INCREASING THE SCALE OF SMALL-FARM OPERATIONS III. INDONESIA

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1 INCREASING THE SCALE OF SMALL-FARM OPERATIONS III. INDONESIA Agus Pakpahan Center for Agro-Socioeconomic Research, Agency for Agricultural Research and Development, Bogor, Indonesia ABSTRACT Farm size is one of the most important aspects of land use in Indonesia. Any expansion of farm size in Java is constrained by the availability of the land, and in the outer islands by the capability of land to be used for the production of food crops. Policy discussions regarding farm size should not be separated from the general economic structure, the productive capacity of land resources, and the legal structure underlying land use decisions. This paper presents the situation of farm size, farmers response to farm size and policies regarding farm size, in Indonesia. INTRODUCTION Land use is determined by various decisions made by individuals, groups of individuals, organizations, government agencies, etc. The results of those decisions are reflected in existing land use patterns. From the point of view of land resource economics, land should be allocated according to its land rent, that is, the economic return that accrues or should accrue to land for its use in production, or the surplus of income above the minimum supply price it takes to bring a factor into production (Barlowe 1978). Changes in the nature of land resources and/or changes in the spectrum of economic activity result in changes in land rent. Farm size is not a new policy subject for Indonesia. The Basic Agrarian Law imposed a limit in the size of agricultural land holdings, with a minimum and maximum size of 2 and 20 ha, respectively. In general, the number of farmers producing food crops in Indonesia since then has increased while the size of land holding is small, particularly in Java. Enlargement of farm size without radical institutional changes is only possible on the outer islands (i.e. the islands other than Java), where the land is not as fertile as that of Java. This paper discusses the present situation of farm size in Indonesia, its effect on land use, and policy options regarding farm size. PRESENT SITUATION OF FARM SIZE IN INDONESIA Number of Farm Households Censuses of agriculture in Indonesia were conducted in 1963, 1973, and In 1983, the number of farm households producing food crops in Indonesia was 15.5 million (Teken 1986). Of these, about 58.8% resided in Java, 19.94% in Sumatera, and the rest of the population lived in Kalimantan and other outer islands (Table 1). Even though the number of farmers producing food crops has increased by 10.25% over ten years, the average land holding has also increased, from 0.99 ha in 1973 to 1.05 ha in Farm size in Java was much smaller (0.66 ha) than in the outer islands (> 1.22 ha). Farm Size In 1983, almost half of Indonesia s farm households (48.9%) had a land holding of less than 0.50 ha, and only 5.8% of farm households had 3.00 ha or more. Of the farm households with less than 0.50 ha, 63.1% resided in Java. On most of the outer islands, average farm size has tended to increase. Furthermore, between 1973 and 1983 the number of farm households with more than 2 ha of farmland increased by 2.76%, and 20

2 those with less than 0.50 ha fell by 4.8% (Table 2). FARMERS RESPONSE TO FARM SIZE Size as a Factor in Production Size has economic meaning, in the sense that a certain area of land can most economically be used in a certain way: if it is below or above a certain size, the owner may have to farm in a different way. The point where one type of activity should be replaced by another is called the margin on transference, while the no rent margin is a situation where the value of land rent, given a certain activity, is zero (Barlowe 1978). A farmer will dispose of his land if it is too small to be operated economically, and a farmer will expand the size of his holding if a larger holding gives him enough profit to cover the additional rent. We have already referred to the trend for farm size in Indonesia to increase, and the number of farm households with less than 0.5 ha to decline. However, according to Nasoetion (1991), the number of households with less than 0.1 ha has increased by 3.89%. The main reasons for this fragmentation of land holdings are that very small landholdings, Table 1. Farm households producing food crops and average farm size, 1973 and 1983 Source: Teken 1986 Table 2. Distribution of farm size in Indonesia Source: Teken

3 being less economic, are more frequently sold, while fragmentation also took place as a result of inheritance by multiple heirs. Farm Size and the Adoption of New Agricultural Technology High Yielding Varieties The Green Revolution that took place in the 1960s has been recognized as a breakthrough in agricultural production. This technology is based on the use of high yielding varieties and chemical inputs, and by improved water management and land preparation. Contrary to the pattern seen in other countries in Asia, Simatupang (1989) on the basis of the Agricultural Census of 1983, found that in Indonesia farmers with larger land holdings made less use of modern varieties and more use of traditional local varieties than those with smaller farms. More than half the households with more than 5.00 ha grew local varieties, and more than 75% of farm households with less than one hectare grew modern varieties. Farmers with larger farms and higher incomes tended to be less responsive to improved rice varieties because: the flavor of these modern varieties was not as good as that of traditional varieties, so that the price was lower. Wealthier farmers usually put more emphasis on flavor, and were also more willing to accept the higher risks associated with local varieties. Fertilizer Fertilizer is a major component of agricultural technology. The rate of application of chemical fertilizer can be used as an approximation of the rate of adoption of improved agricultural technology. The application of chemical fertilizer in Indonesian rice farming has a negative relationship with land size, i.e. the larger the land holding, the smaller the proportion of households which apply chemical fertilizer. A similar relationship is also seen with other food crops such as corn, cassava, sweet potato and Soybean (Table 3). The application of fertilizer per hectare also varies according to farm size. Farmers with less than 0.5 ha of land apply almost three times more per unit area than farmers with 2.0 ha or more (Table 4). This is also true of phosphate. This implies that smallscale farmers in Indonesia are trying to substitute improved technology to compensate for limited land area. Farm Size and Diversification Diversification, or changes in crop mix, is also an important response to farm size. Pope and Prescott (1980) have stated that there is a positive correlation between farm size and diversification. The larger the size of land holding, the higher the diversification index (DI). Farmers with less than 0.25 ha allocated about 75% of their land to food crops, and had a DI of In contrast, farmers with more than 5 ha allocated about 50% to such crops and had a DI of 1.14 (based on Kasryno et al. 1986). POLICIES CONCERNING FARM SIZE Policy Options There are variety of policy alternatives in dealing with farm size. In this paper they are classified as follows: Land resource base policy options which change the actual size of land holdings through the development of land resources (e.g. irrigation, clearing of new agricultural land). Technological base policy options which improve the incomes of small-scale farmers through the application of new technologies on their given land holdings. The development of new high-yielding varieties resistant to pests and diseases, improved livestock breeds, and more productive land management come under this category. Institutional base policy options are based on institutional changes such as changes in property rights, land consolidation, contract farming, Nucleus Estates Smallholders (NES) etc. Off-farm base policy options are concerned with generating off-farm employment by means of e.g. agro-industry. Land Resource Capacity in Indonesia Indonesia is an archipelago composed of 13,667 islands with a total land area of 192 million ha of this, 15.9% is agricultural land and 78.8% is forest and scrub. Only 23% of Java and Bali is forested, less than the minimum level recommended by profes- 22

4 Table 3. Percentage of farm households applying chemical fertilizer according to farm size and commodity in Indonesia, 1983 Source: Satari et al Table 4. Application rate of fertilizer according to size of land holding in Indonesia, 1983 Source: Satari et al food production, and provides more than 60% of Indonesia s annual production of such crops as corn, cassava, soybean, peanut and other commodities (Pakpahan et al. 1990a). This high level of production in Java is made possible by the island s fertile volcanic soils, highly skilled farmers and well developed infrastructure. Future agricultural development in Indonesia will depend on what happens on the outer islands, where the capacity of land to support agricultural production is limited by topography, soils and climate. The Ministry of Agriculture (1990) has classional foresters of 30%. This situation implies that any opportunity to convert forest to agricultural land in Java and Bali will be very costly. At the same time, the growth of the industrial sector and urban centers in Java has increased the demand for land. The accelerated conversion of paddy fields to non-agricultural uses has far-reaching implications for the future performance of the agricultural sector in Indonesia (Anwar and Pakpahan 1990). Even though Java has only about 7% of the total land area of Indonesia, it has 60% of the human population. Java is also the most important island for 23

5 sified the land in Indonesia into eight classes of land capability. According to this classification, land resources that are suitable for food crop production are limited to classes I to IV. Out of 134 million hectares of land (land capability class I-VI), only about 22.4 million ha are suitable for food crops. Almost a quarter of that land is in Java, and has already been developed for paddy rice and upland farming. In Kalimantan, however, only about 3% of the land is suitable for food crops, while in Sumatera, Sulawesi and Irian Jaya the figures are 21%, 34.8%, and 4.4%, respectively. The capacity to produce should be distinguished from the actual production, which is greatly influenced by the availability of markets, technological level and market demand. Information about capacity to produce is a very important input in the agricultural planning and development process. Legal Foundation The Basic Agrarian Law of 1960 (BAL) states that land in Indonesia has a social function which is controlled by the State of Indonesia. The BAL acknowledges six types of rights associated with the land, namely right of ownership (hak milik), right of exploitation (hak guna usaha), right to build on land (hak bangunan), right to use (hak pakai), right to open up land (hak membuka tanah), and the right to collect forest products (hak memungut hasil hutan). All these rights must be considered when land use is assessed. Table 5. Land policy options, expected output and their associated problems 24

6 Changes in Economic Structure Changes in economic structure are very important in considering farm size. The greater the dependance of the national economy on agriculture, the higher the demand for agricultural land will be. On the other hand, the more urbanized the economy, the greater the demand for non-agricultural land. Therefore, discussions of policy regarding farm size cannot be separated from the structure of the overall economy. The contribution of agriculture to the Gross Domestic Product (GDP) of Indonesia declined from 51% in 1969 to 25.5% in More than 60% of agricultural sector on GDP came from food crops, with rice contributing around 48% in 1984 (Pakpahan et al. 1990b). This implies that more flexibility in land use policy is required, because BAL only considers the agrarian structure, not the over-all economic situation. CONCLUSION Discussions on how to enlarge the scale of farm operations should distinguish between enlarging farm size, and the efforts to increase land productivity on farms in spite of the small size. The former is appropriate for the outer islands, and the latter is appropriate for Java and Bali where average farm size is very small. Expanding the area of agricultural land in the outer islands, however, is constrained by the fact that most land in these areas is not capable of producing food crops. REFERENCE Anwar, A. and A. Pakpahan The problem of Sawah land conversion to non-agricultural uses in Indonesia. Indon. Jour. Trop. Agric. 1, 2: Barlowe, R Land Resource Economics. Prentice Hall, Inc., New Jersey. 653 pp. C.B.S Indonesian Statistics. Central Bureau of Statistics, Jakarta. Ministry of Agriculture Repelita V Pertanian. Jakarta, Indonesia. (In Bahasa Johnson, S.R A re-examination of the farm diversification problem. Journal of Farm Economics 49, 1: Kasryno, F. et al Farming and cropping patterns. In: Agricultural Census, Series J4, C.B.S, Jakarta, Indonesia. (In Bahasa Nasoetion, L.I National land problems and their policy alternatives. Analisis 20, 2: Pakpahan, A Farm production function analysis to support development of Cimanuk watershed. Journal Agro Ekonomi 1, 1: Pakpahan, A., S.M. Hermanto, R.N. Pasaribu, S. Suhaeti, R. Bahri, R. Kustiari, Tandjung. 1990a. Analysis of Research Resource Allocation. Center for Agro-Socioeconomic Research, Bogor. (Unpub., in Bahasa Pakpahan, A., F. Kasryno, A. Djauhari, C. Saleh. 1990b. Agricultural Diversification in Indonesia. Monograph Series no. 1. Center for Agro-Economic Research, Bogor, Indonesia. Pope, R.D. and R. Prescott Diversification in Relation to Farm Size and Other Socio-economic Characteristics. Jour. of Ag. Ec. 62: 3. Satari, G. et al Food Crop Intensification. In: Agricultural Census, Series J4, C.B.S., Jakarta, Indonesia (In Bahasa Simatupang, P Changes in production structure and impact of deregulation policy on food crop sub sector. In: Proceedings, Trends in Production Structure, Employment and Income of Rural Households, E. Pasandaran et al. (eds.). Center for Agro-Economics, Bogor, Indonesia. Simatupang, P. and K. Noekman Patterns of rice farming and elasticities of demand for inputs and supply of output at a farm level in West Sumatra. In: Proceedings, Seminar of Patanas: Changes in Village Economy, F. Kasryno et al. (eds.). Center for Agro-Economic Research, Bogor, Indonesia. (In Bahasa Teken, I.G.B Application of Agricultural Technology in Indonesia. In: Agricultural Census, Series J4, Central Bureau of Statistics, Jakarta, Indonesia (In Bahasa 25

7 Q. (R. Villareal) What is the law concerning land inheritance in Indonesia? A. Traditional law is still accepted, and this varies from place to place. For example among the Bataks, all land goes to the eldest son, and the amount of land received by the daughters and younger sons is contingent on the eldest son's decision regarding land distribution amongst family members. Among the Javanese, all sons and daughters inherit more or less equally, so that if a farmer has three children, the farm is divided into three at his death. In Padong or Minenghabau tradition, all land is divided among the daughters, and the amount of land received by the sons is contingent on the Ninik-Mamak's decision. The pattern of inheritance varies according to the ethnic group concerned and the religion it follows. Q. In Table 5, you suggest that land resource development can enlarge the agricultural area. I remember that the World Bank made some criticisms of the transmigration program in West Kalimantan, and wonder if transmigration will really succeed in enlarging the farm size and redistributing the population. A. In the transmigration program, the government is trying to redistribute the population from Java to the outer islands. The program is under the Ministry of Transmigration which develops new agricultural land in the outer islands and distributes it among poor farmers from Java. These are given 2 ha of land each and provided with living costs for several years. The program has been successful in some areas, such as Irian Jaya, where there are now large plantations and some transmigrants are quite rich. It takes a long time - up to twenty years - for successful migration and land development to be accomplished. There have been some failures, usually as a result of faulty planning or because the land on the outer islands was unsuitable for agriculture. In general, however, the transmigration program has been quite successful. only? DISCUSSION Q. (M. Kamiya) In the classification of land capability, what kind of characteristics are used? Does it refer to food crops A. No, it includes all kinds of crops. Food crops can be grown on land belonging to Classes I-IV, and less demanding plantation and orchard crops on the other classes of land. Classification is based on various factors such as the chemical and physical properties of the soil, the degree of slope, availability of water etc. 26

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