R

ecently there was a huge public outcry for the government to issue a regulation regarding agrarian reform (RPP Reformasi Agraria), which the government promised to issue this January.

Many people are sometimes mistaken in defining agrarian reform. For them, agrarian reform is simply defined as the distribution of land ownership to achieve the objective of increased equality.

However the agrarian reform must not be understood merely as a concept of equality. This understanding might keep us away from the problem of poverty in the agricultural sector, which accounted for 63 percent of total poor households in Indonesia.

It takes more than just having land for wealth creation in the farming sector.

Thus, agrarian reform must be understood more as a strategy to create opportunity in bringing farmers out of subsistence conditions to becoming net producer.

Putting agrarian reform in this context of creating opportunity opens a chance for the eradication of poverty in the agricultural sector.

This brings up the next question. How will agrarian reform eradicate poverty in the agricultural sector once it is applied?

To answer the question, I would argue that following the implementation of agrarian reform, there must be a policy designed to create a farming management model that fosters industrialization in the agricultural sector.

Without further strategies from the government to industrialize the farming sector, agrarian reform programs might only create a model centered on the farm household, which poses several weaknesses.

With this farm household model, the problem facing the farmer at the beginning would be the risk of production.

As long as land use is based on household, the risk of production is borne entirely by the farmer’s household. If harvest fails, it might drive the farmers deeper into poverty.

Furthermore, the basic income of the majority of farming households comes from what they can produce. This means that farmers face high income volatility. This is due to the farmers’ high dependency on seasonal change.

To put it differently, they have no regular income to sustain their daily needs. Therefore, they are driven further into debt as they turn to loan sharks to finance their daily needs.

In addition to a high volatility of income, due to the limited land owned by the farmers, they might never achieve the economies of scale that enable them to increase their profitability of production.

The advantage of the economies of scale is that they can lower costs, while at the same time increase profitability of a business.

As long as our farming sector cannot be built around an industrial model, the farming sector might never be profitable to those who are involved in it, especially the farmers.

Concerning the weaknesses above, the government must encourage a new industrial management model for the farming sector. Thus there must be a form of organization, whether in the form of cooperatives or corporations, that replace the household model.

This model could open up opportunities for the emergence of capital formation in rural areas, which will be the basis for a robust process of industrialization in the farming sector.

To build this model, instead of giving “cash assistance” directly to the farmers, the government must encourage the presence of agricultural investors and entrepreneurs through fiscal incentives. This might build an opinion that this model could reduce farmers roles to that of mere labors.

However, this should not be the case. The farmers of course can be the “owners” by acquiring shares within the capital resource pool by placing their own land in the cooperative/corporation. That is the reason agrarian reform is an important step, to possibly create businesses such as these.

Once the farming sector is being managed like an industry, risk could be diversified. The individual farmer will not solely bear the risk of production, but rather the risk would be borne by all of the involved investors.

This model also reduces farmers’ income volatility since the farmers will receive a regular income as an employee of business, and would benefit from profits of their shares.

More importantly, this model can enlarge the economies of scale through increasing productivity and lowering the cost of production.

To put this model into practice, the biggest challenge the government will have to overcome is to build sufficient infrastructure, such as roads, dams and irrigation.

Limited infrastructure is one of the reasons why entrepreneurs are not interested in participating in the farming sector.

Moreover, the government can use fiscal policies such as subsidies and tax reductions to encourage the acquisition of more capital into the farming sector.

Since a large portion of the poor are living in this sector, government support will be an important step in improving the living standards of farming families.

In conclusion, by implementing this model, agrarian reform not only fulfills the objective of improving social equality in land ownership, but also opens opportunities to accelerate efforts to eradicate poverty in the farming sector.