Reducing Poverty of Cocoa Smallholders in Indonesia : Is Agricultural Economic Activity Still the Pioneer?

One of the crucial debates arises when finding a solution for reducing rural poverty, is how the causes of poverty should be classified into the agricultural and non-agricultural economic activities. A strong assumption is that, agricultural and non-agricultural economic activities could be expected to reduce poverty, but it is difficult to determine the economic activities that have a strong positive impact on rural poverty reduction. This paper identifies the poverty causes of two villages (hereafter, ‘desa’) in Indonesia by interviewing 152 cocoa smallholder households. We employed a (1) Head Count and Poverty Gap Indices for describing the poverty situation, (2) Factor Analysis for constructing representative factors for the dimension, (3) Path Analysis for identifying the direct and indirect impacts of explanatory variables on household income as a poverty proxy, and (4) Paired-samples T-Test to evaluate the degree of poverty differences. It was found that; (1) statistically, there is no differentiation in the degree of poverty between Desa Compong and Desa Maddenra. However, there is a differentiation in income structure, meaning that the causes of poverty are different; (2) the orientation of cocoa production is strong and directly associated with the poverty in Compong, while for coffee, cashew-nut and livestock production are associated with poverty in Maddenra. A major implication of these findings is that encouraging cocoa production in Compong, and coffee, cashew-nut & livestock production in Maddenra can be strongly expected to reduce poverty directly, meaning that agricultural economic activity is still the pioneer to reduce rural poverty directly in the country