The purpose of this study is to investigate the economic aspects of mariculture development and to evaluate its potential economic contribution to alleviating poverty and income inequality in Indonesian coastal rural areas, taking seaweed mariculture in Bali as a case study and concentrating on three villages for which primary data was collected. The villages are Jungut Batu, Fed and Batumadeg. Households in the first two villages depend on seaweed farming for their income, whereas in the third village households depend on agriculture and livestock for their livelihood.
The study starts by exploring the economic strategies and policies which Indonesia has adopted for alleviating poverty and income inequality and outlines some of Indonesia's achievements in economic development. This is followed by an overview of existing mariculture development in Indonesia and its potential contribution to Indonesian economic growth with special emphasis on seaweed mariculture. Relevant studies of the implications of agricultural innovations (including innovations in fisheries and aquaculture) for poverty and income inequality in Indonesia are surveyed and discussed.
The economic rate of returns on investment in seaweed farming in Bali is found to be very high and the pay-back period for this activity on most farms surveyed was less than a year. Currently small farmers can depend on this culture as their main source of household income in areas ecologically suitable for this culture provided market-access is not too difficult. This culture would also seem to be environmentally less damaging than many existing mariculture activities, e.g. shrimp farming. In addition, it is relatively labour-intensive and does not require significant quantities of processed or imported inputs such as fertilisers, chemicals, fuel and food.
The influence of inputs on seaweed production at farm level are investigated by estimating Cobb-Douglas production functions using cross-sectional data. The results show that the inputs seaweed seed, labour, capital and land are significant in explaining variations in the level of a farmers' seaweed production. Years of experience of the farmer in seaweed farming plays an insignificant role in determining a farm's level of seaweed production. Increasing returns to scale seem to exist for seaweed culture but not strongly so.
Furthermore, seaweed mariculture not only possesses the potential to lift coastal rural dwellers out of poverty, but also may have resulted in reduced inequality of income as judged by Gini index and by other measures of inequality. In this case, there is no evidence that innovation and economic change have led to greater inequality of income as the hypothesis of Kuznets (1963) might suggest. Seaweed farming seems to have resulted in no increase in the incidence of poverty in contrast to the Marxian and Neo-Marxian hypothesis.
The incidence of poverty in Indonesia, however, is high in many rural areas where traditional agriculture prevails, for example, in the village of Batumadeg, where a traditional semi-subsistence cassava-corn economy continues. This village has land of poor quality, unfavourable environmental conditions, faces population pressures and villagers have no opportunities for off-farm jobs. The incidence of poverty in such villages is concealed by aggregative or macro-level data even when it is presented on a regional basis.
A number of alternative measures of poverty are applied to measure the comparative incidence of poverty between the villages surveyed. An innovation in this thesis, at least in the Indonesian context, is the application of subjective or respondent-dependent methods to poverty assessment. These, it is argued, can make a valuable contribution to poverty assessment. In this case, the results from applying such methods accord most closely in their indication of the incidence of poverty with that indicated by the average per capita expenditure method, the World Bank and the KFM (minimum physical requirement approach) objective methods.
An analysis of the determinants of rural poverty suggests that farm size and family size are the most important factors explaining variations in income and expenditure per capita, and hence household poverty in the villages surveyed. The likelihood of poverty is greater, the larger is the size of the family in relation to the size of landholdings. The results basically confirm the classical economic position (Ricardo's position) in relation to agriculture and support empirical macro findings in the Indonesian context (Sigit, 1985; Chernichovsky and Meesook, 1984).
This study finds that household savings and consumption expenditure on individual goods as well as their aggregates in the villages surveyed are significantly determined by household income, family-size, age of household head and occupation. The marginal propensity to consume (MPC) on the total consumption bundle does not necessary decrease with an increase in income as hypothesised by Keynes. Also, large households have a higher MPC than small households. This indicates no influence of economies of scale in terms of family size on consumption, a result different to that of previous findings (e.g. Prais and Houthakker, 1955). The study found that on the basis of Kuznets' (1962) classification relating shares of consumption to the stage of development, the seaweed village of Jungut Batu can be categorised into group IV. Whilst, the village of Batumadeg (non-seaweed village) belongs to group VII, that is the least developed group.
In summary this study makes several distinctive contributions to knowledge : First, it provides the first assessment of the economic profitability of seaweed mariculture in Indonesia, the first estimates of production functions for it and is the first study of contribution to alleviating poverty and income inequality in Indonesian coastal areas. Secondly, the economic impact of the innovation of seaweed mariculture is placed in the general context of the economic development literature on innovations and/or technological change. Thus, empirical results from this study contribute to the assessment of the consequence of agricultural innovations (especially seaweed mariculture innovation) for Indonesia for income inequality and the incidence of poverty. Thirdly, poverty assessment in Indonesian context is undertaken using relatively new methods and by applying for the first time to this context some existing methods e.g. those suggested by Kuznets, to pinpoint poverty using consumption data. The latter methods do not seem to have been previously applied to analysis of village data. Incidentally this results 'o many interesting demand functions being estimated and analysed. Fourthly, it is shown that macroeconomic theories about the impact of economic growth and development on distribution of income and poverty should not be generalised without further study and qualification to the microeconomic level. Finally, this study suggests that seaweed mariculture has made a significant contribution to economic growth and the alleviation of poverty and income inequality in coastal rural areas studied in Indonesia.