Journal of Economics and Development Studies

Identifying Business Models Adopted by FDI in Agriculture in Indonesia
Tulus T. H. Tambunan

Abstract
The main argument of this study is that the presence of foreign direct investment (FDI) in agriculture will not automatically improve the welfare of small farmers. It depends on business models they adopt that link their production with local small farmers. The most interesting findings are: (i) contract farming, especially plasma and nucleus system, is the most popular one in Indonesia; (ii) some partnerships failed to make local farmers better off, suggesting that there are some preconditions for a successful partnership, and (iii) no evidence so far showing that successful partnerships will have positive impacts on agricultural productivity, rural income and economic growth. Despite lack of data, this study concludes that the type of business model used has an important influence on whether investment improve market access and hence incomes of local small farmers. Even, if broader environment is conducive, any types of business partnership will make plasma farmers better off and will have positive multiplier effects on rural.

Full Text: PDF