Development of Agribusiness Enterprises - Asian Productivity ...

agricultural activities. Financial support is necessary for formulating a more appropriate
agribusiness credit policy.
Support from Other Sectors
In order to develop the agriculture sector, especially in the rural areas, the support of
other sectors is needed in terms of infrastructure development, transportation, harbors, and
education services and training to improve manpower quality.
AGRICULTURAL DEVELOPMENT POLICIES
The process of transforming the agriculture sector from a comparative advantage base
to a competitive advantage base needs a clear policy effort, which is much more to be relied
on than the creativity of the enterprises. Agricultural development policy can be classified
into macro- and micro-economic policy.
Macro-economic Policy
Basically, macro-economic policy is aimed at achieving the goal of economic
development by maintaining domestic and external balances. The support of such a policy
for agribusiness should not be in the form of subsidies and protection, because the latter will
only encourage development of the agribusiness sector in the short term while having a
negative impact in the long term. Subsidies and protection do not improve the creativity of
the agricultural community. Some important factors concerning macro-economic policy are
discussed below.
1. Exchange Rate
The overvalued exchange rate policy has proved to be unfavorable to the agribusiness
sector. It has a double negative impact, i.e., it inhibits exports while encouraging imports,
which ultimately decreases the domestic prices of agricultural products.
2. Domestic Interest Rate Policy
The interest rate in Indonesia is always high. It is related to government efforts to
attract capital inflow in order to cover the transaction deficit and gain a balance of payment
surplus. This policy should be removed since it does not support the development of
agribusiness. An interest rate of less than 10 percent per annum would be appropriate to
agricultural producing countries, encouraging agribusiness development with higher
competitiveness.
3. Fiscal Policy and Government Budget
In order to accelerate the process of transforming the agribusiness sector to a high
competitive advantage, the support of fiscal and government budget policies is needed,
especially for public investment. Public investment spending needs to be increased,
especially for the development of roads and harbors as well as for agribusiness research and
development. Fiscal policy support is needed for the removal of tax on agribusiness
investment until it reaches a breakeven point. In addition, a research and development
spending policy is needed, while the cost of improving manpower quality should not be
drawn from profits that are subject to taxation.
4. Banking Policy
The development of Indonesian banking is generally characterized by the branch
banking system. Therefore, available regional funds are sucked into the central area. In
addition, credit planning is centralized and biased towards the industrial sector, thus impeding
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