Trends and challenges for developing next generation of business and finance schemes for smallholders

The agriculture sector in Indonesia is experiencing a major transition. While the Indonesian population increased from 206 to 237 million people in the period from 2000 to 2010, the number of smallholders decreased from 31 million in 2003 to 26 million in 2013 (BPS 2014). One important trend that may affect agricultural sector development is the increasing share of older people who are smallholders. The 2013 agricultural census shows that about 12% of smallholders in Indonesia are aged above 65 years, and 60% of the smallholders are above 45 years old (BPS 2014). There are indications that older people will remain in the agricultural sector, as younger people tend to move out to other sectors. Smallholders are aging, and younger people are not interested in farming. The challenge for the Government of Indonesia is to formulate policy options to encourage the next generation of smallholders to stay in the agriculture sector (Ngadi 2014). There are some notable exceptions. For example, in the oil palm sector, the profitability of the crops has attracted new smallholders to cultivate the crop, either by opening new land or converting existing crops into oil palm (Feintrenie et al. 2010). Crops with strong export orientation, such as coffee and cocoa, may follow similar trends.

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