The Economics of Rural Transformation and Public Policy

Strategies and Methods for Successful Rural Transformation

5-8 May 2025
Bali, Indonesia

Rural transformation is crucial for achieving overall economic growth, reducing poverty and bridging the gap between urban and rural areas. Worldwide, approximately 3.4 billion people reside in rural areas, with 90% of them living in developing countries. A significant portion of this population faces poverty. Hence, coordinated efforts from governments, businesses, non-governmental organisations (NGOs) and local communities are necessary to tackle various challenges in rural areas and seize opportunities for rural transformation.

Rural transformation masterclass program will be held on May 5–8, 2025 which was divided into 3 days of classes and 1 day of field visits to the location of the rural transformation practice model. Participants in the classroom sessions received material from expert speakers on rural transformation, its analysis and the preparation of supporting policies. Furthermore, the field visit was filled with practitioners of rural transformation in Candi Kuning and Jatiluwih with different driving factors.

Day 1 – Knowlage Day

Dr. Dong Wang from Australian National University, The University of Queensland explained about the urgency to promote the rural transformation started from the rural development that can be defined as making rural areas a better place to live and work. It means the term ‘quality of life’ that is associated with an increase in real per capita incomes and beyond, poverty reduction, rural housing, public services, population distribution, employment opportunities, equity, social well-being, and economic efficiency. Thus the key feature of development is the portion of the population directly engaged in farming falls as standards of living rise (non-farm employment and income growth).

The guest lecturer, Professor Justin Yifu Lin, the former Chief Economist and Senior Vice President of the World Bank, gave a lecture on “New Structural Economics for Rural Transformation”. New Structural Economics (NSE), proposed by Justin Yifu Lin, represents the third generation of development economics. It argues that economic structure is endogenous to a country’s evolving factor endowments, and successful development requires aligning policies with a country’s comparative advantages

In the guest lecture, Professor Lin highlighted that development success, according to NSE, depends on: (i) Following comparative advantage, (ii) A market economy; and (iii) aA facilitating state to resolve coordination failures and support infrastructure. Empirical evidence (e.g., China, Vietnam, Mauritius) supports this approach, contrasting sharply with the stagnation seen in Latin America and Africa. For rural transformation, NSE highlights agricultural modernization as vital. Agriculture not only reduces poverty but also provides capital, labor, and demand for industrial goods. Structural change in agriculture—supported by the state—is essential for broader development. In conclusion, NSE offers a pragmatic, country-specific framework for sustained growth, replacing ideological prescriptions with development grounded in reality. It calls for a mindset shift: from imitating rich countries to scaling up what developing countries can already do well.

Day 2 – Methods Day

The reflection session on rural transformation and capacity building underscored the importance of both individual and institutional development—a legacy that Asia has left behind, which now serves as a critical foundation for ACIAR’s ongoing work. Dave, as the keynote speaker, emphasized the evolving role of government in policy-making and the necessity for institutions to develop their capacity to influence policy directions. This involves aligning policy solutions with broader political agendas, writing concise and evidence-based policy briefs, and engaging relevant stakeholders effectively.

Session 1: Writing A Good Policy Brief

In the session on writing policy briefs, participants reiterated that the primary purpose of a policy brief is to inform, persuade, and recommend actionable solutions to decision makers across sectors.

David Shearer concluded by stating that although research often provides a wealth of evidence and topic ideas, the real challenge lies in narrowing the focus and shaping a message that can effectively influence specific stakeholders. He emphasized that writing policy briefs is not only a matter of presenting facts, but also about strategic communication—aligning evidence with practical solutions and tailoring the brief to resonate with decision-makers.

Session 2:  New Structural Economic Application

Dr Zitong Zhang critically assessed previous development theories, noting that structuralist approaches such as import substitution led to short-lived growth followed by stagnation, while neoliberal approaches under the Washington Consensus triggered economic collapse and widened income inequality. In contrast, New Structural Economics (NSE) offers an alternative by emphasizing that a country’s economic structure should align with its factor endowments. Markets are considered efficient in allocating resources, but the government has a vital role in addressing externalities, correcting coordination failures, and providing necessary infrastructure.

Closing Remarks from Dong Wang, one of the core hypotheses of New Structural Economics (NSE) is that a country’s economic structure at any given time is determined by its factor endowments, and that effective development strategies must align with these structural realities. NSE builds upon foundational economic assumptions while revisiting the methodological approach of Adam Smith. It emphasizes the importance of asking the right questions, understanding the specific context, and proposing practical, actionable solutions. This approach reflects a return to classical economic traditions—not in terms of conclusions, but in terms of methodological rigor.

Three key features of NSE are particularly noteworthy: (1) markets should function efficiently, (2) the state should play a facilitative role, and (3) policies should be impactful and well-designed. NSE emphasizes that effective policymaking requires a deep understanding of a country’s unique economic conditions. In the absence of such understanding, developing countries may adopt policies from advanced economies that are inappropriate or even counterproductive

Session 3 – Analytical Skills (Rural Transformation Evaluation Method & Stage Segmentation Techniques)

Professor Jikun Huang Segmentation of Rural Transformation (RT) is a conceptual framework that classifies the stages of rural transformation based on changes within the agricultural sector and shifts in employment from farm to non-farm activities. Huang divides rural transformation into four main stages:

• Stage I: Staple Food Production
• Stage II: Agricultural Diversification and Commercialisation
• Stage III: Specialisation/Mechanisation and Off-Farm Employment
• Stage IV: High-Value and Sustainable Agriculture and Integrated Urban-Rural Development

Session 4: Rural Transformation at the Horticulture Major Producing Areas in Bali Main Presentation (Prof. Made Utama – Udayana University)

The presentation focuses on Bali’s experiences with rural transformation in horticulture-producing areas, particularly in the central highlands. Bali, with a total land area of approximately 5,780 km², features diverse topography and a climate conducive to horticultural production. The region is characterized by rich biodiversity, mountain ranges, lakes, and aesthetic landscapes that support both agriculture and tourism.

Day 3 – Fieldwork Day

Candi Kuning Village, Baturiti Subdistrict, Tabanan Regency

The first fieldwork destination was the strawberry stop that became the Self-Help Agricultural and Rural Training Center (P4S). Participants had a dialogue and gained experience from 3 practitioners, namely the founder of the agricultural and rural training center, a sample farmer who implemented organic farming and the head of the Mangun Tani group who became a champion of driving farmers towards agricultural and rural transformation that continues today.

Conclusion from Dr. Dong Wang, Tourism development will be easier for Bali since it has high specialization so it can be expected that in the future, small farmers will continue to use mechanization without changing traditional practices in their farming business, which is interesting to see. This phenomenon has been proven by the research of C. Findlay, who showed that developing countries with traditional practices routinely practiced by smallholders can achieve rural transformation. Another support comes from the role of the local government through supportive regulations. In addition, the Balinese have the good fortune of being widely recognized so that everything from Bali is considered organic as its regional identity.

Jatiluwih Village, Penebel Subdistrict, Tabanan Regency

The changes that occurred before and after the institution of the Jatiluwih Tourist Destination Area (DTW) are striking, both in terms of economic, social, and cultural aspects of the local community. I Ketut Purna, a Jatiluwih community leader, revealed that these changes are extraordinary, especially in terms of job creation for the younger generation in the village. Before the DTW, many young people had to look for work outside the area, such as in the Nusa Dua tourist area, which is more than an hour’s drive from Jatiluwih. This is certainly tiring as they have to work for eight hours plus a two-hour round trip. However, with institutional-based tourism management, more job opportunities are available within the village. Now, young people can work as trekking tour guides, work in restaurants, trade souvenirs, and some have even switched professions to manage other tourism activities in Jatiluwih.

Day 4 – Make A Change Day

Managing policy change in agriculture: Prof. Christopher Findlay

Drives the development of markets are including investments, infrastructure including roads and telecoms/digital capacity, policies, regulation (matters of omission and commission), Institutions, lower transactions costs including rule of law and dispute settlement, other institutions lower transactions costs too like systems of standards and innovation and urbanisation.

Current marketing arrangements that managed by state legislation, as specified in the constitution and most set up regulated markets where products had to be sold (designed to achieve fairness and transparency and to protect farmers rights. Each state (except 4) is divided into several market areas, each managed by an Agricultural Produce Marketing Committee (APMC). These market yards, or mandis, are designated places where farmers are generally required to bring their produce to sell. Only licensed traders and commission agents are allowed to buy and sell in these markets. This is meant to ensure fair practices and transparency. Sales usually happen through open auctions, where prices are determined by demand and supply in the presence of multiple buyers. Each APMC is managed by a committee that includes representatives of farmers, traders, and government officials. At the national level, government imposed the policy on minimum support price with the schemes as follows: (a) before each planting season, the government announces a minimum price for certain crops; (b) when market prices drop below this level at harvest time, government agencies purchase the crops directly from farmers at the mandis at the MSP; and (c) the system mainly covers major crops like wheat, rice, and a few others.

Rural Transformation Experiences in Indonesia: Prof. Tahlim Sudaryanto

Prof Tahlim conclude that : (1) accelerating rural household income and reducing poverty should be done through an integrated policy, which includes (a) promoting high-value agriculture and (b) expanding rural non-farm employment; (2) strike a balance on incentive policies related to food security and high value commodities; (3) regional development policy should emphasize the provinces in the slow-speed category regarding the growth in ST, RT1, RT2, rural income, and poverty reduction; and (4) Focus on major driver in term of public investment on rural infrastructure, in particular irrigation, road, and communication; strengthening agriculture R&D on high value commodities; and promoting FDI by simplifying regulatory framework and easy of doing business.

Rural Transformation Experiences in Vietnam: Ms. Nguyen Le Hoa

Achievements in the development of agriculture, farmers and rural areas in Vietnam regarding all aspects of rural life have been changed after 15 years of implementation of Resolution 26 on Tam Nong policy. People’s incomes are constantly being improved. The rate of poor households in rural areas decreased by an average of 1-1.5%/year.

Key drivers of change for farmers in the future are as follows: economic drivers (Markets, Prices, Trade), environmental drivers (climate change, land degradation), Social Drivers (Urbanization, Youth Migration), technological drivers (Innovation, Digital Access), and political drivers (Policies, Regulations, and Support Systems). Agricultural transformation that potentially achieved in the rural transformation related to : (a) the change in production practice, high value products, application of technology, sustainable production (green production, circular economy, environment friendly production, etc); and (b) the change in production linkage which is improvement of connection with other stakeholders/markets. After the presentations, John Yaxley chaired a roundtable discussion with all participants and speakers. The points discussed during the roundtable include:

• Different patterns of high-value agriculture in China and Indonesia at the regional level.The feasibility of ‘green’ rural transformation in earlier stages in other countries.
• The government’s power of regulation on rural transformation at the regional level.
• New Structural Economics applications.