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OECD Review of Agricultural Policies: Indonesia 2012

image of OECD Review of Agricultural Policies: Indonesia 2012

This Review,undertaken in close co-operation with the Indonesian Ministry of Agriculture, assesses the performance of Indonesian agriculture over the last two decades, evaluates Indonesian agricultural policy reforms and provides recommendations to address key challenges in the future. The evaluation is based on the OECD Committee for Agriculture’s approach that agriculture policy should be evidence-based and carefully designed and implemented to support productivity, competitiveness and sustainability, while avoiding unnecessary distortions to production decisions and to trade. Conducted in partnership with the OECD Investment Committee, the Review comprises a special chapter highlighting key challenges to be addressed to attract sustainable investment in agriculture, drawing from the OECD Policy Framework for Investment in Agriculture.

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Policy trends and evaluation

This chapter examines agricultural policy and the support provided to agricultural producers in Indonesia since 1990. The main priorities of agricultural policy concern food self-sufficiency, food diversification, value-added and competitiveness, and farmers’ welfare. The Ministry of Agriculture has a primary role in developing and implementing policies to achieve these objectives, but a number of other central government ministries and agencies also have significant roles. A wide range of input subsidies on fertiliser, seeds, credit, etc., is used to support agricultural producers. The number and budgetary cost of these measures have grown rapidly since the mid-2000s. The introduction of a targeted rice for the poor programme (RASKIN) in 1998 has allowed the government to steadily increase the minimum producer price of rice, but at the cost of increasing budgetary expenditure on RASKIN. Tariffs have fallen significantly over the period. The average tariff on agriculture (excluding alcoholic beverages) has 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 have been reintroduced, notably for rice, sugar and beef. Import requirements imposed for SPS and cultural reasons (i.e. halal certification) are becoming more stringent. They are often implemented in a non-transparent manner and add to the cost of importing. Export taxes have been reinstated on crude palm oil and its derived products, and recently introduced on cocoa. The level of support to producers as measured by the %PSE averaged 9.3% in 2006-10, varying between –10% in 2008 and 21% in 2010. This variation reflects the government’s efforts to stabilise domestic prices and to balance interests of producers and consumers in the context of price volatility on international markets. The total value of transfers arising from support to agriculture was equivalent to 1.9% of GDP in 2006-10.

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