The 5.3 percent economic contraction in the second quarter reaffirms the vital role of the agricultural sector, even though its contribution to gross domestic product has steadily declined to 15.5 percent. Under stable macroeconomic conditions, agriculture is always the laggard in terms of growth, but amid an economic crisis like we are in now, it is always the savior, helping to prevent the economy from falling into a deeper contraction.
All the biggest drivers of growth, such as manufacturing and services (trade, financial, construction and transportation) suffered negative growth due to the devastating impact of the pandemic, but agriculture, including fisheries and forestry, still enjoyed 2.2 percent growth. Yet more strategically, agriculture supplies basic food staples and is highly labor intensive.
True, the state budget always allocates subsidies for fertilizer and farm credit. But fiscal stimulus is only a small part of the broad program needed to empower farmers. Farmers need better agricultural extension services to help them adopt new technology, notably high-yield seeds and the best farming practices such as in harvest, planting, fertilizer and pesticide management.
The problem, however, is that for most farm extension workers, their work is uncertain or their pay is miserable. Worse still, the government has hindered the use of biotechnology for the creation of hybrid seeds by limiting foreign investment in seed-development and breeding enterprises to 30 percent.
Farmers also need better, easier access to the market, especially for highly perishable commodities like tomatoes. We were saddened by recent TV footage showing a number of farmers in South Sumatra dumping and destroying their ripe tomatoes on a highway to express their frustration and anger as the market offered only Rp 200 (US 0.013 cent) per kg for their produce.
The contrast between occasional food surplus on farms and food shortages in retail stores in urban centers or the wide disparity between the prices of produce at farm gate markets during the COVID-19 lockdowns highlight the high transaction costs and information asymmetries that have long plagued the country’s food system.
In many countries, such as India, digital platforms can resolve the information asymmetry and help de-concentrate and increase the number of markets up and down the food system, leading to better outcomes at either end of the supply chain.
In the wake of the pandemic, governments and private operators have fast-tracked the move to digital platforms to connect producers and consumers stymied by physical lockdowns. The government has made the right decision to allocate larger budget appropriations for villages for financing rural-infrastructure development.
Unfortunately, the massive fund injection through the village fund program has unnecessarily led to the establishment of a new organization, the village enterprise unit, at the expense of cooperatives, which throughout the nation’s history have been designed as the grassroots economic organizations to nurture economic democracy.
So, all in all, in addition to fiscal assistance, the government needs to empower farmers through broader agricultural extension services and help to set up digital platforms to keep them posted on market trends and consumer preferences. The government should also liberalize investment in seed-development and breeding enterprises to improve farm productivity.