Modernising Agriculture

Recently the Monash University team released a report on Modernising Agriculture - you can download a copy at monashintimor.org/publications. We’re going to write a few blogs that explore some of the ideas in that report.  This first one will provide an overview of the main themes. Later blogs will get into the details of specific recommended actions.  Please enjoy.

Agriculture matters! 

For most Timorese adults, working on the land is their main daily activity and source of their family’s livelihood (Census, 2015).  Investing in agriculture is essential for an economy that benefits the majority of the population.  Some facts to illustrate:

• More than 200,000 working-age adults (60%) rely on agriculture as their main economic activity, the vast majority employing traditional farming practices. 

• Around 30,000 young people finish their education each year, and most will be looking for jobs.

• No other sector can create enough employment to absorb this growth.  For example, the 2017 Tourism Policy has a very ambitious aim of creating 15,000 jobs in tourism-related services by 2030 - but this is not even enough for just one year’s growth in labour supply.

• The Oil and Gas sector may be good for government revenues, and hence government employment, but it doesn’t generate jobs.  For example, there will be less than 500 ongoing jobs coming from the proposed LNG facility on the South Coast.

• While Dili is growing rapidly, rural areas of the country are also seeing population growth.   Projections show that even in 20 years’ time, more than 50% of Timor-Leste’s population will still be rural.   

The realities of COVID-19 make a further case for the importance of agriculture. It highlights the importance for nations to have food security, greater control over their own food production.                                                                                                                                                                                                                     Any realistic path to economic development must include investing in agriculture.  But we must face the reality that progress has been slow, and learn the lessons – perhaps new approaches are needed.  The report focuses on what is involved in the early steps towards a modern agricultural sector.  

* How it works

There are three key elements to agricultural activity: 

Inputs (farmers need access to quality seeds, and other inputs); 

On the Farm (These inputs need to be used efficiently to increase yields); 

The Market (Farmers need a market for their production).

The Big Squeeze

Farmers in Timor-Leste face one basic problem, which we call The Big Squeeze:

Timorese farmers typically have poor quality inputs, lack tools and other resources, and have difficulties accessing markets.  As a result, they work harder, produce less output and receive a lower reward for their effort than most farmers in Asia.  This drives down their incentive to produce more. This is The Big Squeeze on Timorese farmers.  

Imagine being asked to work hard in tough conditions and offered little reward for your work.  You would probably do what you must in order to survive, but it’s unlikely you will be willing to increase the effort or take the risk of new approaches.

Farmers and businesses are generally ambitious and keen to succeed, and willing to learn and adopt new practices, provided they can see the benefits and manage the risks.  The problem is, The Big Squeeze means that without additional support, there is little incentive for them to do that. 

 

Industry Incentives make things happen

For the agricultural industry in Timor to grow and modernise, we argue that Government needs to create Industry Incentives that encourage farmers and businesses to invest more time and money in growing their businesses.

The kinds of incentives discussed in the report include farmer vouchers for inputs, subsidised import or production of inputs, improved access to credit, as well as export incentives and guarantees and tax incentives.  Once incentives like these are in place, investing becomes more attractive, and farmers and entrepreneurs will take the opportunities presented to them.  We will look more closely at these ideas in later blogs.

Large Farms can lead the way 

Alongside these incentives, that are designed to support all farmers and businesses, modernising agriculture will also need to support the emergence of large or Nucleus Farms.  These farms provide valuable leadership in accessing inputs, introducing technology, creating employment, and improving market access, that can greatly benefit small farmers.  The report proposes an incentive for establishing and growing large farms by addressing the most critical constraint: the secure access to land, alongside improved credit arrangements.

Coffee, Konjac, Chickens, Aquaculture and more

We all know that besides revenue from oil and gas, coffee is Timor-Leste’s one big export commodity ($20million in 2018).  In recent years, Konjac has emerged as the next biggest ($2million in 2018).  In a small sector, it makes sense to build on strengths, so we recommend a focus on these two commodities.  

Looking at imports, there are some commodities where Timor-Leste relies on a large volume of imports, and yet has plenty of capacity to build local production - including rice, chicken and eggs, as well as other meat and fish products and others.  There is clearly plenty of local demand for these commodities, so investing in local production that competes with imports on quality and price will help improve farmer incomes and local food security.  The future for agriculture is in specialising in a few areas.  We explore obvious crops where there is a known market, either through exports or growing local demand. Coffee, Konjac, Chickens, Aquaculture and more …

The report investigates these specific crops in more detail, and proposes a range of incentives that would address the most critical constraints holding back investments in these crops.  The idea is simple: what are the “bottlenecks” preventing growth in the production and marketing of these commodities?  Usually there are just a few critical points in the supply chain that are holding back growth.  Once these are identified, a plan can be developed for changing the incentives for farmers and businesses - reducing costs, increasing returns, reducing risk. 

Lastly, a few thoughts about Economy-wide reforms that would really make a big difference to agriculture … 

Access to Credit 

A big challenge faced by businesses, especially in animal and aquaculture production, is with funds for capital investment. This bottleneck can be addressed by government support for agribusiness credit.  This can be achieved by providing interest rate subsidies and a partial government guarantee on loans to support agribusiness activities.  Allow the banks to continue managing the assessment of loan risk, but use subsidies to change their calculations of risk and hence drastically reduce the rates they need to charge. 

National Strategies

A modern agriculture sector needs large volumes, consistent quality and competitive prices, and this comes from clear national strategies that give confidence and create incentives for farmers and businesses to invest.

Other institutional priorities that will really help in modernising agriculture include:

• Addressing inefficiencies in the import and export processes (the biggest improvements can come from improved procedures rather than facilities) 
• Addressing ongoing concerns with land title uncertainty. 

That’s plenty to work on!  We’ll write more in following blogs about some of these things.  Progress will be slow, but let’s set course in a good direction …

You can view the report here: https://www.monashintimor.org/publications#h.l9astab823a8