The Government of Australia, partnering with the Government of Indonesia, is implementing the Australia-Indonesia Partnership for Rural Economic Development (AIP-Rural).
AIP-Rural is a suite of market development programs that aims to improve smallholder farmer's competitiveness and access to new markets, better inputs, know-how and technology. It works to achieve a sustainable 30% increase in the net income of 300,000 smallholder farmer households in eastern Indonesia by 2018. AIP-Rural operates in East Java, West Nusa Tenggara, East Nusa Tenggara, Papua and West Papua.
AIP-Rural comprises the following programs:
|Program||Focus||Value (A$million)||Start Date||Managing Contractor|
|PRISMA||Value Chains||77||October 2013||Palladium with technical support from Swisscontact|
|ARISA||Applied Research||8||December 2014||CSIRO|
|TIRTA||Tertiary Irrigation||9.5||July 2015||Palladium with technical support from Swisscontact|
|SAFIRA||Agricultural Finance||4 (part of PRISMA)||September 2015||Palladium with technical support from Swisscontact|
Why we work in this sector
Indonesia’s agriculture sector is important to sustainable economic growth and poverty reduction. The sector currently contributes only 15% to national Gross Domestic Product and suffers from low levels of investment and productivity. A recent assessment of the Indonesian economy suggests that for Indonesia to maintain growth levels of 6% to 7%, agricultural productivity will need to grow by 60% over the next 15 years.
However an estimated 63% of Indonesia’s poor live in rural areas, with agriculture employing nearly 40% of Indonesia’s labour force. Agriculture therefore remains critical to smallholder farmer’s pathway out of poverty. A more profitable agriculture sector would significantly assist in reducing poverty; a 1% growth of rural agricultural Gross Domestic Product can reduce rural poverty by 2.9% and urban poverty by 1.1%. For 75% of the rural poor, agriculture is their primary source of income, with food crops contributing 50% of household incomes and estate crops another 30%.
Agricultural underperformance in eastern Indonesia is partly due to smallholder farmers having low access to modern agricultural markets and production systems. If agriculture is to deliver sustained impact on incomes in a growing and increasingly dynamic Indonesian economy, it will need to become more competitive. Improving this competitiveness, combined with improving farmer’s incomes, is the specific focus of AIP-Rural.
AIP-Rural uses a market development approach, also known as ‘Making Markets Work for the Poor’ or M4P. AIP-Rural identifies key constraints to farmer productivity and access to markets, and then forges partnerships with market actors – typically the private sector – who have a vested interest in overcoming these constraints. By identifying improvements to the market, often in the form of piloting new ideas or ways of operating, better quality inputs, or good agricultural practices, AIP-Rural creates ‘win-win’ solutions that generate profit for our business partners and smallholder farmers. AIP-Rural’s interventions focus on agriculture, finance, water, investment, research and innovation. These interventions are designed to be catalysts for broader systemic change to increase competitiveness in Indonesia’s agricultural markets.
Rural development programs have conventionally been public-sector focused, with an emphasis on providing direct delivery services to support agricultural research and extension, food security, infrastructure and rural livelihoods. Over the last decade however, donors have looked to more sustainable market oriented approaches that involve co-investment with the private sector.
M4P has been successfully applied in other countries, including DFAT’s Cambodia Agricultural Value Chain Program (CAVAC) and the Market Development Facility (MDF) project in Fiji, Timor Leste, Papua New Guinea, Pakistan, and Sri Lanka.
Our partners and target beneficiaries
AIP-Rural works with a range of partners to implement interventions aimed at promoting systemic change in the market system. This includes working with private sector organisations (both suppliers and retailers), government agencies, as well as research and development institutions.
AIP-Rural’s target beneficiaries are 300,000 smallholder farmer households (2013-2018). The program has a commitment to targeting poor farmer households (earning less than $2.50pp) and women’s economic empowerment.