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The current global financial crisis triggered by the collapse of the mortgage-based securities sector in US has had a serious impact on the real economy, including the agricultural sector. The most serious impacts have been observed in the estate crop production which heavily depends on the international market. For example, prices of crude palm oil (CPO) plunged by more than 60 per cent from about US$1,200 per ton in March 2008, to about US$400 per ton in December 2008. The crash of the CPO prices mostly affected the small-scale oil palm producers, who produce 31 per cent of the total CPO production in Indonesia (Rifin, 2008). Some small farmers were forced to sell their farmland and 30 per cent of the plantation workers were laid off in South Sumatra, one of the production centres of CPO in Indonesia (Kompas, 2008).
During the last Asian economic crisis in 1997-1998, agriculture served as the last resort for those affected by the crisis. After the last crisis the share of agriculture in the national economy of Indonesia increased due to the devaluation of local currency, deregulation, and the transfer of labour from industry to agriculture (Hondai, 2004). Can we expect agriculture to play a similar role in the current crisis and to contribute to an easing of the agony of people in other sectors?
It is difficult to give a positive answer to this question. Since the 1997 Asian economic crisis, the local economy has become more integrated with global economy. The current crisis has shown that a theory of decoupling (a negative growth in some regions can be compensated by the positive growth in the other regions) is just a myth. The sharp decline of commodity prices indicates that the agricultural sector cannot serve as a quick remedy for the economic turmoil. The demand for commodities will stay weak until the world recovers from the depression.
Let us see the positive side of the crisis. First of all, the food crisis, triggered by various factors such as a rising use of biofuel, export bans, changing diets, climate change and skyrocketing oil prices, has eased, at least temporarily. The lower price of oil, due to the decrease in demand, will have a positive impact on agriculture by reducing production cost. Speculation, which was assumed to be one of the major reasons for the soaring commodity price, lost steam. Now farmers cannot dream of the speculators who buy their crops at incredibly high prices. The price will again reflect the actual balance of demand and supply. This is definitely a healthy situation if people want to avoid the exploitation of natural resource.
In addition, farmers can still keep hope to develop their farms in spite of the decreasing importance of agriculture in their household economy. An attitude survey among farmers in a rainfed rice-vegetable-based farming village in West Java, Indonesia, where non-farm income forms 69 per cent of the household income, suggests that the farmers still hope to develop their current agricultural production and to earn more income from agriculture, although some of their neighbours, who rely on non-farm income, enjoy better economic conditions. These farmers also showed interest in technological improvements like the application of new crop varieties as the measurements for farm development (Sugino et al., 2008).
Even in a normal situation, it is difficult to identify policy options that can effectively solve the current problems in agricultural production. Although we observed a decline in crop prices, population pressure, scarcity of natural resource (especially land and water) and unstable climate conditions will not ease the growing demand for agriculture commodities on a long-term basis. The recession has given policy planners precious time to stop and think about the best way to develop agriculture in each country.
Considering the limited land resources and lack of irrigation water, which are the most commonly observed restraints in the marginal area of Asia and the Pacific, sustainable production compatible with productivity increases, will remain the traditional, but still major focus of agricultural policy implementation. As the above survey showed, farmers are eager to apply new technologies.
To mitigate the damage done by the current crisis, many governments are proposing economic stimulus measures. It is anticipated that these policy packages will cover the agricultural sector as well as the financial and industrial sectors. The theory of economics says that there are no depressions that last forever. It will be a difficult decision for policy planners to allocate more resource to agriculture in these difficult times, but the decisions made during bad times will determine the winners during the recovery of the world economy. ¡
Written by Tomohide Sugino, Representative of South-East Asia Office, Japan International Research Center for Agricultural Sciences.
(Reference available upon request) |
