The development of cash crops under ACFTA

For thousands of years, people all over the world have been trading. Since then, millions have enjoyed better a quality of life through exchanging goods and services.

But when trade liberalization became the mainstream in the beginning of the 21st century, with the increasing affluence of transnational corporations, people start questioning the extent to which trade helped farmers in developing countries to move out of poverty.

While Anuradha Mittal (2007) argued the world market of food referred to the international trade of food surpluses by the EU and the US, this article discusses cash crops — the crops with high cash and export values — in relation to free trade.

Free trade might be unpopular to advocate these days as farmers in rural areas have been blaming it for their plight even before the official advent of the ACFTA in Indonesia early this year.

Cash-crop farmers still demanded the government fix the price and buy the produce through cooperatives:
a policy applied before the signing of the Letter of Intent on free trade with the IMF in 1998.

Free trade, which advocates no price intervention, is believed to bring misery to farmers. There are two
things that arise in relation to price intervention.

First, price intervention taking a form of a marketing board is an outdated concept. The trading of cash crops requires experience and strong business instinct as even a small mistake could result in bankruptcy.
The prospect of a marketing board has deteriorated even more with recent technology that speeds up the price fluctuation.

Many traders went into insolvency, let alone government-run boards. We should never forget the fate of the marketing board of clove and Pontianak orange that had cost the country a fortune.

Second, most farmers encounter cash flow problems. When harvest comes, farmers sell simultaneously in pursuit of cash. Harvest season usually arrives together with the beginning of school or religious rituals making up the pressing needs of farm households.

In the absence of the government’s price intervention, the more they sell for cash, the more this drives the price down.

This problem could be avoided if farmers could await the end of harvest and sell when the price started to climb.

At this micro level, institutions are very important. Savings and warehouse can help farmers improve their bargaining power.

NGOs are best at encouraging farmers to work together and trust each other. With group savings, poor
farmers in need are able to borrow instead of selling their produce at lower price.

Meanwhile, a safe warehouse enables farmers to store the harvest until it is profitable enough to sell.
Government and NGOs should help assist the realization of savings and warehouse.

Free trade advocates neither price nor provide input on interventions. The latter is believed to benefit only the big farmers and smugglers.

Instead, subsidies to farmers should come in the form of cash transfers — either conditional or unconditional. Cash transfers are a more effective method of intervention as farmers’ welfare is not only dependent on their production but also their consumption.

Back to farmers’ complaints, is their difficulty really caused by free trade or other underlying economic problems and distortions? Do they face monopsonistic market? But free trade is against both monopoly and monopsony.

Unless national anti-trust commissions take action on this matter, the benefit of the cash-crop trade will continue to end in the hands of these few monopolists and monopsonists.

There are other problems at the macro level that have nothing to do with free trade. First is infrastructure.
Infrastructure is key to farmers’ bargaining power. Limited infrastructure brings the condition where intermediaries dictate the price in the village, simply because they know farmers cannot afford to sell elsewhere.

Good quality of roads lowers farmers’ dependency on intermediaries. It enables them to take their products to other buyers. Also, intermediaries are able to operate at a lower cost and, hence, invite more competitors that eventually force each of them to lower their profit margins.

From a consumption point of view, cheaper transportation costs maintain farmers’ purchasing power. Bad infrastructure, on the contrary, could trigger inflation; the enemy of the poor. Meanwhile, free trade could help ease inflation thanks to cheaper imported raw materials.

Second, cash-crop traders face trade barriers imposed by the local governments. Transportation of crops requires various permits that cost the traders’ time and money. This diminishes the competitiveness of Indonesian cash crops (Hadi Soesastro, 2001). Who bears these costs? Farmers, of course! Traders internalize these costs and lower the buying price from farmers.

Thus, both infrastructure and trade barriers are the underlying troubles of farmers’ and have nothing to do with free trade. To ease the farmers’ sorrow, governments should do something about these rather than begging for the delay of the ACFTA.

But could the ACFTA be an opportunity for the welfare of cash-crop farmers? Under the free trade regime the development of cash crops faces tough competition as quality counts.

Consumers in developed countries desire hazard-free products along with better appearance. Organic products are then high in demand.

Some farmers in East Flores have enjoyed supplying European market with organic cashew nuts at double or even triple the price.

Meanwhile, some experts predict slower growth in cash-crop demand in Europe and North America due to lower population growth.

However, China has emerged to be a new prospective market. With 1.2 billion people supported by strong economic growth, the global market of cash crops will continue to increase in the years to come.

The development of cash crops under the ACFTA is projected to grow with the slogan “sold in China” instead of “made in China”.

Palmira Permata Bachtiar, Jakarta | Thu, 02/18/2010 11:25 AM | Opinion
http://www.thejakartapost.com/news/2010/02/18/the-development-cash-crops-under-acfta.html