A New Way of Rising Agriculture:

The Case of Rice

Agus Pakpahan

It has been acknowledge that agriculture is a strategic instrument for sources of

income, employment opportunities and poverty alleviation. It also accepted that the
growth of agriculture is one of the most important determinants for that purpose. One of
the most important agricultural commodities for Indonesia is rice.
At least within the last five years our rice production growth has been stagnant. In
fact, Central Agency of Statistics (BPS) indicated in the first estimation round that the
growth of rice production will decline by 2.3 % in 2007. A 2.3 % out of 55 million ton of
paddy means that it is equivalent with 1.26 million ton of paddy or 0.67 million ton of
rice if we assume conversion rate of paddy to rice is 0.53. It is a significant amount of
loss that should be substituted by imported rice to maintain fair rice price for majority of
Indonesian.
Studies show that productivity and production are determined by the availability
of inputs in the hand of rice farmers. In addition, farmers must also practice the best
farming practices if we want to gain highest productivity. In order farmers to be able to
apply the best farming practices farmers should be supported by all kind of inputs which
is required by them.
Current situation shows that the condition of irrigation, rural roads and other
agricultural inputs such as seeds and fertilizer are not suitable for farmers to be able to
practice the best way of producing rice. One condition that makes the problem severer is
that farmers also lack of cash or fund to finance the above inputs. It is because most of
rice farmers are poor farmers with the land size they operate is less than 0.5 hectare.
We use a market mechanism to solve farmers’ lack of cash problem. What I mean
is that we let buying and selling of agricultural inputs mechanism as the way to allocate
resources such as seed or fertilizer. However, farmers have limited capacity to buy such
inputs because farmers have lack of capital.

Farmers’ lack of capital means lack of capacity of farmers to invest in their

farming practices. It explains why now only 30 % of farmers use good quality (certified)
of seeds. In addition, even though fertilizer is subsidized for rice farmers, it has no
significant impact on rice productivity growth. We have to renew our approach.
If farmers allocated what they have as productive capital, i.e. farmers invest his
land, labor and care to produce rice, then why government does not do the same thing?
State Owned Enterprise (SOE) produces fertilizer, seeds and irrigated water. These
productive factors can be invested in farmers’ land and operated by farmers under SOE
guidance. With good planning and design, a right combination of seeds and fertilizer,
timely input supplies arrive in the field, and other condition can be fulfilled. Some
experiments showed that rice productivity can be increased up to more than 8 ton/hectare.
It is about 2 to 3 ton/ha higher than a national average of rice productivity. The additional
2 to 3 ton/ha of rice production is equivalent to Rp 4- Rp 6 million that can be shared by
all parties involved.
 The following show a calculation that makes the above way of investment in rice
production is justifiable. If we assume price of urea is Rp 1200/kg and price of paddy is
Rp 2000/kg, which are prices that determined by government, then one kg of urea is
equivalent with 0.6 kg of paddy. If 5 million ton of urea is allocated as invested capital
through the above way, then SOE such as P.T. Pusri (holding) will gain 3 million ton of
paddy. By using a conversion factor of 0.53 to convert paddy to rice, SOE will gain 1.59
million ton of rice. The value of this amount of rice is Rp 6.36 trillion if we assume rice
price is Rp 4000/kg. This value is Rp 360 billion (60%) higher than that of direct selling
for fertilizer to farmers by Rp 1200/kg which will only give the SOE by Rp 6 trillion.
What is interesting from this way of thinking is that all constraint associated with
lack of capacity of farmers are solved and SOEs still gain profit. In fact, we gain surplus
Rp 360 billion that can be distributed, for example, 10 % of it namely Rp 36 billion for
operating cost, and the rest of it, namely Rp 324 billion as seed of capital for further rice
development. If this seed of capital is leveraged by 5 times, then we will create Rp 1.62
trillion for expanding investment opportunities in rice agriculture.
The above calculation has not included seeds and other inputs. The purpose of this
short article is to share with the readers that there is another way of thinking that can
improve our rice performance. The remaining problems are how this way of thinking is
accepted and practiced by all of us, particularly all participants who have direct
responsibility to the next generations in increasing food security and farmers’ welfare as
well. Of course, SOEs should take initiatives in promoting this new way of thinking.