Analysis of Economic Equity in Regional Development Perspective on Virginia Tobacco Agribusiness in Lombok Island

Abstract

Market economic system is a dominant economic system which was chosen as national or regional economic development strategy. Market rationality with freedom, individualism and perfect competition as its pillar had been a main reference for development policy makers who make economic growth as the main orientation. One of the strategies is establishment special commodities as leading sector. Tobacco is one of a commodity which was chosen as important commodity to develop regional economic in Lombok Island. Tobacco is a controversial commodity. As raw material for cigarette industries which have negative effect for human health, its production and consumption should be restricted. Because of its favorability in economic development, tobacco was become one of the important commodities, especially for Lombok island. Circular cumulative causation theory explained that market mechanism which was driven by profit motive could encourage economic development centralized in certain regions which have high profit expectation, meanwhile other regions are only as supplier of resources to achieve high profits in the central region. This causes economic inequity in which developed regions become more advanced regions, whereas the backward region remains underdeveloped. Moreover, market is also a good waiter for the rich people but unfriendly for the poor. This causes economic inequity in income distribution. This study intends to prove whether the process of cumulative causation occurred in the tobacco economic sector. In particular, this study aims to analyze the level of economic equity (micro) by calculating margin of value added between the farmers and the tobacco industry companies in every hectare of tobacco field. Moreover, the purpose of this study is to analyze the level of economic equity (in the perspective of regional development/macro level) by calculating the amount of spread effect and backwash effect on virginia tobacco agribusiness in Lombok Island. This research is using quantitative and qualitative method in survey technique. Report of the study is present in the form of descriptive. Research areas were determined purposively. The selected research areas consist of 10 villages which are spread in 8 districts. There were 100 respondents which were chosen by simple random sampling technique. Each village is represented by 10 respondents. Data was analyzed by profit function formula (π = TR – TC) with some modification based on real condition in the field. While regional economic analysis (spread effect and backwash effect) analyzed by calculating regional income (value added) from virginia tobacco agribusiness and compare it with total economic value of virginia tobacco. Research result showed that there was economic inequity in micro level on Lombok virginia tobacco agribusiness. Farmers with the biggest profit category in virginia tobacco agribusiness were only able to get value added of Rp 3,975,379, - per hectare per cropping season with the R / C ratio of 1.08. While the tobacco industry companies could benefit (value added) of Rp 212,520,000, - for each hectare of tobacco field in one cropping season. Thus the margin of value added between the farmers and the companies is Rp 208,544,621, -. It means that farmers in the biggest benefit category were only able to get 1.87% of the company total income for every one hectare of virginia tobacco field in Lombok Island. At the macro level, research result showed that there is economic inequity in Lombok virginia tobacco agribusiness in the context of economic interaction between two regions. In this case, Lombok Island as producer of virginia tobacco and Java Island as industrial center to produce a cigarette. The economic value of Lombok virginia tobacco after being processed into tobacco products (cigarette) is Rp 6,098,400,000,000, -. Of that amount, which settles and becomes regional income for Lombok Island region, either the community value added or the local government income is Rp 887,389,840,171, -. Thus, the total of potential regional lost value or enjoying by other regions is Rp 5,211,010,159,829, -. It means that the total of regional value added which can be created by the presence of virginia tobacco agribusiness is only 14.5% from the total economic value of Lombok virginia tobacco. This means that there has been strong backwash effect, while the spread effect resulting is weak, which only reached Rp 511,745,080,000, -. Results of this study reinforce the hypothesis of Gunnar Myrdal on circular cumulative causation theory that free market causes the growing inequality across the regions. If the market is allowed to work freely, it can lead the concentration of economic activity in certain regions that have a high potential for generating profits. While other regions as a producer of industries raw material in the central region can experience backwash effect. This causes the region stagnant to growth or slow progress in development.