Introduction
Among the more significant socio-economic issues which haunt the pace of development in leading developing countries are food security and the migration of rural people to urban centres, usually in search for often non-existent work or work requiring skills which for the most part they lack. These are elements of a complex set of interrelated problems that interfere with the establishment of a secure food industry and, thereby, of a well-rounded national economy.
An example of this has been Indonesia which although supposedly reached food security in 1994, poor management of the country along with rampant corruption and a financial industry that lacked the required transparency and honesty quickly eroded the gains and plunged the country back into being a net importer of food. This was compounded starting in late 1997 by the economic and political crisis that swept the country together with inclement weather that included droughts. However, despite the awesome nature of a whole solution, steps taken to solve one problem can often lead to remedies for another.
Agricultural production in Southeast Asia is usually based on a state farm or traditional farming systems, depending on the country and its political system and traditions. Most of the countries in Southeast Asia fall into the second category with Indonesia and the Philippines having the most traditional, subsistence systems. The majority of Indonesia's farmers in effect still practice a form of subsistence agriculture in which what they produce is mainly for their own consumption with a little left over to sell. Within a national perspective agriculture as practised in Indonesia is inefficient.
The alternative in Indonesia are huge plantations owned either by the government or by the country's economic and political elite. These are little more than agricultural factories producing food en mass with the sole purpose of producing large profits and returning little to the local communities. They are a single enterprise performing a sequence of activities, from primary production to marketing. Plantations, either private or government-owned, are virtual enclaves, with relatively few growth linkages to the small farm sector. The employment they generate is akin to indentured labour, filled mostly from outside the local communities. They do not transfer any notable skills and technology to small-scale farmers in their surroundings.
In Vietnam, from the time the so-called Communist regime took over, estate-like farms owned by feudal landlords or French colonists were taken over by the state and today farms are supposedly state collectives. However with the advent of doi moi, or economic and social renovation, in the 1980s farms are slowly being equitized, with respect to plantations, or being transferred to a form of semi-private ownership with title to land use held by the farm families working a particular plot of land. Deeded ownership remains in the hands of the state for now and land users pay a rent to the state. However, the are some cases of full land ownership reverting to the private sector, although this seems to be a practice currently fraught with irregularities and seen by some as a return to acquisition of land by Vietnam’s new elite.
The form of agricultural production practised in Southeast Asia is usually characterised by production of low quantity and poor quality, although because farming is predominantly at a subsistence level, farmers individually find this acceptable. The inherent corrupt systems of government, arbitrarily set rules and regulation of farm commodities and inputs, extortion and semi-legal fees and tolls that generally tend to dominate the socio-political environment in Southeast Asian countries also discourage farmers from making the extra effort to convert from subsistence farming to a more intensive, cash-crop oriented system. The extra effort is not rewarded as any endeavour that becomes financially successful is quickly extorted or otherwise bled by corrupt government officers, local petty tyrants or the political and economic elite. Farmers do not find it worthwhile to bother.
However, some countries have made notable achievements in improving the level of agricultural production, notably Thailand and Vietnam which have become the first and second, respectively, exporters of rice in the world, and Malaysia trailing a distant third in terms of agricultural exports. Population growth is now putting pressure on the agricultural production base to meet the food requirements of nations in which less people work on the land, or land is taken out of agricultural production as it is converted to an urban setting.
In all the Southeast Asia countries, it is the exclusive domain of government to manage and direct the activity of food producers at the national level. Partly, this is brought about by the official need by both government officers as well as the economic and political elite which they serve to have control over this important strategic commodity. Where there are private bodies that manage food production and distribution they invariably are owned by members of the economic and political elite or family members or cronies of those countries' leaders and politicians.
This reduces the incentive to better production in terms of quality and quantity because no one wants to work any harder than is necessary only to see the fruits of one's labours go to further enrich the already overly fat cats. Hence farmers are happy to produce what they need for their own families’ consumption and perhaps a little surplus to locally convert to cash for market items and inputs. Historically, therefore, government management has demotivated the raw material producers and has been unable to correlate the latter's activities with storage and value-added processing. It is invariably the stranglehold of government that has made the private sector to come forward despite its ability to provide more efficient forms of food production.
The economic hardships facing the Southeast Asian countries since the economic crisis of 1997 began is now focusing greater attention on self-sufficiency in food production which demands not only an increase in output per unit area of cultivated land, but also improved food security.
Farmers, despite their lowly position in society, as they are perceived by the elite and white-collar workers of Southeast Asian countries, are actually poised to become the most important and valued element of their countries as the sole source of humankind's most valuable commodity--food. Improved unit output of raw food material requires the adoption of modern, efficient and appropriate practices in agriculture which are in tune with local conditions and agricultural traditions. It requires deconcentration of government and its intervention except where it can assist in terms of technology and provision of credit from time to time and a devolution of agricultural management to the farm level. Enhanced food security requires more extensive commodity storage, processing and marketing facilities. In many cases this means a complete revolution of agricultural systems and management.
These objectives point to the need for a re-aligned involvement of the public sector in the food industry. It has to move away from being an overbearing, paternalistic body more inclined to in effect steal from the farmers and become a supportive, co-operative body assisting farmers in meeting the food security goals of the nation as a whole. Achieving this transition requires a careful balance between the quest for high output and efficiency and the creation of a new landless poverty group. In other words, at least thus far, it appears that a willingness to follow this path is emerging in some of the more leading developing countries in Southeast Asia.
By introducing estate style farming, for example, the risk arises that traditional farmers will be put out of business to join a landless, poverty-stricken class, as is the case in the Philippines and Indonesia in particular. Vietnam appears to be moving in this direction and this could lead to serious social strife and perhaps even revolution. The revolt against the French and the feudal Vietnamese elite class and later the Americans by Vietnam's peasant masses in a large part originated from this trend as increasingly the French and feudal landlords were converting Vietnam's rural areas to estate style farms and creating masses of landless peasants who had no alternative but to become indentured labourers on the same lands that had previously been their own little family farms.
In modern times, as is exemplified by what has happened on Java, in particular, and in Thailand and the Philippines, the creating of estate style farms owned by the political and economic elite has forced farmers to leave the land in search of a new and better life only to exacerbate the problems in suburban ghettos of many large cities because such people cannot find work of significant value.
However, while modern methods of farming are perhaps less labour intensive than traditional practices, by bringing about a deconcentrated and integrated form of rural and agricultural development along with locating processing facilities and plants to produce agricultural inputs in the rural areas, new employment opportunities can be created.
Concept
The concept of integrated rural development together with integrated agro-industrial development centers on creating inter-dependence between the various elements of a development project which could be financed by government, by foreign aid, by the World Bank, the Asian Development Bank, or even by the private sector. Processing facilities or plants producing agricultural inputs would need the reassurance that a basic volume of raw material of acceptable quality is available. To achieve this, an estate would be developed to produce the "break-even" input requirements of the factory. Supplementary raw material input-the profit element-would be grown on surrounding small farms operating as satellite producers to the factory and the surrounding community.
Typically these farms would continue to cultivate subsistence crops as well as those dedicated to processing. Thus, the small farmers not only produce for subsistence purposes, but they also enjoy the benefit of a significant cash income. Inter-dependence between small farmers and the estate can be effected by the latter providing support in the form of extension, research and training, and in the form of commercial services in the form of supplies, inputs, machinery hire, etc. They would enjoy the benefits of reduced cost from bulk purchases of inputs and the availability of a knowledgeable employment market it would have helped to create and in this way the economy of scale would benefit both the estate farm as well as the small-scale farmers who otherwise could never reach the critical mass to bring about an economy of scale.
In structuring such integrated rural and agricultural development projects it is important that the private sector take the initiative rather than government. The task for government would be to create the appropriate climate to enable such projects to succeed and it would have to become less interventionist than it has been and, in effect, become deconcentrated and devolving the power and decision-making process to the farmers in partnership with the adjoining estate farms. This balance between private sector and government involvement limits the number of countries that are ready to test this approach as attitudes must change drastically and paternalistic tendencies greatly reduced. However, time would reveal an increasing trend in such countries as successes begin to mount and become showcase examples.
A number of major issues would have to be addressed for successful implementation of such projects. These include:
These issues cannot be dealt with here in general as they would be dependent on national and regional priorities in addition to investor objectives, local climate and agricultural practises. The situation in each country is different and the above issues would have to be dealt with measures appropriate to the particular socio-economic and cultural situation.
It is envisioned that the value-added produce would be marketed by the processing entity, but other agencies could be involved. Further, the purchase of replacement machinery, spare parts, seed, fertiliser and other inputs for both the estate farm and small holder community would have to be handled by the estate managers or a community board with respect to the small holders. The onward sale of inputs to small holders would have to be carried out in a commercial manner.
In time, and depending on the basis of land ownership of the estate farm, it may be possible to fragment the estate into small to medium-sized farms, provided that the skill and knowledge level of local farmers can assure the processor of a reliable source of raw material. This could be an issue of significant importance in some countries such as the Philippines where land reform is high on the political agenda, or in eastern Indonesia where the issue of land ownership is a murky mess of state laws which do not recognise traditional land use allocation rules, or in Vietnam where land is deemed to be collectively held in the name of the state with a slow reintroduction of semi-private title to land to an emerging elite.
Project Financing
The complexity in structure of such projects carries with it a parallel complexity in financing. The key is to involve government only where it is acting as an effective catalyst. It must not become the usual corrupt instrument that is a means for government officers and the economic and political elite to siphon off project funds and whatever rewards are created through the project as is the current practice. This is likely to occur in project finance as it seems to be the inherent nature of the people to take advantage of such projects to further their own financial ends in often not so transparent a fashion. It is hard to say whether this is of a cultural or of a social nature. Furthermore, too much government involvement runs the risk of procedures and a bureaucracy which impair the progress of the scheme. Therefore, a careful balance must be struck between public and private sector sources of financing. Proper support in the form of consultants for engineering, agricultural, economic, financial and social inputs would be required at initial stages, particularly where institutional strengthening and capacity building is obviously lacking. In most Southeast Asian countries it is lacking.
No project like this should proceed without a reasonable level of private sector investment in equity and secured loan in the country where the project is located.
The Vietnamese, interestingly, have recognised the importance of this fact and Vietnam is equitizing state-owned estate farms and encouraging private investment, both from domestic as well as foreign sources, in the development of new estate farm entities. However, offshore loans to countries adopting this approach to agricultural and rural development are unlikely to be forthcoming unless obvious local commitment is demonstrated. Recently this commitment in Vietnam conversely has begun to be less obvious with increased red tape and bureaucratic meddling, thereby scaring away foreign involvement in new schemes and Vietnam appears unwittingly to be backpeddling with respect to rural, agricultural and water resources management development. Offshore sources of investment typically would include:
The blend of financing would depend on the country and the investors.