Islamic Agricultural Business Financing

 

 

To date, agricultural business financing—especially for smallholder farmers—has generally come from the farmers' own pockets. In terms of investment, more than 90 percent of agricultural business investment is funded by the farmers themselves; they are the ones who provide the capital and the ones who worry about whether the investment will yield a return or end in failure.

Commercial banks have largely refrained from this sector, citing high risks and the lack of collateral provided by farmers. On the other hand, I often encounter farmers who refuse to take on debt due to the prohibition of interest (riba). This is a key reason why government agricultural financing programs have met with limited success.

However, as businesses grow, it becomes difficult to forgo financing support, such as bank loans. Conceptually, agricultural financing encompasses a broad scope, including the source of funds, management, and—in the case of loans—repayment terms, among other aspects.

Fortunately, Indonesia has long been developing Sharia-compliant financing that aligns with Islamic principles and operates without interest. This framework is based on Law No. 21 of 2008 concerning Sharia Banking; however, the Law contains no specific regulations—or even a specific entry—for the agricultural sector. Consequently, financing schemes for agricultural and non-agricultural sectors are treated identically.

A Sharia Bank is a bank that conducts its business operations based on Sharia principles; these are categorized into Sharia Commercial Banks (BUS) and Sharia Rural Banks (BPRS). Financing is defined as the provision of funds or equivalent claims through five types of transactions:

a.   Profit-sharing transactions in the form of mudharabah and musyarakah,

b.   Leasing transactions in the form of ijarah or lease-to-own arrangements in the form of ijarah muntahiya bittamlik,

c.   Sale and purchase transactions in the form of murabahah receivables, salam, and istishna’,

d.  Lending transactions in the form of qardh (benevolent loan) receivables, and

e.   Service leasing transactions in the form of ijarah for multi-service transactions.

In conducting business activities based on Sharia principles, Islamic banks apply the concepts of economic democracy and prudence. For agricultural activities, several financing contracts are available for selection:

First, profit-sharing

Profit-sharing may utilize mudharabah or musyarakah contracts. In the context of fund mobilization, mudharabah refers to a cooperation agreement between a first party (malik, shahibul mal, or Customer)—acting as the fund owner—and a second party (‘amil, mudharib, or Islamic Bank)—acting as the fund manager—wherein business profits are shared according to the agreement stipulated in the contract.

Meanwhile, musyarakah is a cooperation agreement between two or more parties for a specific business venture, where each party contributes a portion of the funds; profits are shared according to the agreement, while losses are borne in proportion to each party's capital contribution.

Two, buying and selling

This takes three forms: murabahah, salam, or istishna contracts. A murabahah contract involves financing an item by disclosing its purchase price to the buyer, who then pays a higher price that includes an agreed-upon profit margin. Meanwhile, a salam contract involves placing an order and making payment in advance, subject to specific agreed-upon conditions.

In an istishna contract, the transaction involves ordering the manufacture of a specific item based on criteria and requirements agreed upon by the ordering party or buyer (mustashni’) and the seller or manufacturer (shani’). This method is free from fixed interest rates and offers a sense of security, as the customer receives goods rather than cash, and there is no interest burden established upfront.

Three, lending and borrowing

A qardh contract involves lending funds to a customer, with the stipulation that the customer must repay the received funds by an agreed-upon time.

Four, leasing and rental

This applies to the leasing or renting of movable or immovable assets to customers. It encompasses ijarah (standard leasing/rental) and ijarah muntahiya bittamlik (lease-to-own). An ijarah contract involves providing funds to transfer the right of use or the benefit of an asset or service through a lease transaction, without transferring ownership of the asset itself. This differs from ijarah muntahiya bittamlik, where the ownership of the asset is eventually transferred to the lessee.

Five, debt transfer

A hawalah contract involves the transfer of debt from the original debtor to another party who becomes liable for assuming or paying the debt.

Sharia Financing Alternatives for Agriculture and Livestock Businesses

The development of Sharia-compliant agriculture and livestock businesses has not yet expanded rapidly—particularly for farmers with limited land who fall into the low-income category, a demographic that commercial banks have historically been reluctant to serve.

A "Sharia Plasma" scheme has been developed to address this. This initiative involves a collaborative system linking the agro-industry, Sharia banking, farming and livestock-rearing communities, and Zakat and Waqf institutions. Zakat and Waqf institutions contribute by providing waqf (endowment) land assets for integrated agricultural and livestock operations, thereby ensuring communities have access to land that is economically viable. The contractual agreement may utilize qardh (a benevolent loan)—specifically, the provision of land to be managed over a period of several years—a model previously implemented by organizations such as Dompet Dhuafa and Rumah Zakat.

Entrepreneurs acting as off-takers for the community's agricultural and livestock produce may utilize the salam contract, wherein the entrepreneur specifies the required product standards through a written agreement with the producers.

Meanwhile, banks can enter into Musharakah (partnership) contracts with entrepreneurs or utilize Mudharabah (profit-sharing) contracts based on either profit sharing or net revenue sharing.

The significant potential of the Qard al-Hasan scheme

Financing based on the Qard al-Hasan model has been widely extended to micro-entrepreneurs. Various studies on the implementation of Qard al-Hasan financing indicate positive outcomes for the community.

Research into the effectiveness of Qard al-Hasan financing provided by Baitul Mal wat Tamwil (BMT) in Central Java yielded positive results. Similarly, an economic empowerment initiative by the organization Dompet Dhuafa in West Java found that Qard al-Hasan financing enhanced the organization's economic empowerment efforts.

Another instance involves the application of Qard al-Hasan financing through a Gapoktan (Joint Farmer Group) in Cianjur. The Gapoktan facilitates financing for its member farmers using this model. Initially, the managed fund stood at IDR 70 million; after four years, it grew to over IDR 170 million. The number of recipient farmers rose from an initial 87 to 209.

This demonstrates that Qard al-Hasan financing is well-suited to providing capital support to farmers, particularly small-scale farmers classified as dhuafa (the needy). Eligibility is restricted to farmers holding a maximum of 0.25 hectares of land, and the funds are sourced from zakat (obligatory alms), infaq (voluntary spending), and sadaqah (charity). The Qard al-Hasan system requires no collateral or complex procedures; while administrative fees are legally permissible, the system generally avoids them, making this method highly appropriate for small-scale farmers.

What is Sharia financing? Sharia financing refers to the activity of providing financial assistance to business operators based on Sharia principles. Because it adheres to Sharia principles, the funds provided do not take the form of a conventional loan. This is because a loan arrangement must not entail any additional charges or benefits. The basis for prohibiting such additions or benefits derived from a loan is the Hadith of the Prophet (PBUH), which states: "Every loan that yields a benefit is riba (usury)."

On this basis, Sharia financing is generally structured as a sale-and-purchase transaction. Under this scheme, the financing provider assists in purchasing the goods required by the farmer or agricultural entrepreneur at an agreed-upon price, plus a profit margin.

Productive financing is intended to meet production capacity needs—specifically for business expansion—whether in production, trade, or investment. This type of financing falls into two categories:

•        Working capital financing: financing to meet production needs in order to improve financial standing and increase output volume (quantitatively) and quality (qualitatively) for trade purposes and to enhance the "place utility" of the goods produced.

•        Investment financing: financing to meet needs such as capital goods, aimed at upgrading related facilities.

Sharia financing mechanisms allow for the provision of collateral or guarantees. According to Article 1, Point 26 of the Sharia Banking Law, collateral is defined as an additional guarantee—consisting of either movable or immovable assets—handed over by the collateral owner to a Sharia bank or a Sharia Business Unit (UUS) to secure the repayment of obligations by the customer receiving the financing. Collateral may take the form of securities or risk guarantees provided by the debtor to secure the repayment of financing in the event that the debtor is unable to settle the credit as agreed.

Wallahu ‘alam. And God knows best.

 

Conducting Agribusiness According to Islamic Principles

 

At its core, agribusiness is about the strategy of generating profit by managing every aspect of an agricultural enterprise—ranging from cultivation, post-harvest handling, and processing to marketing. This is undeniably a noble endeavor. The subjects of agribusiness can be plants, animals, or other living organisms.

In essence, agribusiness means treating farming as a business; thus, planting and harvesting must be followed by selling. This is precisely where the challenge arises. When farmers must engage with the market, the act of farming—once a beautiful, romantic "way of life"—transforms into a business venture driven by financial calculations. There is an interesting book on this subject titled Agribisnis Syariah: Manajemen Agribisnis dalam Perspektif Syariah Islam (Sharia Agribusiness: Agribusiness Management from an Islamic Sharia Perspective) by Said and Pratiwi (2005), although I have not yet had the chance to read it. The Sharia agribusiness system and management represent an effort to establish values ​​of truth in business, grounded in the awareness that the universe is a gift requiring responsible stewardship. This endeavor harmonizes economic aspirations with spiritual ones—earning money, creating jobs, and securing a livelihood, all while accumulating righteous deeds.

Agribusiness comprises several subsystems: cultivation; the procurement and distribution of production inputs; post-harvest processing; trading and marketing; and supporting institutions. Does Sharia play a role here? Yes. Sharia applies whenever an activity involves interaction—whether between humans and nature, or, even more so, between human beings. These five subsystems clearly involve human-to-human interactions (muamalah). Consequently, these relationships must be guided by Islamic principles. If farming itself must be Sharia-compliant, then agribusiness—by extension—must also adhere to Sharia.

So, what exactly is Sharia agribusiness? In my view, it entails building a broad-based agricultural system through the application of Islamic teachings. The goal is, of course, to foster progress and justice. Ultimately, all Islamic rules are rooted in justice. Thus, Sharia agribusiness means conducting agricultural business with a mindset of sincerity and piety, acknowledging the greatness and majesty of Allah SWT. It involves working for the sake of Allah, seeking profit for the sake of Allah, and distributing the results in accordance with Allah’s guidance.

Agribusiness is, in reality, a vast field. Beyond the actual farming—planting, weeding, fertilizing, harvesting, and selling—we often overlook the fact that agribusiness also... ...encompasses indirect service-oriented activities. Thus, agribusiness also includes agricultural banking, agricultural insurance, extension services, transportation, and warehousing.

We are already familiar with the concept of sustainable agribusiness. The idea centers on maintaining environmental sustainability and avoiding damage to the earth. This aligns perfectly with Islamic teachings. Surah Al-A’raf, verse 56, states: "And do not cause corruption upon the earth after its reformation. And invoke Him in fear [of rejection] and aspiration [of acceptance]. Indeed, the mercy of Allah is near to the doers of good."

Thus, engaging in agribusiness is also a form of da'wah (calling to the faith) and a path of ghairu mahdah worship (acts of worship extending beyond ritual acts). Farming is undeniably a most noble profession. It involves planting and nurturing a tiny seed until it grows, sprouts leaves and flowers, and eventually bears fruit. While it is certainly Allah who causes it to grow, the work itself is truly good and noble. Therefore, this work must not fall outside the framework of worship; the agribusiness itself must be conducted in the spirit and essence of worship.

Running an agribusiness can serve as a vehicle for da'wah to strengthen humanity's faith and act as a field of good deeds for those involved. By applying Islamic principles to agribusiness, we prevent the sector from being corrupted by greed and destruction. So, let the champions of the economy and life engage in agribusiness now—specifically, an Islamic agribusiness. We must ensure that food and drink derived from plants and animals do not become haram (forbidden) for consumption simply because the operations were conducted by those lacking an Islamic approach.

To this end, we require agribusiness management that is also Sharia-compliant. Management is a series of processes—encompassing planning, organizing, executing, supervising, evaluating, and controlling—aimed at optimally utilizing all organizational resources (human, capital, material, and technological) to achieve organizational goals. As an organization, an agribusiness system requires operations that are managed correctly, neatly, clearly, purposefully, and in an orderly fashion, as emphasized by Islamic Sharia. This is illustrated in a Hadith narrated by Al-Tabarani, Al-Tirmidhi, and Al-Nasa’i: "Indeed, Allah loves those who, when performing a task, do so with itqan (precision, purpose, clarity, and thoroughness)."

The sequence of planning, organizing, executing, supervising, evaluating, and controlling constitutes the management functions that are likewise applied in agribusiness management. Management functions apply to every stage of agribusiness activities—whether in production management, agro-industry, marketing, or agribusiness risk management.

Regarding production or cultivation, agricultural production management aims to increase output in terms of both quantity and quality. The Quran encourages multiplying harvest yields and improving quality through the application of appropriate cultivation technologies and the use of high-quality production inputs. In terms of marketing or trade, Islam emphasizes facilitating exchange and serving both producers and consumers, rather than establishing an authority that seeks to dominate the entire agribusiness system.

How should one handle risk from an Islamic perspective? Farming and running an agribusiness are inherently risky endeavors; this is why commercial banks are often reluctant to get involved. There are numerous risks, such as climatic uncertainty, pest and disease outbreaks, and the risk of value depreciation. A decline in value can result from a drop in quality, price fluctuations, or shifts in consumer preferences. These risks constantly weigh on those involved in agribusiness.

Islam provides guidance that all such trials and risks should be viewed as tests or calamities originating from Allah SWT. In this regard, Surah Ali ‘Imran, verse 117, states: "The example of what they spend in this worldly life is like that of a wind containing intense cold that strikes the crops of a people who have wronged themselves, thereby destroying them. And Allah has not wronged them, but it is they who have wronged themselves."

Harvested produce must be sold; thus, agribusiness entails trade. Engaging in trade—or berniaga as it was formerly known—especially over long distances between islands or even continents, serves as a form of dakwah (missionary work). During the time of Prophet Muhammad (PBUH), both domestic and international trade were practiced. The mission undertaken went beyond mere commerce and profit-seeking; it also encompassed the propagation of Islam. It was through trade that the message of Islam flourished and spread to all corners of the globe. The Prophet’s companions and the Arab people frequently traveled for trade to various lands, including China, Malaysia, the Philippines, and Indonesia.

Merchants—those who buy and resell goods, often referred to in Malay literature as saudagar—should not be underestimated. Abu Sa'id narrated that the Messenger of Allah once said, "The honest and trustworthy merchant will be grouped with the Prophets, the Siddiqin (the truthful/righteous), and the Shuhada (martyrs)." Yet, on other occasions, the Prophet warned that the marketplace is a place requiring caution. Being a merchant is by no means easy, let alone being an honest one. The Messenger of Allah understood this well, having been a merchant himself. Abdullah bin Umar was a successful merchant, as were Abu Bakr, Umar, and Uthman, all of whom amassed their wealth through trade.

Farming and trading were professions practiced by the Prophets. Agriculture forms the foundation that sustains all other forms of life; it is the primary sector. All other sectors would stagnate if the primary sector failed to function. A wool factory cannot operate until sheep farmers produce high-quality wool; a garment factory cannot run if cotton farmers have not harvested their crops; and so forth.

The Prophets and Messengers worked to sustain the continuity of their mission. Engaging in work to earn a livelihood—whether through trade, farming, or livestock rearing—was never considered beneath their dignity, nor did it diminish the quality of their tawakkul (reliance on Allah). The scholars were known as individuals who worked diligently and were tenacious in their endeavors; yet, they were equally steadfast and resilient in the pursuit of knowledge and the propagation of the faith. During his time as Caliph, Abu Bakar would go to the market every morning, carrying garments on his shoulders to sell. Upon encountering Umar and Ubaidah bin Jarrah, he was asked, "How can you engage in trade while serving as the leader of the Muslims?" Abu Bakar replied, "How else am I to provide for my family?" This was despite the fact that, like Umar, Abu Bakar also received a share from the Baitul Mal (public treasury).

Wallahu ‘alam. And God knows best. ****

 

Islamic economics is not solely for Muslims

Islamic economics should not be viewed as exclusive to the Muslim community; it is an economic system aligned with innate human nature (fitrah), regardless of one's religious background. Islamic economics focuses on human well-being, going beyond mere subsistence needs.

Conventional economics addresses the optimal allocation of scarce resources. Its function is to "explore and explain" rather than to "advocate" or "condemn." In contrast, Islamic economics is a "goal-oriented discipline"; it studies not only the means of efficiently allocating scarce resources but also the ends—the ultimate purposes—of utilizing those resources.

Conventional economics is grounded in Adam Smith’s theory that humans are rational beings who prioritize their own self-interest. In formulating this concept, Smith explicitly excluded factors such as religion, belief systems, and the surrounding environment.

The concepts of self-interest and the notion that "more is better than less" are challenged by the Quran, specifically Surah Al-Baqarah, verse 261. Allah (SWT) states: "The example of those who spend their wealth in the way of Allah is like a seed [of grain] which grows seven ears; in each ear is a hundred grains. Allah multiplies [His reward] for whom He wills. And Allah is all-Encompassing [in His bounty] and all-Knowing." People are encouraged—and naturally find joy—in sharing. This involves giving freely, outside of market mechanisms.

The capitalist economic model is based on laissez-faire principles (freedom and liberalism). It overlooks values ​​such as mutual cooperation, helping one another, and communal solidarity within a religious framework—values ​​that exist in society, even among those who do not practice a religion. The goal of the Islamic economy is to establish a national economic order grounded in noble ethics, equality, and justice, thereby fostering a civil society under the protection of Allah. The Islamic economy is characterized by both Divine (Rabbani) and human (Insani) dimensions. It is termed Rabbani because it is imbued with Divine guidance and values, and Insani because the system is implemented by and for human prosperity. It is general in nature and universally applicable.

Therefore, the universality of Islamic economics should not be understood as an attempt to make everyone adopt specific religious symbols, terms, or identities. What matters more are the values ​​it upholds: justice, honesty, trustworthiness, balance, concern for the vulnerable, the prohibition of exploitation, and social responsibility regarding wealth. These values ​​are, in fact, cross-religious and cross-cultural in nature. Even a non-Muslim can embrace principles such as honest trade, fair wages, the prohibition of fraud, concern for the poor, and responsible resource utilization without first becoming a Muslim. Thus, Islamic economics can be viewed as an ethical alternative that helps correct economic tendencies that prioritize material profit as the ultimate goal.

At this juncture, the fundamental difference between Islamic economics and conventional economics lies not merely in trading techniques, market mechanisms, or financial instruments, but in a more basic question: for what purpose is economic activity conducted, and who should benefit from it? Markets can still function, profits can still be generated, and private ownership remains recognized, yet all of this operates within a framework of moral and social responsibility. This is what enables Islamic economics to engage in dialogue with various economic systems and local values—such as ‘gotong royong’ (mutual cooperation), cooperatives, people-centered economics, the social economy, and sustainable development. In other words, Islamic economics need not exist as a system exclusive to Muslims; rather, it offers universal values ​​regarding how wealth is acquired, utilized, distributed, and accounted for in the interest of human well-being.

Wallahu ‘alam. And God knows best.

The Urgency of Implementing a "Giving Economy" to Manage Staple Foods

From the outset, economics has been constructed upon the basis of "mutually extractive" transactions. An examination of the Islamic Food Economy—particularly regarding staple foods—reveals the existence of an alternative model that has long been practiced: the "mutually giving" transaction. People instinctively enjoy sharing food, regardless of tribe or religion. Even today, in the modern world, we still love doing it; when we meet an old friend, our natural inclination is to invite them for a meal—in other words, to share food.

Is it possible to construct and implement this "sharing economy" or "giving economy"? It would certainly represent a spectacular shift.

Yet, why not? The economic landscape and its inherent socio-religious and cultural elements are incredibly diverse, and we must remain open to fresh, solution-oriented ideas. We need to devise a new framework for the global food economy—a system that, to this day, remains deeply flawed.

A somewhat similar concept has recently emerged: the "sharing economy." The sharing economy is defined as "a way of distributing goods and services that differs from the traditional model of corporations hiring employees and selling products to consumers." It manifests in various forms, such as shared workspaces (co-working platforms), mutual capital assistance (peer-to-peer lending platforms), clothing exchanges (fashion platforms), and the sharing of freelance talent (freelancing platforms), as well as ride-sharing and taxi-sharing services. These platforms facilitate the sharing of resources, roles, and profits, all made possible by the availability of digital information technology.

In the agricultural sector, management expert Rhenald Kasali cites the example of a landowner who observes other farmers needing to cross their land. Under a sharing economy model, the landowner would not forbid passage or block the path; instead, they would propose a collaboration based on profit-sharing. For instance, the landowner might invite the farmer to tend to the crops in exchange for a share of the eventual harvest. In reality, the practice of sharing assets has existed for thousands of years. The advent of the internet and the use of big data have made it easier for asset owners and users to communicate with one another.

Societies during the era of the Caliphate commonly employed non-market mechanisms. When famine struck the Hijaz (Medina), Umar ibn al-Khattab wrote to his governor in Egypt, Amr ibn al-Aas, instructing him to send supplies. Amr replied, "I will send camels laden with food—camels so numerous that their heads will be before you [in Medina] while their tails are still before me [in Egypt]."

Regarding food, as previously mentioned, global food production is more than sufficient; it is our consumption patterns that create the illusion of scarcity. Therefore, one must exercise restraint over one's tongue and appetite. As noted earlier, Islam offers comprehensive solutions to problems; ensuring an adequate food supply requires managing both the supply and demand sides simultaneously. We must all curb our desires.

I am very curious to know whether commercial eateries existed during the time of the Prophet. I have posed this question to numerous religious scholars, yet I have received no answer.

Consider the concept of hospitality: a guest arriving at a home becomes the host's full responsibility for three days, receiving free meals and lodging. Extending this logic, if an individual or a group of guests arrives in a village, shouldn't it be the village's obligation to meet their needs? Such practices were common, for instance, during the era of the struggle for independence.

If this principle were applied, the commercial sale of staple foods would become unnecessary. Or, even if one were to engage in the trade of staple foods, the aim should not be the accumulation of wealth or running a business for profit. And God knows best.

Islamic economics does not aim to satisfy the boundless array of human needs and desires. Earning spiritual merit is the ultimate goal of life—and indeed, the very purpose of economic activity. If the act of giving generates such merit, why should one sell—whether at a low price or, even worse, at a high one? Thus, it is deeply reprehensible for anyone to use food as a weapon to amass wealth, assert dominance, or subjugate others.

Is the commercial transaction the most effective and equitable mechanism? It may be effective, but it is not necessarily fair. In any transaction, we can never truly pay the full equivalent of the price we hand over—and this applies to services as well.

Why should food be viewed differently? I would argue that every object holds a unique character and position within society; consequently, it is inadequate to understand food solely through the general principles applied to other commodities. Theoretical oversimplification fails to acknowledge or accommodate the distinctive nature of food.

Classifying food merely as a primary or "staple" good seems inadequate. It warrants a higher status—perhaps as a "fundamental necessity"—ranking above standard "staple goods."

Why does food require a different management approach? Because food is unique. It originates from the land, whether directly or indirectly; there is no such thing as purely factory-made food.

Furthermore, the world's land area is finite; it does not change. How, then, can such a commodity be equated with other goods?

Moreover, food production differs fundamentally from manufacturing. Manufacturing involves transforming raw materials into semi-finished and finished products.

What constitutes a "staple food" or "primary food"? We must define the scope. Each society needs to determine which items qualify as its staple foods. In my view, this category should be limited to foods that undergo simple processing and are sold at low prices.

In Islam—at least according to the Sirah Nabawiyah (Prophetic biography)—food preparation did not involve complex processes. Food was simply boiled, roasted, or perhaps fried, and consisted of items consumed daily. There were no exorbitantly expensive foods resulting from elaborate preparation methods.

This aligns with the concept of food as a basic necessity—sustenance to meet biological needs, rather than prestige foods served at elite gatherings.

What is the most fundamental food? We call this a "staple food." There are hierarchies of food; some are absolutely essential for survival. In Indonesia, rice is generally the staple, though in some regions, it might be sweet potatoes.

A staple food is one that provides basic nutrition. Staple foods do not typically provide the full range of nutrients the body requires; therefore, they are usually accompanied by side dishes to meet nutritional needs and prevent malnutrition. Staple foods vary according to location and culture but generally originate from plants—either cereals such as rice, wheat, and corn, or tubers like potatoes, sweet potatoes, taro, and cassava.

Animal products—such as meat and dairy—are also classified as food, though they are not staple foods. One can survive without consuming meat or dairy for a month. In Indonesia, many people encounter meat only twice a year: during Eid al-Adha and Eid al-Fitr. However, for traditionally hunter-gatherer groups like the Inuit (Eskimos), meat and fish serve as the primary food source.

Why should food be treated differently? The poor spend the vast majority of their income on food, and it is the duty of the affluent to assist the impoverished. Food is the highest priority; once food needs are met, energy can be directed toward more meaningful pursuits.

Rice is a staple food for the majority of Indonesia's population, making it a quasi-public commodity of strategic value across economic, environmental, social, and political dimensions. One might consider removing rice from the standard market mechanism. To enhance the efficiency and effectiveness of rice price stabilization policies, a comprehensive pricing strategy is required. Such a policy must harmonize relationships among all stakeholders—from farmers and processors to marketers and consumers—within an efficient supply chain that ensures fair returns for every party involved.

Is it possible to remove food
from the market mechanism ?

It is difficult—undeniably so. The idea that food is an attractive, easy-to-sell, and consistently marketable commodity is deeply ingrained in our mindset and daily behavior. Economists have long analyzed food primarily as an economic good. Food is produced for sale, transforming it into agribusiness; supplies are withheld when prices are low, waiting for them to rise; governments employ "food politics," and so on.

Yet, removing food from the market mechanism is not impossible. It could happen if there were a genuine, noble intent. Of course, this does not mean food would cease to be traded entirely; rather, any exchange would be driven by humanitarian concerns rather than the pursuit of massive profit.

Global food needs are not excessive, and the world actually produces a surplus; however, supplies are often hoarded or withheld. Market mechanisms fail to smoothly distribute grain from surplus-producing regions to deficit areas. The primary obstacle is cost: production is expensive, so payment is required for access. Yet, if a deficit region is designated a disaster zone, grain is shipped immediately without haggling over the cost. Indeed, a disaster is often the prerequisite.

Food is not merely an economic commodity; it is a fundamental necessity. It should not be equated with other goods or needs. Because food is a fundamental necessity, those who share it earn a greater reward. Individuals have the choice to either sell or give it away; giving is by far the better option.

Could food be managed entirely by the government, outside of market mechanisms? It is possible. The Baitul Mal (public treasury) system once operated in this manner. Food could be provided free of charge, as production costs can actually be very low through the use of government land and state-supplied inputs, while consumption remains aligned with basic biological needs rather than excess. Thailand is frequently cited as an example of extensive government involvement in the food sector; the government purchases the entire harvest from farmers—remarkably, at prices 50 percent above market rates.

Furthermore, food distribution outside of market mechanisms already occurs at the community level; the sharing of raw ingredients and prepared meals is a common practice that persists to this day.

Does Islam treat food differently?
 If so, why?

Yes, food holds a significant position in Islam and requires special treatment. Those who produce it (farmers), those who consume it, and those who trade it must all adhere to specific guidelines.

The state, too, views food differently, as it is a matter of life and death. People do not die from lacking a television, but the need for food—such as rice—cannot be postponed. Therefore, it is highly improper for any party or nation to use food as a tool to dominate others; such actions are truly uncivilized.

If you have a surplus of food, share it immediately. Why? Because excess food serves no purpose and is generally perishable. This differs from items like shoes; owning a hundred pairs of shoes is not an issue, as they do not spoil.

In the current system, where food is subject to market mechanisms, those involved in the food trade amass enormous profits and wealth. They enjoy substantial margins and exercise dominant control over the sector. Food is leveraged as a source of power, beginning with the large-scale acquisition of land through various means—driven by the recognition that land is the primary source of food production.

Wallahu ‘alam. And God knows best.

 

'Food Security' in the Islamic System

 

Islamic Food Security - is a food security concept that integrates Sharia principles to ensure access to halal, nutritious, and sustainable food for the entire community. It focuses not only on food availability but also on equitable distribution, ecological sustainability, and economic resilience grounded in Islamic values. Equitable access to food is achieved, for instance, through *zakat* and *waqf* (endowments) involving food, as well as affordable pricing (Syahyuti, 2025).

Food security within the Islamic system is inseparable from the Islamic political system. Islamic political economy envisions guaranteeing the comprehensive fulfillment of all primary needs—encompassing both essential individual requirements and fundamental societal needs—for every single person. Food security is non-negotiable; relying on imports for staple foods is tantamount to mortgaging the nation to another country. Such import dependency can pave the way for foreign influence over a nation's politics. Islam mandates that the state guarantee the fulfillment of basic food needs.

"The son of Adam has no right to anything other than these things: a house in which to live, clothing to cover his nakedness, and plain bread and water" (Narrated by At-Tirmidhi). Thus, the government must meet the needs for food, shelter, and clothing—specifically zhillu baytin (or bayt yaskunuhu—a house), tsawbun yuwârî ‘awratahu (clothing covering one's nakedness), and jilfu al-hubzi wa al-mâ’ (plain bread and water).

In providing this guarantee, the state employs both economic and non-economic mechanisms. Non-economic mechanisms include the responsibility of relatives. The order of responsibility is clear:

1.        First, individual responsibility. Islam commands every man to work to meet his own needs and the needs of those under his care (Al-Baqarah: 233).

2.       Second, the responsibility of relatives. If needs remain unmet—whether because the individual cannot work or their income is insufficient—then relatives, starting with the closest ones, are obligated to share the burden of support (Al-Baqarah: 233).

3.       Third, government responsibility. If needs still remain unmet, the responsibility shifts to an obligation of the Baitul Mal (the state).

The Messenger (SAW) said: "I am closer to the believers than they are to themselves; whoever leaves behind wealth, it belongs to his family, and whoever leaves behind debt or dependents, let them come to me, and it becomes my obligation" (Narrated by An-Nasa'i and Ibn Hibban). State mechanisms include, for instance, the right of the destitute (dhuafa) to zakat.

Regarding economic mechanisms, the state must ensure the implementation of Sharia laws related to the economy—such as laws concerning ownership, the management and development of assets, and the distribution of wealth within society. To ensure the operation of market mechanisms in accordance with Sharia, the state must eliminate and eradicate various obstructive distortions, such as hoarding, the hoarding of wealth (kanzul mal), usury (riba), monopolies, and fraud.

To guarantee food security, the state must control the primary resource for food production: land. Islam takes a firm stance on this matter. Land left abandoned for three consecutive years—whether acquired through inheritance, purchase, or gift—is to be reclaimed by the state and distributed to citizens capable of cultivating it. Abu Yusuf narrates in the book al-Kharaj, citing Umar bin al-Khattab: "There is no right for a person who fences off 'dead' [unclaimed] land after three years." Another hadith states: "Whoever possesses land but leaves it abandoned and unused for three years, and then another person utilizes it, that other person has a greater right to the land."

During the reign of Umar and continuing into the Umayyad era, the Euphrates and Tigris river delta and the marshlands of Iraq were drained through the construction of water channels to create agricultural land, which was subsequently distributed to citizens capable of farming it.

The state may also intervene in the market, though not by fixing prices. Price control policies are implemented by managing supply and demand. Anas (may Allah be pleased with him) recounted an instance when prices were extremely high; the Companions asked the Messenger of Allah to set prices, but he refused. The Messenger said: "Indeed, it is Allah who determines prices, who withholds and expands [provision], and who provides sustenance; and I truly wish to meet Allah without any of you claiming against me for injustice regarding blood or property" (Narrated by At-Tirmidhi, Ibn Majah, Abu Dawud, Ad-Darimi, and Ahmad).

In addition to all this, Islam prohibits associations or unions of producers, consumers, or merchants from engaging in... ...agreements, collusion, or conspiracies to fix and control prices or trade—such as agreeing on minimum selling prices—contrary to the teachings of the Messenger (PBUH). This also applies to hoarders (muhtakir), an act the Messenger described as a grave sin and one condemned by Allah.

Wallahu ‘alam. And God knows best.

 

'Islamic Agricultural Economics' and 'Islamic Food Economics'

 

Before delving into "Islamic food economics," let us begin briefly with Islamic agricultural economics. Here, food is positioned as a subset of agriculture, although there has been a tendency to shift it into the food and pharmaceutical category—a trend evident, for instance, in the Job Creation Bill (Omnibus Law) discussed in early 2019.

We have long heard of Islamic Economics, but "Islamic Agricultural Economics" is a less familiar concept; a Google search yields no results for the term "Islamic Agricultural Economy."

The logic of Islamic agriculture differs from conventional economic logic. A single onion bulb is planted, yielding ten bulbs. A pair of sheep is raised, and within a few years, they may multiply into ten. This clearly reflects the intervention and boundless blessings of the Giver of Life. Consider how many thousands of pots of vegetables can be produced from a single hectare of onions, and how many mouths and stomachs are nourished by them; the scale is truly incalculable. It is impossible to quantify the blessing found in the taste of vegetables enhanced by the perfect aroma of fried onions.

Therefore, one should not view the harvest solely in terms of monetary value. Transforming one onion into ten might be deemed a financial loss if market prices have plummeted. Yet, when viewed through the lens of utility and the enjoyment derived from the produce, no farmer truly suffers a loss. Ultimately, farming is about sowing seeds, spreading virtue, performing good deeds, and reaping spiritual rewards—not merely planting money to generate more money.

 

Islamic Agricultural Economics is not simply about...

planting money to harvest money...

If farming is understood merely as planting money to make money, we neglect the damage caused in the process. Indiscriminate pesticide use—which kills the earthworms that enrich the soil—is not counted as a loss. Inorganic fertilizers harden the soil and destroy its biological health. Conventional farming analysis fails to account for such environmental damage. Furthermore, results are measured solely in terms of raw yield rather than the final product.

Islamic agriculture does not harm nature; it preserves it. Islam is a mercy to all creation, and farming in accordance with Islamic principles brings life rather than destruction.

People discuss food and economics daily, and religious study gatherings are held morning and evening; yet, it seems no one has attempted to weave these concepts together into a single, cohesive idea: the "Islamic food economy." While many touch upon food when discussing agriculture, few have dared to explicitly label their discourse as a "food economy."

Meanwhile, in the real world—despite the implementation of various approaches ranging from food security and food sovereignty to self-sufficiency—the food crisis remains unresolved. The UN reports that over 800 million people worldwide suffer from hunger, with 120 million facing acute hunger. Given a global population of 7.7 billion, this means more than 10 percent of the world's people go hungry. Ironically, 1.3 trillion tons of food are wasted globally each year—equivalent to one-third of total global food production. Who is responsible for the most food waste and loss? The countries with the highest rates are Saudi Arabia, Indonesia, the United States, and the United Arab Emirates. Subhanallah (Glory be to God).

This implies that the agricultural economics we have applied thus far has proven incapable of solving the world's food problems. This discipline suffers from numerous flaws—for instance, the tendency to view food merely as an industrial product. It is treated simply as a matter of "production" rather than a gift from God deserving of high regard. To value food is to value those who produce it. In short, it is time we turned to divine guidance in organizing our agriculture and food systems.

Agricultural economics is derived from general economics simply by shifting the focus to agricultural products. Is it truly adequate to build a discipline—and subsequently a field of "Food Economics"—upon such a paradigm and approach? After all, agricultural economics deals with primary commodities, yet it is derived from a science originally built upon secondary and tertiary goods.

It appears that staple foods should be removed from the market mechanism. There are at least four reasons for this. First, humans possess an innate instinct and moral imperative to help sustain the lives of others. People will die without food. Consequently, across all tribes, religions, rural and urban settings, and traditional societies, people naturally share food and provisions. Even in the modern world, this inclination to share remains strong; we see lavish, free feasts in major cities, and we take pleasure in treating friends and guests to meals.

Traditional societies never sold food to one another. Among hunter-gatherer communities, food was typically gathered in a central location for communal consumption; they established community food granaries. This custom persists in contemporary society through practices such as arisan (rotating savings and social gatherings), selamatan (communal thanksgiving feasts), and other celebrations that serve as mechanisms for sharing food.

Second, food is always derived from the land, whether directly or indirectly. Since no single human being can truly "own" a plot of land—we merely hold the right to cultivate it—anything produced from that land cannot be considered entirely one's own property. There is an inherent social dimension involved; every harvest carries a social element. Third, religion teaches us not to treat staple foods merely as economic commodities subject to market mechanisms. There are countless exhortations and teachings regarding hospitality—such as the Hadith encouraging one to cook extra vegetables so they can be shared with others, and so forth.

Fourth, the value yielded by the land far exceeds the effort a human has invested. A single seed is cast into the soil, and five years later, it bears fruit. Where, in that process, lies the effort of the person who sowed it? This implies that the result is almost entirely a blessing from the land, from nature—indeed, from God. "And He spread out the earth for [His] creatures; therein are fruits and date palms with sheathed clusters" (Ar-Rahman: 10–11).

Wallahu ‘alam. And God knows best.    ******

 

Land Waqf as a Permanent Solution for Agrarian Reform

 

 

Utilizing waqf (Islamic religious endowment) as a mechanism for agrarian reform has recently become a subject of growing discussion. Nahdlatul Ulama (NU) in Indonesia issued recommendations regarding agrarian reform during its 2017 National Conference in West Nusa Tenggara. This stance serves as a starting point for linking waqf with national agrarian reform policy. In the book Wakaf Agraria: Signifikansi wakaf bagi agenda reforma agraria (Agrarian Waqf: The significance of waqf for the agrarian reform agenda; Shohibuddin, 2019), it is noted that waqf (Islamic endowment) in the agricultural and environmental sectors encompasses key aspects of agrarian reform implementation, such as the regulation of land tenure, usage, and utilization. According to the author, waqf represents a highly promising scheme for addressing various structural issues in the agrarian sector, such as farmers' limited access to agricultural land, land tenure inequality, and the threats posed by the shift away from food crops and the conversion of agricultural land. On one hand, the waqf scheme can provide access to agricultural land while simultaneously protecting it from the threats of fragmentation, alienation, encroachment, and land-use conversion. On the other hand, various components of agrarian reform can effectively be integrated with the operational aspects of waqf itself.

The "agrarian waqf" innovation is developed in this book by drawing upon the normative and historical concepts of waqf. In fact, this idea is already being implemented in several regions—examples include food crop land waqf in Tuban and Jombang (East Java), orchard waqf in Pandeglang (Banten), and forest waqf in Aceh Besar (Aceh). The author outlines seven operational models for agrarian waqf: the anti-fragmentation model, the consolidation model, the major donor model, the crowdfunding model, the model integrating with community-led land reform initiatives, the village waqf land model, and the model integrating with government land reform programs.

The agrarian waqf scheme is inclusive in nature. It serves purposes beyond ritual worship, extending into the realm of social philanthropy. Furthermore, agrarian waqf is applicable to the general public—involving both donors and beneficiaries—and is not limited solely to the Muslim community.

The potential for waqf land in Indonesia is immense. As of June 2017, the total area of ​​waqf land in Indonesia stood at 4.36 million hectares. This figure represents half of the country's total rice paddy area. ...irrigation in Indonesia, which covers only 7.7 million hectares. According to the Indonesian Waqf Board (BWI), this land is distributed across 435,768 locations. Of the total, 287,608 locations are certified, while 148,160 remain uncertified (Report by the Director of Waqf Empowerment, January 4, 2017).

The waqf (religious endowment) scheme offers hope for overcoming the failures that have plagued agrarian reform efforts to date. These failures include agrarian differentiation, land fragmentation, the displacement of farmers, and the conversion of agricultural land for other uses. Waqf can serve as a religious breakthrough for implementing comprehensive and sustainable agrarian reform.

Endowing assets for the public good is a truly noble act. There are many types of assets one can endow, one of which is immovable property, such as land. The definition and regulations regarding waqf are established by the state, notably in Law Number 41 of 2004 concerning waqf and Government Regulation Number 42 of 2006 regarding its implementation. Here, waqf is defined as "...a legal act by the waqif (endower) to separate and/or surrender a portion of their assets to be utilized in perpetuity or for a specific period—in accordance with the intended purpose—for acts of worship and/or public welfare, in compliance with Sharia."

Regarding the assets to be endowed, regulations stipulate that the property must be non-depletable—such as real estate (land, houses, etc.). In the case of land, it has traditionally been used to build places of worship or for other public interest purposes.

At its core, waqf entails relinquishing ownership, meaning the asset cannot be converted to a different use or transferred to anyone else. The key concept here is that it "cannot be transferred." Consequently, land that was originally part of the commercial sector—treated as a commodity—is transformed into... ...non-commodity and removed from the commercial market system. This means that the land's status shifts from private to common property. Consequently, endowed land is automatically shielded from fragmentation caused by inheritance mechanisms.

Waqf can support agrarian reform agendas, such as in the process of land consolidation. It can be applied to village land, where a village allocates its land through specific waqf-based mechanisms. Furthermore, the vast expanse of state land—comprising over two-thirds of Indonesia's total land area—could actually utilize this waqf mechanism. The state—which is not legally a "super-landlord" owner of the land—could distribute land to the community through waqf mechanisms, for instance, via the Indonesian Waqf Board (Badan Wakaf Indonesia).

In essence, the spirit and mechanism of waqf (religious endowment) seek to counter the notion of land commodification. Through waqf, land is neither subject to changes in ownership or transfer, nor is it bought, sold, or fragmented—as often happens in the commercial land market. Instead, land waqf serves the public interest. Furthermore, it fosters a sense of social solidarity, which forms the foundation of an Islamic economy aimed at shared prosperity. Ultimately, waqf can serve as a solution benefiting all citizens, including non-Muslims.

Wallahu ‘alam. And God knows best.