The Jakarta Post
The 2015 Organisation for Economic Co-operation and Development (OECD), through a forum of developed economies, devotes a great portion of its 2015 Survey on Indonesia Economy, to the issues of inequality and suggests a number of policy recommendations to enhance inclusive and sustainable growth in various sectors, notably in financial and agricultural sectors.
In agriculture, the OECD urges the government to accelerate the development of partnerships between big plantation owners and smallholders so that farmers can have better access to technical, marketing and financial assistance. The OECD report, which was released here last week, highly commends the nucleus estate and smallholder (NES) scheme Indonesia has been implementing for more than 30 years, whereby big estates serve as the development agent providing technical and marketing assistance to improve the productivity of neighboring farmers or smallholders.
The NES program has contributed greatly to reducing poverty and economic inequality in rural areas because the partnerships bridge the yield gap between smallholders and big estates in such crops, such as palm oil and rubber.
The great concern is that allowing the expansion of plantations, especially oil palm, by big companies at its current rate of more than 150,000 hectares a year, could worsen income and wealth inequality, causing more land conflicts and threatening the long-term sustainability of the plantation industry and macroeconomic stability.
The new plantation law that was enacted last October also addresses the inequality concern by specifically regulating management cooperation between big plantation owners and local farmers, obliging companies to allocate 20 percent of total acreage of their plantation areas to smallholders through bank financing, processing and marketing arrangements.
The rationale is that harmonious and mutually beneficial cooperation between big plantations and smallholders is the most effective way of expanding tree-crop plantations, such as oil palm, rubber and cacao, without widening inequality in land holding.
But NES has been implemented mostly in oil palm estates even since the mid-1970s when the World Bank poured big loans to this sector. The government needs to give more attention to rubber smallholders because not many big companies operate in this industry. At present, NES arrangements in the rubber industry have been implemented mostly on a market-based need by rubber processing companies with the main objective of securing continuous supplies of basic material.
In terms of equitable development, the rubber industry can indeed be considered to be the paragon because even though Indonesia is now the world's second-largest rubber producer after Thailand with an annual output of more than 3 million tons, rubber plantations remain controlled by smallholders, while rubber processing into crumb rubber is controlled by big companies.
Thus far, big rubber processing companies have been living harmoniously with rubber smallholders under a mutually beneficial partnership program as processors and smallholders strongly depend on each other for survival. But a more vigorous government oversight and guidance is still needed to protect the interests of smallholders, given their weak bargaining position.
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