Agricultural Policy Monitoring and Evaluation 2020

14. Indonesia

Support to agriculture

Indonesia’s main agricultural policies are framed in the 2012 Food Law, which establishes the objectives of food sovereignty and self-reliance. In practice, these objectives have led to programmes aimed at achieving self-sufficiency in a number of staple products (rice, maize, soybeans, sugar and beef). As a consequence, the most important component of agricultural support in Indonesia is market price support to producers, including some negative support to palm oil. There is also a food assistance programme (BPNT) to support poor consumers.

Producer support to agriculture increased significantly in the 2000s from 7% of gross farm receipts to 24%, but has remained stable around that level over the past decade. Expenditures on general services for the sector (GSSE) are small compared to producer support, representing 5.5% of the Total Support Estimate (TSE). Total support amounts to around 3.2% of GDP.

Main policy changes

During 2015-19, Indonesia maintained the main features of its agricultural policy settings that were adopted in 2012. Market price support delivered through domestic and trade policy settings, along with budgetary transfers for variable inputs (mainly in the form of subsidies to fertiliser, seeds, credit, and grants for equipment) have been the main form of support provided to producers. The government minimum purchase prices for sugar, soybeans and paddy rice have remained constant in nominal terms since 2015. Similarly, Indonesia has maintained its export tax arrangements related to palm oil and cocoa, but since 2015, the government has also collected an export levy for crude palm oil to the amount of USD 50/tonne. In 2019, the government announced an increase in the biofuels mandate to blend 30% palm biodiesel, up from 15%.

Fertiliser subsidies remain the most significant component of budgetary outlays provided to the sector. Funding for these subsidies has increased, with some of the savings generated by reforms to the country’s fuel subsidy arrangements being channelled into this policy area. Government investment in irrigation infrastructure has continued to grow since 2015, targeted to rice production.

BULOG (the Indonesian National Logistic Agency) maintains its market operations and purchasing functions for rice. Market price support schemes for rice remain the most important contributor to agricultural support. To compensate for some of these price effects, BULOG has continued to distribute rice within the RASTRA programme that replaced RASKIN, which operated from 2012 to May 2019. In June 2019 the programme was transformed into an electronic food voucher programme called BPNT and co-ordinated by the Ministry of Social Affairs. In 2018 and 2019, budgetary transfers to support the system amounted to IDR 20.8 trillion (USD 1.5 billion), compared to IDR 21.8 trillion spent in 2015 (USD 1.7 billion). In addition, a regulation establishes a maximum retail price for medium quality rice since August 2017.

Assessment and recommendations

• The focus of Indonesian agricultural policy has not significantly changed in the last five years. There are large price gaps between domestic and international markets of imported products such as rice, maize and poultry. The policy focus has been on self-sufficiency and the corresponding trade measures as a tool to achieve food self-reliance. However, the observed impact on incentives and prices are likely to be working against some of the main objectives that underpin the Food Law of 2012, in particular affordable prices for consumers and diversification in production and diet.

• The ongoing reform of the food assistance programmes is in line with OECD recommendations (OECD, 2015[1]; OECD, 2016[2]), and gradually shifting from the Rastra physical distribution system to the BPNT electronic food voucher system is an important step to improve effectiveness. Its completion should allow for better policy targeting and improved food security.

• Fertiliser subsidies are costly and the extent to which benefits accrue to farmers has been questioned. An application of fertilisers that is not adapted to the local soil and production conditions can also have negative environmental effects. A more efficient scheme would be to convert these subsidies into less coupled payments per unit of land, allowing for a more efficient allocation of inputs in production, in line with what has been progressively implemented in other countries, including in China.

• A greater focus should be placed on policies that improve the competitiveness of agriculture and of rural areas, stimulating domestic productivity through investments in infrastructure, the innovation system and through easing constraints on private investment in agriculture. Budgetary savings from reduced input subsidies could be re-allocated to reinforce Indonesia’s Agricultural Innovation System and improve farmers’ skills to manage production and natural resources on their farms and, hence, contribute to long-term agricultural productivity growth and poverty reduction.

• Indonesia applies a growing number of administrative requirements on agro-food imports related to food safety, quarantine, product standards and labelling. The combination of these requirements, uneven enforcement and lack of transparency from changing rules is adding to trade costs. Ensuring that requirements are set on a scientific basis, and improving transparency and consistency in application should help ease these growing costs. The recent implementation of an online system for import permits and requirements could contribute to improve transparency.

• Indonesia has no specific target for agricultural GHG emissions reductions in its Nationally Determined Contributions (NDCs). The National Plan to Reduce GHG emissions includes a set of targets to be achieved by 2020, including the management of agricultural land without burning and reforestation. Based on a systematic assessment of the performance of current measures, Indonesia could improve the contribution of agriculture forestry and land use to climate change mitigation.

Policy responses in relation to the COVID-19 outbreak

Agricultural policies

The government has relaxed the requirements to access Kredit Usaha Rakyat (People Enterprise Credit) and Ultra Micro Credit for SMEs, including in the agro-food sector. These measures include the relaxation of some administrative requirements for new loans such as business permits, tax register numbers and additional collateral documents. For existing loans, a 6-months delay on interest and debt payment was established. This policy has been funded with additional resources of IDR 6.1 trillion (USD 386.3 million).

The government has introduced tax measures, including corporate tax allowances and income tax reductions granted to processing industry workers up to a maximum income. The process of value added tax restitution for 19 identified sectors, including agro-food, has been accelerated.

Other measures focus on reducing tariffs and taxes, simplifying and reducing export and import restrictions on certain commodities including those supporting the manufacturing, food and medical industry. For instance, import certification requirements have been eliminated on imports of onions and garlic. Export and import processes have also been accelerated including through the export-import services provided by the National Logistic Ecosystem (NLE).

A stimulus package has been approved to increase government expenditures across the economy, including agro-food. It includes additional support to the industries and enterprises (IDR 220 trillion or USD 14 billion) for the economic recovery programme.

Consumer policies

An additional social safety net programme (IDR 65 trillion or USD 4.12 billion) comes in the form of a welfare programme support for essential goods, including free electricity, housing support, essential goods and education.

On 16 March, the Head of the National Task Force on Food issued a letter on limitations on the purchase of staple food to prevent panic buying in the areas affected by the COVID-19 outbreak. However on 18 March the letter was withdrawn as stocks of staple food were considered sufficiently secure.

Figure 14.1. Indonesia: Development of support to agriculture

Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to producers (%PSE) increased significantly in the 2000s from 7% of gross farm receipts to 24%, but has remained stable around that level over the past decade. Almost all producer transfers are potentially most distorting, mainly market price support (including negative price support for palm oil), but also payments based on variable input use (Figure 14.1). The level of support increased from 2018 to 2019 by less than 2%, driven by price support partially offset by reduced budgetary payments (Figure 14.2). Prices received by farmers, on average, were 30% higher than world prices with large differences between commodities. Sugar, cocoa, maize and rice were the commodities with the highest shares of single commodity transfers (STC) in gross farm receipts, all about or above 40%. The expenditures for general services (GSSE) measured relative to agricultural value added were 1.4%, well below the OECD average. Total support to agriculture as a share of GDP has increased in the last two decades from 1.3% to 3.1%, mainly driven by additional support to individual producers (PSE).

Figure 14.2. Indonesia: Drivers of the change in PSE, 2018 to 2019

Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Statlink

Figure 14.3. Indonesia: Transfer to specific commodities (SCT), 2017-19

Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Statlink

Table 14.1. Indonesia: Estimates of support to agriculture

Million USD

	2000-02	2017-19	2017	2018	2019p
Total value of production (at farm gate)	23 813	120 673	120 162	118 043	123 813
of which: share of MPS commodities (%)	72.0	77.0	76.8	77.1	77.2
Total value of consumption (at farm gate)	22 684	79 452	80 632	77 469	80 255
Producer Support Estimate (PSE)	1 800	29 927	31 614	28 781	29 387
Support based on commodity output	1 707	27 142	28 795	25 829	26 803
Market Price Support1	1 707	27 142	28 795	25 829	26 803
Positive Market Price Support	2 309	29 158	30 588	27 937	28 949
Negative Market Price Support	-602	-2 015	-1 792	-2 108	-2 146
Payments based on output	0	0	0	0	0
Payments based on input use	82	2 769	2 802	2 935	2 570
Based on variable input use	19	2 328	2 275	2 515	2 195
with input constraints	0	0	0	0	0
Based on fixed capital formation	59	429	519	403	367
with input constraints	1	0	0	0	0
Based on on-farm services	4	11	9	17	8
with input constraints	0	0	0	0	0
Payments based on current A/An/R/I, production required	11	16	16	17	14
Based on Receipts / Income	11	16	16	17	14
Based on Area planted / Animal numbers	0	0	0	0	0
with input constraints	0	0	0	0	0
Payments based on non-current A/An/R/I, production required	0	0	0	0	0
Payments based on non-current A/An/R/I, production not required	0	0	0	0	0
With variable payment rates	0	0	0	0	0
with commodity exceptions	0	0	0	0	0
With fixed payment rates	0	0	0	0	0
with commodity exceptions	0	0	0	0	0
Payments based on non-commodity criteria	0	0	0	0	0
Based on long-term resource retirement	0	0	0	0	0
Based on a specific non-commodity output	0	0	0	0	0
Based on other non-commodity criteria	0	0	0	0	0
Miscellaneous payments	0	0	0	0	0
Percentage PSE (%)	7.4	24.2	25.7	23.8	23.2
Producer NPC (coeff.)	1.08	1.31	1.33	1.30	1.29
Producer NAC (coeff.)	1.08	1.32	1.35	1.31	1.30
General Services Support Estimate (GSSE)	382	1 882	2 506	1 060	2 082
Agricultural knowledge and innovation system	45	81	84	74	84
Inspection and control	14	46	50	48	41
Development and maintenance of infrastructure	323	906	901	871	947
Marketing and promotion	0	5	8	2	5
Cost of public stockholding	0	844	1 463	65	1 005
Miscellaneous	0	0	0	0	0
Percentage GSSE (% of TSE)	15.8	5.5	6.7	3.4	6.3
Consumer Support Estimate (CSE)	-2 067	-21 152	-21 282	-20 312	-21 861
Transfers to producers from consumers	-2 108	-23 857	-25 233	-22 288	-24 051
Other transfers from consumers	-309	-541	-528	-658	-436
Transfers to consumers from taxpayers	328	2 014	3 262	1 349	1 432
Excess feed cost	22	1 232	1 217	1 284	1 195
Percentage CSE (%)	-9.2	-27.3	-27.5	-26.7	-27.7
Consumer NPC (coeff.)	1.12	1.44	1.47	1.42	1.44
Consumer NAC (coeff.)	1.10	1.38	1.38	1.36	1.38
Total Support Estimate (TSE)	2 511	33 824	37 381	31 190	32 901
Transfers from consumers	2 417	24 398	25 761	22 946	24 487
Transfers from taxpayers	403	9 966	12 148	8 902	8 849
Budget revenues	-309	-541	-528	-658	-436
Percentage TSE (% of GDP)	1.3	3.2	3.7	3.0	2.9
Total Budgetary Support Estimate (TBSE)	803	6 681	8 586	5 361	6 097
Percentage TBSE (% of GDP)	0.4	0.6	0.8	0.5	0.5
GDP deflator (2000-02=100)	272	930	902	936	953
Exchange rate (national currency per USD)	9 322.08	13 921.55	13 381.48	14 232.88	14 150.28

Note: p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. A/An/R/I: Area planted/Animal numbers/Receipts/Income. 1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Indonesia are: : maize, rice, soybean, sugar, milk, beef and veal, pig meat, poultry, eggs, bananas, cassava, cocoa beans, coffee, palm oil and rubber.

Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Contextual information

Indonesia’s population is growing rapidly, representing the fourth largest in the world with 262 million people and a high population density of 148 inhabitants per km². Indonesia is also one of the largest agricultural producers. The share of agriculture in GDP has been falling in the last two decades but still represents almost 13% of GDP. The reduction in the share of agriculture in employment has been proportionally much larger, declining from 45% in 2000 to 35% in 2018, with a significant increase in the average production per employed person in the sector.

Indonesia is a net agro-food exporter and an increasing share of its total exports come from the sector (18.8% in 2018). Nonetheless, the country is also a large importer. Total agricultural area in Indonesia has increased by 32% in the last two decades and currently represents 2.1% of the agricultural land in all countries in this report. While food crop production is based on small family farms, there are large commercial farms producing perennial crops, in particular palm oil.

Table 14.2. Indonesia: Contextual indicators

	Indonesia		International comparison
	2000*	2018*	2000*	2018*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	1 069	3 495	2.7%	3.1%
Population (million)	205	262	4.8%	5.1%
Land area (thousand km2)	1 812	1 878	2.2%	2.3%
Agricultural area (AA) (thousand ha)	47 177	62 300	1.6%	2.1%
			All countries¹
Population density (inhabitants/km2)	117	148	53	62
GDP per capita (USD in PPPs)	5 213	12 408	9 275	21 924
Trade as % of GDP	26	18	12.4	15.3
Agriculture in the economy			All countries¹
Agriculture in GDP (%)	15.6	12.8	3.1	3.6
Agriculture share in employment (%)	45.3	30.5	-	-
Agro-food exports (% of total exports)	6.8	18.8	6.2	7.3
Agro-food imports (% of total imports)	12.7	11.5	5.5	6.3
Characteristics of the agricultural sector			All countries¹
Crop in total agricultural production (%)	84	81
Livestock in total agricultural production (%)	16	19
Share of arable land in AA (%)	43	42	32	33

Note: *or closest available year. 1. Average of all countries covered in this report. EU treated as one.

Sources: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

Indonesia has a solid growth record, at around 5% per year since 2000, including after the financial crisis. Real income per capita is around double its level in 2000. Indonesia has succeeded in reducing the prevalence of poverty significantly; it ranged at 9.8% in 2018 by national standards and at 5.7% according to the headcount ratio under the international poverty line (USD 1.9). Inflation has been stable at around 4% in the last four years and consistently below 6% in the last decade, while the rate of unemployment is below 5%.

The volume of agro-food exports and imports has remained relatively stable since 2011, with USD 34 billion of exports and USD 22 billion of imports in 2018. Palm oil and rubber account for more than 60% of agro-food exports and contribute to a significant surplus in Indonesia’s agro-food trade. As a consequence, around 75% of agro-food exports are processed products to be further transformed by industries in other countries, while a significant share of agro-food imports (37%) are primary products for further processing in Indonesia.

Figure 14.4. Indonesia: Main economic indicators, 2000 to 2019

Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.

Figure 14.5. Indonesia: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

Indonesia’s agricultural production has increased at an annual rate of 3.2% in 2007-16. Most of this growth is productivity-driven: Total Factor Productivity (TFP) has increased by 2% per year, representing improvements in the technologies applied to combine different production factors. Additional primary factors, including land, and intermediate inputs have contributed an additional 0.5 and 0.7 percentage points to the production growth, respectively. Unlike in the 1990s, Indonesia’s growth in output and TFP has outperformed the global averages during the last 10 years.

Indonesian agriculture accounts for an increasing share of water extractions, which was 85% in 2007-16. However, the sector’s shares of energy used (1.4%) and greenhouse gas (GHG) emissions (13%) have been reduced compared to the 1990s. Phosphorous balance has increased while nitrogen balance has steadily decreased into negative values.

Figure 14.6. Indonesia: Composition of agricultural output growth, 2007-16

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database.

Table 14.3. Indonesia: Productivity and environmental indicators

	Indonesia		International comparison
	1991-2000	2007-2016	1991-2000	2007-2016
			World
TFP annual growth rate (%)	1.1%	2.0%	1.6%	1.6%
			OECD average
Environmental indicators	2000*	2018*	2000*	2018*
Nitrogen balance, kg/ha	31.6	-9.8	33.3	29.1
Phosphorus balance, kg/ha	1.5	3.1	3.3	2.3
Agriculture share of total energy use (%)	2.4	1.4	1.7	2.0
Agriculture share of GHG emissions (%)	19.8	13.3	8.1	8.9
Share of irrigated land in AA (%)	10.3	..
Share of agriculture in water abstractions (%)	81.9	85.2	46.0	49.0
Water stress indicator	..	..	9.9	8.9

Notes: * or closest available year.

Sources: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.

Description of policy developments

Main policy instruments

The Food Law of 2012 shapes Indonesia’s agricultural policy and its set of core objectives. The food law sets out the principles of food sovereignty (kedaulatanpangan) and food self-reliance (kemandirianpangan) as the approach to food security. These objectives are confirmed in the Strategic Plan of the Ministry of Agriculture from 2015‑19: achieving self-sufficiency in the production of selected staple-food commodities (rice, maize, soybeans, sugar and beef) to assure food security; ensuring food prices are affordable for consumers across the archipelago; diversifying production and consumption away from carbohydrates (rice and wheat) towards animal-based products, and fruits and vegetables (particularly root vegetables); raising the competitiveness of agricultural production and value-added processing; increase the availability of raw material for bio-industry and bioenergy; and improving the welfare of farmers through higher incomes as a way to reduce the level of rural poverty (OECD, 2012[3]). The law specifically stipulates that domestic food demand can be fulfilled by imports if local food sources are insufficient (GAIN ID1841, 2019[4]).

Indonesia’s policy objectives are pursued through both domestic and trade policy measures. Domestic policy measures include the use of minimum purchase prices for rice and sugar, substantial budgetary allocations for inputs, and payments for the provision of services to agriculture generally, in particular for irrigation; research and development; and marketing and promotion.

BULOG manages the public interventions in the domestic market and imports, and has the responsibility of undertaking market operations aimed at stabilising domestic prices, and to manage the government rice reserve. BULOG can only buy paddy or rice from farmers when the market price is lower than or equal to the minimum price and is required to maintain a minimum year-end stock of 2 million tonnes, about 2.5% of annual consumption in Indonesia (GAIN ID1904, 2019[5]). Only BULOG can import medium quality rice with a maximum 25% broken grains; however, private companies can import specialty rice such as jasmine rice and basmati rice (GAIN ID1808, 2018[6]). In 2017, Indonesia introduced ceiling prices on medium and premium quality rice at the retail level, which vary across regions. In the event that the retail rice price exceeds the ceiling level, BULOG also releases the rice stock to the market.

To ensure the supply of affordable rice to poor consumers, a social programme Rastra (RASKIN before 2012) has been used to distribute rice at low prices. The Rastra programme, and its required distribution system, has allowed the government to keep minimum prices for rice producers while ameliorating some of the price impact on poor consumers. This, however, has come at the cost of increasing budgetary expenditure to finance the programme. Under Rastra, BULOG distributed rice to consumers: 10 kg of rice per family per month. In early 2017, Indonesia started the large-scale pilot programme that provided an electronic food voucher (BantuanPangan Non Tunai, BPNT) as an alternative to physically distributing rice under the Rastra programme. In May 2019, the Rastra programme was terminated and replaced by the BPNT, which is co-ordinated by the Ministry of Social Affairs (Ministry of Social Affairs (Kementerian Sosial), 2019[7]). Under the BPNT, eligible households receive IDR 110 000 (USD 8.2) per month on a purchasing card that can be used to buy rice at the market price from selected retailers.

A wide range of input subsidies on fertilisers, seeds and credit are used to support agricultural producers. The percentage of subsidy varies across fertiliser types, with urea receiving the highest subsidy at 67.2% of the market price (Sudaryanto, 2018[8]). The subsidy is given indirectly to fertiliser manufacturers, which then sell the fertilisers to the farmers at a reduced price. Before the beginning of the planting season, the MoA issues a decree on the estimated demand for different types of fertilisers by provinces along with the reference price of fertilisers at the retail level. Based on this information, the governors of the corresponding provinces break down the demands for fertiliser in every district. The decree also serves as a reference for the fertiliser companies to distribute fertilisers in the corresponding regions. In addition to the fertiliser subsidy, the Ministry of Agriculture also directly distributes fertiliser to food crop farmers in selected regions.

The government of Indonesia invests in irrigation infrastructure. According to the Indonesian Ministry of Public Works (MPW), approximately 84% of Indonesian harvested rice area is irrigated, while the remaining 16% is rain fed (GAIN ID1904, 2019[5]). Supported through savings from fuel subsidies, the government of Indonesia has continued its push to improve the country’s irrigation infrastructure. Much of this is targeted towards rice production. The investments in infrastructure are in addition to the current exemptions in place on water transportation costs: farmers are not charged for the cost of delivering water from the source to the tertiary system via primary and secondary canals.

Indonesia restricts the importation of strategic commodities (those associated with self-sufficiency targets: rice, maize, soybeans, sugar and beef) and also imposes taxes on some of its major exports — such as for crude palm oil (CPO) and cocoa. The food law sets out the principles that underpin food trade. It contains provisions restricting staple food exports and imports such as “state food export can only be implemented after fulfilling National Food Reserve and staple food consumption necessity” and “food import can only be implemented if domestic food production is not sufficient or cannot be produced domestically” (Articles 34 and 36). Trade policy measures include both tariff and non-tariff measures. The average applied MFN import tariff on agro-food products, excluding alcoholic beverages and spirits, is low at just over 5% in 2017. Rice and sugar have higher specific tariffs. Import monopolies, licensing requirements and export restrictions on agricultural products were removed in 1997-98. However, in the 2000s quantitative import restrictions and licensing were reintroduced, notably for rice, sugar and beef. Import requirements imposed for food safety, SPS and cultural reasons are becoming more stringent. A variable export tax regime was introduced on crude palm oil and derived products, and more recently on cocoa (OECD, 2012[3]). The MFN tariff schedule is updated every five years by the Ministry of Finance (BukuTarif danKepabeanan Indonesia, BTKI). The latest BTKI was released in 2017.

Since 2008, companies must be approved by the Ministry of Trade as registered importers to import a range of processed products manufactured from meat, cereal, sugar and cocoa. Similar restrictions were placed on animals and animal products in 2011. In line with the Ministry of Trade regulation on the Import and Export of Animals and Animal Products issued in September 2011, imports of these products can only be done by a registered importer and can only be carried out if the domestic production and supply are not sufficient to meet consumer demand at an affordable price level.

Indonesia is a member of the Association of Southeast Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC), and World Trade Organisation (WTO). It participates in trade liberalisation between ASEAN members and their major trading partners in the region, including China, Japan, India, Korea, Australia and New Zealand. The ASEAN economies committed in 2015 to complete the formation of the ASEAN Economic Community by 2025. This is intended to develop: a single market and production base; a highly competitive economic region; a region of equitable economic development; and a region fully integrated into the global economy (ASEAN Secretariat, 2017[9]).

Domestic policy developments in 2016-20

The new Law Number 22/2019 on sustainable agricultural systems aims to further improve production sustainability. The law mandates that the achievement of food sovereignty should take into account the carrying capacity of ecosystems, mitigation of GHG emissions and adaptation to climate change. The main environmental sustainability aspects covered by the law are: land use, seeds and planting, water quantity and quality, harvest and post-harvest losses, and research and development. Furthermore, the midterm national development plan (RPJM) for 2020-24 emphasises strengthening economic resilience (including food and agriculture) for quality and “fair growth” (Bappenas, 2020[10]).

During 2015-19, the government of Indonesia has maintained its commitment and continued its efforts to achieve self-sufficiency. The government sets targets for five key staples (rice, maize, soybeans, sugar and beef). Originally the target dates for achieving self-sufficiency targets were the end of 2017 for rice, maize and soybeans and the end of 2019 for beef and sugar. Along with the five key staples, policy measures have been introduced to promote production of other strategic commodities such as chilies, shallots, potatoes and cocoa. However, the target dates have been revised several times, and in 2019 full self-sufficiency had been achieved only for rice, maize, shallots, and chilies.

Under the Presidency of Joko Widodo, the budget of the MoA has increased from an average of IDR 16.70 trillion (USD 1.56 billion) per year in 2012-14 to IDR 23.25 trillion (USD 1.67 billion) per year in 2017-19. However, the budget has decreased in more recent years, from IDR 32.8 trillion (USD 2.45 billion) in 2015 to IDR 21.7 trillion (USD 1.53 billion) in 2019. The total budget for food security across all ministries is larger than that of the Ministry of Agriculture and it has decreased from IDR 125.9 trillion (USD 8.40 billion) in 2015 to IDR 96.2 trillion (USD 6.80 billion) in 2019.

To promote the development of beef cattle, the MoA has implemented the Sapi Indukan Wajib Bunting, (SIWAB) programme or Mother Cattle Must Pregnant, which provides inputs, infrastructure assistance, and technical guidance to produce calves. Another strategic activity is the Bedah Kemiskinan Rakyat Sejahtera (Bekerja) programme which aims to alleviate poverty by providing poor families with day-old native chickens, animal shelter, feed, and other inputs. The MoA has also implemented a pilot project of crop insurance for flood and drought since 2015. In 2018, the total area covered by pilot projects was 806 000 ha, with a premium subsidy of IDR 144 000 (USD 10.09) per hectare. In addition, the MoA has implemented a pilot project of beef cattle insurance since 2016 for a total of 88 673 heads of cattle insured, with a government subsidy of IDR 160 000 (USD 11.20) per head. The total budget on insurance amounted to IDR 14.19 billion (USD 0.99 million) in 2018.

Minimum purchase prices for rice have remained constant in nominal terms since 2015, at IDR 4 650/kg (USD 347/tonne) for paddy rice and IDR 7 300/kg (USD 545/tonne) for milled rice. The market price support schemes for rice remain the most important contributor to the longer run level of support in Indonesia. Producers of sugar and soybeans benefit from minimum purchase prices, set for soybeans by BULOG (since 2013) and for sugar cane by millers and traders. In 2017 the minimum sugar price increased to IDR 9 100/kg (USD 682/tonne) from IDR 8 900/kg (USD 667/tonne) (GAIN ID1904, 2019[5]). Minimum prices for soybean were set at IDR 7 700/kg (USD 575/tonne) in 2015, up from at IDR 7 000/kg (USD 523/tonne) in 2013. In September 2018, the Ministry of Trade set the minimum buying price of corn with 15% moisture content at the farm level at IDR 3 150/kg (USD 221/tonne) (Regulation No. 96/2018 on Reference Price).

In addition to establishing a fixed price for government procurement, the regulation by the Ministry of Trade on “Maximum Retail Prices (MRP) of Rice” of 24 August 2017 caps the retail price of medium quality rice at an average of IDR 9 450/kg (USD 348/tonne) and premium quality rice at an average of IDR 12 800/kg (USD 899/tonne). Following a stipulation in the regulation, the Indonesian police formed the so-called “Satgas Pangan” or Food Task Force, to enforce the regulation and to maintain a stable price of rice and other staple commodities (GAIN ID1904, 2019[5]). This policy has been debated widely because of the reduced margin of rice traders and rice millers (Sudaryanto, 2018[8]).

To protect poor consumers, BULOG has continued to distribute rice within the Rastra (prosperous rice; prior to 2016 called Raskin – rice for the poor) programme. While eligible households received 15 kg rice/month with 87.8% subsidy under the former programme, each family under the regular Rastra programme receives 10 kg of rice for free. The volume of rice distributed under Rastra was 3.2 million tonnes in 2015 and decreased to 2.7 million tonnes in 2016, and then reduced every year to only 354 825 tonnes in 2019. In early 2017, Indonesia started the large scale pilot programme of electronic food vouchers (BantuanPangan Non Tunai, BPNT) as an alternative to the Rastra programme, and since May 2019 replaced Rastra almost entirely. BPNT is co-ordinated by the Ministry of Social Affairs. Under BPNT, eligible households receive a total value of IDR 110 000 (USD 8.2) per month onto a purchasing card that can be used to buy rice and eggs at the selected retail stores. The transformation of Rasta into an e‑voucher system aims to improve the targeting to poor households, give more choices and provide better access to nutritious food, and save costs in the government’s budget (Alderman, Gentilini and Yemtsov, 2017[11]). Under the BPNT scheme, BULOG does not have any specific role, because the recipients of the programme may buy rice and other food necessities from any retailer available in the village. As a consequence of the new system, rice accumulated under the price support programme no longer has any outlet as was the case under the Raskin or Rastra programme. In 2018, the card recipients who resided in 44 pilot project cities could already use their cards at selected stores and receive 10 kg of rice and 2 kg of sugar; in the same year, the government disbursed Rastra to 14.3 million households and BPNT to 1.2 million households (Jakarta Post, 2018[12]). The e-voucher system was gradually expanded to more cities and districts throughout 2017–19 and is to be scaled up nationally by 2020. However, a Rastra scheme is still in use in selected remote regions where the e-voucher is not yet functional.

Subsidies for fertilisers and other inputs increased significantly over the period 2015-19. Overall, fertiliser subsidies remain by far the most important programme through which the government provides budgetary support to agriculture. The increase in this was possible due to some redirection of funds formerly spent on fuel subsidies. The value of the fertiliser subsidy increased from IDR 30 trillion (USD 2.2 billion) in 2015 to IDR 37.3 trillion (USD 2.64 billion) in 2019 with the total volume of subsidised fertiliser of approximately 8.88 million tonnes. In total, fertiliser subsidies account for 30.7% of total budgetary expenditures provided to support agriculture in 2019. In 2018/19, the MoA continued to target corn self-sufficiency by providing subsidised seed and fertiliser covering 3 million hectares (GAIN ID1904, 2019[5]).

The MoA also provides agricultural machinery to farmers’ groups. In 2018, a total of 70 309 units of machinery worth IDR 3.68 trillion (USD 255 million) were distributed, which consisted of tractors, water pumps, transplanters, cultivators, excavators, and sprayers. This figure is reported to have increased by 2000% compared to its procurement in 2015. There has been some concern on the financial sustainability of this grant programme in the medium term and the consequences after the support is terminated (Sudaryanto, 2018[8]).

Trade policy developments in 2016-20

For palm oil, under MoF regulation 136/2015, the export tax depends on CPO reference prices. There is zero export tax on CPO for prices below USD 750 per tonne. When reference prices exceed this level, the tax is imposed on a sliding scale between USD 3 and USD 200 per tonne. Since 2015 the government also collects an export levy for palm oil in the amount of USD 50/tonne managed by the Palm Oil Fund management board. This Fund finances subsidies supporting biodiesel, infrastructure, R&D projects on palm oil, replanting in small farms, promotion and human resource development. In 2013 a number of steps were made to regulate soybean imports. Soybeans can only be imported by BULOG, other state owned enterprises, co-operatives or private sectors participating in the programme of fixed wholesale selling prices.

Indonesia restricts corn imports for use as poultry and livestock feed. On 10 January 2018 the Minister of Trade issued a regulation establishing that corn can be imported to fulfil food, feed, and industrial raw material demand, and that this demand will be determined through an inter-ministerial co-ordination meeting (Regulation 20/2016). This regulation also established the state-owned trading company BULOG as the sole importer of feed corn, while any private company holding a producer importer identification number can import corn for food or industrial raw materials (GAIN ID1808, 2018[6]). Only countries with approved aflatoxin laboratory facilities are eligible to export to Indonesia (GAIN ID1841, 2019[4]).

Indonesia has maintained its quota for the importation of beef as part of its self-sufficiency targets for this commodity. A quota is set separately for live cattle and boxed beef and is based on the estimated shortfall between domestic supply and demand. For live cattle, import quotas are released quarterly. During 2015 quota announcements changed significantly between quarters leading to domestic price fluctuations. After initial tightening, quotas were expanded in the second half of 2015 to ease pressure on domestic beef prices. Moreover, Indonesia restricts live feeder cattle imports. In early 2017, the government introduced revised regulations on the weight and age limits of imported feeder cattle. The revised average weight limit for feeder cattle is 450 kg, with a maximum age of 48 months (Meat & Livestock Australia, 2018[13]). In 2018, to meet an increasing domestic demand and stabilise meat prices, the Ministry of Trade issued a permit to import 100 000 tonnes of buffalo meat from India. The permit was awarded to BULOG for the period of one year. Furthermore, in December 2019, the Ministry of Trade also issued a permit to import 50 000 tonnes of meat from Brazil. The import was awarded to three state owned enterprises, namely BULOG (30 000 tonnes), PT Perusahaan Perdagangan Indonesia (10 000 tonnes), and PT Berdikari (10 000 tonnes).

Import requirements for food safety, quarantine, and standards and labelling purposes, for a range of products such as horticultural and animal products, are becoming more stringent. Processed food imports require both product registration and import approval from the Ministry of Health. Similarly, imports of animal based products must have MoA import approval, be accompanied by a halal certificate and derive from a processing facility that has been inspected by the MoA.

Indonesia maintains the import licensing requirements for horticultural products, in which importers must first obtain Import Recommendations (IRs) from MoA, and then obtain the Import Permits (IPs) from MoT. In 2019, Indonesia revised a regulation regarding conditions for issuing IRs for horticultural products. The new regulations revoked using “harvest periods” requirements as a basis to restrict issuance of IRs and imports, and gives the Director General (DG) for Horticulture new and expanded authority to consider the “domestic horticultural production” when issuing IRs (GAIN ID 1819, 2018[14]). In the same year, Indonesia also revised the regulation which required importers to own warehouse space; importers are now required to prove that they control it in some way (GAIN ID1817, 2018[15]). Based on the Minister of Agriculture Decree (Permentan) number 46/2019, a private importer of garlic is obliged to produce a quantity in the country equivalent to at least 5% of the proposed import volume.

However, despite some moves towards isolating producers from international trade in the recent past, there are some moves towards a more open trade policy regime. Currently, Indonesia is intensifying the process of deepening the Economic Partnership Agreement with the European Union signed in 2009. On 4 March 2019 Australia and Indonesia signed the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). IA-CEPA builds on an existing free trade agreement, the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), further reducing tariffs and providing additional mechanisms to guarantee automatic issue of import permits for key product such as live cattle, frozen beef, sheep meat, feed grains, citrus products, carrots and potatoes (Australian Government Department of Foreign Affairs and Trade, 2019[16]). However, importers are still obliged to meet some import requirements.

References

[11] Alderman, H., U. Gentilini and R. Yemtsov (2017), The 1.5 billion people question : food, vouchers, or cash transfers?, World Bank Group, Washigton DC, http://documents.worldbank.org/curated/en/398281507803030509/The-1-5-billion-people-question-food-vouchers-or-cash-transfers.

[9] ASEAN Secretariat (2017), ASEAN Economic Community Factsheet, https://asean.org/wp-content/uploads/2012/05/7c.-May-2017-Factsheet-on-AEC.pdf.

[16] Australian Government Department of Foreign Affairs and Trade (2019), “IA-CEPA – Key Outcomes for Australia”, https://dfat.gov.au/trade/agreements/not-yet-in-force/iacepa/Documents/iacepa-key-outcomes.pdf.

[10] Bappenas (2020), “RingkasanEksekutifRencana Pembangunan JangkaMenengahNasional (Executive Summary of National Midtem Development Plan) 2020-2024”, Bappenas, Jakarta, Indonesia.

[14] GAIN ID 1819 (2018), “MOT Revises Requirements on Horticultural Import Permits”, USDA FAS.

[6] GAIN ID1808 (2018), “Indonesia Grain and Feed Annual Report 2018”, USDA FAS.

[15] GAIN ID1817 (2018), “MoA Revises Requirements on Horticultural Imports”, USDA FAS.

[4] GAIN ID1841 (2019), “Food and Agricultural Import Regulations and Standards”, USDA FAS.

[5] GAIN ID1904 (2019), “Indonesia Grain and Feed Annual Report 2019”, USDA FAS.

[12] Jakarta Post (2018), “Indonesia to nearly triple recipients of food aid program”, https://www.thejakartapost.com/news/2018/03/21/indonesia-to-nearly-triple-recipients-of-food-aid-program.html.

[13] Meat & Livestock Australia (2018), “Market Snapshot/Beef Indonesia”, https://www.mla.com.au/globalassets/mla-corporate/prices--markets/documents/os-markets/export-statistics/oct-2018-snapshots/mla-beef-market-snapshot---indonesia---oct-2018.pdf.

[7] Ministry of Social Affairs (Kementerian Sosial) (2019), “PedomanUmumBantuanPangan Non-Tunai (General Guidance of the Non-Cash Food Assistance)”, Ministry of Social Affairs, Jakarta, Indonesia.

[2] OECD (2016), Agricultural Policy Monitoring and Evaluation 2016, OECD Publishing, Paris, https://dx.doi.org/10.1787/agr_pol-2016-en.

[1] OECD (2015), Managing Food Insecurity Risk: Analytical Framework and Application to Indonesia, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264233874-en.

[3] OECD (2012), OECD Review of Agricultural Policies: Indonesia 2012, OECD Review of Agricultural Policies, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264179011-en.

[8] Sudaryanto, T. (2018), “An Overview of Indonesia’s Agricultural Policies in 2018”, FFTC Agricultural Policy Platform, http://ap.fftc.agnet.org/files/ap_policy/903/903_1.pdf.