Rural development and reducing poverty through Australia’s support to Indonesian farmers

Abstract

The Partnership for promoting rural incomes through support for markets in agriculture between the Indonesian government and Australia’s Department of Foreign Affairs and Trade aims to strengthen agricultural markets in rural Indonesia. By employing the Market Systems Development approach, it leverages private sector investments in smallholder farmers’ productivity to promote rural growth, reduce poverty and enhance food security.

This content is part of TIPs In Practice series on poverty and inequalities developed in collaboration with the Development Co-operation Report 2024: Tackling poverty and inequalities through the green transition.

Challenge

Indonesia has achieved stable economic growth of around 5% annually and improved rural development, yet poverty remains high in rural areas, particularly in eastern Indonesia. The poor, especially small-scale farmers, are vulnerable to economic and natural shocks that reduce crop yields, push them below the poverty line and limit their participation in the formal economy. Post COVID-19, food security challenges have persisted due to anti-competitive policies on imports, investment and subsidies.

In response to these challenges, the Indonesian government and Australian Department of Foreign Affairs and Trade (DFAT) set up the Partnership for Promoting Rural Incomes through Support for Markets in Agriculture (PRISMA) programme, which aims to enhance rural growth, reduce poverty and improve food security.

Approach

DFAT allocated USD 109 million in official development assistance (ODA) to the PRISMA programme, which operated in two phases: Phase 1 (2013 – 2018) and Phase 2 (2019 – 2024), with Phase 2 concluding in December 2024. This funding supports agriculture across twelve sectors in six Eastern Indonesian provinces (East Java, West Nusa Tenggara, East Nusa Tenggara, Papua, West Papua and Central Java).

PRISMA’s approach focuses on:

• Market system development (MSD) or “making markets work for the poor”. This was employed to identify barriers to growth and improve the competitiveness of smallholder farmers. Market system development includes improving access to new markets, inputs, know-how and technology, by leveraging Indonesia’s domestic resources. Further, PRISMA’s market interventions build agricultural climate resilience and support action on climate change.

• Public and private engagement to create a conducive business environment for economic growth. It also facilitates private investment in innovative products and services, as well as in new business models such as climate-smart technologies and emission reduction.

• Delivery of tailor-made solutions for smallholder farmers using a rigorous results management system based on the Donor Committee for Enterprise Development (DCED) methodology. This approach enables the implementation of highly specific and adaptable interventions, such as market entry advisory services and business development support. This facilitates coping with external shocks, including COVID-19 and disease outbreaks (e.g. foot and mouth disease), while remaining responsive to government priorities and market dynamics.

Results

The PRISMA Progress Report and Implementation Plan (PRIP) and Independent Strategic Review (ISR) highlight that:

• Market system development programmes produced results at scale: As of June 2022, these households had gained USD 292 million in additional income, with Small and Medium Enterprises (SMEs) seeing USD 112 million in additional turnover.

• Increasing private sector engagement: Up to June 2022, PRISMA collaborated with 238 partners, the majority of which were from private sector, to systematically target smallholder farming households to boost their profits. Innovations such as drought-tolerant rice seeds enhanced agricultural resilience, enabling market actors to mitigate risks.

• PRISMA has influenced national policy, notably securing Indonesia’s National Development Planning Agency, Bappenas', endorsement to change national beef feed standards and allocate USD 7.5 million for a new feed testing facility.

• Gender equality and social inclusion: By June 2022, PRISMA advanced economic prospects for 62% of women and 34% of women farmers who actively participated in agricultural decision making. This was facilitated through inclusive business strategies in agribusinesses and improving information access.

• PRISMA witnessed progress towards systemic changes in cross-cutting sectors, with a 35% reduction in harvest losses for rice and maize farmers over three years through improved crop protection. Mechanisation efforts led to an 80% reduction in rice harvest losses within two years, with adoption of these technologies cutting production costs by 70%.

Lessons learnt

• Comprehensive market understanding is crucial for market system development initiatives. PRISMA’s success largely stems from its in-depth understanding of commodity market dynamics in each area. However, developing an intelligence agenda by identifying and co‑ordinating stakeholders' information needs across sector teams could further enhance its value.

• Ensuring sustainability by mobilising the private sector: Public sector led rural development programmes often deliver solutions (e.g. information, finance and equipment) directly to farmers but lack post-programme sustainability. Encouraging the private sector to adopt inclusive business models ensures farmers’ ongoing access to critical inputs and services, enhancing productivity.

• Adaptive management and flexibility are crucial for market system development. To support design elements like policy, trade promotion, agribusiness and economic transformation, market system development programmes should engage in policy reform. Changes in the business enabling environment are powerful levers for systemic change.

• Rising food and chemical fertiliser prices have posed a challenge, by slowing adoption of innovations by PRISMA partners and affecting progress in the soil treatment sector. This challenge can be better addressed by monitoring the market, supporting partners to adapt products and marketing strategies, and promoting a balanced mix of fertilisers.

• Embracing a broader set of objectives for greater impact: PRISMA can benefit by expanding its focus to include food security, agricultural economic transformation, women’s economic empowerment and climate-smart technology. Its current focus on outreach and income limits broader market changes. By aligning with other economic and trade initiatives, PRISMA can better integrate into the Australia-Indonesia relationship and enhance Australia’s efforts in Indonesia.

Further information

PRISMA, Planting ideas: Empowering women, https://cms.aip-prisma.or.id/uploaded_file/Women_Farmers_Stories_-_March_2024_web.pdf

AIP-Rural, Partnering with the Public Sector to Improve Market Systems: Experiences and Lessons from AIP-Rural, https://cms.aip-prisma.or.id/uploaded_file/2019-11-28_04-30-06am_04_Partnering_with_the_Public_Sector_to_Improve_Market_Systems_-_Experiences_and_Lessons_from_AIP-Rural.pdf

PRISMA, Youth as a Key to Building Resilient Agricultural Markers in Indonesia, https://cms.aip-prisma.or.id/uploaded_file/2021-12-14_10-00-58am_Brief_-_Youth_study_-_Dec2021.pdf

PRISMA, Progress Report and Annual Implementation Plan July – December 2023, PRISMA-PRIP_Y23S2.docx (live.com)

OECD resources

OECD (2024), Development Co-operation Report 2024: Tackling poverty and inequalities through the green transition, OECD Publishing, Paris, (forthcoming).

OECD (2018), OECD Development Co-operation Peer Reviews: Australia 2018, OECD Development Co-operation Peer Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264293366-en.

OECD (2001), Poverty Reduction, The DAC Guidelines, OECD Publishing, Paris, https://doi.org/10.1787/9789264194779-en.

To learn more about Australia’s development co-operation:

OECD, “Australia” in Development Co-operation Profiles, OECD Publishing, Paris, https://doi.org/10.1787/7c99890b-en.

See more In Practice examples from Australia here: https://www.oecd.org/development-cooperation-learning?tag-key+partner=australia#search