Agricultural Policy Monitoring and Evaluation 2021

14. Indonesia

Support to agriculture

Indonesia’s producer support to agriculture increased significantly in the 2000s, from 7.5% of gross farm receipts in 2000-02 to 21.3% in 2010. In the most recent decade, support as a share of gross farm receipts was relatively stable, reaching 21.1% in 2018-20. The largest component of agricultural support in Indonesia is market price support to producers, in line with the government focus on food sovereignty and self-reliance, with programmes aimed at achieving self-sufficiency in a number of staple products (rice, maize, soybeans, sugar and beef). Almost all producer transfers are potentially most-distorting, mainly market price support (including negative price support for palm oil), but also payments based on unconstrained variable input use.

Prices received by farmers were on average 25% higher than world prices, with large differences between commodities. Sugar, maize, poultry and rice had the highest shares of single-commodity transfers in gross farm receipts, all near or above 30%.

Indonesia has a large food assistance programme (BPNT) to support poor consumers based on electronic vouchers. But it is smaller than total market price support and consumers are penalised by agricultural policies with a negative Consumer Support Estimate of -26.7% of consumer expenditures at farm level.

Expenditures on general services for the sector (GSSE) focus mainly on infrastructure and public stockholding, and are small compared to producer support, representing 6.1% of the Total Support Estimate. Expenditures for GSSE relative to agricultural value-added were 1.3%, well below the OECD average. Total support to agriculture as a share of GDP increased in the last two decades from 1.3% to 2.5%, mainly driven by additional support to individual producers (PSE).

Recent policy changes

During 2020-21, Indonesia maintained the main features of its agricultural policy adopted in 2012. The government increased minimum purchase prices for paddy rice by 14% in 2020 after having kept them constant in nominal terms since 2015. The government export levy of crude palm oil increased from USD 50/tonne to USD 55/tonne.

Indonesia responded to the COVID-19 pandemic by expanding its food assistance programmes. In 2020, the budget for the BPNT food voucher programme increased by 35% and the Ministry of Agriculture dedicated additional funding for this programme. In addition, to increase the income of rural households, including farm households, the Padat Karya (cash for work) programme of the Ministry of Agriculture financed rehabilitation of rural infrastructures, such as irrigation canals and rural roads, land improvements, and community pest control.

As part of policy responses to COVID-19, Indonesia launched a programme to increase production and food reserves by turning potential farmlands in Central Kalimantan to production under a government initiative in the so-called food estates. In 2020, the programme covered an area of 30 000 hectares in Central Kalimantan province. It finances infrastructure, input grants (fertiliser and seed), machinery, and training and extension services. The programme is expected to cover 165 000 hectares by 2024.

Two new programmes called 1000 Horticultural Villages and 1000 Cattle Villages provide grants of high-quality seeds, fertilisers, means of controlling pests and diseases, livestock breeds, equipment, and technical advice to targeted farmers.

On 5 July 2020, the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), signed in 2019, entered into force. Australia eliminated all tariffs levied on imports from Indonesia, and 500 000 tonnes of Australian feed grains (wheat, sorghum, and barley) enjoy duty-free access to Indonesia, to be increased over an 11-year implementation period.

Assessment and recommendations

• Indonesian agricultural policy focuses on self-sufficiency and corresponding trade measures as a tool to achieve food self-reliance. These create large price gaps between domestic and international markets for imported products such as maize, poultry and rice. The impact on incentives and prices is likely to work against objectives that underpin the Food Law of 2012. In particular, these include affordable prices for consumers, who are penalised with negative support, and diversification in production and diet, which is thwarted by the concentration of support on a few staple commodities.

• The ongoing reform of the food assistance programmes – gradually shifting from the Rastra physical distribution system to the BPNT electronic food voucher system – is an important step to improve their effectiveness. Its completion should allow better targeting and improved food security, particularly if combined with a reduction in market price support.

• Fertiliser subsidies are costly, with doubtful efficiency. Application of fertilisers must adapt to local soil and production conditions to be effective and avoid negative environmental impacts. Converting these subsidies into less coupled payments per unit of land would make the support more efficient and be in line with those implemented in other countries, including the People’s Republic of China (hereafter “China”). Additionally, investing in knowledge transfer to farmers would contribute to allocation of inputs according to the needs of local production.

• Policies should stimulate domestic productivity through investments in infrastructure, the innovation system and by easing constraints on private investment in agriculture. Savings from reduced input subsidies could be re-allocated to Indonesia’s Agricultural Innovation System and improving farmers’ skills to manage production and natural resources on their farms, thus contributing to long-term agricultural productivity growth and poverty reduction.

• Administrative requirements on agro-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, the requirements add to trade costs. To reduce these costs, the scientific basis of these requirements needs to be clarified, and transparency and consistency in their implementation improved.

• Indonesia could improve the contribution of agriculture, forestry and land use to climate change mitigation by implementing targeted measures, such as those identified in the National Plan to reduce greenhouse gas (GHG) emissions in management of agricultural land without burning and reforestation.

• To design a more resilient policy framework for the period after the COVID-19 pandemic, measures implemented in response to the crisis, such as those expanding agricultural land and input subsidies, should be evaluated with respect to their impact on the livelihoods of those in need, and on the environment.

Figure 14.1. Indonesia: Development of support to agriculture

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

Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Statlink

Figure 14.2. Indonesia: Drivers of the change in PSE, 2019 to 2020

Note: The producer price change and the border price change are not calculated when the negative price gap occurs at the commodity level for the current or previous year.

Source: OECD (2021), “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), 2018-20

Source: OECD (2021), “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	2018-20	2018	2019	2020p
Total value of production (at farm gate)	23 813	111 541	108 829	113 922	111 871
of which: share of MPS commodities (%)	72.0	75.0	75.1	75.3	74.7
Total value of consumption (at farm gate)	22 684	81 900	79 855	82 022	83 823
Producer Support Estimate (PSE)	1 823	24 082	24 539	24 694	23 013
Support based on commodity output	1 730	21 454	21 585	22 033	20 745
Market Price Support1	1 730	21 454	21 585	22 033	20 745
Positive Market Price Support	2 328	23 656	23 687	24 177	23 104
Negative Market Price Support	-597	-2 201	-2 102	-2 143	-2 359
Payments based on output	0	0	0	0	0
Payments based on input use	82	2 612	2 937	2 646	2 254
Based on variable input use	19	2 197	2 517	2 232	1 842
with input constraints	0	0	0	0	0
Based on fixed capital formation	59	395	403	407	376
with input constraints	1	0	0	0	0
Based on on-farm services	4	20	17	8	36
with input constraints	0	0	0	0	0
Payments based on current A/An/R/I, production required	11	15	17	14	13
Based on Receipts / Income	11	15	17	14	13
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 (%)	7.5	21.1	22.0	21.2	20.2
Producer NPC (coeff.)	1.08	1.26	1.27	1.26	1.24
Producer NAC (coeff.)	1.08	1.27	1.28	1.27	1.25
General Services Support Estimate (GSSE)	382	1 661	1 060	2 082	1 840
Agricultural knowledge and innovation system	45	80	74	84	84
Inspection and control	14	42	48	41	38
Development and maintenance of infrastructure	323	928	871	947	967
Marketing and promotion	0	3	2	5	3
Cost of public stockholding	0	606	65	1 005	749
Miscellaneous	0	0	0	0	0
Percentage GSSE (% of TSE)	15.7	6.1	3.9	7.4	7.0
Consumer Support Estimate (CSE)	-1 967	-21 496	-20 868	-22 131	-21 488
Transfers to producers from consumers	-2 001	-18 619	-19 290	-19 853	-16 712
Other transfers from consumers	-316	-5 532	-4 211	-5 142	-7 242
Transfers to consumers from taxpayers	328	1 399	1 349	1 432	1 415
Excess feed cost	22	1 256	1 284	1 432	1 051
Percentage CSE (%)	-8.7	-26.7	-26.6	-27.5	-26.1
Consumer NPC (coeff.)	1.11	1.42	1.42	1.44	1.40
Consumer NAC (coeff.)	1.10	1.36	1.36	1.38	1.35
Total Support Estimate (TSE)	2 534	27 141	26 948	28 207	26 268
Transfers from consumers	2 318	24 151	23 502	24 995	23 955
Transfers from taxpayers	533	8 522	7 657	8 354	9 556
Budget revenues	-316	-5 532	-4 211	-5 142	-7 242
Percentage TSE (% of GDP)	1.3	2.5	2.6	2.5	2.5
Total Budgetary Support Estimate (TBSE)	803	5 687	5 363	6 174	5 523
Percentage TBSE (% of GDP)	0.4	0.5	0.5	0.6	0.5
GDP deflator (2000-02=100)	100	348	344	350	349
Exchange rate (national currency per USD)	9 322.08	14 325.42	14 232.88	14 150.28	14 593.09

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 (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Description of policy developments

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 grew rapidly since the mid-2000s. Targeted food (rice) assistance for the poor (Raskin) introduced in 1998 allowed the government to increase the minimum producer price of rice, but at the cost of 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 BPNT, a large-scale pilot 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 period. 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, self-sufficiency on staple and strategic commodities (rice, maize, soybean, sugar and beef) is the goal. The country provides subsidies for input use, particularly fertilisers and seeds.

Table 14.2. Indonesia: Agricultural policy trends

Period	Broader framework	Changes in agricultural policies
1960s to 1980s	Closed economy Production expansion to avoid social unrest, rise in oil prices and green revolution	Food Logistics Agency (BULOG) established in 1967 and its marketing role expanded Subsidised inputs such as fertilisers, pesticides and credit Significant spending on infrastructure Increased import tariff rates Quantitative control of exports and imports Export taxes on palm oil and its derivatives
1980s – 1996	Trade liberalisation	Abolishment of tariffs, general tariffs reduction programme Trade agreements (URAA, AFTA, APEC) New legislation on export tax on palm oil and its derivatives in 1994 Phase out of input subsidies
1997-1999	Market reform Asian financial crisis	Reduction of BULOG’s monopoly powers, particularly in rice markets Reduction of fertiliser subsidy Introduction of targeted rice distribution programme (OPK/Raskin) Tariffs replace import licensing arrangements for sugar Abolishment of local content requirements for dairy and soybeans Temporary removal of export taxes on palm oil and its derivatives
2000-2012	Measures to revitalise the agricultural sector in response to poor productivity	Reinstated fertiliser subsidy Increased expenditures in extension services R&D and irrigation Increased tariffs on rice and sugar Quantitative controls on trade in rice, sugar and beef More stringent non-tariff measures Variable export tax on palm oil and its derivatives, and on cocoa
2012-present	2012 Food Law, policy focus on self-sufficiency of staple food (rice, maize, soybeans, sugar and beef)	Increased role of BULOG in rice imports and domestic market Distribution of rice at low prices, first through Raskin programme, then Rastra and finally BPNT electronic vouchers organising rice distribution More input subsidies for fertilisers, seeds and credit. Grant for machineries to targeted farmers’ groups New initiative on food estate

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). On one hand, export taxes imposed on palm oil and cocoa result in negative support for those commodities. On the other, 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.

Figure 14.4. Indonesia: Level and PSE composition by support categories, 1990 to 2020

As a percentage of gross farm receipts

Note: A/An/R/I:Area planted/Animal numbers/Receipts/Income.

Payments not requiring production include Payments based on non-current A/An/R/I (production not required) and Payment based on non-commodity criteria. Other payments include Payments based on non-current A/An/R/I (production required) and Miscellaneous payments.

Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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[3]). 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[4]). 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[5]). 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[6]). 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 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[3]). 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 the importation 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 under MoF regulations 67/2010 and 136/2015, 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. During 2019, the export levy did not apply because the world price of CPO was lower than the reference price. The Palm Oil Fund management board manages the funds from the levy. These finance subsidies to biodiesel, infrastructure, R&D projects on palm oil, replanting in small farms, market promotion and human resource development.

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]).

Domestic policy developments in 2020-21

The budget of the MoA has decreased in recent years, from IDR 32.8 trillion (USD 2.45 billion) in 2015 to IDR 21.7 trillion (USD 1.53 billion) in 2019, and IDR 15.2 trillion (USD 1.04 billion) in 2020. 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 range of ministries concerned also decreased from IDR 125.9 trillion (USD 8.4 billion) in 2015 to IDR 96.2 trillion (USD 6.8 billion) in 2019.

In 2020, the MoA launched a strategic programme to achieve a self-reliant and modern agriculture. This programme supports investments in smart farming, greenhouses to produce off-season horticultural crops, new government initiated food estates and farming ’enterprises. The MoA has also put in place a target to increase exports by diversifying into processed products, promoting new exporter entrepreneurs, and finding new export partners overseas (Ministry of Agriculture (Kementerian Pertanian), 2020[8]). The new Local Food Diversification Action Programme (Gerakan Diversifikasi Pangan Lokal) promotes local food utilisation (cassava, maize for consumption, sago, banana, potato, and sorghum) and its production in home gardens, marginal land and urban farming.

To increase production and exports of horticulture, the MoA launched a programme called 1 000 Horticultural Villages covering an area of 10-20 hectares allocated to horticulture per village. This programme provides a grant of high-quality seeds, fertilisers and means of controlling pests and diseases. A similar programme was launched on cattle development, named the “1000 Cattle Villages” in five provinces as a pilot project (Lampung, West Nusa Tenggara, East Nusa Tenggara, South Sulawesi and East Java). The programme provides assistance in the form of livestock breeds, supplies, equipment, and technical advice to targeted farmers (Ministry of Agriculture (Kementerian Pertanian), 2021[9]).

The MoA has also implemented a pilot project of crop insurance (AUTP, Asuransi Usahatani Tanaman Pangan) for flood and drought since 2015. In 2020, the total area covered by pilot projects was 681 951 hectares (about 1% of total agricultural land), 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 (Asuransi Usaha Ternak Sapi/Kerbau (AUTS/K) with a premium subsidy of IDR 160 000 (USD 10.98) per head. The total budget on insurance amounted to IDR 107.1 billion (USD 7.35 million) in 2020.

Following an initiative by the President in 2020, Indonesia aims to improve food security through developing a government led food estate programme. The objective of this programme is to strengthen national food reserves. In 2020, the programme covered an area of 30 000 hectares in two districts of Central Kalimantan province, with a total budget of IDR 2.91 trillion (USD 0.19 billion). The designated farmland will be used to produce national stocks of foodstuffs such as rice and maize. In case of emergency, those stocks will be distributed domestically, and any excess will be exported. The budget is used to finance infrastructure (irrigation canals and farm road), fund direct transfers to farmers in kind such as machinery, training and extension services and to purchase inputs (fertiliser and seed). The programme will be expanded to cover 165 000 hectares by the year 2024. Implementation of the programme will involve central government, province government, and State Owned Enterprises (Ministry of Agriculture (Kementerian Pertanian), 2020[10]; AMIS, 2020[11]).

Minimum purchase prices (Harga Pembelian Pemerintah, HPP) for rice have remained constant in nominal terms since 2015 to 2019. In March 2020, the Ministry of Trade set higher minimum buying prices for rice (Table 14.3), with an increase of 14% in both dried and milled rice prices (Regulation No. 24/2020 on Reference Price).

Table 14.3. Minimum purchase price of paddy and dried rice

2015 to 2020 (IDR/kg)

Description	2015 to 2019	2020	% Increase
Wet Paddy (GKP) moisture content 25% and waste content 10% at rice mill	3 700	4 200	13.5
Wet Paddy (GKP) moisture content 25% and waste content 10% at BULOG warehouse	3 750	4 250	13.3
Dried Paddy (GKG) at rice mill	4 600	5 250	14.1
Dried Paddy (GKG) at BULOG warehouse	4 650	5 300	14.0
Milled Rice at BULOG warehouse	7 300	8 300	13.7

Source: Inpres (President’s Decree), Inpres May 2015 and Permen (Ministry Decree) Ministry of Trade 2020.

The BNPT remains an important source of support for low-income households to buy sufficient food. In early 2020, the government of Indonesia disbursed BNPT to 15.2 million households and increased to 20 million households in June 2020, with a total budget of IDR 28 trillion (USD 1.9 billion) (Tirto, 2020[12]).

Fertiliser subsidies remain by far the most important programme through which the government provides budgetary support to agriculture. However, the value of the fertiliser subsidy declined from IDR 37.3 trillion (USD 2.64 billion) in 2019, to IDR 24.5 trillion (USD 1.68 billion) in 2020. In total, fertiliser subsidies accounted for 30.7% of total budgetary expenditures provided to support agriculture in 2019 (USDA FAS, 2019[3]).

During the period 2012-19 the reference price (HET) for fertiliser at the retail level was kept constant in nominal terms. However, in 2020 the government increased these reference prices, with increases between 10% for SP-36 and NPK, and 60% for organic fertiliser (granule).

Table 14.4. Maximum retail price of fertiliser

2012 to 2020 (IDR/kg)

Fertiliser	2012 to 2019	2020	% Increase
Urea	1 800	2 250	25
SP-36	2 000	2 400	10
Za	1 400	1 700	17.6
NPK	2 300	2 300	0
NPK (special formula)	3 000	3 300	10
Organic (granule)	500	800	60
Organic (liquid)	-	20 000	-

Source: Permentan (Minister Decree) No.1/2020 and No.49/2020, Ministry of Agriculture.

To develop alternative energy sources to fossil fuels, the government continues to implement the biofuel programme, in particular by utilising palm oil. Faced with market access restrictions for palm oil in the EU market, this programme attempts to create a new demand for palm oil in the domestic market with a biofuels mandate to blend 30% palm biodiesel (B30). On 18 May 2020, the government announced the allocation of a USD 186 million subsidy to maintain its B30 biodiesel mandate in 2020 and 2021. The Indonesian Sustainable Palm Oil (ISPO) standard is now regulated through Presidential Regulation (Perpres) No. 44/2020, replacing ministerial-level regulations on the same subject. The regulation mandates that all growers, including both large plantations and smallholders, be certified before 2025 (GAIN ID0016, 2020[13]).

Domestic policy responses to the COVID-19 pandemic

The COVID-19 pandemic has slowed down economic growth in Indonesia from 2.97% in the first quarter of 2020 to -3.49% in the third quarter. Agriculture has played a buffer role to prevent further downturn, and continued to grow by 0.02% in the first quarter, increasing to 2.15% in the third quarter. However, the pandemic has threatened food security, in particular downstream in the food supply chain due to limited mobility of both people and goods.

At the national level, the government implemented a stimulus package in response to COVID-19, focused on maintaining people’s purchasing power and facilitating export and imports. The additional spending for the State Budget in 2020 was IDR 405.1 trillion (Ministry of Finance (Kementerian Keuangan), 2020[14]). The main measures included: COVID-19 health intervention, namely incentives for medical personnel and spending on health management (IDR 75 trillion); additional expanded social safety (IDR 110 trillion); support for industry, with reduction in taxes and duties as well as micro credit programme (KUR) stimulus (IDR 70.1 trillion); and budget financing support for handling COVID-19 related to the national economic recovery programme (IDR 150 trillion).

Agricultural policy measures focused on food availability from domestic production. Specific action programmes in 2020 sought to strengthen food availability by increasing production capacity, developing a 165 000 hectare food estate in Central Kalimantan; expanding rice planting areas (PATB) with 250 000 new hectares of rice, maize, shallots, and chilies in deficit areas. Other measures to increase food production included grants of seed, livestock breed, machineries, and extension services. In April 2020, the government announced that it would provide IDR 600 000 (USD 38) to 2.7 million farmers to encourage them to plant rice in the next season in the midst of the COVID-19 pandemic. Half of the support will be given as unconditional cash transfers and half in the form of agricultural production inputs (AMIS, 2020[15]).

To prevent the spread of the COVID-19, the government restricted the mobility of people and transportation, except transportation of basic needs including food. The Ministry of Agriculture also promoted the consumption of some commodities, particularly vegetables by making them available in Farmer’s Shops (TTI) owned by the Ministry, with the objective of ensuring that the food supply chain works amidst the implementation of the large-scale social restriction (Rafani, 2020[16]). Due to this pandemic, Farmer’s Shops developed an online sale service providing cheap fresh products from farmer groups in the central producing areas (Kompas, 2020[17]). To stimulate recovery of the agro food supply chain, the government also allocated credit (KUR) up to IDR 50 trillion (USD 3.4 billion) to agro-food enterprises at subsidised interest rates (Ministry of Finance (Kementerian Keuangan), 2020[14]).

To raise the purchasing power of consumers, the government also implemented additional social safety net programmes. The number of beneficiaries of the basic food card through the BPNT programme was increased, entitling new recipients to buy food at subsidised prices, and providing direct assistance to the poor in the form of cash money for basic food packages. The Ministry of Agriculture, allocated IDR 985.77 billion (USD 67.63 million) to finance this programme in 2020 (Rafani and Sudaryanto, 2020[18]). To increase the income of rural households including farmers, the Padat Karya (cash for work) programme of the Ministry of Agriculture prioritised work related to rehabilitation of rural infrastructure, such as irrigation canals and rural roads, land improvements, and community pest control.

The total budget of the Ministry of Agriculture for COVID-19 in 2020 was IDR 3.5 trillion, including: COVID-19 Control Measure (IDR 0.14 trillion); Food Availability Support (IDR 2.37 trillion); and Social Safety Net (IDR 0.99 trillion). The control measure for COVID-19 includes provisions of medicine and medical equipment for MoA employees, and for communities (Ministry of Agriculture (Kementerian Pertanian), 2020[19]).

Trade policy developments in 2020-21

In 2020, the export levy on crude palm oil (CPO) was increased from USD 50/tonne to USD 55/tonne. The levy is paid only if the export price of CPO is below USD 670/tonne (Ministry of Finance Decree (PMK) No. 191). The objective is to support the national biodiesel production programme with lower domestic prices and to absorb excess supplies of palm oil. Export levies on other refined palm oil products were also increased from USD 20-40/tonne to USD 25-45/tonne (AMIS, 2020[15]).

In July 2020, at the request of Indonesia, the WTO established a panel to review certain measures taken by the European Union on palm oil and palm oil crop-based biofuels (DS593) (AMIS, 2020[11]). On related matters, in December 2019, Indonesia formally requested WTO dispute consultations with the European Union regarding measures adopted by the European Union and certain Member States in the renewable energy sector relating to biofuels– notably the classification of palm oil as a ‘high indirect land use change (ILUC)-risk’ biofuel feedstock (AMIS, 2020[20]).

On 15 November 2020, the Association of Southeast Asian Nations (ASEAN)1 and the five states with which ASEAN has existing free trade agreements – Australia, China, Japan, Korean and New Zealand – signed the Regional Comprehensive Economic Partnership (RCEP or ASEAN+5). RCEP combines and deepens a number of existing bilateral and regional agreements, and once in force, it will be the largest free trade agreement in the world covering around 30% of both the global population and its GDP. The RCEP Agreement will enter into force 60 days after six ASEAN member states and three non-ASEAN member states have ratified the Agreement.

Australia and Indonesia signed the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) in March 2019. 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 the 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 Affair, 2019[21]). However, importers will still be obliged to meet some import requirements. On 5 July 2020, the IA-CEPA entered into force. All tariffs levied on imports from Indonesia were eliminated. Some 500 000 tonnes of Australian feed grains (wheat, sorghum, and barley) enjoy duty-free access in Indonesia. This volume will be progressively increased over an 11-year implementation period (AMIS, 2020[11]).

Trade policy responses to the COVID-19 pandemic

In April 2020, the Ministry of Finance launched a stimulus package-2 focused on maintaining consumers’ purchasing power and facilitating export-import. Additional budget funds were allocated to income tax exemption to both government and private companies that carry out export, import, and re-import trade activities in specific sectors. Other measures included restricting export on 749 HS codes, simplifying or reducing a number of import restrictions on certain commodities including manufacturing, food, and health/medical support, and accelerating export-import services through the National Logistic Ecosystem (NLE). To facilitate the exports of processed food products, in June 2020, the Ministry of Trade adopted measures to simplify the certificate of origin service and introducing automatic authentication procedures in licensing processes (AMIS, 2020[22]).

Contextual information

Indonesia’s population is growing rapidly, representing the fourth largest in the world and a high population density of 149 inhabitants per km². Indonesia is also one of the world’s largest agricultural producers. The weight of agriculture in the economy has been falling in the last two decades, but the sector still accounts for almost 13% of GDP. The reduction in the share of agriculture in employment has been proportionally much larger, declining from 45% in 2000 to 29% in 2019, 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 (18.4% in 2019). Nonetheless, the country is also a large importer. Total agricultural area in Indonesia has increased by almost one-third in the last two decades and currently represents 2% of the agricultural land in all countries covered 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 14.5. Indonesia: Contextual indicators

	Indonesia		International comparison
	2000*	2019*	2000*	2019*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	1 098	3 331	2.8%	2.9%
Population (million)	205	271	4.8%	5.2%
Land area (thousand km2)	1 812	1 878	2.2%	2.2%
Agricultural area (AA) (thousand ha)	47 177	62 300	1.5%	2.0%
			All countries1
Population density (inhabitants/km2)	117	149	53	63
GDP per capita (USD in PPPs)	5 352	12 302	9 265	21 975
Trade as % of GDP	26	15	12.3	14.6
Agriculture in the economy			All countries1
Agriculture in GDP (%)	15.6	12.7	2.9	3.5
Agriculture share in employment (%)	45.3	28.6	-	-
Agro-food exports (% of total exports)	6.8	18.4	6.2	7.3
Agro-food imports (% of total imports)	12.7	11.7	5.5	6.7
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	84	77	-	-
Livestock in total agricultural production (%)	16	23	-	-
Share of arable land in AA (%)	43	42	32	34

Notes: *or closest available year.

1. Average of all countries covered in this report.

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

Indonesia’s economy has a solid growth record, at around 5% per year between 2000 and 2019, including after the financial crisis. Real income per capita in 2019 was more than double its level in 2000. However, in 2020 GDP decreased by 2.4% as a consequence of the COVID-19 pandemic and related restrictions. 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 just below 5%.

The volume of agro-food exports and imports has oscillated around a stable average since 2011, with USD 31 billion of exports and USD 20 billion of imports in 2019. 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. Consequently, around 72% of agro-food exports are processed products to be further transformed by industries in other countries, while a significant share of agro-food imports (39%) are primary products for further processing in Indonesia.

Figure 14.5. Indonesia: Main economic indicators, 2000 to 2020

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

Figure 14.6. 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 technological improvements 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 (1.2%) and GHG emissions (13.3%) have been reduced compared to the 1990s. The country’s phosphorous balance has increased to levels above the OECD average, while the nitrogen balance has decreased below OECD average.

Figure 14.7. 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 14.6. 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*	2019*	2000*	2019*
Nitrogen balance, kg/ha	31.6	20.2	33.2	28.9
Phosphorus balance, kg/ha	1.5	6.3	3.4	2.6
Agriculture share of total energy use (%)	2.4	1.2	1.7	2.0
Agriculture share of GHG emissions (%)	19.8	13.3	8.4	9.5
Share of irrigated land in AA (%)	10.3	..	-	-
Share of agriculture in water abstractions (%)	79.3	85.2	46.0	43.4
Water stress indicator	..	..	9.3	8.5

Notes: * or closest available year.

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

References

[22] AMIS (2020), AMIS Marke Monitoring No 80 July.

[11] AMIS (2020), AMIS Market Monitor No.81 September.

[20] AMIS (2020), AMIS Market Monitoring No 75 February.

[15] AMIS (2020), AMIS Market Monitoring No 79 June.

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

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

[13] GAIN ID0016 (2020), Biofuels Annual, USDA FAS.

[17] Kompas (2020), Impact of Covid-19, the Sales of Basic Necessity in the Farmer’s Shop Center Increase by 100 Percent), Kompas.com, https://megapolitan.kompas.com/read/2020/04/03/1.

[9] Ministry of Agriculture (Kementerian Pertanian) (2021), Opening the 2021 Horticulture Development, Minister of Agriculture : This Year Must be Much Better, Ministry of Agriculture, Jakarta, Indonesia.

[10] Ministry of Agriculture (Kementerian Pertanian) (2020), Grand Design Pengembangan Kawasan Food Estate Berbasis Korporasi Petani (Grand Design of Food Estate Development Area Based on Farmer’s Corporation), Bureau of Planning (Biro Perencanaan). Ministry of Agriculture. Jakarta, Indonesia.

[8] Ministry of Agriculture (Kementerian Pertanian) (2020), Program Peningkatan Ketersediaan Pangan di Era New Normal (Programme to Increase Food Availability in a New Normal Era), Ministry of Agriculture, Jakarta, Indonesia.

[19] Ministry of Agriculture (Kementerian Pertanian) (2020), Rekapitulasi Anggaran dan Realisasi Pecegahan dan Penaggulangan Covid-19 Lingkup Kementerian Pertanian Tahun Anggaran 2020 (Summary of budget for Covid-19 response programme in 2020), Ministry of Agriculture, Jakarta.

[14] Ministry of Finance (Kementerian Keuangan) (2020), Some Steps to Strengthen Social Protection and Economic Stimulus to Deal with the Impact of the Covid-19, Press Conference 1 April 2020, Ministry of Finance,Jakart.

[5] 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 (2012), OECD Review of Agricultural Policies: Indonesia 2012, OECD Review of Agricultural Policies, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264179011-en.

[16] Rafani, I. (2020), Agricultural Market Initiative-Based Farmer’s Shop in Indonesia, Food and Fertilizer Technology for the Asian and Pacific Region (FFTC-AP), https://ap.fftc.org.tw/article/2576.pdf.

[18] Rafani, I. and T. Sudaryanto (2020), Policy Response to Covid-19 in Indonesia, FFTC Agricultural Policy Platform,, https://ap.fftc.org.tw/article/1865.pdf.

[6] 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.

[12] Tirto (2020), Juta Jiwa (Ministry of Social Affairs) Targeted that Recipient of Basic Necessity Programme Will Reach 20 Millions Household, https://tirto.id-men.

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

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

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

Note

← 1.  ASEAN comprises Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam.