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Strengthening banks' financing for organic farming - Jakarta Post
Last modified: 2010-03-18 20:42:14

The market for organic products has grown rapidly in recent times. Consumers' preferences have been steadily shifting from traditional to organic products.

Shops and restaurants selling organic products have become more easy to find in big cities in Indonesia. For healthy and environmental reasons, people have become more aware of the negative impacts of using too much synthetic fertilizers, pesticides and other chemicals in nurturing plants and animals. Consuming organic produce is becoming a new lifestyle choice.

The International Federation of Organic Agriculture Movements (IFOAM) defines organic agriculture as a production system that sustains the health of soils, ecosystems and people.

It relies on ecological processes, biodiversity and cycles adapted to local conditions, rather than the use of inputs with adverse effects. Organic agriculture combines tradition, innovation and science to benefit the shared environment and promote fair relationships and a good quality of life for all involved.

Some studies state that from a business sense, organic farming is more profitable than conventional farming practices. It needs lower input costs, but enjoys higher selling prices, so it generates bigger profits.

For banks, organic farming is a prospective segment to finance. This may be a way out for banks looking to extend more loans to the agricultural sector. Data from Bank Indonesia shows that the total number of outstanding loans by June 2009 was Rp 1.33 trillion and only 5.5 percents of this amount (Rp 73,267 billion) was from the agriculture sector.

These figures also show us something ironic, because conversely, of 51.262 million business units in Indonesia by 2008, 51.257 million of them (99.99 percents) were micro, small and medium business units (MSMEs). Around 55 percent of these MSMEs are dominated by agriculture sector.

In connection with local economic growth and development equality issues in all provinces in Indonesia, regional government banks (BPD) should increase the proportion of financing for the agriculture sector.

Organic farming may be the best option to finance. As of June 2009, from Rp 110,968 billion in outstanding loans of regional government banks, only 2.96 percent of this amount (Rp 3,289 billion) was disbursed to agriculture sector.

From the data above, it is clear we must analyze this situation. Banks seem not so interested in financing the agriculture sector. Bankers see the agriculture sector as risky business and also less profitable than other sectors.

To date, not many banks' loan officers know about the other side of modern agriculture, i.e. organic farming. Financing organic farming will benefit banks and farmers.

This kind of farming could be a mitigation of potential risks often encountered in financing the agriculture sector. Bankers need to learn much about organic farming, since it is a new niche market for banks to finance. On the other side, by getting additional working capital from banks, farmers will be able to expand the scale of their farming businesses.

There will be a symbiosis between banks and farmers. Banks will make agriculture sector a profit-generating center, and at the same time farmers will get higher incomes and improve their welfare.
The great potential of organic farming supported by banking sector may lead to better and more prosperous farmers. For this, the government can play a vital role.

Inter-governmental institutions must work hand in hand to educate farmers how to farm organically.

Bankers also need to improve their knowledge so they realize that financing the agriculture sector and farmers is not just a social responsibility program, but something really financially profitable that can generate money for banks.

Organic farming is a business that will enable farmers to repay their loans to banks. Organic farming
also ensures sustainable development. It is socially acceptable, environmentally safe and economically profitable.

The writer works for Bank BNI in Jakarta and is currently studying for his PhD from Bogor Institute of Agriculture, majoring in the management of natural resources and the environment. This article represents the author's personal views.

Petrus F.T.P. Tampubolon , Jakarta | Tue, 10/06/2009 | Opinion


Keywords: Jakarta Post, organic, farming, financing, BPD, IFOAM, agriculture
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