15. Indonesia
In Indonesia, support as a share of gross farm receipts declined from 26.2% in 2015 to 18.0% in 2019-21. This reverses the trend of increases from 7.5% in 2000-02. The largest component is market price support to producers, in line with the government focus on food sovereignty and self-reliance, with programmes aimed at self-sufficiency for several staple products (rice, maize, soybeans, sugar and beef). The share of potentially most-distorting producer transfers was 96% in 2019-21, reflecting the importance of market price support in the Indonesian policy mix (including negative price support for palm oil), but also including payments based on unconstrained variable input use, particularly fertilisers.
Prices received by farmers were 20% higher on average than world prices, with large differences between commodities. Sugar, maize, poultry, eggs and rice had the highest shares of single-commodity transfers in gross farm receipts – all above 25%.
Indonesia’s food assistance programme (BPNT) supports poor consumers through electronic vouchers. However this budget transfer is smaller than the support transferred from consumers to producers via price support measures. Therefore, consumers are penalised by agricultural policies with a negative Consumer Support Estimate of -19.9% of consumer expenditures measured at farm-gate level.
Expenditures on general services to the sector (GSSE) focus on irrigation infrastructure and public stockholding and are small compared to producer support at 7.6% of the Total Support Estimate. Expenditures for GSSE relative to agricultural value of production were 1.6%, well below the OECD average and lower than in many emerging economies in this report. Total support to agriculture (TSE) increased in the last two decades as a share of GDP from 1.5% to 2.2%, driven by additional support to individual producers.
Indonesia established a National Food Agency (NFA) called Badan Pangan Nasional (BAPANAS) under the authority of the President. This replaces the former Food Security Agency under the Ministry of Agriculture (MoA). The main roles of the NFA are: stabilising food prices of nine staple commodities at the producer and consumer levels; maintaining food availability across time and regions; implementing food import policies; achieving food and nutrition security for all; and ensuring food safety. NFA consolidates and co-ordinates competencies under the Ministry of Trade, the Ministry of Agriculture, the Ministry of State-Owned Enterprises (SOEs), the Logistics Bureau (BULOG) and the Food Safety Agency.
Indonesia established a single National Research and Innovation Agency called Badan Riset dan Inovasi Nasional (BRIN) to co-ordinate government R&D and innovation activities in an integrated manner. Consequently, R&D activities are no longer implemented by the MoA, and the Indonesian Agency of Agriculture Research and Development (IAARD) will lose more than 1 000 researchers or more than one-third of its staff, transferred to BRIN. The remaining staff are mostly non-researchers to work on technology dissemination, particularly for small scale farmers.
Under Indonesia’s G20 Presidency in 2022, the MoA will lead the Agriculture Working Group (AWG), under the theme “Balancing Food Production and Trade to Fulfil Food for All” with three priorities: (1) building resilient and sustainable agriculture and food systems; (2) promoting open, fair, predictable and transparent agricultural trade to ensure food availability and affordability for all; and (3) innovative agri-entrepreneurship through digital agriculture to improve the livelihoods of farmers in rural areas.
Agriculture represents 13% of greenhouse gas (GHG) emissions in Indonesia, while the total for agriculture, forestry and other land use (AFOLU) is 56%. Mitigation efforts will need to consider the contribution of the AFOLU sector and require coherence across policy areas and land uses. Biofuel mandates and subsidies need to be evaluated from the perspective of their potential negative spill-over effects on land use.
The recent carbon tax bill and carbon emission rights mechanisms for coal power plants could potentially be extended to other sectors, including agriculture, and warrants assessment.
Indonesia could lower emissions from AFOLU via measures to increase climate-smart practices, such as those identified in the Long-Term Strategy for Low Carbon and Climate Resilience. Emissions could be reduced with improved management of agricultural land, avoiding burning and by active reforestation policies.
To contribute to a more resilient agricultural sector, the new National Research and Innovation Agency should prioritise climate change adaptation strategies, including among smallholders. The knowledge and capacity-building of agencies such as the Indonesian Agency of Agriculture Research and Development should be strengthened.
Indonesian agricultural policy focuses on self-sufficiency and trade measures as a tool to achieve food self-reliance. This creates large price gaps between domestic and international markets for imported products such as maize, poultry and rice. The impact is likely to work against objectives that underpin the Food Law of 2012. These include affordable prices for consumers, who are penalised by negative support, and diversification in production and diet, which is thwarted by the concentration of support in a few staple commodities.
The BPNT electronic food voucher system in place since 2019 represented an important improvement in the effectiveness of the food assistance programme. Further steps could be undertaken to improve food security, particularly if combined with a reduction in market price support that harms net food consumers.
Fertiliser subsidies are costly, and their efficiency is questionable. Use of fertilisers must adapt to local soil and production conditions to be effective and avoid negative environmental impacts. Converting subsidies into less-coupled payments per unit of land would make the support more efficient in transferring income to farmers. Additionally, investing in knowledge transfer to farmers would improve allocation of inputs to the needs of local production.
Policies should stimulate investment in infrastructure and innovation. Savings from reduced input subsidies could be re-allocated to Indonesia's Agricultural Innovation System and would improve farmers' skills to manage production and natural resources on their farms, contributing to long-term agricultural productivity growth and poverty reduction.
Administrative requirements for agri-food imports related to food safety, quarantine, product standards and labelling have proliferated in Indonesia. Combined with uneven enforcement and lack of transparency from changing rules, these requirements add to trade costs. To reduce these, Indonesia should clarify and strengthen the scientific basis of these requirements, and improve transparency and consistency in their implementation.
Overview of policy trends
Indonesia’s economy was relatively closed to trade for almost three decades from the 1960s to the 1980s. Trade liberalisation started only in the 1990s with the signature of agreements that created the WTO and the ASEAN Free Trade Area (AFTA).
Over the past thirty years, the main priorities of Indonesia’s agricultural policy have been food self-sufficiency, food diversification, value added, competitiveness, and farmers’ welfare. Agricultural producers benefit from a wide range of input subsidies for fertilisers, seeds, and credits, among others. The number and cost of these programmes grew rapidly since the mid-2000s. Since 1998 the government has increased the minimum producer price of rice, while targeted food (rice) assistance for the poor (Raskin) was introduced, increasing expenditure on food assistance programmes.
Raskin evolved in the last decade, eventually replaced by the food assistance programme Rastra. In early 2017, Indonesia started a pilot BPNT programme that in 2019 became a large-scale programme to provide an electronic food voucher to replace physical rice distribution. These consecutive programmes allowed the Food Logistics Agency BULOG to distribute 10 kg of rice per poor family per month.
Tariffs fell significantly over the last decades. The average tariff on agriculture (excluding alcoholic beverages) dropped from 20% in 1990 to 5% in 2010. Import monopolies, licensing requirements and export restrictions on agricultural products were removed in 1997-98. However, quantitative import restrictions were introduced, notably for rice, sugar and beef. Import requirements imposed for sanitary, phytosanitary and religious/cultural reasons (i.e. halal certification) are significant and potentially stringent. They are often implemented in a non-transparent manner and add to the cost of importing. Export taxes were introduced in 1994 on crude palm oil and its derivatives, and on cocoa in 2010.
Indonesia’s current agricultural policies are framed in the 2012 Food Law, which establishes the objectives of “food self-reliance and food sovereignty” (kemandirian pangan dan kedaulatan pangan). In practice, the goal is achieving self-sufficiency on staple and strategic commodities (rice, maize, soybean, sugar and beef). The country provides subsidies for input use, particularly fertilisers and seeds.
Indonesia’s producer support estimate was mostly positive over the past 30 years, except during the financial crisis in 1998 and the food crisis in 2008. Support is mostly created by price interventions (tariffs and minimum prices). Export taxes imposed on palm oil and cocoa result in negative support for those commodities, while import tariffs result in positive support to other commodities. Budgetary transfers to producers (input subsidies) and consumers (food aid), are smaller than price support, and have been stable over the past decade.
Main policy instruments
The Food Law of 2012 shapes Indonesia's current agricultural policy and set of core objectives. The Food Law sets out the principles of food self-reliance (kemandirian pangan) and food sovereignty (kedaulatan pangan) as the applied approach to food security. The law stipulates that domestic food demand be fulfilled by imports if local food sources are insufficient (USDA FAS, 2019[1]). The Law confirms the principles of the Strategic Plan of the Ministry of Agriculture 2020-24: 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; increasing the availability of raw materials 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[2]).
Indonesia pursues policy objectives through both domestic and trade measures. Domestic policy measures include minimum purchase prices for rice and sugar; substantial budgetary allocations for inputs; and provision of services to the agricultural sector as a whole, in particular related to irrigation, research and development, and marketing and promotion.
BULOG manages public interventions in the domestic market and imports and has responsibility for market operations aimed at stabilising domestic prices and managing 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 must maintain a minimum year-end stock of 2 million tonnes, about 2.5% of annual consumption in Indonesia (USDA FAS, 2019[1]). 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 (USDA FAS, 2018[3]). In 2017, Indonesia introduced ceiling prices on medium- and premium-quality rice at the retail level, which vary across regions. When the retail price exceeds the ceiling, BULOG also releases rice from stocks to the market.
In May 2019, the Rastra food assistance programme was replaced by the BPNT, co-ordinated by the Ministry of Social Affairs (Ministry of Social Affairs (Kementerian Sosial), 2019[4]). Under the BPNT, eligible households receive IDR 150 000 (USD 10.3) 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 support agricultural producers. The percentage of subsidy varies across fertiliser types, with urea receiving the highest at 67.2% of the market price (Sudaryanto, 2018[5]). Fertiliser manufacturers receive the subsidy, and then sell fertilisers to farmers at a reduced price. Before the beginning of the planting season, the Ministry of Agriculture (MoA) issues a decree on the estimated demand for different types of fertiliser by provinces, along with the reference retail price of fertilisers. Based on this information, governors of the corresponding provinces break down the demand for fertiliser by district. The decree also serves as a reference for fertiliser companies to distribute fertilisers in the corresponding regions. In addition to the subsidy, the MoA also directly distributes fertiliser to food crop farmers in selected regions.
The MoA encourages encourage small and medium-scale farm businesses through partnerships between private sector and community investment that supports Micro Business Credit/KUR to. One large-scale programme focuses on the development of regional food production centers called the Food Estate (FE) which integrates upstream to downstream activities.
The government of Indonesia invests in irrigation infrastructure. According to the Ministry of Public Works, approximately 84% of Indonesian harvested rice area is irrigated, while the remaining 16% is rain fed (USDA FAS, 2019[1]). Facilitated by savings from reduced fuel subsidies since 2015, the government pushes to improve the irrigation infrastructure, mostly for rice production. Investments in infrastructure complement exemptions in place for 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 imports of strategic commodities (those associated with self-sufficiency targets: rice, maize, soybeans, sugar and beef). 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 imports can only be implemented if domestic food production is not sufficient or cannot be produced domestically” (Articles 34 and 36). Trade policy includes both tariff and non-tariff measures. The average applied Most Favoured Nation (MFN) import tariff on agro-food products, excluding alcoholic beverages and spirits, was just over 5% in 2017. Rice and sugar have higher specific tariffs. Import monopolies, licensing requirements and export restrictions on agricultural products ended 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 and religious reasons are becoming more stringent. Variable export taxes were introduced on crude palm oil and derivatives in 1994, then on cocoa (OECD, 2012[2]). The MFN tariff schedule is updated every five years by the Ministry of Finance (BukuTarif dan Kepabeanan Indonesia, BTKI or MoF). The latest tariff schedule was released in 2017.
Since 2008, companies must receive Ministry of Trade approval as registered importers for a range of processed products manufactured from meat, cereal, sugar and cocoa. Similar restrictions were placed on imports of animals in 2011. In line with the Ministry of Trade regulation on the Import and Export of Animals and Animal Products issued in September 2011, these imports can only be carried out if the domestic production and supply are not sufficient to meet consumer demand at an affordable price.
A variable export tax on cocoa and palm oil was put in place in 2010 and 2015, respectively. The tax rate on Crude Palm Oil (CPO) depends on reference prices and is zero 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 collects an additional export levy for palm oil of USD 55/tonne on top of the variable export tax to finance subsidies to biodiesel, infrastructure, R&D projects on palm oil, replanting in small farms, market promotion and human resource development.
To reduce the dependency of fossil fuel the government policy has been focused in the last two decades in shifting from fossil fuels consumption to biofuels mainly from palm oil, introducing in 2006 the first regulation on biofuel development. The Ministry of Energy and Mineral Resources (MERM) led the research and development process and started a mandate to use biofuels in transportation in 2008, starting from B2.5 and B7.5. Indonesian biodiesel mandates expanded in 2015 with the MERM Regulation 12/2015 establishing a 10% biofuel blending requirement. Since then the biofuel blending rates has been progressively increasing to its current level of 30% for biodiesel across all uses (Halimatussadiah et al., 2021[6]). To ensure the success of the blending mandate, the Indonesia Oil Palm Estate Fund (BPDP) provides a subsidy to biofuel producers. The BPDP collects the additional export levy and redistributes it to biofuels producers selling their products domestically. In 2021, 16% of palm oil production was dedicated to biofuels, 94% of which were consumed domestically. A moratorium on the issuance of licenses for new palm oil plantations entered into force in 2018, in an attempt to combat the palm oil-driven deforestation and loss of peatland, followed by a Presidential Instruction on National Action Plan on Indonesian Sustainable Palm Oil 2019-2024.
Indonesia is a member of the Association of Southeast Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC), and World Trade Organization (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[7]).
Climate change mitigation policies in agriculture
Targets and policy measures to reduce greenhouse gas emissions from agriculture
Total GHG emissions in Indonesia increased during 2000-18 from about 1 000 to 1 637 MtCO2eq, 56% of which correspond to agriculture, forestry and other land use. According to “The State of Indonesia’s Forest” (MoEF, 2021[8]), deforestation and forest degradation were the largest contributors to GHG emissions in 2018 (44.19%) followed by fuel and electricity (36.38%). Agriculture represents 13%. Efforts to reduce GHG emissions focus on converting from fossil fuels to biofuels, mostly palm oil, which impacts land use. The government is also willing to reduce GHG emissions in other sectors, such as AFOLU, to improve environmental sustainability of exported commodities, which would facilitate more advantageous access to European markets of products such as palm oil, cocoa, coffee and rubber. Indonesia also participates in the Global Methane Pledge initiative.
Indonesia submitted its updated Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC) in July 2021. It aims to reduce GHG emissions 29% by 2030 compared to business-as-usual,1 or by 41% contingent on sufficient international financial support. Indonesia plans to peak GHG emissions in 2030 and could reach net-zero GHG emissions by 2060 or sooner (WRI, 2021[9]). The NDC includes adaptation measures for a long-term strategy that targeted net-zero emissions by 2060 or earlier.
A USD 1 billion forest and climate partnership with Norway ended abruptly in June 2021 when the moratorium on palm oil concessions introduced in 2018 expired without plans for a replacement, sending mixed signals about Indonesia’s commitment to tackle the climate crisis.
Indonesia’s Long-Term Strategy for Low Carbon and Climate Resilience 2050
Indonesia’s Long-Term Strategy for Low Carbon and Climate Resilience (LTS-LCCR) 2050 aims to contribute to global mitigation goals while achieving national development, and finding a balance between objectives for emissions reduction, economic growth, justice and climate-resilience. According to this strategy, the AFOLU sector could become a net sink by 2050 under the Current Policy Scenario (CPoS), and by 2030 under the Low Carbon and Climate Resilience Scenario (LCCP). The strategy states that the latter, more ambitious LCCP objectives will be achieved only with international support to increase investment, technology and capacity-building. Economic growth is expected in all scenarios: 0.61% for CPoS and 0.62% for LCCP (Government of Indonesia, 2021[10]).
The long-term strategy suggests technologies to apply to the agricultural sector, accompanied by qualitative targets. They include: (1) adoption of low-emission varieties and water-saving cultivation systems in paddy fields; (2) utilisation of manure for biogas, and livestock feed improvement in livestock management; and (3) reduced use of synthetic fertiliser. The ambition is for sustainable intensification, improved productivity and advanced technology to reduce the pressure on forest areas and avoid deforestation. Under CPoS, low-emission rice varieties are expected to cover 0.93 million hectares by 2030 and 1.96 million hectares by 2050 – the latter corresponding to approximately 24% of the total rice field area. The CPoS and LCCP set similar targets for biogas implementation, accounting for 41 000 heads in 2030 and 94 000 heads in 2050. However, these numbers remain low compared to the national livestock population (18 million heads in 2021) due to the high investments required for biodigester and flaring facilities. Application rates of urea under CPoS would decrease from 0.1183 tonnes/ha in 2010 to 0.1174 tonnes/ha in 2050. The adoption of mitigation practices may result in further reductions in the use of urea in 2030 and 2050.
Market-based instruments
The government passed a bill to reform tax structures and reduce the budget deficit created by measures to combat the impacts of COVID-19. This reform included the creation of a carbon tax initially limited to coal power plants, in line with Indonesia’s commitment to curb GHG emissions over the next decade. The tax will be set at a minimum of IDR 30 per kilogramme of carbon dioxide equivalent (USD 2.1 per MtCO2eq) starting from April 2022. The government is working on a presidential decree on the economic value of carbon to develop a broader carbon tax mechanism based on emission limits (cap and tax) and a carbon exchange where companies can trade their emissions permits. Carbon pricing will eventually reach other sectors in the economy. The objective is to fully implement the carbon exchange in 2025, applying a gradual expansion of carbon taxation and carbon tax management regulations to other sectors (Jakartaglobe, 2021[11]). It was not clear as of January 2022 if this will include agriculture.
Research and development (R&D)
The climate change strategy of the agricultural sector includes mitigation and adaptation for increased resilience through climate-smart agriculture. It aims to achieve self-sufficiency and farmer welfare, while considering the value of reducing carbon emissions.
Certain R&D and extension programmes focus on climate smart practices and technologies, including: (1) development of plant varieties resistant to climate stress and plant pest; (2) development of a planting calendar adjustment system that takes climate change into account; (3) development of water-balance modelling and plant nutrition on agricultural land, and a geographic information system for distribution points of nutrients and water; and (4) development of efficient agricultural equipment and machinery for agricultural production processes. They are implemented by the Indonesian Agency of Agriculture Research and Development (IAARD).
Domestic policy developments in 2021-22
The budget of the MoA decreased in recent years, from IDR 32.7 trillion (USD 2.44 billion) in 2015 to IDR 15.8 trillion (USD 1.09 billion) in 2020, but increased to IDR 16.3 trillion (USD 1.15 billion) in 2021. The budget reduction in 2020 was largely due to a budget reallocation to finance the COVID-19 policy response, including in agriculture, and specifically an initiative to strengthen food availability. The total budget for food security, administered by several ministries, has also increased from IDR 80 trillion in 2020 to IDR 99 trillion in 2021.
In 2021, the MoA published the Standard in Business Activity and Product to guide the Implementation of Business Licensing. Following up on Indonesian Law on Job Creation, this regulation defines the standards applied to companies registering for a business license. It aims to improve the business climate in the agricultural sector and to increase investment and access to private services.
The MoA in collaboration with the insurance company PT Jasindo offers insurance known as AUTSK (Asuransi Usaha Ternak Sapi/Kerbau). In 2021, PT Jasindo launched a new more advanced digital application Protan (Proteksi Pertanian) or Agriculture Protection App. MoA aimed the crop insurance to cover 1 million hectares, and the cattle insurance to cover 120 000 heads, in 2021. Eighty per cent of the annual crop insurance fee is covered by the government subsidy. Farmers can receive up to IDR 6 million (USD 0.4 thousand) per hectare if production fails, while pay-outs for dairy cattle are about IDR 10 million (USD 0.7 thousand) per head if the cattle died or IDR 5 million (USD 0.35 thousand) if the cattle are sick and slaughtered.
To strengthen food security, Indonesia established a National Food Agency (NFA, or Badan Pangan Nasional BAPANAS) in 2021. This new agency is under the direct authority of the President of Indonesia and has the task of co-ordinating the main government duties in the food sector, substituting the former Food Security Agency that was under the authority of the MoA (GoI, 2021[12]). NFA controls and stabilises stocks and prices of nine food commodities: rice, corn, soybeans, sugar (for direct consumption), shallot, chilly, eggs, beef, and chicken meat.
The new NFA has five strategic objectives: (1) stabilising food prices at the producer and consumer levels; (2) maintaining food availability across time and regions; (3) formulating food importation policy; (4) achieving food and nutrition security for all; and (5) ensuring the safety of food traded or distributed. To carry out those tasks, some competencies belonging to other ministries were transferred to NFA, namely: (1) food import policy from the Ministry of Trade; (2) food reserves policy from the MoA, including food price policies; and (3) food reserve management previously supervised by BULOG and the Ministry of State-Owned Enterprises (SOEs). NFA also manages food safety in co-ordination with the Food and Drug Monitoring Agency/BPOM (Suryana, 2021[13]).
In 2021, Indonesia also established the National Research and Innovation agency (Badan Riset dan Inovasi Nasional: BRIN) (GoI, 2021[12]). The objective is to implement a more integrated approach to research and development (R&D) and innovation across all sectors and disciplines led by the Ministry of Research and Technology, including four non-ministerial government agencies, and 48 R&D ministerial institutions. The research agency IAARD under the MoA is to transfer 1 000 of their researchers to BRIN, while the remaining 1 800 staff, mainly non-researchers, focus on technology transfer and dissemination, in particular for small scale farmers.
Integration of R&D activities seeks to avoid budget inefficiencies and overlap of activities in different institutions. The challenge for the BRIN is to ensure a smooth management of the transition and the co-ordination with the sectoral Ministries, including the MoA, in delivering research results, to ensure the long term viability of this new governance structure (Sudaryanto and Rafani, 2021[14]).
Climate Change Adaptation measures
The government has included climate resilience as part of the agenda in the National Medium-term Development Plan (RPJMN) 2020-2024 which includes as 6th National Priority “Building Environment and Enhancing Disaster Resilience under Climate Change”. The target is to reduce the potential impact of extreme weather and climate related events on the economy by 1.15% of GDP in 2024. This target is expected to be achieved through four strategies, namely: (1) Protecting the vulnerable in the coastal and marine sectors; (2) Improving water security; (3) Increasing climate resilience in the agricultural sector; and (4) Protecting the health sector from climate impacts.
According to the RPJMN 2020-2024, the agricultural sector is targeted to contribute to the resilience of the whole economy reducing its total potential economic loss by 0.21% of GDP by 2024. This target is planned to be achieved by increasing agricultural productivity and resilience with protection against floods, drought, and pest outbreaks, training farmers to increase their understanding of good on farm practices.
Law Number 22/2019 on Sustainable Agricultural Cultivation System prescribes the use of low emission practices such as the use of low emission intensity rice varieties (such as Inpari or Cisadane) and rehabilitation of abandoned land and water management. It seeks to improve agricultural productivity, increasing farmers’ income, and striving for water availability by adapting practices to the environmental conditions of production (Government of Indonesia, 2021[10]). The law integrates environmental, social, cultural and economic aspects in order to account for the carrying capacity of the ecosystem, the adaptation needs to climate change and the food security objectives. There are three classifications of location-based climate resilience action, based on its priority: (1) the “super-priority” areas due to high potential hazards, high vulnerability, and high risk; (2) the “top priority” areas; and (3) the priority areas. This classification will be considered for funding allocation for infrastructure, technology and capacity building.
Trade policy developments in 2021-22
Indonesia assumed the G20 Presidency during 2022 at the 15th G20 Summit in Riyadh (Saudi Arabia) on 22 November 2021. The MoA will lead the G20 Agriculture Working Group (AWG) under the theme “Balancing Food Production and Trade to Achieve Food for All” (Ministry of Agriculture, 2021[15]). Indonesia has identified three priority areas: (1) building resilient and sustainable agriculture and food systems; (2) promoting open, predictable and transparent agricultural trade to ensure food availability and affordability for all; and (3) innovative agri-entrepreneurship through digital agriculture to improve livelihood of farmers in rural areas.
Indonesia signed the Regional Comprehensive Economic Partnership (RCEP) on 15 November 2020, together with other 14 countries in the Asia-Pacific region. RCEP took effect on 1 January 2022 and combines and deepens a number of existing bilateral and regional agreements. It represents the largest free trade agreement in the world covering around 30% of both the global population and global GDP.
Indonesia is the fourth most populous country in the world, and its large population contines to grow rapidly, and contributes to a high population density of 151 inhabitants per km2. Indonesia is also one of the world's largest agricultural producers. The importance of agriculture in the economy has been falling over the last two decades, but the sector still accounts for almost 14% of GDP. The reduction in the share of the work force employed in the agriculture sector has been proportionally much larger, declining from 45% in 2000 to 28% in 2020, 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 (21.6% in 2020). The country is also a large importer of agro-food products. Total agricultural area in Indonesia has increased by almost one-third in the last two decades and currently represents 2.1% of the agricultural land in all countries covered in this report. While food crop production is predominantly based on small family farms, there are large commercial farms producing perennial crops, particularly palm oil.
Indonesia's economy has a solid growth record, at around 5% per year between 2000 and 2019. Real income per capita in 2020 more than doubled since 2000. In 2020, GDP decreased by 2.1% as a consequence of the COVID-19 pandemic and related restrictions, but economic growth was back in 2021 at 3.3%. The inflation rate has been steadily decreasing from 6.4% in 2015 to less than 1.6% in 2021, while the rate of unemployment was 4.1% in 2020.
The value of agro-food exports and imports has oscillated around a slowly increasing trend since 2011, with USD 35.2 billion of exports and USD 19.3 billion of imports in 2020. Around 73% of agro-food exports are processed products to be further transformed by industries in other countries such as rubber and palm oil. A similarly significant share of agro-food imports (71%) are destined for further processing in Indonesia.
Indonesia's agricultural production increased at an annual rate of 4.1% in 2010-19. Most of this growth is productivity-driven: Total Factor Productivity (TFP) has increased by 3.2% per year, representing technological improvements and improved efficiency to combine different production factors. Additional primary factors, including land, and intermediate inputs have contributed an additional 0.5 and 0.3 points to the production growth, respectively. Unlike in the 1990s, Indonesia's growth in output and TFP has significantly outperformed the global averages during the last 10 years.
Indonesian agriculture accounts for an increasing share of national water extractions, which was 85.2% in 2020. However, the sector's shares of energy used has fallen since 2000 to 1.2% in 2020, while the share of GHG emissions has remained relatively stable at 13.3% in 2020. The country's phosphorous balance is below the OECD average, while the nitrogen balance has decreased in the last two decades to significantly negative levels in 2020.
References
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[12] GoI (2021), Keputusan Presiden Republik Indonesia Nomor 12 Tahun 2021 tentang Panitia Nasional Penyelenggara Presidensi G20 Indonesia Tahun 2022 (Decree of the President of the Republic of Indonesia Number 12/2021 concerning the National Committee for the.
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[15] Ministry of Agriculture, (. (2021), Priority Issues Agriculture Working Group Indonesia’s Presidency G20-2022, MoA, Jakarta, Indonesia.
[4] Ministry of Social Affairs (Kementerian Sosial) (2019), “PedomanUmumBantuanPangan Non-Tunai (General Guidance of the Non-Cash Food Assistance)”, Ministry of Social Affairs, Jakarta, Indonesia.
[8] MoEF (2021), The State of Indonesia’s Forests 2020, Ministry of Environment and Forestry, https://indonesianembassy.de/wp-content/uploads/2020/12/Lowres2-SOFO-2020-B5_ENG-12.24.2_compressed.pdf.
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[13] Suryana, A. (2021), Isu dan Kegiatan Prioritas Awal Kiprah Badan Pangan Nasional (Initial Priority Issues and Activities for the National Food Agency)..
[1] USDA FAS (2019), “Indonesia Grain and Feed Annual Report 2019”, GAIN ID1904, USDA FAS.
[3] USDA FAS (2018), “Indonesia Grain and Feed Annual Report 2018”, GAIN ID1808, USDA FAS.
[9] WRI (2021), Statement: Indonesia Submits New 2030 Climate Targets and First Long-Term Climate Strategy., World Research Institute. Jakarta, https://www.wri.org/news/statement-indonesia-submits-new-2030-climate-targets-and-first-long-term-climate-strategy.
Note
← 1. The Business as usual scenario (BAU) implies an increase in GHG emissions of 115% higher than the level of emissions in 2010 (see Table 1 in (Government of Indonesia, 2021[10]))