International Seminar on Promoting Local Resources for Food and Health, 12-13 October, 2015, Bengkulu, Indonesia 342 | Proceeding ISEPROLOCAL. ISBN: 9786029071184 The Traditional Contract System - It’s Role to the Development of Small Scale Palm Sugar Industry in Bengkulu M. Mustopa Romdhon Agribusiness Department, Faculty of Agriculture, Bengkulu University Email: abyaz_75@yahoo.co.id ABSTRACT The small scale palm sugar industry is having significant contribution to strengthen rural economics‘ structure. Unfortunately, in rural area there is less developed transportation and communication network so as competitive market economy. Thus, the agent‘s in rural area is facing many barriers such as less price information, limited numbers of agricultural inputs both timely and spatially. As the result, the palm sugar agent creates another alternative exchange institution of the principle – agent type of relationship that dominated rural economy, even taking lower profit share. For that purposes, the study describes role of the contract system mechanism in the small-scale palm sugar industry. This research was conducted on July to Augusts 2011 by survey approach. The descriptive analysis was utilized to explaining the existence of traditional contract system.. There are four types of perennial crops, especially of palm used for sugar making between the tappers and the owners. The contract offers both guaranteed market and purchased price to tappers who have never had assurance. The evidences show the traditional contract system of small palm sugar industry supposed to be sustained a monopoly market. Key words: traditional, contract system, palm sugar, small scale industry INTRODUCTION Agricultural sector has been the main focus in Indonesia development strategy, because the land and labor were underutilized. Over the past two decades, the sector‘s notable contribution to reduce poverty and employment, significantly. In spite of significant contribution, the policy‘s was bias to the large agro-processing industry (Garcia, 2000; Wiyatiningsih, 2000). Consequently, the inability of policy makers in improving and accommodating all agricultural agents had negative effect on the foundation of the rural and agricultural economy, on which the majority of the population depends. Therefore, when the crisis hit, the large size agro processing industry was collapse and it takes wide spread unemployment in Indonesia. The small-scale industry is palm sugar industry which is having bright prospect to be a leading sector and making significant contribution to Regional Income in forth coming. It means that the small- scale agro processing industry has some potential in create employment, alleviate poverty, reduce urbanization, and strength economic structure. Unfortunately, in rural area, there is less developed transportation and communication network so as competitive market economy. Thus, so the agent‘s far rural area is facing many barriers such as less price information, limited numbers of agricultural inputs both timely and spatially. Consequently, the price doesn‘t function as the sufficient resource allocation coordinators. The performance of formal marketing institution like village cooperatives (KUD) was getting worst. If these conditions especially in rural economy would follows prescription based on the premise of the standardized competitive market economy, it could be missing market that causes great bias and efficiency loss (Monke and Eric, 1989). As the result, the palm sugar agent creates another alternative exchange institution of the principle – agent type of relationship that dominated rural economy, even taking lower profit share (Bardan, 1989; Sadoulet and Janvry, 1995; Anwar and Hermanto, 2001). Based on the previous description, the objectives of the study were to elaborate the role of traditional contract system in developing the small scale palm sugar industry in Rural Bengkulu. MATERIALS AND METHODS In rural area such Air Meles Atas, Rejang Lebong District, Bengkulu Province was chosen as a research site because many villagers were engaged in palm sugar making. The area has a diverse