Keywords

Economic Transformation, Farmer Household, Intention to Leave Business.

Introduction

The economic transformation is marked by the growth of industrial and service sector that gradually replaced the dominance of the agricultural sector. The 2003 Agricultural Census shows that the number of Farmer Households (RTP) was 31.23 millions, then it down to 26.13 million RTPs, or down 16.3 percent over the last ten years (Badan, 2015). In the contrary, the number of labor in non-agricultural sector continued to increase, such as in the industrial sector, from 14.21 million people in 2012 become 14.78 million in 2013 .The researchers syndrome are consistently saw economic transformation using the macro indicator approach which is national development (Schneider & Enste, 2000; Elgin & Oztunali 2012; Djurfeldt & Djurfeldt, 2013), economic growth (Deichmann et al., 2009; Hamamouche et al., 2018), and poverty reduction (Christiaensen & Martin, 2018). The empirical evidence by them refers to the conception of structural transformation that has been developed by classical economists such as Chenery (1960).

Some other researchers have suggested the economic transformation in micro indicators, namely household units (Vicol et al., 2018; Tran & Helen, 2017; Guirkinger & Jean, 2017). The review that has been carried out raises the research question, does the economic transformation of farmer households into the non-agricultural sector really occur in Indonesia as a development implication? And how does the contribution to the great intention of farmers to leave the agricultural sector if the transformation that is done is failed? Therefore, the position of this research proposes the renewal of different research concepts, perspectives, and parameters by exploring how far the economic transformation of farmer households is formed based on the economic, social, cultural, and individual factors, and the effect on the farmers’ intention to leave the agricultural sector.

Literature Review

The Determining Factor of Economic Transformation of Farmer Household

The similar research about economic transformation of farmer households (microeconomics) is relatively limited. Economic transformation is a part of development which is a gradual or dynamic process of change, leading to social, cultural, economic, and political change, and modernizing change to a better level (Habraken, 1976; Breisinger & Diao, 2008). Structural transformation is a process that occurs in the transition time of the primary sector (agricultural and natural resources) with the traditional economic system to the service and industry with modern economic system (Chenery, 1960; Syrquin, 1988). Farmers transformation to non-agricultural for the progress and welfare of farmers is an expected positive development, whereas the decline and neglect of the agricultural sector due to the lack of management resources must be avoided (Dedehouanou et al., 2018; Wang et al., 2017). Tiffin and Irz (2006) showed that agricultural sector has played a role in the economic growth in the most developing countries.

The research from Gries & Naude (2010) about Structural Economic Transformation and Entrepreneurship using the Lewis model, found that the transformation from the traditional low-income economy to the modern economy involved significant changes in the method of production. Entrepreneurs play and important role, namely making new companies outside the households; absorbing labor from the traditional sector; providing innovative between input; implementing bigger specialization in the factory; and improving labor productivity in the modern and traditional sectors (Muafi et al., 2016). The research finding from Zidek (2014) showed that Hungary has achieved a very good result in the economic transformation period, namely that several private companies in the field of trade and service were allowed to operate and the numbers increased, therefore the economy in Hungary has advanced.

H1: Economic factor has a significant effect on the economic transformation of farmer households.

Fan et al. (2013) examined that smallholder farmers play an important role in fulfilling future food demand from a growing population. Farmers with potential losses must be supported to look for job opportunities outside of agricultural field. In the contrary, farmers with potential to benefit should be given strategy education to overcome the challenges faced so that they can transform into commercial agricultural systems, including promoting specific business scale, supporting productive social security, and increasing friendly investments and finance for the community. The research from Silale & Nyambegera (2014) on the grazing dry land area of Turkana, North Kenya, shows that there is a high relationship between economic investment, living standard, anti-poverty projects, governance, and the transformation of rural economy. One way to achieve this transformation is to understand the role of farmers’ socio-economic factors.

H2: Social factor has a significant effect on the economic transformation of farmer households.

Habraken (1976) mentioned the factors that led to transformation, which are: self-identification need, change of lifestyle due to changes in the structure of society, the effect of contact with other cultures and their environment, and the effect of the emergence of feelings of being in fashion. According to Inwood (2013) cultural heritage, producer history, motivation, and values can directly affect agricultural structure and transition decision. Likewise, social problems such as health care costs and child care costs can affect the economy of agricultural households which have a direct impact on agricultural business.

H3: Cultural factor has a significant effect on the economic transformation of farmer households.

Essen et al. (2013) examined the Attitude and Perception of Village Community towards the Marine Cultivation-Based Community in Minahasa, North Sulawesi, Indonesia. The finding is the respondents are very interested in alternative livelihoods for marine aquaculture, but non-economic factors such as tradition and personal satisfaction play an important role in decision making attitudes (characteristics) whether the local community will continue fishing or transform to sea-culture.

H4: Farmers’ characteristic factor has a significant effect on the economic transformation of farmer households.

Modernization theory learns about social evolution process and community development that is complex and multidimensional (Goorha, 2017). Modernity is defined as social existence condition that is very different for all forms of past human experience. Modernization refers to a moving transitional process from “traditional” or “primitive” community or to modern community (Shilliam, 2010). Inkeles (1975) explained modern human characteristics, which is the readiness for new experience and openness toward innovation; disposition to form opinion of a problem; awareness of the diversity of attitudes and opinions around them; orientation to time; reception of fixed hours; belief to be able to dominate its environment; belief in one’s ability to regulate one’s life and master the challenges; planning; distributive or professional justice; trust in science and education; and respect other’s dignity. Modernity is the progress of an individual with his community that enhances the overall personality of the individual. Self-modernization (modern human characteristics) is conducive to transformation.

H5: Self-modernization factor has a significant effect on the economic transformation of farmer households.

The research from Mwiru (2015) found the low community participation is affected by socio-economic factor, while the political-cultural factors also do not understand the role of the community in participation. Community participation in development projects is very beneficial which is a sense of ownership and helps development. Olila (2014) found that the access to loans is the major determinant of farmer participation in a development group. Working closely with partners and government institutions has a high preference for increasing farmer capacity. The low participation in development groups among farmers provides empirical indicator that there is a need to form organized farmer groups to voice the needs of members.

H6: Participation factor in the development program has a significant effect on the economic transformation of farmer households.

Farmers’ Intention to Leave Agricultural Sector

The intention to leave work is relatively much studied in the organization management field (Abelson, 1987; Blaauw et al., 2013; Brahmasari & Mujanah, 2017; Fakunmoju et al., 2010; Halawi, 2014; Hussein et al., 2014; Nasir, 2016; Opeyemi, 2013) with the object of employee work satisfaction and organizational commitment. In the contrary, the intention to leave job is still relatively not much studied in the agricultural field (e.g. Rothmann et al., 2013) and (Zhao et al., 2017). In this research, the effect of economic transformation of farmers’ household is examined toward the farmers’ intention to leave the agricultural sector with the moderation variable of farmers’ welfare. Robbins and Judge (2006) stated that the employee intention to resign permanently, voluntarily, or forced from an organization called the intention to leave concept. There are three indicators of intention to leave the organization (Abelson, 1987), which is thinking about quitting, conviction decision to quit, and perceived chance of leaving.

H7: The economic transformation of farmer households has a significant effect toward farmers’ intention to leave agricultural sector.

H8: Farmers’ welfare moderates the relationship of the economic transformation of farmer households toward farmers’ intention to leave agricultural sector.

Research Method

The research of economic transformation of farmer households includes to causality explanatory research. This research aims to study the roots of empirical problem in the decline in the number of farmer households, what factors influence transformation, and how their impact on farmers’ intentions leaves the agricultural sector. Therefore, the population of this research is farmers with non-agricultural double-income that reflects the transformation process. The determining of research areas in the district, sub-district, and village is using the multistage sampling method, which produce a sample size of each village of 60 farmer households, so that the overall sample is 360 in 6 villages, which is Kolursari, Dermo, Kalirejo, Masangan, Manaruwiand Tambakan, Bangil Sub-District, Pasuruan District, East Java Province. The data collection method that is used includes interview technique with patterned questionnaire, observation technique, independent interview with key informant, field notes, and secondary data. The primary and secondary data are complementary. In collecting data there are 7 reflective latent variables with each indicator as follows:

1. Economic factor with 3 indicators: agricultural labor productivity, non-agricultural labor productivity, and consumption (source are modified and developed from Arndt et al. (2015); Karahan (2012).

2. Social factor with 3 indicators: public relations, organizational engagement, and social status (source are modified and developed from Land & Ferris, 2007).

3. Cultural factor with 3 indicators: accepting fate, work ethic, and power fight.

4. Farmer characteristics Factors with 3 indicators: age, education, and area width.

5. Self-modernization factor with 4 indicators: lifestyle, innovation adoption, activity planning, and relation with outside communities (source are modified and developed from Inkeles (1975).

6. Participation in Development Factor with 3 indicators: frequency of participation in development, position of farmers in activities, and number of household members involved.

7. Farmers’ welfare with 2 indicators: household income and proportion of food consumption expenditures on household expenditure (source are modified and developed from Amare and Shiferaw (2017), Freshwater, (2007).

8. Economic transformation of household factors with 2 indicators: the ratio of non-agricultural income to agricultural income and ratio of the number of household members who work in non-agricultural to the number who work in agricultural.

9. The intention of farmers to leave the agricultural sector with 3 indicators: work satisfaction, stop from work, and move from work.

Structural Equation Model (SEM)-Partial Least Square (PLS) is used to analyze the research data (Ghozali, 2008; Kock, 2015; Lowry & Gaskin, 2014; Solimun et al., 2017).

Results

The economic transformation of farmer households’ model has an R-squared value of 0.661 and R-squared value of farmers’ intention to leave agricultural sector is 0.566. The hypothesis test is based on the path coefficient mark and the value of p-value. The path coefficient mark shows a positive or negative relationship between variables, while p-value shows its significance level (α) (Ghozali & Latan, 2015). The hypothesis is accepted if the p-value is smaller equal to α ≤ 0.10, 0.05 and 0.01.

Table 1 Hypothesis Testing Results
Path Analysis	Path Coefficient	P-value	Explanation	Decision
Economic Factors → Economic transformation of farmer households	0.531	0.01***	significant	H1 Accepted
Social Factors → Economic transformation of farmer households	0.193	0.01***	significant	H2 Accepted
Cultural Factors → Economic transformation of farmer households	0.004	0.469	non-significant	H3 Rejected
Characteristics of Farmer Factors → Economic transformation of farmer households	-0.137	0.004***	significant	H4 Accepted
Self-modernization → Economic transformation of farmer households	0.068	0.097*	significant	H5 Accepted
Participation in development → Economic transformation of farmer households	0.086	0.05**	significant	H6 Accepted
Economic transformation of farmer households → Intention of farmers to leave the agricultural sector	0.748	0.01***	Significant	H7 Accepted
Moderate welfare	-0.021	0.01***	significant	H8 Accepted

Discussion

The economic factor has a significant positive effect, which means that the better the economic conditions of farmer households resulted in an increase in the process of changing the economic structure of farmer households from the agricultural sector to the non-agricultural sector. The economic factor is dominantly represented by the indicator of labor productivity in non-agricultural sector (factor loading 0.977). The level of labor productivity in non-agricultural sector reflects the high level of wages in the non-agricultural sector and the performance superiority of the non-agricultural compared to the agricultural sector. This phenomenon encourages the economic transformation of farmer households. Breisinger & Diao (2008) revealed that productivity growth characterized the transformation process and moves from traditional to modern economics. Labor productivity in the agricultural sector has increased slower than the non-agricultural sector in countries undergoing transformation. The model prediction that uses economic factor to determine farmer households’ transformation to non-agricultural is appropriate (Djurfeldt & Djurfeldt, 2013; Guirkinger & Jean, 2017; Davis et al., 2017) in terms of forward linkage and backward linkage.

Social factor has a significant and positive effect toward the economic transformation of farmer households, which means that if the condition of social factor of farmer households gets better, there will be an improvement in transformation (Muafi, 2016). Indicators of involvement in the organization and public relation have its own loading factor of 0.975 and 0.973, which encourages the transformation process. Kuznets (1973) showed the importance of the function of social institution in the transformation process. Sociologists emphasize the important role of changing values, social norms, beliefs, and habits of the people in the transformation from traditional to modern society (Breisinger & Diao, 2008).

The cultural factor with the indicators of accepting conditions, work ethics, and fighting power do not significantly affect the transformation process. The community culture that is inherent in farmers does not affect the transformation process. This phenomenon indicates the easing of culture internalization which related to decision making or farmers’ intention in the transformation process. It is in line with the research from Vicol et al. (2018) who found that in the transformation process, the role of culture tradition was emphasized on non-agricultural livelihoods.

Farmer characteristic factor with the indicators of age, education, and area width has a negative effect on the economic transformation of farmer households. The increase of farmer characteristic factor weakens the transformation process. The empirical phenomenon shows that the age of farmer has the highest factor loading, which are-0.800. The older the farmer is, the weaker the transformation process will be. In essence, characteristics are related to the dynamics of life. It is in line with the finding from Beard (2005) that people with age over 30 and below 45 are more likely to participate in community organizations compared to the age group outside.

Self-modernization factor with the indicators of lifestyle, innovation adoption, activity planning, and higher relationship with outside community encourages the transformation process. Lifestyle and innovation adoption dominates the factor loading, which are 0.962 and 0.950. Both indicators reflect that farmers are open to new and modern things. The positive impact of modernization drives the transformation process. As stated by Breisinger & Diao (2008) that transformation involves economic modernization of a country, community, and institution. Bai et al. (2016) also found that when China becomes more modern, major change had taken place in all areas of life. Individual modernity has a positive relation with consumers’ adaptation ability of a person (Kunzmann et al., 2000; Xie et al., 2008).

Participation in development Factor with the indicators of frequency of participation in development, position of farmers in activities, and number of household members involved is proven to drive the transformation process. Participation in development has a loading factor of 0.849, dominating the loading factor of other indicators. Participation is the level of concern of household toward the interests of the community, which is directly not in his own interest. Farmers who are still preoccupied with their needs have not had the chance to participate. The research from Beard (2005) found that the head of the households were more likely to participate in development activities and also contribute more time and money.

The economic transformation of farmer households has a significant positive effect toward the intention to leave agricultural sector. The realization of intention to leave is the release of agricultural livelihoods, so that farmers do not have multiple livelihoods, but only have one in the non-agricultural sector. The moderating variable of farmer welfare has a significant negative effect, which can be interpreted that farmers welfare weakens the effect of transformation on the farmers’ intention to leave the agricultural sector. Therefore, if a policy is needed to control the transformation of the farmers’ intention to leave the agricultural sector, the farmer welfare must be improved.

Conclusion And Implication

The economic, social, self-modernization and participation in development factor has a positive effect toward the economic transformation of farmer households. Farmers’ characteristic factor that is dominated by age of farmers has a negative effect toward the economic transformation of farmer households. The cultural factor does not have any effect toward the economic transformation of farmer households. The facts illustrates that the process of the economic transformation of farmer households moves together with modernization and it triggers the weakening of the existence of the cultural aspects of the household. This finding adds to the repertoire of the economic transformation of farmer households which is still limited in number. The implication is that the education policy for farmers as produces, consumers, and entrepreneurs in the agricultural sector needs to consider the factors that influence economic transformation.

The economic transformation of farmer households has a positive effect toward the intention to leave agricultural sector. Farmers’ welfare weakens the effect of transformation toward the farmers’ intention to leave the agricultural sector. The implication is that the control to reduce farmers’ intention to leave the agricultural sector can be done through government policy, such as educating farmers and farmer children by increasing farmers' participation in the development of a more attractive agricultural sector so that agricultural productivity can be increased for the welfare of farmers.

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