Business development model of integrated agribusiness in dryland areas of yogyakarta

There are two major schools of thought dominating literatures relating to the population growth and agriculture. Population growth requires an increase in agricultural production that could lead to either agricultural expansion or agricultural innovation. The increase in agricultural production by way of agricultural expansion may lead to deforestation and environmental degradation, whereas increase in agricultural production by way of agricultural intensification is closely related to the development of new technology. These theories are developed into agricultural development theories that could be in the form of agricultural expansion, conservation of resources, diffusion of existing knowledge, developing high-payoff inputs, and induced innovation. Despite the need for productive agriculture lands, there are nearly abandoned marginal drylands that do not attract investors nor government due to economic reasons. Such drylands exist in Yogyakarta Province, Indonesia where 53% of the area is covered by dryland agriculture. In 2010 agriculture was the second contributor to regional gross domestic product and the only sector with negative growth of -0.27%. Among five regencies in Yogyakarta Province, agriculture was the highest contributor to the regional gross domestic product in Gunung Kidul, Kulon Progo, and Bantul Regencies. While Bantul Regency experienced positive growth in agriculture, negative growth in agriculture occured in Kulon Progo and Gunung Kidul Regenies (BAPPEDA DIY 2012a). Based on these statistical data, a pilot program was conducted in a small area of five hectares in the dryland area of Gunung Kidul Regency. The pilot program consists of harwood plantation, mainly teak wood (Tectona grandis L.f), being supported by intercrops farmings and post harvest production. The research was mainly focused on the business approach to ensure the optimum outcome of the agricultural activities. The objective of this research is to design a business development model of integrated sustainable agribusiness in dryland areas of Yogyakarta. The main problems being faced for the agribusiness development are, among others, the limited educated and skilled human resources, and the limited access to technology, financial, and market among the smallholder farmers. The conservation of resources was achieved by converting unproductive dryland into productive land for integrated agribusiness activities. The involvement of researchers and extension workers were able to diffuse their knowledge to the local farmers including the development of high-payoff input and the voluntary participation of grassroots communities would bring up grassroot innovations. The data being used were both primary and secondary data. The primary data being obtained consists of direct measurement and face-to-face interviews. The secondary data were obtained from the existing information such as earlier field measurements, research publications, government publications, websites, cencus data, and others. For teakwood plantation, the sampling methods being applied were systematic random sampling and cluster sampling. To explore the preference of alternatives for the development of marginal dryland agriculture, in-depth interviews had been carried out and analysed using Analytical Hierarchy Process (AHP) tool. The focus of AHP was the business strategy for the development of marginal dryland in Yogyakarta Province. There were two alternatives to be selected namely developing an integrated agribusiness particularly teakwood plantation being supported by foodcrops and livestock farmings or single agricultural commodity of teakwood plantation. The factors to be considered for the development were the availability of human resources, natural resources, financial resources and markets, and culture. Three key actors were involved namely smallholder farmers, social investors, and academic researchers with the main objectives of generating profit, sustainability of the activity, and environmental protection. The respond of the experts’ were processed by using ExpertChoice2000 software and the output of alternative being chosen was the final systhesis by considering the goals, actors and factors. The synthesis output indicated that the weight for integrated agriculture was 82.2% whereas the weight for single commodity was 17.8%. The main factor that support the program was human resouces (41.2%) being followed by financial resources and markets (38.4%), cultures (14.7%), and natural resources (5.7%). Actor social investors was viewed as the most important (36.1%) being followed by academic researchers (34.9%) and smallholder farmers (29.0%). The output suggests that profit generation was the most important goal (40.0%) followed by sustainability (31.0%) and environmental protection (29.0%). Agricultural appraisal process was carried out using the method of enterprise budget. Several aspects of technical, institutional, commercial, and social were brieftly reviewed. A project planning were reviewed by considering the location, scale, timing, manpower and commercial issues. Detail enterprise budget analysis were carried out to ensure a proper treatment on capital investment, operating expenses, revenues, taxes etc. To prepare a financial projection, price and inflation trends were assumed to arrive at projected income statement, projected balance sheet, and projected cash flow statement. Other output were in the form of common valuation criteria such as internal rate of return, net present value, total investment, net cash flow, profit on investment, and payback period. To overcome the possible bias in the decision making process additional tools were employed namely benefit costs ratio, annual equivalent value, and composite performance index. The research proved that nearly abandoned marginal dryland covering an area of five hectares was able to be converted into productive integrated sustainable agribusiness. The interaction among the researchers, the investors and the local farmers proved that the local farmers were trainable to develop the pilot program successfully. Further, financial valuation of individual activity proved to yield feasible outcome. Combined activities of teakwood plantation, intercrops farming, and post-harvest production proved to give better financial performance compare to individual activity. With the success of this research, an extended pilot and development program were designed to develop the dryland areas of Yogyakarta