Financing Preferences for Cattle Farmers in Bone Regency South Sulawesi
Aslina Asnawi1, Hastang2
Teaching Staff of Socio Economic in Animal Science Faculty in Hasanuddin University,
Makassar
Jalan Perintis Kemerdekaan Km. 10 Tamalanrea, Makassar, Sulawesi Selatan, Indonesia
1.2.
Email: 1.aslinaasnawi@yahoo.com
Abstract: This paper investigated of cattle farmer preference to sources of financing in their farms
by a survey-based approach. Financing has been cited as one of the most commons problems faced
by farmers and was often viewed as one of their main barriers to growth. The data was collected by
using questionnaire instrument. It was observed that the sample farmers adopted more informal and
formal institutions to meet their financing requirements. The result showed that internal financing,
non-bank sources represented the main sources of financing followed by government and bank as
formal financing. These results indirectly showed their financing hierarchy. The finding of the study
will be useful for policy maker, government and financing institution that will support cattle
business development.
Keywords: cattle farmers, financing preferences, formal and informal institutions
INTRODUCTION
Background
Financing is one of the obstacles that still faced by farmers, especially beef cattle farmers
in rural areas. Some costs needed to run their business, such as: the cost of buying feed/concentrate,
seed/feeder cattle, medicines/vitamins, equipment enclosures, and others. Financing can be sourced
from breeders themselves or internal financing and external financing (from outside breeders).
External financing can be grouped into two, they are formal institutions such as banking and
government, in addition to the informal financing that is from breeders, friends, family, and
Microfinance Institutions (Asnawi, 2013a); Wahab and Abdesamed (2012) .
Internal financing that sourced from the sale or production activities can be the safest
option for farmers because of the nature of the ownership of capital is capital theirself. However,
low capital ownership to oblige farmers seek other sources of financing.
Today the government has distributed some aid programs are earmarked for the
development of farm businesses, especially beef cattle farms in Indonesia. For example: Cattle
Optimizing Movement, Rural Agribusiness Development, and others. Some programs are
channeled through bank executive that has been appointed by the government. In addition, to banks
also provide loans earmarked for the development of beef cattle breeding business. The loan that
provided by the banking includes loan programs such as Food Security and Energy Loan, The Loan
of Cattle Breeding Enterprises beside other business loans.
Although the sources of financing are available but according Asnawi (2013b) that there
are several factors that become determinant for farmers to access the financing include low
relationship with the lender, availability of information is still lacking relatively, the length of the
procedure and the requirement for the loan, as well as the location between breeders with loan
providers.
Selection of financing used by breeders both from internal and external financing will
vary. Each financing option must have a certain consideration. In this study, the financing
preference breeder is defined as an option/treatment is more favored by cattle farmers against
certain financing sources that will be used relating to the availability of multiple sources of funding
that can be accessed by farmers. Understanding this preference derived from Prianto (2008: 78)
who explains that consumer preferences indicated by the order of priority of goods and services that
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are considered most needed by consumers. Therefore, this study was conducted to see how the
financing preference cattle farmers.
The Research Purpose
This paper aims to investigate of cattle farmers financing preference to fund their
operations in Bone regency South Sulawesi.
Materials and Methods
This research was conducted in Bone regency South Sulawesi. The choice of location was
determined by the consideration that the area has the highest number of beef cattle population is
275.571 tail (Department of Animal Husbandry in South Sulawesi Province, 2012), one of the
central areas of the development of beef cattle in South Sulawesi, as well as the number of the
farmer was large relatively.
This study was a survey approach and used questionnaire as research instrument.
Respondents in this study were 88 people (referring to the results of sampling on Asnawi, 2013a).
The data was sourced from secondary and primary data. In this study given several alternative
sources of financing to be chosen the first, second and so on by cattle farmers. Simulation option
was created as follows:
a. First choice ( self-financing, informal, and formal institutions),
b . Second choice (self-financing, formal and informal institutions),
c . Third choice ( informal institutions, self-financing, and formal institutions),
d . Fourth choice (informal institutions, formal institutions and self-financing),
e . Fifth choice (formal institutions, self-financing and informal institutions),
f . The sixth option (formal institutions, informal institutions and self-financing).
The cattle farmers are given the opportunity to choose only one option that show trends or first
financing option would have been for the last three years. The data that Collected were processed
using descriptive statistical analysis.
Results & Discussion
Results of research on the financing preference for beef cattle breeder farm in the district
can be seen in Table 1 .
Table 1. Financing Preference Beef Cattle Farmers in Bone Regency of South Sulawesi
No
Financing Preferences*
The number of Cattle Persentation (%)
Farmers (people)
1.
First option
41
2.
Second option
17
3.
Third option
6
4.
Fourth option
10
5.
Fifth option
9
6.
Sixth option
5
The total
88
Source : Primary Data had processed, 2014.
Description : * ( according to the simulation options on the materials and methods) .
of Bone
46,59
19,32
6,82
11,36
10,23
5,68
100,00
The results showed that farmers have a tendency to choose the source of funding consistently
over the last three years. The first option was sourced from internal financing (equity owned). Next
followed by financing that from such informal financing of farmers, family or relatives , friends and
Microfinance Institutions in that region. The last option was the financing that from government
grants and loans obtained from banks. Decision of the financing was reated with the implications of
the Pecking Order Theory (Myers, 1984) which described how the hierarchy of financing which
states that companies prefer internal financing (funding of the company's operating results tangible
retained earnings), then followed by funding from outside (external financing) that will choose the
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financing option that was considered the lowest risk. Theirself capital was derived from the
company 's own capital preferable that from outside of the company. Companies prefer to use
funding from internal capital, the funds derived from cash flow, retained earnings and depreciation.
The ordering of using funding sources was reference to the Pecking Order Theory, they were:
internal fund, debt and equity.
Internal financing chosen by farmers, especially that from the business activities acquired
in the previous period with the consideration that this financing is the most secure than others. The
reason was because there was no obligation to refund to the lender, cattle farmers can measure how
much capital (amount of cash) that can generate a number of receipts issued; besides the absence of
risk that may be incurred in the event may not be able to return the debt to the lender.
The second option was sourced financing from informal or non-bank institutions as from
friends, breeders, relatives or family, and Microfinance Institutions. This was because the source of
this funding more flexible, more easily and relatively quickly, usually farmers will obtain the loan
at the time when the money was needed. Another reason that such financing did not have a lengthy
procedure, did not required collateral as security for loans obtained because sufficient capital trust
between the breeder with the person giving the loan. These conditions are often found mainly in
rural areas because the breeder with each other lenders know each other.
Microfinance institutions also become an alternative financing for farmers even though
not all areas encountered the MFI. Microfinance institutions set up by some farmers as a member of
a group of farmers in that region. Financing which can be obtained from the MFI is deposit money
that comes from, by and for farmers themselves. The procedure is relatively easier, quicker because
MFIs are usually located in rural areas where the location of farmers was located. As described by
Krisnamurti (2005) that Microfinance Institutions including informal financial institutions was the
right step in reducing the poverty and economic development of the people. Informal institutions
was more flexible than the formal institutions because it did not require complicated administrative
procedures, more accessible and are usually based on the principle of trust because they know each
other between the debitor and the creditor as relations relatives, neigthbors, business partners and
other kinship, funds needed can be readily obtained in anytime.
The next option was the financing that from formal financial institutions that formally
have procedures in lending as banks and government aid programs. Has become an alternative
source of financing for farmers with some consideration. Among them were that the formal
financing generally require collateral as security in the bank; the procedure was very long so it takes
a relatively long time, sometimes the realization of credit does not comply with these funds when
needed, in addition to the general location of formal financing sources in urban areas are relatively
far from the location of breeder so that information about the sources of financing any
comparatively very less. Some of these conditions was the factor that inhibits the accessibility of
farmers to formal financing was low relatively (Asnawi, 2013; Asnawi et al., 2014); Nurmanaf
(2007); Sugiarto and Wiryono (2004). Financing preference relations cattle farmers also essentially
based on the considerations as described by Nicholas (2002) that there are three basic properties,
namely: 1) the nature of completeness (completeness) that each farmer can always determine
financing options with more than one alternative; 2) the nature transivitas (transitivity) that farmers
compare multiple conditions or the nature of each financing option interconnected consistently; and
3) sustainable properties (continuity) means that appropriate and consistent attitude of farmers in
selecting the financing will be maintained despite the different conditions.
Although there were formal and informal institutions which is a source of financing for
farmers other than those derived from internal financing. However, its presence in rural areas to
support and complement each other in supporting beef cattle farms run by farmers in rural areas .
Conclusion
Based on the results of research and discussion, it can be concluded that the financing preference
cattle ranchers have a tendency options, namely: internal financing that comes from the results of
previous sales activities; informal institutions can be obtained from breeders, friends, family and
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Microfinance; and the last option was the formal institutions from the government and banks. The
financing hierarchy generally based on the ease, speed, risk, location, and timelines in loan process.
References
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