Prof. Dr. Bustanul Arifin Professor of Agricultural Economics and UNILA Board of Founders and Senior Economist with INDEF Chairman, Indonesian Society of Agricultural Economics

1. Roles of Commodities in Poverty Alleviation
and Strengthening Landscape Management
Prof. Dr. Bustanul Arifin
barifin@uwalumni.com
Professor of Agricultural Economics and UNILA
Board of Founders and Senior Economist with INDEF
Chairman, Indonesian Society of Agricultural Economics
Workshop “Perencanaan Tataguna Lahan dan Pengelolaan Sumberdaya Alam”,
Kementerian Koordinator bidang Perekonomian dan CIFOR, 26 April 2016 di Jakarta

2. Outline
1. Update of the Global and Indonesian Economy
2. Comparative advantage: Necessary, not sufficient
3. Competitive advantage of the nations: Innovation?
4. Sustainability, sustainable development: Evolution
5. Current issue: Sustainability certification
6. Closing: Macro and micro-based initiatives

3. The global economy has slowed down
The economy 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
The World 5,5 5,7 3,1 -0,0 5,4 4,2 3,4 3,4 3,4 3,1
Developed countries 3,1 2,8 0,2 -3,4 3,1 1,7 1,2 1,4 1,8 1,9
Developing countries 8,2 8,7 5,8 3,1 7,4 6,2 5,2 5,0 4,6 4,0
Chinese Economy 12,7 14,2 9,6 9,2 10,4 9,3 7,8 7,7 7,3 6,9
Commodity Prices
(non-energi)
23,1 13,9 7,9 -15,8 26,5 17,9 -10,0 -1,2 -4,0 -17.4
Indonesian economy 5,5 6,3 6,0 4,6 6,4 6,2 6,0 5,6 5,0 4,8
GDP per capita
(US$)
1.655 1.919 2.225 2.322 2.979 3.692 3.741 3.667 3.531 3.377
Sumber: Bank Dunia dan BPS, berbagai tahun
In percent

4. Economic Growth based on major sectors
Source: BPS, February 5 of 2016

5. Kinerja Pertumbuhan Sektoral Tahun 2015
Sumber: BPS, 5 Februari 2016

6. Growth Distribution and Regional Economy
Source: BPS, February 5 of 2016

7. Poverty Alleviation: More difficult in recent years
Poverty as of September 2015 was 28.51 million (11.1%). Not surprising
•) Rata-rata Maret dan September
Sumber : BPS, 2015

8. Poverty and Unemployment Rate: Increasing
Indicator
2014 2015
Million (%) Million (%)
Poverty Level 27.73 10.9 28.51 11.1
Rural Poverty 17.73 62.6 17.89 62.7
Unemployment 7.24 5.9 7.56 6.2
Total Work Force 114.6 94.1 114.8 93.8
Worker in Agriculture 38.97 34.0 37.75 32.9
Worker in Industry 15.26 13.31 15.25 13.28
Workers in Services 60.40 52.7 61.80 53.8
Source: BPS. Poverty Data as of September, Workforce Data as of August

9. Inequality: Worsening since Regional Autonomy
Source : BPS, 2015

10. Comparative Advantage: Necessary, but not Sufficient
• Indonesian has adopted the strategy in the last half century. As a result,
– Coffee, number 3: production 710 thousand tons, export 500 thousand tons
– Cocoa, number 3: production 800 thousand tons, export 450 thousand tons
– Rubber, number 2: production 3.2 million tons, almost all for export markets
– Palm Oil, number 1: production 30 million tons, export 26 million tons
• The strategy is necessary, but not sufficient to contribute to farmer’s welfare
• Low yield, poor access to good agricultural practices (GAP) and technology.
• Supply chains and marketing systems of the crops are generally not efficient
• Small portion of economic benefit of trade is received by smallholder farmers
• Indonesia then adopted the development strategy that focus on improving the
competitiveness of the Indonesian economy, competitive advantage

11. Competitive Advantage of the Nations
Also known as: Porter’s Diamond

12. Rank Country Score Rank 2014
1 Switzerland 68.30 1
2 United Kingdom 62.42 2
3 Sweden 62.40 3
4 Netherlands 61.58 5
5 United States 60.10 6
6 Finland 59.97 4
7 Singapore 59.36 7
8 Ireland 59.13 11
9 Luxemburg 59.02 9
10 Denmark 57.70 8
14 South Korea 56.26 16
19 Japan 53.97 21
29 China 47.47 29
32 Malaysia 45.98 33
55 Thailand 38.10 48
81 India 31.74 76
83 Philippines 31.05 100
97 Indonesia 29.79 87
140 Togo 18.43 142
141 Sudan 14.95 143
Source: INSEAD--The Business School for the World, 2015-2016
Global Innovation Index, 2015 Global Competitiveness Index, 2015
Source: WEF, Global Competitiveness Report, 2015-2016
Rank Country Score Rank 2014
1 Switzerland 5.76 1
2 Singapore 6.68 2
3 United States 5.61 3
4 Germany 5.53 5
5 Netherlands 5.50 8
6 Japan 5.47 6
7 Hongkong SAR 5.46 7
8 Finland 5.45 4
9 Sweden 5.43 10
10 United Kindom 5.43 9
18 Malaysia 5.23 20
26 South Korea 4.99 26
28 China 4.89 28
32 Thailand 4.64 31
37 Indonesia 4.52 34
47 Philippines 4.39 52
55 India 4.31 71
90 Cambodia 3.94 95
124 Nigeria 3.46 127
140 Guinea 2.84 144

13. Rapid Forest Loss in South East Asia
http://maps.grida.no/region/geoasiap
Asia is experiencing significant transformation of terrestrial
and aquatic ecosystems. Most extensively, forest disruption,
forest fires and haze, and land conversion tropical regions in
Southeast Asia, especially in the late 20th century.

14. Access to Land Utilization: Farmers vs Firms
FORESTRYPLANTATION
26.000.000 ha
10.300.000 ha
Community-
Based Forest
Management
11.499 hh
240.000 ha
Farmers (having
no access to land)
Farmers
Plantation
Companies:
13.572.000 hh
23.728.000 hh
0 ha
21.500.000 ha
16.000.000 ha
hold
hold
hold
hold
hold
hold
Forest Concession
Right: 304
Industrial Timber
Plantation: 227
2.178
Source: Jamal (2014), from Sirait et al (2014)

15. Sustainable Development Strategy: Evolution
• Bruntland Comission: Sustainable development is development
that meets the needs of the present without compromising the
ability of future generations to meet their own needs”
• Earth Summit, Rio de Janeiro, 1992: Sustainable development
is maintaining a delicate balance between the human need to
improve lifestyles and feeling of well-being and preserving natural
resources and ecosystem.
• Rio+10, Johannesburg, 2002: Sustainable development is the
balance of three dimensions: economics, social and environment
• Rio+20, Rio de Janeiro, 2012: Sustainable development is
associated with green economy, which is the harmony between
economics, social, environment and governance

16. Agroforestry Landscape: Towards Sustainability
Forest
Agriculture
Forest
Intensive
agriculture
Tree
plan-
tations
Agroforestry/
eco-agriculture
Tree
cropsAgriculture
Forest
Source: Van Noordwijk, 2008

17. Sustainability: Beyond Competitiveness

18. Sustainability Certification: Growing Trends
• Different terms: Global environmental goverance, global
certifying partnership, corporate governance iniatives,
sustainability regulation, certification of commodity origin,
non-state regulation, etc.
• Growing interests in research on dynamics of global eco-
certification to ground-based farm economy in producing
countries, including the social-economic impacts
• Some speculations: Global eco-certification in agricultural
commodities (coffee, cocoa, tea, oil palm, pepper etc) have
restructured the supply chain in producing countries, but
resistance from state-affiliated agencies further complicate
adaptation of global eco-certification.

19. The Benchmark of Smallholder Coffee
• Indonesia is the 4th largest coffee producer, after Brazil, Vietnam,
and Columbia, but the 2nd largest Robusta producer after Vietnam
• Coffee production in 2015 was 700,000 tons, a large decrease
from about 798,000 tons of production in 2013.
– 85% of coffee is Robusta (mostly from Lampung and South Sumatra)
– 15% of coffee is Arabica (from some highlands, but virtually all exported)
• The majority (95%) is small-holder, where productivity is 600 kg/ha
far below that in Vietnam and Brazil of about 2.5 - 3 ton/ha.

20. Coffee: Improving Rural-Based Intervention
• Start at the very basic level of better farming practices
• Provide technical assistance, extension services and
empowerment actions at the field level.
• Apply selected red cherry and strip picking for ripen fruits.
• Provide access for road pavement and concrete floors to
ensure a better drying process for coffee bean.
• Encourage coffee producers to organize as a group, to
ensure the monitoring system and traceability principles
• Environmental services vs. global buyer-driven initiatives
• Economic valuation is a necessary step to synchronize

21. • Indonesia is the 3rd largest cocoa producer
(0.43) after Cote d’Ivoire (1.3) and Ghana
(0.74), and remains important cocoa actor.
• Cocoa production 2014 was 800 thousand
tons, just reviving the trend. Production is
targeted over 1 million ton of cocoa in 2015.
• Cocoa production center is 60 % in
Sulawesi and Sumatra, mostly for EU & US
• The majority (95%) is smallholders, average
land-holding size 1,5 ha on local varieties.
• Cocoa productivity remains low, 500 kg/ha,
far below its potentials to achieve 1.5 ton/ha
Revitalizing the Cocoa Economy

22. Cocoa: Promote SE Seedling to Other Regions
• Formulate concrete actions to effectively strengthen the extension services
and farmers’ empowerment and capacity building programs.
• Expand somatic embryogenesis (SE) technology to other regions across
the country and to newly regions interested in cocoa development.
• Review the value-added tax and export tax of processed cocoa products ,
especially the efficiency level does not change
• Encourage investment in cocoa processing plants, in production centers
• Prepare the adoption of third party certification systems
• Anticipate the evolution of certification systems for new non-trade barrier
• Facilitate a bridging process to link the bottom-up initiatives of institutional
changes at farm-level with current global environmental governance.
• Involve intermediaries such as academic institutions, government
agencies, and NGOs to achieve sustainable-based certification system.

23. • The declining price since 2014 to only US$ 1.4
per kg has brought difficult time for rubber
production, where 85% involving smallholders;
• Most rubber trees all over the country are not
tapped. Labor cost is higher than farm-gate price;
• Meanwhile, the yield of smallholder remains low,
good agricultural practices are not adopted
properly, majority of rubber trees is over 30 years
• Consequently, the quality of slab and sheet is low
• Replanting program has not been successful, the
support from financial institution is quite weak;
• At downstream, industrial deepening is hindered
by low yield and low quality products, and
incentive systems are not working very well.
The Difficult Time of Rubber

24. Rubber: Empowerment and Policy Reform
• Support the smallholders to improve farm management, based on
innovation and new technology to improve productivity, adaptive to
local wisdom, such as “jungle rubber” and agroforestry system;
• Implement replanting scheme, by simplifying financial procedures
and credit system, including empowerment programs for small-
farmers, supporting cost of living before the trees ready for tapping
• Improve harvesting practices and post-harvest handling to improve
efficiency, grading and sorting to improve the rubber quality;
• Improve business practices, partnership between rubber industry
and smallholder farmers living in rural areas;
• Implement the capacity building program of micro business, such
as information and communication technology, market intelligent,
and macro policy of exchange rates, interest rates, and diplomacy.

25. The Largest Producer of Palm Oil: What Next?
• Indonesia is the largest CPO producer, reaching
about 30 million ton in 2015 and growing at 5,1%.
• Composition Land Area Production
– Smallholder 41% 36%
– Large Scale 48% 52%
– State Owned 11% 12%
• However, productivity gap between smallholders
and large scale is widening (2.9 vs. 4.2 ton/ha).
• Palm oil industry supports regional development
and poverty alleviation, especially in rural areas;
• Rapid expansion of large-scale plantation often
triggers land-conflicts and declining natural forests
• Indonesia Estate Crop Fund was just established.

26. Palm Oil: Action Strategies for the Future
• Strengthen and finalize the participatory spatial planning at local,
provincial and central government (as stated in Law 25/2007) in order
to reduce land conflict in rural areas;
• Remove unnecessary levies and synchronizing central and local
government regulations to improve the competitiveness;
• Improve infrastructures and support the connectivity (hardware and
software) and the business climate, especially for SMEs;
• Support the moratorium policy for natural forest and peat lands;
• Prioritize the replanting (from the revenue from the Indonesia Estate
Crop Fund-IECF) to improve the productivity of smallholder farmers;
• Increase R&D funding at least 1% of GDP and strengthen the
innovation policy, and improve the ABGC partnership;
• Reform the pricing policy for biofuels industry and reallocate the fossil
fuel subsidy for the needy and alternative energy.

27. Three Plausible Scenarios (Glasbergen, 2015)
• Leaving it to the market: Institutionalization of private
governance arrangements, more inclusiveness, increasing
relationships between schemes. Weakness: Producers not sure of
a premium fee, inefficient duplication of efforts
• Bringing the state back in: Transparency and accountability
requirements, creating complementarities between private and
state regulations, information dissemination and training.
Weakness: Doubts about the capacity of developing countries for
system changes, many governments are not interested in.
• Institutionalizing meta-governance: Collaborative public-private
efforts to enhance coherence in the world of sustainability
standards. Weakness: Focus only on technical aspects, doubts
about power and mandate of meta-governance attempts

28. Closing: Macro and Micro-based Initiatives
• Business initiatives on PISAgro (Partnership for Indonesia
Sustainable Agriculture): PPP (Government, KADIN & WEF) to
implement the New Vision for Agriculture (NVA): food security,
economic opportunity and environmental sustainability
• Initiatives on PISAgro to implement the NVA are subject to
scale-up and scale-out strategies to be replicated across
different agro-ecosystems, so that the government supports to
provide incentive systems are really needed.
• Sustainability shall become new norms and business practices
in the future by broadening into ABGC (academic, business,
government and civil society) collaborations and networks.
• Future research on the subject is really needed, so that best
practices of sustainability advantage could be formulated in
different lines of business and macro-economic environment.