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Jakarta Post

Inclusive financing key to agriculture productivity: Kalla

  • Ayomi Amindoni
    Ayomi Amindoni

    The Jakarta Post

Jakarta   /   Mon, May 23, 2016   /  10:26 pm
Inclusive financing key to agriculture productivity: Kalla Vice President Jusuf Kalla claims that stronger incentives can help boost productivity in the agricultural sector. (Antara/-)

Vice President Jusuf Kalla stressed the importance of financial inclusion, conducted through value chain innovation, to improve productivity and welfare in the agriculture sector.

Currently 35 - 40 percent of the population are farmers, explained Kalla on Monday, adding that the agriculture industry’s contribution to the gross domestic product (GDP) remained low, below 15 percent.

Lack of access to finance, low seed quality and fertilizer and land issues are some of the major problems faced by farmers, Kalla said, calling for incentives to boost productivity in the agriculture sector.

"The concept is to improve productivity on all fronts, but the main point here is technology. Farmers need good seeds and fertilizer. They also need to understand how to expand their businesses. Financing is required," Kalla said.

The government, alongside the Chamber of Commerce and Industry (Kadin) Indonesia, designed a value chain innovation scheme, called PISAgro (Partnership for Indonesia's Sustainable Agriculture), to improve productivity and income for one million farmers in the next four years. The scheme managed to reach 83,000 farmers with 67,000 hectares area as of 2015.

A pilot project, started in 2011, has been successfully for maize, palm oil, coffee, cocoa, rice, soybeans, potatoes, and rubber, seeing a 25 percent increase in farmer productivity and income.

Kadin and the Indonesian Economists Association (ISEI) have worked together to formulate an action plan, developing synergy between institutions and stakeholders to assist farmers to benefit from the value chain innovation scheme.

Meanwhile, ISEI chairman Muliaman Hadad said that the agriculture sector's contribution to Indonesia's GDP had reached 13.6 percent, the second highest after the manufacturing sector which contributed 20.8 percent to GDP.

More than half of the manufacturing sector's GDP was based on agriculture, Muliaman said, adding that the agricultural sector was also the largest absorber of labor, accounting for 35 percent of the total workforce.

"In a holistic view, from upstream to downstream, the agriculture sector’s contribution to GDP is 55 percent. If we develop technology and a modern logistics system, not only will Indonesia's GDP increase, but also the farmers' welfare," Muliaman said.

Of the total 26.1 million farmers in Indonesia, 56 percent of them or 14.6 million, maintained less than 0.5 hectares of land, he said, highlighting the statistics as a problem. "This is far down the economic scale," he went on.

Muliaman said most of the farmers did not have land certificates, making it difficult for farmers to obtain formal financing. As a result, they chose to source money from money lenders.

"If these obstacles are not addressed seriously, the productivity and competitiveness of our agricultural commodities will stagnate. It will be difficult to improve the farmers' welfare," Muliaman said.

Coordinating Economics Minister Darmin Nasution said that, for the government, PISAgro was a worthy program, referring to it as an attempt to revive agricultural sector value chains with better methods.

"It requires various parties to play a role, although we very much appreciate what the business community has done in developing this pattern," he said. (ebf)

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