Create Value-Added Economy in Villages

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JAKARTA, KOMPAS – Villages must be encouraged to create a high value-added economy to counter inflation and tackle poverty. This can be achieved by creating more jobs, strengthening market access for villages’ priority products and connecting large industries with small, village-based ones.

This is necessary as villagers have always been net consumers of both food and consumer goods. Many village products are not high-valued. Furthermore, all village-based food products – which serve as ingredients for people’s food – are under the control of large industries.

“Under such conditions, villagers cannot increase their income. On the contrary, the price hike of food and consumer goods is eating up their income,” Institute for Ecosoc Rights researcher Sri Palupi told Kompas on Thursday (2/8/2018).

Sri said this had befallen not only rice and other staple food farmers but also export commodity farmers, including rubber and oil palm farmers. The price of oil palm at the farm level, for instance, depends on the global crude oil price. Similarly, the price of crude rubber at the farm level depends on the global crude rubber price.

Central Statistics Agency (BPS) data show that the village inflation rate is higher than the national inflation rate, especially because of food prices. Of Indonesia’s 25.95 million poor people, 15.81 million live in villages. The village inflation rate in July this year was 0.82 percent.

Meanwhile, farmers can only enjoy a limited increase of income. Farmers’ exchange value (NTP) in this year’s first half was 102.14, a 1.82-percent increase from 100.31 in the same period last year. The NTP of smallholder plantation products in July this year was 97.01, lower than the ideal NTP of 100.

An NTP below 100 results in a deficit for farmers. Their income decreases and is less than their expenses.

Seasonal

The deputy for macroeconomics and finance at the Office of the Coordinating Economic Minister, Iskandar Simorangkir, told Kompas on Thursday that the village inflation rate being higher than the national one was only seasonal. In 2018, the village inflation rate was higher than the national inflation rate in January (1.22 percent), February (0.43 percent) and July (0.82 percent).

“Looking at BPS data in the past year, the village inflation rate has been below the national inflation rate most of the time,” Iskandar said.

Despite its seasonal nature, Iskandar said the government would take measures to curb the village inflation rate, as a high inflation rate of food prices might lead to an increase of the number of poor people. Inflation control policies are aimed at decreasing highly fluctuating components of inflation, especially prices of consumer goods popular in villages, such as rice.

BPS data show that the rice price highly influences the poverty line, specifically 20.95 percent in urban centers and 26.70 percent in rural areas.

Separately, Finance Ministry financial balance director general Astera Primanto Bhakti said the allocation of village funds for empowerment and community programs was not among the government’s priorities. The government will evaluate such programs and its monitoring of them.

The 2018 state budget includes Rp 60 trillion (US$4.14 billion) of village funds to be distributed to 74,958 villages in 434 regencies and cities.

Village development and empowerment director general Taufik Madjid of the Villages, Disadvantaged Regions and Transmigration Ministry said that, based on the BPS data, villagers are prone to fall into poverty. As this vulnerability is determined by fluctuations in food prices, village funds must be used to develop villages’ food security. (HEN/KRN/NAD)

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Poverty