IO, Jakarta – “Make farmer sovereignty a reality, as part of our national sovereignty!” This was the spirit behind the celebration of National Agriculture Day on 24 September. Farmers are the backbone of Indonesia’s agriculture. Yet the sad reality is that farmers’ welfare becomes more and more marginalized as time goes by; what’s more, they have less and less access to land for planting. This has degenerated to a alarming extent.
According to a 2014 study performed by the Center for Indonesian Policy Studies (CIPS), the agriculture sector in Indonesia employs more than 50 million citizens – 34% of the total number of workers in Indonesia, even more than those working in the service sector. Agriculture is in fact the second-highest employer, after the industrial sector.
Ominously, the number of farmers continues to decline. According to the agricultural census, there were 24.12 million farmers in 2017 – mostly crop farmers, i.e. at 12 million farmer households. Meanwhile, the Indonesian Farmers’ Alliance (Aliansi Petani Indonesia – “API”) notes that the majority of farmers are crop farmers (17 million people), growing rice, miscellaneous crops, fruit and vegetables. This is followed by palm coconut farmers (about 2 million), coffee growers (1.2 million), and cocoa farmers (about 1.2 million). The total number of farm workers is about 22-23 million.
The miserable lot of farmers
Dwi Andreas Santosa, General Chairman of Indonesia’s Seed Bank and Agricultural Technology Association, explains that an accurate indicator of farmer welfare is the “Farmers’ Exchange Rate” (Nilai Tukar Petani – “NTP”). In 2000, the NTP was in the 124 range, but it has now sunk to nearly 100, an indication that farmer wealth has decreased. “Within the past three years, i.e. from 2014 to 2017, NTP continues to spiral downward. Food crop NTP has plummeted to below 100 in the past few years. This is evidence that farmers are suffering major losses,” he said.
According to a Statistics Indonesia (Badan Pusat Statistik – “BPS”) survey performed in 2015, the average monthly income of farmers is Rp 1,050,000. That is considerably lower than the lowest provincial minimum wage (upah minimum provinsi – “UMP”) in Indonesia. “In 2015, the lowest UMP in Indonesia was in East Nusa Tenggara (Nusa Tenggara Timur – “NTT”) at Rp 1,150,000.00. From this, we can see that farmers are the worker group with the lowest income in Indonesia,” Dwi stated. Outside of Java, farmers generally double as landowners. However, most farmers in Java (more than 50%) no longer own land: they are “sharecropper farmers”. They just work the land that they lease.
Muhammad Nur Uddin, Secretary General of Indonesia’s Farmer Alliance, said that the current level of farmer welfare does not match expectations, indicated by various Government policies that are implemented. Indonesia takes part in international trade schemes. This means that it must sign several agreements, most of which includes structural adjustment policies that force it to reduce policies that protect its farmers by cutting subsidies. Such a reduction undermines profit levels as prices increase and profits dry up, as well as expanding the involvement of private parties (like moneylenders).
Even though the Government has set a Primary Sales Price (Prices Pokok Penjualan – “HPP”) and a Maximum Retail Price (Prices Eceran Tertinggi – “HET”), these limits are actually stipulated to secure the Government’s own rice stock. However, the Government does not allow farmers to submit input even though fertilizer is scarce and a lot of irrigation areas are converted by zoning function changes. It has even lowered import tariffs. “Import tariffs should be higher to support domestic prices at farmer levels. Government aids so far are in the form providing ineffective mechanisms. We notice this sad welfare indicator because we see how farmer exchange rates have decreased sharply, not just because of inflation, but prices at farmer level are unfair because the market mechanism has an extended and inefficient distribution chain,” he said.
Nur Uddin added that farmers in general live below the poverty line, particularly farm laborers, who are vulnerable to seasonal factors. They have to move to work in other sectors, especially during summer, which exacerbates worker scarcity during this season. Farm laborers are generally paid Rp 80,000.00 per day in the summer, and this adds to their reluctance to work in agriculture, because they can earn much more as construction workers in cities, doing the same amount of work. This is the reason behind seasonal migration – why villagers move to cities during the summer. This move also has the effect of reducing the level of technology usage in rural areas, as many tractors are idle due to a shortage of operators. On the contrary, too much work needs to be done by farmers during the rainy season, so that they are forced to wait their turn on getting their hands on machines and rely on hired help from outside their regencies.
“The average income per farmer is Rp 800,000.00-Rp 1.5 million a month, still below the UMP. Presidential Instruction Number 5 of 2015 set the price of field-dried unhulled rice at Rp 3,700.00 and milled dried grain at Rp 4,300.00, and these prices remain unchanged. But in the field, field-dried rice price is already selling at Rp 5,200.00 per kg. The regulation should be revised, because inflation has risen and prevents farmer income from their crops from rising, despite the policy of allowing access to Rp 25-100 million People’s Business Credit (Kredit Usaha Rakyat – “KUR”) granted to each Head of Household (Kepala Keluarga – “KK”),” Muhammad Nur Uddin firmly stated.
According to Hizkia Respatiadi, Head Researcher from the Center for Indonesian Policy Studies (CIPS), most farmers live below the poverty line, or only slightly above it. In rice storage areas like Indramayu in West Java, landless farm laborers only make about Rp 300,000.00 a month, and smalltime farmers make less than Rp 600,000.00 per month from their crops. Hizkia further said that farmer exchange rates continue to decline because of three main factors, i.e. low quality of grain, length of distribution chain and weak rate of grain sales.
Low grain quality is the result of a high level of water in the grain produced by local farmers, especially during major harvests that occur after the rainy season. We need to improve the knowledge of our farmers and transfer the technology necessary for them to dry grain more effectively and efficiently. Some regions do not even have the means to dry out harvested grains. Therefore, we need to provide grain drying ownership in all rice production centers.
The length of the distribution chain is also a distinct, significant issue. The supply and distribution chain of local rice in Indonesia has 8 stages, each with its own opportunities for unscrupulous parties to exploit. Many supply and distribution stages cause our domestic rice prices to be uncompetitive in comparison with global rice prices, which also indirectly affects the quality of the rice sold in the market. This condition is worsened by the implementation of HPP and HET policies, which reduces the elbow space required by producers to secure some profit from their work, thus further pushing farmer exchange rates down.
Weak grain sales are caused by the bargaining power of dealers being stronger than the Indonesia Logistics Bureau (Badan Urusan Logistik – “Bulog”); it is more tempting in most circumstances, as they generally offer higher prices. Farmers prefer not to sell to Bulog as it is forced to comply with an HPP ruling, which painfully cuts into farmers’ profit margins.
Agricultural Observer H. S. Dillon observes how farmer exchange rates continue to decline because of erroneous national development. There is a specific order that must be followed when building up a nation, especially for countries with a large population and large land areas like Indonesia. The best and most basic strategy for our nation is actually to cooperate with nature. We humans should not fight nature, but work with natural conditions, both on land and at sea. This means that we need to stabilize production and not force it, no matter how. Once we have stabilized it, we can increase production.
“Nowadays, it is difficult to see a better future for farmers. If we invest in agriculture, we can generate an effect on poverty eradication 2-4 times stronger than if we invest in other sectors. Indonesia started to import food from the days of the colonization, as the Dutch forced our ancestors to plant commodity crops like sugarcane, tobacco, and rubber instead of food crops. This cruel and erroneous policy endures into the present era, as the Government joins forces with large businesses, replacing the Dutch colonists in enslaving the people,” he said.
From Villages to Cities
According to data from the 2017 National Socio-Economic Survey (Survei Sosial Ekonomi Nasional – “Susenas”), the rural population is steadily declining. In 2010, the rural population was 50% of the total, but it slipped to 46% by 2015. Some issues that encourage urbanization include the decrease of available farmland. Less available land means less possibility of planting, with fewer job opportunities for farm laborers and smalltime farmers. Other than the decrease in the number of farmers, the young nowadays are no longer interested in becoming farmers, because they rightly note that this profession generates limited opportunities as time goes by, and they cannot make ends meet on this. This is what encourages young people to move to cities in order to get a better life, as the city is considered to have better and more opportunities for life than villages.
Hizkia Respatiadi said that limited job opportunities in villages, poor irrigation systems, and climate change are just a few of the factors that generate difficult conditions in the village and compel villagers to move to the city. In 2015, the rural population decreased to 46% from the 50% in 2010. “Many sons and daughters of farmers no longer want to follow their parents in agriculture. They are reluctant to get themselves dirty for a meager amount of money, and they would rather become construction workers, factory workers, or even work abroad as housekeepers. Aggressive industrialization also robs farmers of fertile land, which in the end makes it hard for anyone to produce food.
Dwi Andreas Santosa states that many villagers move to cities because the farming business has become less and less attractive, especially in Java. Here, farmers own very little land. About 77% of Javanese farmers are smalltime farmers who own less than 0.5 ha of land for them to fill. Most of these farmers actually have less than 1,000 m2 of land. This is why the number of farmer households has decreased drastically, at about 500,000 a year, especially if they have less than 1,000 m2 of land. This paltry amount of land is insufficient to keep alive on, so they leave their land and move into the informal employment sector.
Dwi Andreas Santosa said that Government seed and fertilizer subsidy policy is absolutely ineffective. In the past few years, the Ministry of Agriculture spent about Rp 55-60 trillion on seed and fertilizer subsidies, as well on various types of support. Money is being splashed around every year, but where does it all go? Because it seems that the Government has the wrong concept in that it considers itself to have done farmers a big favor, so that it has the right to make the Minister of Agriculture impress farmers’ grain to Bulog so that Bulog can buy it at prices below grain market prices. After all, the Government consider that it has helped farmers, and now the farmers must return the favor by selling their produce to the Government at lower than market prices. This is not right.
“This ‘doing the farmers a favor’ paradigm must be changed. That Rp 55-60 trillion a year is actually not a “favor” to farmers, it is their right. We need to change the paradigm and be aware that it is the farmers who should determine the amount of money, not the Government, let alone having the Government acting as if it has done farmers a great favor. Why? Because farmers are asked to sell their hard-earned produce at prices that consumers can afford, at a loss to the farmers themselves. It is this loss that is rightfully compensated for their sacrifice with this fund, as it is their right. The form should be in cash, not aid,” Dwi said.
“Of the amount budgeted by the Government, how much is actually received by farmers? We really should audit all these “favors” and find out where the money has all gone. For example, 50% of the seed aid is not used by farmers, meaning 50% of the Government’s seed budget simply disappeared. Why are they not using Government seed aid? Because quality of the Government seed aid is insufficient. We have submitted this input repeatedly, we have even gone to the President. I have met him at least twice and I have also submitted this input to his Ministers many times, for example in the National Assembly held by the President in 2017. I have given such clear suggestions in that forum, but nobody follows up on them, not a single one. We ended up having to move by ourselves down below,” he said.
A study of the Center for Indonesian Policy Studies shows that subsidies are mostly enjoyed by rich farmers who own anywhere from 0.75 to 2 hectares of land. This is ironic, as the primary target of agricultural subsidies should be poor farmers. A World Bank Dunia study shows that only 21% of farmers in Indonesia who receive fertilizer subsidies can be considered “smalltime farmers”. Furthermore, the subsidized goods are frequently of bad quality, so that farmers barely get any benefit from them. “Furthermore, this is a burden on the State budget, which has the indirect effect of burdening the people by the need for more taxes. And in specific cases, such as chilies, these subsidies actually cause over-production, which depress prices to the detriment of the poor farmers themselves,” Hizkia said.
The Government spends huge amounts of money to provide subsidies in the form of seed, fertilizer, and rice aid. CIPS studies discovered the painful reality that in several areas like Indramayu, West Java, and Kebumen and Cilacap in Central Java, most farmers find that the Government’s aid program is ineffective in improving their welfare. “For example, seed subsidies. Farmers found that the program is ineffective to help them, because subsidized seed actually carries a high risk of poor quality, as well as an uncertain distribution period. Therefore, farmers prefer to use non-subsidized seed because it is safer for them. None of the distribution targets of subsidized seeds from 2011 to 2015 has been achieved,” Hizkia said.
Muhammad Nur Uddin states bluntly that Government-subsidized seed and fertilizers are of bad quality. “This is because they are procured through tenders and the quality control is ambiguous. Finally, farmers become disappointed when they are subsidized with bad seed. This move should have involved regional Governments. After all, most districts have good quality seed cultivators. Why not buy from farmers with certified seeds, whose seeds are perfectly adapted to suit each region? We should not leave everything to commercial seed companies. It’s the same case with fertilizer distribution – the first point is factories, second point is governors, third point is distributors, fourth point to retailers, and finally to farmers as end users. Who can control all these points? There is such a huge opportunity for corruption in each point!” he said.
Dwi Andreas Santosa considers the HPP and HET policy to be erroneous. Since 2015 these policies set in the Presidential Instruction No. 5 of 2015 have been criticized as deliberately ignoring farmers. Why? Because the field-dried grain HPP price increase is Rp 3,300.00 per kg in 2012, rising to Rp 3,700.00 per kg in 2015, or an increase of only 12%, while inflation in the 2012 to 2015 period was 21%. This causes farmers to suffer even more every year. Furthermore, this regulation has not been updated until now: inflation rate is already 28%, but HPP increase is only 12%. “We have been screaming ourselves hoarse trying to get the Government to raise the field-dried grain HPP to Rp 4,500.00 per kg, but nobody listens,” he said.
Dwi has also informed the Government about HET conditions in the field many times, and still he is ignored. In August 2015, rice HET was set at Rp 9,450.00. The average rice HET in all production areas is actually Rp 9,888.00. Later, in August 2017, medium rice price was Rp 10,616.00. This does not make sense. “This does not make sense because medium rice price is much higher than the stipulated price. What is the meaning of this? What is the rationale for this? We say that the stipulated HET value is absolutely irrational. If we enforce HET, it is the farmers who will suffer most, because HET will pressure grain prices too much. Sellers will continue to push down, because they inevitably have cost variables, causing farmers to suffer the most because they have the least bargaining power,” he said.
Muhammad Nur Uddin said that farmers spend Rp 4,200.00 in labor to generate 1 kg of grain. If a 4- ton harvest generates Rp 16.8 million, for example, production costs would be Rp 8-10 million. That is about Rp 8 million profit for use in a 3-month period of growing until the rice is harvestable, about 2 million per month. However, the current field-dried grain price at Rp 3,700.00 per kg and the dried milled grain price at Rp 4,300.00 per kg is bad for farmers’ welfare. “I don’t know why the Government insists on enforcing the highest and lowest retail prices, while the components of the Minister of Trade’s regulation that refer to the Presidential Instruction Jokowi issued at the start of his rule were already revised during SBY’s era,” he said.
Hizkia said that HET and HPP are unnecessary interventions in the market. HET, which is meant to protect consumers, is hard to supervise. The Government’s market inspections are technically not effective for monitoring price-setting games played in the field. This is supported by the findings of the CIPS study, which shows that HET is ineffective for suppressing rice prices.
On the other hand, the most important thing that we can do to decrease rice prices in the consumer market is by simplifying the distribution chain. The costs expended in rice distribution are quite a burden, not to mention the fact that dealers usually set in a hefty profit margin, which at the end will be borne by the consumers. Let’s take rice as an example. If businessmen are forced to comply with HET prices at a deep cut to their profit margin, then none of them would be interested in selling domestic rice. This will cause grain farmers to stop producing, which would in turn stop mills from producing. This will smash the entirety of rice trading in our homeland.
Meanwhile, the Government always sets HPP lower than market prices. It fails to consider increased production costs, along with the coming of the dry season. Bulog, whose duty is to absorb the rice supplied by farmers, has difficulty in executing its duty, because farmers would prefer to sell to dealers who pay them more than HPP. Again, this in itself is another dilemma, as dealers would tend to set a huge profit margin that would burden rice consumers. McCulloch studies show that Indonesian farmers are themselves also rice consumers, so that they would eventually also suffer further reduced welfare.
Steps for the Government to Take
Muhammad Nur Uddin suggests that the Government concentrate on improving farmer welfare. Therefore, Government must have a multiple price policy that the farmers can select for themselves later. He requests that the national rice industry become more honest – both in terms of honesty in labeling the rice varieties sold, and honesty in raising these varieties. Premium, expensive rice is actually mixed rice. 35% of all sales are mixed, with an average of 30% good rice mixed with medium rice and sold as premium. Naturally, it’s the rice businesses that enjoy this profit, not farmers.
Fiscal policies are also necessary. However, does the Government dare to increase import tariffs to stabilize national rice prices? Farmer groups should also be given access and guarantees of capital without difficult procedures, with crop harvests as collateral. Furthermore, most incentives so far are only in upstream crop industries, but there are no post-harvest and marketing incentives available. Multi-credit should be granted from upstream to downstream, so farmers can calculate income before taxes; devaluation costs; and investment assets possessed, both in terms of land and machines. This would allow us to know a level of main production costs that is decent for farmers and allow them to gain a decent profit. For example, rice medium HPP might be set at Rp 9,100.00 per kg, which allows consumers to get good rice at an affordable price and leaves farmers a good profit margin.
“Nowadays, businessmen generally buy rice in bulk, have it harvested, then take it away to be sold in other towns and cities. Why not try to hold this down for a while with the cooperation of mobile rice sellers in the village, to establish the rice industry in village areas? We should integrate Indonesia’s Rice Mill and Business Union (Persatuan Penggilingan Beras dan Pengusaha Padi Indonesia – “Perpadi”) with the Farmer Groups Association (Gabungan Kelompok Tani – “Gapoktan”) in the villages, so that the resulting organization produces as well as processes rice, or at least gives access to rice mills. There must be incentives from the Provincial Government, so Perpadi can buy good production machines,” Nur Uddin said.
WTO is watching Jokowi’s Government, because it is deemed to continue implementing a protective policy over farmers with its seed and fertilizer subsidy programs. The Government should be firm when providing protection, i.e. all the way from upstream production, downstream processing, all the way to marketing. Dwi Andreas Santosa criticizes the entirety of the Government’s agricultural program, which is mainly directed solely to production increase. The ministers’ performance is assessed from whether production performance increased or not. “This is the cause of the data chaos that occurs in Indonesia – everybody is tweaking data in order to make it seem that production has increased. Why? Because when we focus solely on production increase, we tend to forget who does the producing! The main purpose of any Government program should be the improvement of farmers’ welfare instead of production increases. When farmer welfare improves, they are more encouraged to work and produce. Production is only a reward, a result, when farmer welfare improves,” he said.
In order to improve farmer welfare, a low-inflation regime must be reconsidered. The highest inflation occurs in food, causing the Government to frequently intervene with prices in order to suppress them. As long as the Government still maintains this paradigm, agriculture in Indonesia will continue down its destructive path and our food imports will continue to increase. As proof, note that the imports of 7 primary food commodities have increased from 21.7 million tons in 2014 to 25.2 million tons in 2017.
The Government policy we can set is a fiscal or budgeting policy: where are funds allocated, and how are they used? “We suggest that budgets are concentrated on price hedging at a farmer business level as well as direct transfer, so issues like malfunctioning tractors, delayed receipt of fertilizer by farmers etc. do not occur. Furthermore, the low inflation regime needs to be reconsidered. This actually depends on the Government’s political will,” Dwi Andreas said.
HS. Dillon says that only nations that have solid agricultural and rural economies are able to achieve advanced technological development without losing their identity. If we continue to underestimate farmer welfare, to belittle and marginalize farmers, we will continue to have to import food. We are now the biggest wheat importer in the world. To balance this, we should develop the use and production of bulbs like taro, or tree foods such as sago and sweet saps, as they are proven to be resistant to droughts. “Farmers must be empowered in two ways: one, we give them resources; and two, we give them the ability to think far, or we train and educate them,” he said.
Hizkia Respatiadi explains that two-thirds of our farmers are net food consumers, which means that they buy more food than they produce. If food prices become too important because we focus on the wrong things to produce independently, our farmers will also be victimized. “The most important thing now is that these farmers, as well as 26 million other poor people, can eat nutritious foods at affordable prices. Independent food production or not, that should not be our main priority. About 37.2% of our toddlers suffer from chronic malnutrition. This is a crucial issue that we must address to first, not food independence,” he said. (Dessy Aipipidely, Ekawati)