SUGARCANE FARMERS IN EAST JAVA: INSTITUTIONAL ARRANGEMENT PERSPECTIVE

Abstract

In 1930's decade, Indonesia was recognized as one of the great sugar producing countries in the world. Sugarcane is mostly grown in East Java Province. This area contributes about 40 percent to national sugar production. However, the performance of sugar industry in East Java during the last decade has declined, which is shown in decreasing volume of production and increasing sugar price. This study utilized the analysis of institutional arrangement to identify the problems. In details, this research empirically compared contract (credit) and non-contract (non-credit) sugarcane farmers. This research found that institutional arrangements between economic actors in sugar industry are not suitable, especially for sugarcane farmers. In the case of share-yield system, due to lack of institutional arrangements, sugarcane farmers rarely get any molasses share from sugar mill. Another, in the credit point of view, cooperative usually bears on sugarcane farmers the higher interest from legal rules. Lastly, when cooperative gives aid in the form of seed/fertilizer to sugarcane farmers, it is done intransparently.