical environmental systems, .. and generating unsustainable stresses on people".1 Our policy theme here, therefore, "empowering farmers-strengthening industries" with the main objective " to harmonize corporate-community relations`.

II. Policy Context

6. A hundred year after the "Cultuurstelsel" terminated (1870), in 1977 the Nucleus Estate and Small Holder (NES) scheme was launched by the Indonesian government. This scheme was proposed to initiate an increase in the growth of smallholder, as well as state owned estate crops and private owned estate crops area and production. The essence of the implementation of the NES scheme was to increase the small holder income and their welfare through guidance by their venture (state owned estate crop and private owned estate crop)2 which is prevailed as nucleus company. In addition, many other schemes were also launched in order to stimulate the growth of the estate crop sector, for example: self help scheme, service and development unit scheme, private owned estate crops scheme.

7.Despite these schemes were proposed to increase smallholder income and welfare, but there were much of social conflicts remained. The increase in' social conflict cases in certain area has been affecting an increase in investment cost for developing estate crops sector. Therefore, the new policy which considers moral, fairness, justice, share, transparency,efficiency and sustainability value should be internalized into estate crops development policy context.

8.The new foundation for developing estate crops sector in the future is to view that estate crops development is not only to develop the plantation in a physical term, but also to develop community in a broader meaning. Therefore, we have to see that commodity is only an instrument for making community progress and welfare. Therefore, our basic paradigm is that estate crops development means "Commmity Development through total value creation of estate crops commodities". This principle implies that our development is " People Centered and Driven Development". Therefore, everyday we have to ask our self with a question: "what people can do or can be". If what people can do today is better than yesterday and what people can be today is progressing than yesterday, then we have in the right tract.

9.The compatible vision with the above foundation is that we have to realize the efficient, productive and competitive as well as just and fair estate crops development for the purpose of people or community welfare and ,progress through optimal and sustainable utilization of resources"


10.In the era of global economy, market is an institution, which will becomethe most important instrument for resources allocation all over the world. This implies that market will control almost all-economic life. The basic question here is how estate crops sector can use market as a source of welfare and progress such as we would like to have.

11.Let us start with the global present condition of Indonesian estate crops sector. The area of estate crops in Indonesia is 14 million ha which is composed of 11 million ha of small holders and 3 million ha of large plantations. There are wide gap of productivity between small holders and large plantations. Major cause is lack of technology, capital, management and lack of access to markets. However, even though productivity is low small holders provide foreign exchanges almost 60 % out of total earning of estates sector. In addition, small holders provide job opportunities for millions of people, particularly in rural areas.

12.How can such small holders and Indonesian planters be able to utilize markets so that they gain benefits, I think, is our basic policy question. This question is very important to be stressed here because almost all estate crops products are exported to international market. Of course this question is not new to us, but up to know, I feel we still have no sufficient answers, particularly on how to reach broader objectives, i.e. not only efficiency goal but also equality and sustainability. However, we all agree that market is a right vehicle for generating welfare in broader perspective3.

13.First of all, in order to be able to capture benefits from market we have to develop the capability of farmers and other related parties. Capability is simply defined as what farmers can do to use market, i.e. exchange, mechanisms, for their own progress. Minimum level of farmer's education and training are required to strengthen them to select, collect, process and making right decision on what to produce, how to run business, and to make other relevant decisions.

14.Technology generation and utilization are very important to increase production and productivity, efficiency, quality. Self-sustained productivity is largely dependent on how innovation and application of technology becoming a new cultural practices of a community. Therefore,science and technology policy should be embodied in estate crops development, particularly for empowering small holders.

15.Incentives policy is the third dimension of policy in the area of estate crops. Incentives should be able to recover costs. Technology improvement is responsible for production cost and more efficient institutions will reduce transaction costs. Costs reduction is very important for building products and ser vices competitiveness in international market.

16.Fourth element of policy is institutional policy. Deregulation, debirocratization and decentralization are, among others, strategic instrument for estate crops development. However, we have to put this element into a right place, namely, such policy should be able to encourage people participation, sense of community, and rules of representation as well as property rights arrangements which will result in more efficient condition. Networking and sharing principle are basic requirement for strengthening our socio-economic life.

17.Infrastructure availability such as transportation and information, among others, is very strategic input for making market operating. This input is one of the weakest parts of input in developing countries such as Indonesia. Therefore, investment policy in infrastructure will determine the path of our progress in estate development.

18.In the future, market does not only mean "exchange" such as. meant by Adam Smith. The real meaning of market will also be "access" to sources of progress. This situation will call for appropriate adjustment of values and property rights arrangement, i.e. more on right to access rather than right to own4. This workshop, I hope, will also able to find a way to enter this new era.

III.CONCLUDING REMARKS

19.In many ways, our present institutions are working very well. However, in the other ways we see some shortcomings, particularly they are not serving societies' and individuals' needs as well as they could. Economic dualism in estate crops sector is still with us, productivity is still low and quality is not increasing as well. In addition, social conflicts are more intense and environmental sustainability is also threatened. In short, we have to find ways to solve our more complex problem.

20.One aspect should be pursued is how to renew our values and institutions. Corporate-community relations should be improved. Just for illustration„ the impact of social conflicts in plantations in Indonesia had reached approximately more than Rp 2.5 triliun. This is a very high unproductive cost. One solution I proposed is to empower farmers and at the same time to strengthen industries. It cannot be done, except we all can cooperate, just like in the area of conflict due to global climate change, such as mentioned above.



Jakarta, 22 June 2000


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1 The MIT 21" Century Manifesto Working Group, "What do we really want? A Manifesto for the organizations of the 21" Century", MIT Initiative on Inventing the Organizations of the 21" Century Discussion Paper, November 1999.
2 See Edmind M. Burke, 1999. Corporate Community Relations: The principle of the neighor of choice. Quorum Books, Westport, Connecticut, London.
3 See the agreement over 2500 economists including eight Nobel Laureates who endorsed a statement " The most efficient approach to slowing climate change is through market-based policies. In order for the world to achieve its climatic objectives at minimum cost, a cooperative approach among nations is required— such as an international emissions trading agreement". This agreement can be extended to our problem.
4 See Jeremy Rifkin, 2000. The age of access. The new culture of hypercapitalism where all life is a paid- for experience. Penguin Putman Inc, New York.