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Owned Enterprises in Agriculture and Agribusiness Jurnal Ekonomi & Studi Pembangunan Volume 21 Nomor 2, Oktober 2020 Article Type: Research Paper Establishing Food Business of Local State- Owned Enterprises in Agriculture and Agribusiness Maryunani Abstract: The agricultural sector contributes positively to regional economic development. However, current government programs tend to prioritize only on the supply side. It can cause an imbalance between demand, supply, and market AFFILIATION: inefficiency. To overcome the problems, the regional government can establish a Department of Economics, Faculty food BUMD, especially in East Java. This research aims to formulate a strategy for of Economics and Business, establishing a food BUMD as a step in developing agriculture and agribusiness in Universitas Brawijaya, Malang, East Java. The analysis method used was SWOT by examining internal and Indonesia. external factors as the basis for efficient strategy formulation. The results showed *CORRESPONDENCE: that East Java's agricultural conditions were in quadrant I (aggressive strategy). [email protected] Recommended strategies that can be done are mapping and prospecting agricultural production in each region, maximizing infrastructure and social THIS ARTICLE IS AVALILABLE IN: capital to build a supply and value chain, maximizing the marketing of agricultural http://journal.umy.ac.id/index.php/esp products through information and technology to reach a broader market. Besides, developing the potential areas to agropolitan area, assisting young DOI: 10.18196/jesp.21.2.5043 agricultural entrepreneurs, and formulating policies to facilitate local agricultural CITATION: product marketing are suggested. The establishment of the East Java Food BUMD Maryunani. (2020). Establishing is a strategic step with significant support for the East Java economy and can Food Business of Local State- create strong cooperation with small farmers and strengthen social capital (trust, Owned Enterprises in Agriculture norm, and networking). Therefore, it will create a balance of supply and demand and Agribusiness. Jurnal Ekonomi in the market, which increases the economic level of East Java people. & Studi Pembangunan, 21(2), 222- Keywords: Agriculture; Food BUMD; SWOT Analysis 234. JEL Classification: Q13, E02 ARTICLE HISTORY Received: 28 Apr 2020 Reviewed: 07 July 2020 Introduction 19 Sep 2020 Revised: Regional economic development has a close relationship with each 23 July 2020 potential sector's role, such as the agricultural sector and government 25 Sep 2020 policies, to optimize and increase Original Local Revenue (PAD). It Accepted: 08 Oct 2020 contributes to an increase in GDP, can be an imported product, provides raw materials, reduces poverty, and absorbs labor (Haryono, 2013; Rusliyadi & Libin, 2018). According to BPS (2013), East Java has become the most contributing province in the Indonesian agricultural sector due to the high level of agglomeration of agricultural products, as indicated by a contribution of 13% - 14% in the national economy ( Arman, Achsani, & Fauz, 2016). It underlies that over the last few decades, East Java has been included in the second-largest contributing province to the Indonesian economy with a stable and moderate growth rate (World Bank, 2011). Maryunani Establishing Food Business of Local State-Owned Enterprises in Agriculture and Agribusiness Research results from Khairiyakh, Irham, and Mulyo (2015) revealed that the agricultural sector is essential in East Java because it can meet the national market needs. It can support national food needs due to a surplus on agriculture, livestock, and fishery commodities such as rice, maize, shallots, cattle, dairy cows, hens, and others. Also, commodities like meat, eggs, milk, fruits, vegetables, ornamental plants, and biopharmaceuticals have a considerable potential to develop in East Java. However, the comparative advantage that exists in East Java is not accompanied by a robust agricultural sector. It was indicated by the agricultural productivity’s stagnation from 2012-2016, and in 2018, the agricultural sector’s role in East Java was in the third rank and continued to decline from 2014 - 2018 by 1.66% (BPS East Java Province, 2018). The central and local governments have planned and implemented many agricultural sector development programs in Indonesia. However, the program still prioritizes the production aspect only (supply), for example, UPSUS PAJALE (special efforts for rice, maize, and soybeans), fertilizer assistance, credit assistance, One Village One Product (OVOP), and others. These programs are too focused on the supply side without paying attention to the demand side, and it can lead to an imbalance between supply and demand, which can harm producers (in surplus) and consumers (in deficit). The large supply capacity of the agricultural sector can lead to an oversupply of agricultural products. With inelastic demand conditions, it can result in a decline and fluctuation in commodity prices. A study conducted by Sukesi, Rahayuningrum and Widyanti (2008) disclosed that the shallot oversupply in Brebes Regency impacted shallot farmers, where there was very low-price fluctuation at the consumer level. Besides, the study conducted by Wirabrata (2019) also explained that the oversupply of broilers had a significant impact on reducing the selling price to the lowest price (IDR. 8,000 - IDR. 10,000 per kilogram) from normal price (IDR. 18,000 – IDR. 21,000 per kilogram) in September 2018. If this continues, it can decrease East Java's welfare, especially farmers who live in rural areas. It is the reason why many rural communities are trapped in poverty. Both nationally and locally (East Java), the agricultural sector has the same information asymmetry and unequal bargaining position problems. The next negative implication is the emergence of moral hazard in transactions that can harm economic growth and the achievement of equal opportunity and access. Previous research by Sukesi et al. (2008) stated that the steps to anticipate oversupply in agricultural products are to make trade arrangements, use the warehouse receipt system to obtain stable prices, carry out post-harvest management, and diversify and value-added on agricultural products by processing it into other valuable products. Trade regulation can be carried out by forming units present in the market and playing the role to neutralize market inefficiencies and increase regional economic development contributions through Regional Original Revenue (PAD). The strategic step that government takes in the agricultural market is to establish a food information system for the community, which is then forwarded to the East Java Regional Regulation Number 2 of 2010 concerning Governance of Leading Agricultural and Fishery Products in East Java. In this regional regulation, the East Java government's steps are the Food BUMD as the leading market for agribusiness products and commodities. It is previously under East Java's regional government’s institution, transformed into an Jurnal Ekonomi & Studi Pembangunan, 2020 | 223 Maryunani Establishing Food Business of Local State-Owned Enterprises in Agriculture and Agribusiness independent and broader economic and social institution. The establishment of the East Java Food BUMD is an effort taken by the regional government to respond to the slow progress in developing the agricultural sector. Therefore, it is expected that the agricultural sector can become a contributor that can provide sufficient PAD. It underlines the importance of establishing a Food BUMD. Previous research related to the establishment of BUMD was conducted by Yani (2012), affirming that the basis for establishing BUMD is a regional regulation with the consideration of a previous feasibility study that has been carried out on the prospects of the business sector and regional assets owned. Moreover, one of East Java’s policy formulations needed is government intervention to the market through Food BUMD. Its presence is expected to be a step for suppressing inefficiencies in the market because it can become a government business institution that brings the market closer to production activities and food producers. The goal is to reduce poverty, strengthen economic fundamentals, and increase competitiveness through the emergence of supply and value chains. This research aims to analyze the internal and external factors and formulate a strategy for establishing Food BUMD as a step for agricultural and agribusiness development in East Java. This research on strategies in the Food BUMD establishment is different from the previous research. It is because Food BUMD is one of the East Java Government’s plans to address price fluctuations from the agricultural sector more optimally. The strategy is based on East Java's internal and external factors related to the agricultural sector, so the results can be used for considering the right steps to establish a more efficient and optimal Food BUMD. Research Method Study Site This research was conducted from October to December 2019. This study's locations were Malang Regency, Jombang Regency, Nganjuk Regency, Kediri Regency, Blitar Regency, and Tulungagung Regency. The selection of sample locations was based on criterion-based selection to get information about producers' diversity in agricultural production of food crops, horticultural agriculture, plantations, livestock, and fisheries. Data Collection Primary data in this study included (1) data on the carrying capacity of farmers and agricultural institutions
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