Agriculture Brief

Background

Agriculture contributes 30 percent of the non-petroleum GDP of Timor-Leste and 80 percent of the population in Timor-Leste is dependent on agriculture, forestry and fisheries for their livelihoods. While the nation-wide poverty incidence is around 40 percent, 86 percent of the poor live in rural areas. A third of the households rely on subsistence agriculture exclusively, and 98 percent use firewood as their primary source of energy. With this heavy dependence on subsistence agriculture and particularly on rice and maize, Timorese farmers are highly vulnerable to food shortages and 70-80 percent of the villages report food shortages between December and January.

Timor’s main agricultural commodities are coffee, coconut oil and sandalwood. Coffee is the primary non-petroleum export and approximately 28 percent of households earn some income from coffee.  Part of the harvest is certified organic and marketed through fair-trade channels, capturing prices on the high-end of the coffee market. A high-quality, organic coconut oil-processing plant began production and export to Australia in 2004. The largest new source of formal private sector employment in the rural areas since independence, the plant employs 200 workers and buys from 1,000 small coconut growers. Organic vanilla is slowly gaining importance as an export crop.

Since 1999, farmers have had to adjust to a drastic change in the demand for agricultural products and in the role of the public sector. The Indonesian system of guaranteed Government purchases of essential food products at subsidized prices was abandoned. Farmers also lost the markets constituted by vast numbers of Indonesian military and civil servants living throughout the territory before independence. In addition, public sector staff devoted to agriculture, livestock, fisheries, and forestry declined from 6,000 under the Indonesian administration to around 300 now, practically eliminating extension services. Finally, the public sector is challenged by the tendency of people to move back to their ancestral lands, often in remote mountain areas and away from the lowlands, where they had been relocated under the Indonesian Government.

The country’s own vision for the sustainable management of the agriculture, forestry, and fisheries sector is laid down in the National Development Plan and the stated aim is to have by 2020 sustainable, competitive, and prosperous agricultural, forestry and fisheries industries that support improved living standards for the nation’s people.  Five strategic priorities have been formulated:

(a) Improve food security and raise self-reliance;
(b) Increase value-added production and marketing;
(c) Achieve sustainable production and management of natural resources;
(d) Strengthen the balance of trade by promoting commodity exports; and
(e) Increase income and employment in rural areas.

Key Sector Issues

• Institutional rescaling and capacity building.  The current challenge in the agriculture sector is assisting farmers to adjust to a market that is very different than before independence.  The sector needs to deal with reduced fiscal support and much smaller public service administration.  At the same time, there is a high probability of increased budget allocation and the Ministry of Agriculture, Forestry, and Fisheries (MAFF) will need to think strategically about policies and programs for the use of these additional resources, as well as assess the implications in terms of its capacity to absorb the growing budget.
   
• Agricultural productivity enhancement. The country’s very low agricultural productivity (with maize yields averaging about 1.4 MT/ha) stems in part from traditional practices (with very low reliance on inputs) and from a culture of dependence on Government subsidies and artificial markets, which characterized the Indonesian period.  Agriculture losses are very high due to spoilage and pests, and quality problems continue to hinder exports.  To address these constraints Government will need to establish an adequate system of technical transfer (research and extension), formulate adequate policies and programs that address agricultural supply and agriculture health aspects and promote the development of new markets through strengthening product supply chains.
   
• Avian influenza prevention. Even though there have not been any cases reported, the threat of avian influenza is a critical emerging issue due to the proximity to Indonesia.  Rapid-response strategies are being developed by the Government.  However, there is also an urgent need to increase the emphasis on prevention.
   
• Contribution toward employment creation. The agriculture sector has the potential to contribute towards job creation, in particular through assistance to private sector development and increased production of agriculture commodities for export. Creating rural jobs is an area that can be targeted through increased support of agri-business activities, which has been taken up by the new Agribusiness Division in MAFF. However, it is unlikely that the agriculture sector has sufficient capacity to address all the needs of the fast growing labor force. This will need to be addressed through the creation of non-farm rural employment.
   
• Managing environmental degradation. The fast growing and dispersed population puts tremendous pressure on agricultural land creating a significant problem, which will have an increasing impact on agricultural productivity in coming years. The country is covered by secondary forest in 76 percent of its surface, but about two thirds of the lands are severely degraded by deforestation, grazing, shifting cultivation practices, and naturally poor land, leading to watershed degradation and erosion.  Coastal resources are extremely rich but lie in a narrow patch of fringing reef and are therefore particularly vulnerable to over-exploitation.  Offshore resources include tuna, deep sea snappers, and deep sea shrimp, but the size and status of these resources is largely unknown. The latter area remains a concern given the high potential for corruption and unscrupulous exploitation that characterizes the fishing sector in neighboring countries. Priority interventions in the natural resource sector include:

(a) Preservation of the genetic stock of sandalwood;
(b) Co-management of forest plantations, natural forests and coastal areas with local communities (through by-laws or memorandum of understanding with the Government); and
(c) Improved management of offshore resources.

World Bank Program

The Bank currently supports the sector through its Third Agriculture and Rehabilitation Project (ARP III) and through the Consolidated Support Program.

• The Bank assists in strengthening MAFF’s main programs of help to rural communities, while delivering essential services in irrigation rehabilitation and management, agriculture information, animal health, natural resource management and agribusiness support.
• The Bank supports the Ministry in developing key agricultural and natural resources policies needed to clarify the roles of the Government, rural communities and civil society in the sustainable management of the sector. This includes the identification of protected areas, as well as the development and implementation of a fisheries licensing system with a rigorous system of monitoring and control.
• One of the highest priorities in the sector is institutional development in both the public and private sectors.

At present there is a need for more strategic and coordinated donor interventions in the sector, but the Bank’s ability to contribute to this beyond ARP III (end 2007) is unclear.  Currently there is good cooperation with the European Commission through their direct contribution to ARP III and possible future cooperation in the sector.  Potential Bank assistance will need to be based on a good strategy, opportunities for cofinancing and availability of IDA grants.  If the country becomes eligible for Global Environment Facility and BioCarbon Fund activities through the ratification of the United Nations Framework Convention on Climate Change and the UN Convention on Biological Diversity, there is great potential for the Bank and other development partners to assist with nature conservation, biodiversity preservation, and prevention of land and watershed degradation.