15. Indonesia
Support as a share of gross farm receipts in Indonesia declined to 8.0% in 2020-22 after peaking at 26.2% in 2015. The largest component is Market Price Support (MPS) to producers, in line with the government’s focus on food sovereignty and self-reliance. Prices received by farmers were 4% higher than world prices on average. Staple products targeted by programmes aimed at self-sufficiency (e.g. sugar, maize, poultry, rice, and eggs) had the highest single-commodity transfers relative to their gross farm receipts, all above 22%.
The share of potentially most-distorting producer transfers was 93% in 2020-22, reflecting the prominence of MPS (including large negative price support due to increasing export taxes on palm oil) and payments based on unconstrained variable input use (particularly fertilisers) in the Indonesian policy mix.
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 Consumer Support Estimate (CSE) of -14.2% of consumer expenditures measured at the farm-gate level.
Expenditures on general services to the sector (General Service Support Estimate, GSSE) focus on irrigation infrastructure and public stockholding, and are small compared to producer support, at 10% of the Total Support Estimate (TSE). Expenditures for GSSE relative to the value of agricultural production were 1.1%, lower than in other emerging economies such as the People’s Republic of China (hereafter “China”) or India. TSE decreased from 1.5% of Gross Domestic Product (GDP) to 1.1% in the last two decades. However, this decline was due to increasingly negative MPS for some commodities (notably palm oil), whereas positive support to the sector increased from 1.8% to 2.2% of GDP over the same period.
The government adjusted the fertiliser subsidy scheme in response to high global prices. This policy has the objectives of benefiting poor farmers and improving productivity, but an increasing price disparity between subsidised and non-subsidised fertilisers began to challenge its implementation. Maximum prices of subsidised fertilisers were increased, partially following world markets. Furthermore, the scheme was restricted in 2022 to only three types of fertilisers and nine commodities, compared to all fertilisers and 70 commodities in 2021. Stricter supervision by law-enforcement agencies is in place to control the allocation and distribution of subsidised fertilisers, and limit the sale of counterfeit fertilisers.
A letter from the Ministry of Agriculture on strengthening food security and uptake of domestic production confirms self-sufficiency as a policy objective to achieve food security. The letter justifies and promotes import-tariff protection for food-security objectives. Consistent with this, a new regulation from the recently created National Food Agency (NFA) requires government food reserves to equal up to 5% of domestic consumption needs for 11 staple commodities, doubling the previous 2.5% target.
A foot-and-mouth disease (FMD) outbreak was declared in East Java in May 2022 after more than 30 years of being FMD free. A new task force on FMD mitigation is leading control measures, including decontamination, vaccination, and strengthened surveillance in areas that have not been infected.
To contribute to the resilience and adaptation of the agricultural sector, the recently established National Research and Innovation Agency (BRIN) should prioritise climate-change adaptation strategies in agriculture. There are already policies targeting the adoption of new technologies, but they should focus on helping farmers develop capacity to adapt to the extent possible, rather than on specific practices, to ensure incentives and capacities to find the best solutions for the specific context of individual farmers. In particular, the knowledge and capacity building of agencies such as the Indonesian Agency of Agricultural Research and Development could be strengthened to ensure co-working between researchers, advisors, and farmers.
To improve the contribution of the agricultural sector to climate-change mitigation, the government should assess whether the recent carbon tax bill and carbon-emission-rights mechanisms for coal power plants could be extended to the sector. Indonesia could lower emissions from agriculture, forestry and other land use (AFOLU) via measures to increase the adoption of climate-smart agricultural 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 through active reforestation policies. Biofuel mandates and subsidies must be evaluated from the perspective of potential negative spill-over onto land use and food access.
Indonesian agricultural policy focuses on self-sufficiency and trade measures 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 will likely work against objectives that underpin the Food Law of 2012, including affordable prices for consumers who are penalised by positive MPS, and diversification in production and diet, which is undermined by the concentration of support to a few staple commodities.
Export restrictions on crude palm oil should be phased out as they reduce the prices for domestic producers, including small holders, and require frequent adjustments. This policy change should be accompanied by reinforced regulations against deforestation. The recurrent changes in export taxes and domestic market obligations in 2022 have created market uncertainty, conflicting signals to farmers, and bottlenecks in the chain.
The BPNT electronic food voucher system in place since 2019 represents an important improvement in the effectiveness of the food assistance programme. Further steps could be taken to improve food security, particularly combining the vouchers with a reduction in positive MPS to staple commodities, which harms net food consumers.
Fertiliser subsidies are costly and can lead to inefficient use. Use must consider local soil and production conditions to be effective and avoid negative environmental impacts. The fertiliser subsidy scheme is unsustainable in the context of high global fertiliser prices, which increase budgetary costs and generate potential for hoarding and counterfeiting. Converting subsidies into payments per unit of land would make the support more efficient in transferring income to farmers.
Policies should stimulate investment in infrastructure and innovation. Savings from reduced input subsidies could be re-allocated to Indonesia's Agricultural Innovation System. Investing in knowledge transfer and advice to farmers would improve decisions on the allocation of inputs such as fertilisers to local production needs. Advice could focus on improving 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 multiplied in Indonesia. Combined with uneven enforcement and poor transparency due to changing rules, these requirements add to trade costs. Indonesia should clarify and strengthen the scientific basis of these requirements, and improve consistency in their implementation and co-ordination with other countries, such as in the ASEAN region.
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 30 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 starting in the mid-2000s. Since 1998, the government has increased the minimum producer price of rice, while targeted food assistance for the poor (via subsidised rice under the programme Raskin) was introduced, increasing expenditure on food assistance programmes.
Raskin went through a number of changes in the last decade and was eventually renamed as Rastra. These programmes allowed the Food Logistics Agency BULOG to distribute about 10 kg of rice per poor family per month. By 2019, this was replaced by the current BPNT programme that has grown to become a large-scale programme to provide an electronic food voucher, replacing physical rice distribution.
Tariffs fell significantly, with the average for agriculture (excluding alcoholic beverages) dropping 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 or cultural reasons (i.e. halal certification) are significant and potentially stringent. Export taxes were introduced in 1994 on crude palm oil (CPO) and its derivatives, and on cocoa in 2010. These and other export restrictions to CPO persist with adjustments over the years.
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 has been mostly positive over the past 30 years, mainly due to market price interventions (tariffs and minimum prices). The only exception occurred during the financial crisis in 1998 and the food crisis in 2008. Export taxes imposed on palm oil and cocoa result in negative support for those commodities. The negative price support to palm oil quintupled in 2021 and 2022 due to skyrocketing world prices not fully transmitted to local consumers for which palm oil is a staple commodity. Budgetary transfers to producers (input subsidies) and consumers (food aid), are smaller than the support to the price of other staple commodities such as sugar, maize, poultry, rice and eggs, 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. It 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 same principles are manifest in 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 its policy objectives through both domestic and trade measures. Domestic policy measures include minimum purchase prices for rice and sugar; substantial budgetary allocations for input support; and provision of services to the agricultural sector as a whole, especially for irrigation, research and development, and marketing and promotion.
Indonesia transformed the former Food Security Agency (FSA/BKP) under the Ministry of Agriculture in July 2021, establishing the National Food Agency (NFA/Bapanas). NFA manages government food reserves and, through BULOG, manages public interventions in the domestic market and imports. It is also responsible for market operations aimed at stabilising domestic prices. BULOG can only buy 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 (USDA FAS, 2019[1]). Only BULOG can import medium-quality rice with a maximum of 25% broken grains. However, private companies can import specialty rice such as jasmine and basmati (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 releases rice from stocks to the market. The state-owned food holding ID FOOD also plays a role in food-related policies, e.g. by facilitating the distribution of cooking oil.
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]). Subsidies are paid to fertiliser manufacturers who are mandated to 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 fertilisers by province, 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 fertilisers to food crop farmers in selected regions.
The MoA encourages small and medium-scale farm businesses through partnerships between the private sector and community investment that support Micro Business Credit. One large-scale programme focuses on the development of regional food production centers: the programme, called the Food Estate (FE), 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 has pushed to improve irrigation infrastructure, mainly 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” (Articles 34 and 36). Trade policy includes both tariff and non-tariff measures. The trade weighted average of applied most favoured nation (MFN) import tariff on agro-food products was 5.6% in 2020. Rice and sugar have higher specific tariffs. Quantitative import restrictions and licensing are in place, notably for rice, sugar and beef. Those import requirements imposed for food safety and religious reasons are becoming more stringent. The MFN tariff schedule is updated every five years by the Ministry of Finance (Buku Tarif dan Kepabeanan).
Since 2008, importing 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 (OECD, 2012[2]). The tax rate on crude palm oil 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 crude palm oil on top of the variable export tax to finance subsidies to biodiesel, infrastructure, research and development projects on palm oil, replanting in small farms, market promotion and human resource development.
To reduce dependency on fossil fuels, government policy focused in the last two decades on shifting from fossil fuel consumption to the use of biofuels mainly from palm oil, with the first regulation on biofuel development introduced in 2006. 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. Indonesian biodiesel mandates expanded in 2015 with MERM Regulation 12/2015, which establishes a 10% biofuel blending requirement. Since then, the biofuel blending rate has been progressively increased to its current level of 35% 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 producers of biofuels who sell 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, to combat 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 submitted its updated Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC) in July 2021. It aims to reduce greenhouse gas (GHG) emissions by 29% by 2030 compared to a business-as-usual (BAU) scenario, or by 41% of the BAU contingent on sufficient international financial support. 1 The NDC also states Indonesia’s plans to reach peak GHG emissions in 2030 and net-zero GHG emissions by 2060 or sooner (WRI, 2021[7]). 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. Even though there is not an agriculture-specific target for GHG mitigation, according to this strategy, the AFOLU sector could become a net sink by 2050. The LTS-LCCR suggests technologies to apply to the agricultural sector but does not include quantitative targets. These suggestions 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 government of Indonesia has issued several regulations to reduce agricultural GHG emissions, obliging farmers to implement environmentally sustainable practices. Activities such as the production of inputs, irrigation, and the use of cultivation equipment must also comply with these regulations (Bapenas, 2021[8]). A Presidential Regulation in 2021 focused on the Implementation of Carbon Economic Value to Achieve Nationally Determined Contribution Targets and Control of Greenhouse Gas Emissions in National Development (Government of Indonesia, 2021[9]). This regulation defines a universal approach to measurement of the effort in reducing emissions, to be reflected in targets that are set at the national level. The economic value of carbon is used by the government to select the most efficient mitigation actions to contribute to national targets and to manage the trade-off between environmental sustainability and productivity. This is particularly the case for subsidised inorganic fertilisers and conventional irrigation systems, which increase food production, but are also the largest contributors to GHG emissions from agriculture in Indonesia.
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[10]).
Climate change adaptation policies in agriculture
Indonesia’s plan on Low Carbon and Climate Resilient Development 2050 is based on striking a balance between future emissions reductions and economic development (Government of Indonesia, 2021[11]). The plan implies mitigation, but also adaptation by improving crop productivity and cropping intensity, implementing integrated farming systems, optimising the use of unproductive or idle land, and reducing food loss and waste (Government of Indonesia, 2021[12]). To increase productivity, the strategy envisages revitalising agricultural extension services; providing sufficient space for the private sector, research agencies and universities to engage in empowering farmers; and improving agricultural vocational education. Expanding value-chain financing schemes and credit schemes for farmers is also part of this strategy to facilitate technology adoption.
Adaptation of Indonesian agriculture to the impacts of climate change is facilitated by programmes and support to farmers that include insurance to buffer against shocks in the short term, technical support to improve practices and technologies in the medium term, and investment in infrastructure to support long-term transformation (MoA, 2018[13]).
Buffer against shocks in the short term
Agricultural insurance against production losses protects farmers’ income with respect to the increased incidence of floods, droughts, and pests and diseases. Since 2015, Indonesia offers rice-farming insurance (AUTP) and cattle and buffalo insurance (AUTS/K) in collaboration with the insurance company PT Jasindo. PT Jasindo provides this insurance through a digital application, Protan (Proteksi Pertanian), since 2021. For 2022, the MoA targeted coverage of 1 million hectares under crop insurance and of 120 000 heads under cattle insurance. Government subsidies cover 80% of the annual crop insurance fee.
Support incremental changes in the medium term
The integrated planting calendar information system, Katam, provides farmers with spatial information on specific shocks and local conditions based on climate information and forecasts. This information includes seasonal forecasts, estimates for optimal planting dates and cropping patterns, potential planting area, drought and flood-prone areas, recommended doses, and the appropriate composition of fertilisers.
As part of their adaptation policy, the ministry releases crop varieties that are tolerant to dry climate, such as for rice and soybeans. Some rice varieties are tolerant to increasing salinity, supporting adaptation to rising sea levels in coastal areas.
Technical support focuses on the use of adapted practices and technologies, particularly on water management and double cropping. Rainwater harvesting is an alternative water-management technology that follows the principle of collecting excess water during the rainy season to use during the dry season for crop irrigation. This technology has been applied in line with infrastructure development, particularly ditches (embung) and dams being built with government support. Ratoon rice farming refers to the production of a second rice crop from the stubble after the harvest of the main crop, and is suitable for certain rice production systems impacted by climate in Indonesia. These technologies are promoted through technical provisions, such as irrigation systems, and non-technical aspects, including support to extension workers, which motivate farmers’ adoption.
A long list of other technologies and practices are promoted to adapt to climate change: soil- and water-conservation technology; balanced fertilisation and use of soil-enhancing organic fertiliser; integration of crops and livestock through a zero-waste approach; planting in household gardens; use of varieties that are adapted to climate change; Minapadi (rice-fish) technology, where feasible; agricultural mechanisation; maps and information systems; no-burn technology; integrated pest management (IPM); and control and management of animal diseases.
Support long-run transformation
Certain technologies for irrigation or direct seeding require investment in infrastructure development. These investments aim to meet the water needs of plants when water availability is limited. Direct seed planting methods without the use of nurseries is an adaptation to reduced water availability but requires significant transformation of the production system. Investments into these methods are supported and implemented together with other modern agricultural technology, improved varieties, balanced fertilisation, biological fertilisers, compost, and integrated pest control.
Domestic policy developments in 2022-23
Institutional changes
The National Food Agency (NFA/Bapanas), along with related ministries, has issued a regulation on the Management of Government Food Reserves (Government of Indonesia, 2022[14]) and is in the process of drafting a guideline for accelerating food diversification based on local resources and culture. The regulation requires the establishment of government food reserves of up to 5% of domestic consumption needs for 11 staple commodities, doubling the previous target of 2.5%. The new rules also seek to ensure adequate food supplies to low-income communities and to that end reserves are released in case of shortages, price spikes, natural disasters, supply chain disruptions and other emergencies. Food reserves will be amassed through the purchase of domestically produced goods at specific reference purchase prices set by the NFA. In a first phase, several institutions are involved in preparing technical procedures under the supervision of the State Logistics Agency (BULOG) to lay out detailed technical regulations on the planning, procurement and distribution targets for national and regional stocks of rice, maize and soybeans (AMIS, 2022[15]).
A new Agricultural Instrument Standardization Agency (Badan Standardisasi Instrument Pertanian, BSIP) was created in 2022 by Presidential Decree. This agency was created via the transformation of the Indonesian Agency for Agricultural Research and Development (IAARD) whose research and development functions were integrated into the National Research and Innovation Agency (BRIN). BSIP has a mandate to formulate, implement and harmonise agricultural instrument standards (Government of Indonesia, 2022[16]). Agricultural items covered by this standardisation agency include materials, equipment, methods, documents, infrastructure and facilities used in the agricultural sector. Examples of items within the purview of the agency are seeds and seedlings, fertilisers, pesticides, land and soil, water and standard operating procedures of agricultural technologies. Integration of IAARD research functions into BRIN may create uncertainty on the delivery of its former function to disseminate agricultural technology to small farmers as BRIN is more focused on technology development than on the adoption of innovations. BSIP at the provincial level may need to take over the function of providing advice to farmers, as well as the dissemination and adoption of technology.
Animal health
A foot and mouth disease (FMD) outbreak took place in the province of East Java in May 2022, which had been declared free from FMD since 1986. The disease spread to several other areas of Indonesia. The affected area contributes about three-quarters of the national production of beef cattle and dairy cows (MoA, 2022[17]). The estimated economic loss from the disease is USD 1.37 billion, with the most severe impact on small-scale farmers (Jakarta Post, 2022[18]) (Beazley, 2022[19]). These losses are due to reduced milk productivity, slower growth rate of beef cattle, declining fertility and slowing of pregnancy, mortality and culling of chronically infected livestock (Ristiani, 2022[20]). Moreover, supply chains are disrupted due to restrictions on livestock transportation.
Indonesia has implemented a multilevel strategy to limit the spread of the epidemic across regions and country borders. First, the Head of the National Disaster Mitigation Agency (NDMA) determined the Emergency Status due to FMD, allowing the heads of regional governments to trigger and accelerate protection measures in their respective regions, financed by the central government budget (NDMA, 2022[21]). Second, a Circular Letter of the Minister of Agriculture on Control and Management of FMD in Livestock triggers contingency plans to prepare for and control FMD (MoA, 2022[22]). Third, a Decree of the Minister of Agriculture creates a Task Force for mitigating FMD impacts on animal health, the environment and other economic and social aspects (MoA, 2022[23]). Fourth, a Decree of the Director General of Livestock and Animal Health Services specifies standard operating procedures for control and management of FMD outbreaks (DGLAH, 2022[24]).
Biosecurity standards are applied through the Animal Health Posts on the ground, including decontaminating or destroying cages, equipment, vehicles, and other materials. A massive vaccination programme is underway, together with strengthened surveillance in areas that have not been infected. A zone-based biosecurity system was applied to the archipelagic structure of the country, where islands are separated by sea, to slow or stop the spread of disease.
Fertiliser subsidies
In 2022, the Indonesian fertiliser subsidy budget was IDR 25 trillion (USD 1.67 billion), which was provided to 16 million farmers (MoA, 2022[25]). An October 2022 Regulation by the Minister of Agriculture (MoA, 2022[26]) set the highest retail price (HET) of subsidised fertiliser and allocated subsidies to 9 million tonnes of fertiliser. Beneficiaries must be registered on-line through the e-RDKK platform that supports national food security.
Under the new fertiliser policy programme, subsidies are restricted to three types of fertilisers (urea, NPK and NPK special formula) and to nine commodities, compared to 70 commodities previously. The highest retail price of urea has significantly increased from IDR 1 800 (USD 0.12) per kilogramme to IDR 2 250 (USD 0.15) per kilogramme, following to some extent the global price of fertiliser.
Domestic policy responses to Russia’s war of aggression in Ukraine
In response to the high market price conditions created by the war in Ukraine, the government of Indonesia took steps to tighten and better target the distribution of subsidised fertilisers, by preparing data on beneficiaries using digital technology and strengthening supervision. Despite the increase in the highest retail price, the disparity in prices between subsidised and non-subsidised fertilisers has grown significantly. The price of non-subsidised fertilisers in Indonesia has significantly increased compared to previous years (CMEF, 2022[27]).
The large disparity in the prices of subsidised and non-subsidised fertilisers creates challenges due to the hoarding of subsidised fertilisers and fertiliser counterfeiting. New non-subsidised fertilisers have emerged with trademarks very similar to those of subsidised fertilisers, such that some farmers have received low-quality products that generate sub-optimal plant growth and increase the prevalence of pests and diseases. Consequently, more strict supervision by law enforcement agencies has been implemented to control the allocation and distribution of subsidised fertilisers.
Other policies
A Presidential Directive by the NFA set a reference selling price for soybeans at around IDR 10 000 (USD 0.67) per kilogramme and required state-owned enterprises to buy soybeans from local farmers. Soybean subsidy programmes were launched in April and October 2022, involving BULOG and Kopti (the tempeh and tofu producer’s co-operative). Kopti’s members are eligible to purchase soybeans from BULOG with a government subsidy of IDR 1 000 (USD 0.07) per kg (FAS-USDA, 2022[28]). However, only a fraction of these sales took place in practice due to difficulties in administering the programme. An additional budget of IDR 400 billion (USD 26 000) has been earmarked for expanding the soybean planting area (AMIS, 2022[29]).
The Palm Oil Plantation Fund Management Agency (BPDP-KS) finances actions to increase production levels and the productivity of palm oil production systems, including through the programme for replanting for small plantations (PSR). From 2017 to 2022 the programme facilitated replanting of 278 200 hectares of palm, or almost 10% of the total area (MoA, 2023[30]).
Trade policy developments in 2022-23
To strengthen food security and prioritise the uptake of domestic food production, the following policy directions, emphasising self-sufficiency policies, have been proposed (MoA, 2022[31]):
Controlling the import of high quality rice, which can be produced domestically, and to prioritise demand for Indonesian farmers’ production.
Clearly distinguishing food corn from feed corn to be able to apply higher tariff rates to the former.
Substituting imported wheat products with domestically produced sorghum and cassava, and also better identifying food and feed wheat trade flows.
Imposing import duties on corn, soybean, and wheat in accordance with WTO provisions, using the tariff revenue to support corn, soybean, sorghum, and cassava farmers in Indonesia.
The export policies on palm oil have been adjusted in response to market conditions, in particular high market prices for cooking oil (FAS-USDA, 2022[28]). In January 2022, the government subsidised the price of simple-packed cooking oil with funds taken from the export levy (CPO fund) for two weeks. In February, a new policy of Domestic Market Obligation (DMO) was enacted requiring all exporters to sell at least 20% of planned exports in the domestic market (with an increase to 30% starting in March). In April, the Ministry of Trade banned palm oil exports to safeguard domestic availability and affordability of cooking oil. Up to that date, increased rates of export levies – on top of an export tax of USD 200 per tonne – had been applied when the reference price reached USD 1 050 per tonne (AMIS, 2022[32]). A ministerial regulation extended the export ban to crude palm oil, red palm oil, palm oil mill effluent, refined bleached deodorised palm oil as well as used cooking oil. Tariff revenues were used to subsidise bulk cooking oil sales (approx. 202 million litres per month) through the Oil Palm Plantation Fund Management Agency that continues the distribution of bulk cooking oil to vulnerable communities. In June and August 2022, Indonesia relaxed rules to allow more companies to export palm oil and reduce high palm oil inventories that prevented refiners from buying more palm fruits from farmers (AMIS, 2022[33]). In February 2023, Indonesia announced that only 33% of palm oil export permits would be granted until 1 May, a temporary restriction aiming to secure short-run domestic supply ahead of Ramadan (AMIS, 2023[34]).
Indonesia is the fourth most populous country in the world with 274 million inhabitants, with rapid population growth and high population density. Indonesia is also one of the world's largest agricultural producers. Despite a reduction of the share of the sector in the economy in the last two decades, it still accounts for 13% of GDP. The reduction in the share of the work force employed in the agricultural sector has been proportionally much larger, declining from 45% in 2000 to 29% in 2021, with an increase in the average production per employed person in the sector.
Indonesia is a net agro-food exporter and the share of its total exports that come from the sector have tripled in the last two decades to 22% in 2021. 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 grown at around 5% per year between 2000 and 2019, more than doubling the real income per capita. In 2020, GDP decreased as a consequence of the COVID-19 pandemic and related restrictions, but economic growth was back to 5.3% in 2022. The inflation rate has been steadily decreasing from almost 10% in the 2000s to 1.6% in 2021, rebounding to 4.2% in 2022. The rate of unemployment has remained stable for year slightly above 4%.
The value of agro-food exports has oscillated around USD 30 billion in the last decade but strongly increased to USD 51.6 billion in 2021 driven by a large increase in palm oil export value due to a peak of world prices for palm oil. Imports reached USD 24.5 billion in the same year. Around 79% 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 (72%) is destined for further processing in Indonesia.
Indonesia's agricultural production increased at an annual rate of 3.6% in 2011-20, well above the global average. Most of this growth is productivity driven: Total Factor Productivity (TFP) has increased by 2.5% per year, also above the world’s average and representing technological improvements and improved efficiency to combine different production factors. Additional primary factors, including land, and intermediate inputs have contributed an additional 0.7 and 0.4 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 2021. However, the sector's shares of energy used has fallen since 2000 to 0.6% in 2021, while the share of GHG emissions has remained relatively stable at 13.3% in 2021, while the whole of agriculture, forest and other land use -in particular deforestation and forest degradation- have represented more than half of Indonesian emissions in 2000-18. 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 2021.
References
[27] Affairs, I. (ed.) (2022), Fixing the Subsidized Fertilizer Management, the Government Prepares the Agricultural Sector to be More Innovative and Adaptive with Advances in Technology, Press conference 15 July 2022.
[34] AMIS (2023), AMIS Market Monitor 106.
[33] AMIS (2022), AMIN Market Monitor 100.
[29] AMIS (2022), AMIS Market Monitor 102, AMIS FAO.
[15] AMIS (2022), AMIS Market Monitor 104.
[32] AMIS (2022), AMIS Market Monitor 99, FAO-AMIS.
[10] ASEAN Secretariat (2017), ASEAN Economic Community Factsheet, https://asean.org/wp-content/uploads/2012/05/7c.-May-2017-Factsheet-on-AEC.pdf.
[8] Bapenas (2021), Rapid review of low carbon development policy and budget mapping: Input for the 2022 government work plan (Kajian Cepat Pemetaan Kebijakan dan AnggaranPpembangunan Rendah Karbon: Masukan untuk Rencana Kerja Pemerintah 2022), Indonesian Ministry of National Development Planning, Jakarta.
[19] Beazley (2022), “Foot-and-mouth disease: how Indonesia is trying to control the outbreak by the end of the year.”, The Guardian Sidney, Vol. 10 August 202, https://www.theguardian.com/australia-news/2022/aug/04/foot-and-mouth-disease-indonesia-fmd-bali-outbreak-control-plan-cattle-sheep-livestock-farm-cases.
[24] DGLAH (2022), Decree of the Director General of Livestock and Animal Health Services Number 5429/2022 on Standard Operating Procedures to Control and Management of Outbreaks of Foot and Mount and Disease in Indonesia, Directorate General of Livestock and Animal Health Services. Jakarta.
[28] FAS-USDA (2022), Oilseeds and Products Update. Indonesia, Foreign Agricultural Service USDA, pp. ID2022-0021.
[16] Government of Indonesia (2022), Peraturan Presiden Nomor 117/2022 tentang Kemeterian Pertanian (Presidential Decree Number 117/2022 on the Ministry of Agriculture), Government of Indonesia, Jakarta.
[14] Government of Indonesia (2022), Peraturan Presiden Nomor 125 Tahun 2022 tentang Penyelenggaraan Cadangan Pangan Pemerintah (Presidential Decree Number 125/2022 on Administration of Government Food Reserves), Government of Indonesia, Jakarta.
[12] Government of Indonesia (2021), Indonesia Long-Term Strategy for Low Carbon and Climate Resilience 2050, Government of Indonesia, Jakarta.
[11] Government of Indonesia (2021), Indonesia’s Updated NDC for A Climate Resilient Future. Indonesia Green Growth Program, Bappenas and Global Green Growth Institute, http://greengrowth.bappenas.go.id/en/indonesias-updated-ndc-for-a-climate-resilient-future/.
[9] Government of Indonesia (2021), President Regulation Number 98/2021 on Implementation of Carbon Economic Value to Achieve Nationally Determined Contribution Targets and Control of Greenhouse Gas Emissions in National Development, Government of Indonesia, Jakarta.
[35] Government of Indonesia (2021), Updated Nationally Determined Conbtribution. Republic of Indonesia.
[6] Halimatussadiah, A. et al. (2021), “Progressive biodiesel policy in Indonesia: Does the Government’s economic proposition hold?”, Renewable and Sustainable Energy Reviews, Vol. 150, p. 111431, https://doi.org/10.1016/j.rser.2021.111431.
[18] Jakarta Post (2022), “Foot-and-mouth could cost country estimated US$ 1.37 billion”, Jakarta Post, Retrieved 10 August 2022. Jakarta Post, a daily English-language newspaper in Indonesia. PT Niskala Media Tenggara. Jakarta, https://www.thejakartapost.com/business/2022/05/29/foot-and-mouth-could-cost-country-estimated-1-37b-a-year.html.
[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.
[30] MoA (2023), National Palm Oil Coordination Meeting, Minister of Agriculture SYL Targets PSR Program to Reach 180 Thousand Hectares per Year, Ministry of Agriculture, Jakarta, https://bukamatanews.id/read/2023/02/27/rakor-sawit-nasional-mentan-syl-targetkan-program-psr-capai-180-ribu-hektare-per-tahun.
[25] MoA (2022), Decree of the Minister of Agriculture of Indonesia Number 734/2022 on the Determination of the Allocation and the Highest Retail Price of Subsidized Fertilizers for 2023, Ministry of Agriculture, Jakarta.
[23] MoA (2022), Keputusan Menteri Pertanian Nomor 405 Tahun 2022 tentang Gugus Tugas PMK (Decree of the Minister of Agriculture Number 405/2022 on Task Force of FMD), Indonesian Ministry of Agriculture, Jakarta.
[31] MoA (2022), Letter of the Minister of Agriculture Number 248/2022 dated 22 September 2022 concerning Import Control in the Framework of Strengthening Food Security, Ministry of Agriculture, Jakarta.
[26] MoA (2022), Regulation of the Minister of Agriculture of Indonesia Number 10/2022 on Procedures for Determining the Allocation and Highest Retail Price of Subsidized Fertilizer in the Agricultural Sector, Ministry of Agriculture, Jakarta.
[17] MoA (2022), Statistik Peternakan dan Kesehatan Hewan (Livestock and Animal Health Statistics), Directorate General Livestock and Animal Health, Ministry of Agriculture, Jakarta.
[22] MoA (2022), Surat Edaran Menteri Pertanian Nomor 1 Tahun 2022 tentang Pelaksanaan Pengawasan PMK pada Ternak (Circular Letter of the Minister of Agriculture Number 1/2022 on Control and Management of FMD in Livestock), Ministry of Agriculture, Jakarta.
[13] MoA (2018), Regulation Number 39/2018 concerning Early Warning Systems and Management of Climate Change Impacts in the Agricultural Sector. Peraturan Menteri Pertanian Republik Indonesia Nomor 39 Tahun 2018 tentang Sistem Peringatan Dini dan Penanganan Dampak Perubah, Ministry of Agriculture, Indonesia.
[21] NDMA (2022), Decree of Head of National Disaster Mitigation Agency Number 47/2022 on Determination of Emergency Status of FMD in Indonesia, Indonesian National Disaster Mitigation Agency. Jakarta.
[2] OECD (2012), OECD Review of Agricultural Policies: Indonesia 2012, OECD Review of Agricultural Policies, OECD Publishing, Paris, https://doi.org/10.1787/9789264179011-en.
[20] Ristiani (2022), “Upaya Pencegahan dan Penanganan Penyakit Mulut dan Kuku (Efforts to Prevent and Treat Foot and Mouth Disease)”, Agriculture and Food Security Office of Bali Province. Denpasar. 12 August 2022, https://distanpangan.baliprov.go.id/upaya-pencegahan-dan-penangananpenyakit-mulut-dan-kuku-pmk/.
[5] 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.
[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.
[7] 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[35]).