An Overview of Agriculture Development Programs for Poverty Reduction in Rural Areas: Evidence From Indonesia and China

The Power Of Agriculture To Alleviate Poverty

Agricultural growth was the predecessor to the acceleration of industrial growth, very much in the way agricultural revolutions predated the industrial revolutions that spread across the temperate world from Europe to Asia especially in China and Indonesia. The great and persistent gap between agriculture’s shares in GDP and employment suggests that poverty is concentrated in agriculture and rural regions—and that as nonagricultural growth accelerates, many of the rural poor remain poor. The acceleration of agricultural growth is essential to reducing poverty (Von Braun, 2008) and has been identified as the vehicle for economic development and the achievement of the Millennium Development Goals in Asia. While increased open trade provides opportunities for small agricultural producers in developing countries, many have not been able to take advantage of these potentially lucrative income opportunities by engaging in commercial production for niche markets (referred to here as commercialization) due to rigorous safety and quality standards of food processors and retailers, and imperfect or missing markets (Von Braun, 2007).

The persistent concentration of (absolute and relative) poverty in rural areas illustrates the difficulty of redistributing income generated outside of farming and the deep inertia in people’s occupational transformation as economies restructure. Migration from agriculture into urban areas is often hampered by lack of information, costs, skills shortages, aging, and family and social connections. As a result, many people remain in rural areas with unsatisfied expectations for a better life, generating social and political tensions that may jeopardize the growth process. Large-scale growth of the rural economy seems essential for reducing absolute and relative poverty.

Ravallion and Datt (1996) found that growth in the agriculture and informal services sector led to a significant reduction in the number of people living in poverty, which had a more pronounced impact. Meanwhile, Foster and Rosenzweig (2005) use a village and household panel data in India for the period of 1982–1999 to empirically assess the contributions of agricultural productivity improvements and rural factory expansion to rural income growth, poverty reduction, and rural income inequality. They find that changes in farming techniques and job growth in factories increase incomes and wages in rural areas and thus reduce poverty. Finally, Warr (2006) finds that growth of the services and agricultural sector accounts for the greatest reduction in poverty in four Southeast Asian lands, with the former holding a bigger event.