Agricultural development and the consequences for the Indonesian economy : 1830 to the 1990s and beyond

Economic theory states that the agricultural sector provides the impetus for economic growth in Less Developed Countries (LDCs), and it is with that in mind that an examination of Indonesian agriculture is made here. While industrialisation is relatively new to Indonesia, agricultural development is not. There have been periods of significant agricultural development during Indonesia's colonial and post-independence eras, most importantly during the Cultivation System (1830-70) and the green revolution (1970 on). These periods, as well as the one hundred years in between, are examined in terms of how changes in the agricultural sector affected the lives of the peasantry, their access to land and labour opportunities, income distribution and poverty levels. The underlying theme is how agricultural development has affected development of the wider economy, in Indonesia in general, and Java in particular. It is clear that the agricultural sector has played a decisive role in determining the welfare of the peasantry in Indonesia and has had important implications for the rest of the economy. During the Cultivation System, when peasants were compelled to devote considerable amounts of land and labour to the production of cash crops for export, the rapid increase in output and the diversification of production allowed for the creation of new spheres of economic activity within the rural sector. But although agricultural development occurred and the economy evolved, showing signs of a move toward capitalist relations, there was no indication of emerging industrialisation. The green revolution brought unprecedented growth in rice output on Java. In the 1970s, new methods in rice farming meant that employment growth in agriculture was falling. This coincided with a rise in non-agricultural employment levels. The dynamics of farm and non-farm employment growth and the link between the two is examined. It is seen that farm sector growth was not responsible for non-farm employment growth. Employment opportunities and returns to labour are crucial in assessing the effect of the green revolution on the rural economy. Again, while agricultural development undoubtably occurred during this time, the link between that and industrial growth seems tenuous. Nevertheless industrialisation is certainly progressing in Indonesia. The consequent rising per capita incomes that have already been observed will have an impact on the agricultural sector via changing food demand patterns as the level and composition of food consumption changes. It is hypothesised that rising food output will not be able to meet the rapidly rising food demand, thus creating a need for imports. While in Indonesia rising incomes have already started to affect food consumption patterns, it is unlikely that the stimulus was prior farm income growth due to the green revolution. Thus, by examining agricultural development during key historical periods as well as present day and likely future eventualities, an understanding is reached of the role of the agricultural sector in economic development in Indonesia