Principal agent in tree mortgage system on traditional agroforestry management in Moluccas Indonesia

Abstract

The agroforestry system in land management has been carried out traditionally by societies in Moluccas. The practice is known as dusung, and includes the cultivation of nutmeg trees. Farmers face a number of problems, one of which is a system of debt bondage that inflicts financial loss upon the farmers. This study aims to explain the involvement of farmers with debt bondage system, namely the tree mortgage system (TMS). This research uses a case study approach, with the collection of interviews and participant conservation data. The data is analysed using principal agent theory. The results showed that nutmeg farmers (principal) have a risk when debt bondage (agent) denies an agreement/moral hazard or acts out an agreement. This occurs when agent exploits the access of information and nutmeg marketing prospects, which makes the position of farmers weak and disadvantaged. Improving contracts for TMS and local institutional strengthening is necessary, as it can improve the bargaining position of nutmeg farmers and encourage the preservation of forest resources through sustainable management of nutmeg dusung.