Agro-clusters for rural development in the Indonesian Province of West Java

This thesis intends to make a contribution to the existing literature of agglomeration effects of farming activities on rural development by providing theory-based empirical evidence on crucial determinants of such effects. Its main findings are that an agro-cluster could be a policy strategy for rural regions to reduce the poverty rate of those regions. Chapter 1 defines the core of this thesis through explaining the concepts of agro-clusters and their attributes for rural development. It also presents an overview of the methodologies and research questions. In the following paragraphs, the core analyses and findings corresponding to each research question are explained. Chapter 2 attempts to explain to what extent that agro-clusters reduce rural poverty. The spatial analysis is utilised to address this aim by introducing spatial dependence between neighbouring sub-districts of the Indonesian province of West Java, where farming activities are geographically concentrated. The finding is that agro-clusters in a certain sub-district positively impact poverty reduction of that region. It implies that localisation externalities within the agro-clusters increase agricultural productivity. However, this effect declines as the density of agro-clusters increases after regions have certain farmer numbers. This shift occurs due to the presence of negative externalities within agro-clusters with this high density. Chapters 3 and 4 elaborates the interactions between proximate farmers with respect to the benefits of localisation externalities for strengthening farmer institutions. Chapter 3 focuses on farmer cooperation within agro-clusters and its determinants based on a two-stage decision process of individual farmers. The results indicate that farmers with a positive attitude located in the higher density of agro-clusters are most likely to cooperate with their neighbours. Such an attitude is influenced by psychological aspects and individual characteristics. External factors, such as the number of neighbouring farmers and peer meeting frequency, and farm characteristics, such as crop diversity and farm size, increase the likelihood of farmers actually working together. Hence, the cooperating farmers have an opportunity to raise their income. The agro-clusters also foster competitive pressure, which farmers perceive from their neighbours, enlarging their individual benefit vis-a-vis competing farmers. Chapter 4 highlights such pressure. The main result in this chapter confirms that farmers located in regions with a high agro-cluster density show cooperative behaviour if they perceive low pressure from peers, while they show the lowest levels of cooperation in environments of low density and high pressure. In contrast, farmers exhibit the highest levels of self-interest in regions of high agro-cluster density and high pressure. Competition for seed application exerts the most relevant effect on raising self-interest, followed by the competition for production technology. Chapter 5 examines West Java’s rice farming as a case to elaborate the role of governmental institutions in strengthening farmer organisations inside rice clusters. In this chapter, the Indonesian existing policies of rice self-sufficiency are also evaluated. It is found that the membership of the farmer organisations has a positive impact on rice productivity, and farmers located in a more dense agro-cluster enjoy higher rice productivity when they join such organisations. This finding implies that policies towards Indonesian rice self-sufficiency, therefore, should not undertake large investments in subsidised inputs and agricultural infrastructure in the absence of strong farmer organisations in order to attain sustainable improvements in rice productivity.