Explaining Farmer’s Contract in Legundi, Ngawi Region: Agency Theory and Sharia Perspective

Contracts are a condition for the emergence of cooperation in economic activity. In the agricultural sector, farmers' cooperation contracts will affect the distribution of income, which in turn will also affect their level of welfare. Cultivation of rice fields in Legundi Village, Karangjati Subdistrict, Ngawi Regency is carried out in the form of a cooperation contract involving the owners of the fields, the cultivators of the fields and farm laborers. This study aims to explore the existence of these contracts using the perspective of institutional economics and Islamic economics. The institutional perspective aims to identify the principal-agent position and analyze contractual problems arising from the employment relationship with agency theory indicators. While the perspective of Islamic economics aims to analyze how the form of the contract conforms with Islamic legal indicators. In this study, data collection procedures were carried out through interviews with respondents involved in all aspects of the rice cultivation cooperation contract. Data analysis begins by identifying the contract then analyzing the contractual issues. The contract identification results show that from an institutional perspective, the principal agent of the contract actors is the owner of a pure rice field or a rice field owner who doubles as a cultivator of a paddy as a principal. Based on sharia perspective this study found two forms of cooperation, namely ijarah which consists of ijarah 'ala al-a'yan and ijarah' ala al-a'mal and mukhabarah. The results of the analysis of the contract problem show that from an institutional perspective there is a moral hazard found in the production sharing contract, conflicting objectives in the lease contract, and adverse selection between the farmer group and Bulog. From the perspective of sharia there is an unclear risk of crop failure, lack of awareness of paying zakat mal, and the emergence of the risk of mutual suspicion in the mukhabarah. Keywords: Agency Theory,  Farmer’s Contract, Sharia Perspective