Does Indonesia need corporate farms? Modernization, efficiency and the social function of land

International Conference on Indonesian Development The Hague, 12-15 September 2013

Ben White

Three related issues for the long term

in Indonesian development:

– food security and agricultural futures – un- and underemployment – sustainability

Food security 1952 - 2012

Food is a matter of life and death for a nation … Why do we throw away millions in foreign exchange, every year, to buy rice from other countries, when we have the potential to double food production at home?

[Ir. Soekarno, ‘Soal Hidup atau Mati’, Bogor 1952]

Food may only be imported if domestic production is insufficient and/or cannot be produced at home

[Law 18 (2012) on Food]

From importer to exporter to importer

• 1940s – 1970s: chronic rice importer (sometimes buying 1/3 of all rice on the world market) • 1980s/early 1990s: (near) self-sufficiency • 1990s-present: major rice importer again (2012: world’s no. 2 importer after Nigeria)

2012

• Indonesia imports almost 6 million tons of basic food staples (rice, maize, soya) from Vietnam, Thailand, India, Argentina, Pakistan, USA, Malaysia, S. Africa

• And produces 28 million tons of palm oil = 4 times Indonesia’s domestic needs

Meanwhile …

Every year 0.1 – 0.2 million ha of its most fertile land for food production is lost through conversion

… and 0.3 million ha of forest (timber worth US $ 3 billion) is converted to oil palm, making Indonesia the world’s biggest producer and exporter of palm oil:

– a relatively low-value crop with few up/downstream linkages

This has made some experts worry p What history will we write about this in future, if this trend of the past 40 years repeats itself during the next 40 years? Indonesia will face many problems due to food scarcity and increasing inequality in control over land. Continuing the current push for palm oil exports not only will not generate welfare for Indonesians, but will place our exports at the mercy of the world market.. Dependence on imported rice, as Indonesian population reaches 300 million, will lead to unimaginable problems

(agric. Economist Dr. Agus Pakpahan, former Dir. Gen of Export Crops and head of GAPPERINDO agri-exporters’ consortium, 2012)

…and recent law-making suggests some concern in political circles

• Law 41 (2009) on Protection of Land for Sustainable Agriculture

• Law 18 (2012) on Food • Law 19 (2013) on Protection and Empowerment of

Farmers

Turning to employment: ‘jobless growth’ and intermediate classes

• Indonesia’s Gini index of income inequality: 2000: 3.2 2012: 4.0 • Youth (open) unemployment: about 20%

• highest in the SE Asian region • 3x the adult rate • rural higher than urban • > 40% among high school graduates • 3.3 million (try to) enter the labour market each year

• Where will the needed jobs come from ?

Michal Kalecki (on Indonesia, Egypt, India 1950s):

– noted the resilience of ‘intermediate classes’ (small-/medium-

scale farmers and non-agricultural enterprises) – but asked: will the outcome in future be ‘the final submission of

the lower middle class to the interests of big business’ ?

… in the countryside? …..and the cities?

What role for agriculture, large- or small-scale?

Technocratic view: • modern, efficient agriculture requires a shift from small-scale

(family) farming to large-scale (industrial) agriculture • this is inevitable (to enter today’s export and domestic value

chains, and to ensure food security) (e.g.: MIFEE) … what is ‘modern’ agriculture, what is ‘efficient’ agriculture, today and in the future?

What is ‘modern’ agriculture ?

Modern = responding to the demands [and problems] of the present era [Koentjaraningrat 1974]

In Indonesia, that might mean:

– Providing employment and livelihoods on a large scale

– Countering trends to growing inequalities in wealth and income

– Commitment to sustainable agricultural futures – Ensuring food security, food sovereignty

What is ‘efficient’ agriculture? Private vs. social efficiency in land use

• Labour productivity, • Private profitability vs. • Social efficiency (in meeting society’s key developmental

imperatives and goals) In development (unlike business book-keeping), social efficiency is the relevant goal

[Michael Lipton; Albert Berry]

Social efficiency today requires:

• promoting enhanced (food) production (yield per ha)

• maximising provision of employment and livelihoods (per ha)

• promoting better income distribution • social & environmental sustainability

Corporate farming’s record on all of these is not good

What role for smallholder farming?

‘Guremisasi’: • Average smallholder farm size: 0.75 ha

• More than half of all farms are < 0.5 ha (BPS: ‘gurem’)

Efficiency and the ‘inverse relationship’ (IR) between farm size and productivity

• The smaller the farm, the higher the productivity (per ha)

• Smaller farm units tend to have

– greater cropping intensity – less land uncultivated – greater proportion of higher value crops – (for many crops) higher yields per harvested ha

[JS Mill 1848, 1868;

Lipton 2009, Berry 2011]

Large-scale, industrial monocrop farming:

- earth-warming - fossil fuel dependent - in the long run

unsustainable

[IAASTD 2009]

The 400 experts of IAASTD (among them several Indonesians):

• industrial, large-scale agriculture is

unsustainable, due to its dependence on cheap energy, its negative effects on ecosystems, and growing water scarcity

• industrial monocultures must be

reconsidered in favour of agro-ecosystems that combine mixed crop production with conserving water, preserving biodiversity, and improving rural livelihoods in small-scale mixed farming.

[International Assessment of Agricultural Science and Technology for Development

(IAASTD), 2009]

Relatively • inefficient in land

utilization • low productivity • displaces more jobs

than it creates • low quality employment • enclave / ‘plantation

economy’ syndrome)

Then who needs (large-scale, industrial) corporate farms?

• no crop (food or export) requires a large-scale farming unit for efficient production

• economies of scale are up- and downstream of the farm agribusiness does not need to make large ‘land-grab’

deals to engage in the agric sector Plenty of other opportunities, that do not require

investment in land

Alternative smallholder-agribusiness models

• Link smallholders with agribusiness in ways that do not require (or allow) corporate ownership or leasing of land

• long tradition of research on these models They work best (both for production and ‘’agrarian justice’) when smallholders have a genuine share in • Ownership (of the business and assets, including up- and

downstream) • Voice (in business decisions) • Risk • Rewards [Cotula and Leonard 2010; Vermeulen & Cotula 2010]

Large size, small ‘scale’: a successful 800 ha, smallholder owned and managed rubber plantation

Land deals: the ‘last and least desirable option’ “investments implying an important shift in land rights should represent the last and least desirable option, acceptable only if no other investment model can achieve a similar contribution to local development and improve the livelihoods within the local communities concerned” (Professor Olivier de Schutter UN Special Rapporteur on the Right to Food:UN General Assembly 2010).

In other words: smallholders, hold on to your land!

Corporate land deals close off smallholder options, now and for future generations

Thank you for your attention