The study gives an overvire of contract farming in Indonesia, showing the firms and commodities involved in contract farming in the country . The presentation explains the challenges faced by farmers and the companies under contract farming schemes. The role of government in supporting contract farming is also discussed.

1. COUNTRY PAPER OF INDONESIA
BY
BUDI IRIANTA
DIRECTORATE GENERAL OF PROCESSING AND MARKETING FOR AGRICULTURAL
PRODUCT
MINISTRY OF AGRICULTURE
THE REPUBLIC OF INDONESIA
2005

2. I. INTRODUCTION
• Indonesia is well known as an agricultural country
• Agricultural area comprised around 46.9 million
hectares or around 74.68 percent of the total area
• Agricultural commodity is classified into food crops,
horticulture, estate crops and livestock
• Agricultural sector is one of the important economy
sectors in Indonesia
• In order to increase competitiveness, Indonesian
Farmers have made improvement in various aspects
of agriculture

3. II. OVERVIEW OF CONTRACT
FARMING IN INDONESIA
• Firms involved in contract farming
TobaccoPT BAT Indonesia
Sweet PotatoesPT Toyota Bio
MaizePT BISI
PeanutsPT Garuda Food
Commodity coveredAgribusiness Firms

4. VegetablesPT Pacet Segar
Palm oilPT Minanga Ogan
RubberPT Multi Agro Kencana
Prima
CassavaPT Sungai Budi
Commodity coveredAgribusiness Firm

5. • Contract Farming Pattern
FARMERS/F
ARMER’S
GROUP
COMPANIES/
SGRIBUSINES
S FIRMS
COOPERATIVE
FIGURE 1

6. FARMERS/
FARMER’S
GROUP
COOPERATIVE
COMPANIES/AGRIB
USINESS FIRMS
FIGURE 2

7. • Contract Farming Mechanism
COMPANIES/A
GRIBUSINESS
FIRMS
MEMORANDUM OF
UNDERSTANDING PRIMARY
COOPERATIVE
FARMERS/F
ARMER’S
GROUP
BANK
Net income of farmers
Production inputs, etc.
Product marketing
AVALIST
Installment
payment
Business
feasibility
aspects
FIGURE 3

8. The companies obligations :
- To give cultivation guidance,
- To provide production inputs (seed,
fertilizers, pesticides),
- To control the harvesting and post-
harvesting management,
- To purchase the farmers’ crops,
- To act as the avalist
• Contract Farming Agreement

9. The farmers obligations :
- To prepare their land for plantation,
- To control the harvesting and post –
harvesting management,
- To use the production input properly
as stated in credit proposal,
- To sell the whole production to
the company, and
- To sell their production at an agreed
price

10. III. THE ROLE OF GOVERNMENT
IN PROMOTING CONTRACT
FARMING
• To act as facilitator, mediator and regulator
• To increase technical and managerial skill of farmers
• To facilitate providing working capital to the farmers
• To conduct business meeting
• To conduct research and development
• To conduct extension of new technology to the
farmers

11. IV. CASES OF CONTRACT
FARMING IN INDONESIA
• Contract farming on tobacco
• Contract farming on peanuts

12. V. ISSUES/CHALLENGES IN
CONTRACT FARMING IN
INDONESIA
• Inefficient management and marketing
• Weak accessibility to capital, technology, and market
• Low productivity, quality, and quantity of the products
• Price fluctuation
• Low technical and managerial skill of the farmers
• Lack of facilities, new technology, etc.

13. VI. CONCLUSION
• Contract farming system has been widely
developed in Indonesia
• Some efforts need to be carried out to
promote contract farming in Indonesia
• Government has an important role to promote
contract farming
• Contract farming is profitable for farmers and
companies