Agricultural Policy Monitoring and Evaluation 2024

14. Indonesia

Main findings

Support to agriculture

Producer support as a share of gross farm receipts in Indonesia declined to 5.2% in 2021-23 after peaking at 26.5% 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 1% 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 15%.

The share of potentially most-distorting producer transfers was 92% in 2021-23, 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 for staple commodities. Therefore, consumers are penalised by agricultural policies with a Consumer Support Estimate (CSE) of -13% 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 6.7% of the Total Support Estimate (TSE). Expenditures for GSSE relative to the value of agricultural production were 0.5%, lower than in other emerging economies such as the People’s Republic of China (hereafter “China”).

TSE decreased from 1.2% of Gross Domestic Product (GDP) to 0.8% in the last two decades. This decline was driven by GDP growth outpacing growth in support, increasingly negative MPS for some commodities (notably palm oil), whereas positive support to the sector increased over the same period.

Key recent policy changes

Indonesia launched a rice distribution programme to low-income households in 2023, with a budget of IDR 18.6 trillion (USD 1.22 billion). This programme provides 10 kg of rice per month to 21.35 million low-income households and has become an important additional in-kind food assistance programme, partially reversing the trend towards cash transfers in the last decade. This rice transfer programme is operational through 2024 and is additional to the cash transfer programme Bantuan Pangan Non Tunai (BPNT).

Food inflation, a bad forecast for El Niño and a 5% decline in rice production pushed the government to increase rice reserves for 2024. To that end, in 2023, Indonesia agreed with India to allow the import of up to 1 million tonnes of rice, the National Food Agency also approved the import of 1 million tonnes of rice from China and the government announced a rice import quota of 2 million tonnes for 2024 and waived duties for 1.5 million tonnes of rice imports out of quota.

Assessment and recommendations

• Since 2001, Indonesia has significantly improved agricultural total factor productivity and this is currently the main driver of agricultural output growth. However, the expansion of agricultural land and of the use variable inputs such as fertilisers, remain significant and pose environmental challenges, calling for innovative solutions to improve environmental sustainability.

• The recently established National Research and Innovation Agency (BRIN) is an opportunity to prioritise applied research directed to climate-change adaptation and sustainable productivity growth in agriculture. There are already strategies and policies targeting the development of new technologies, breeds and seed varieties. A systematic assessment of the rates of adoption and the impacts of these new varieties on the ground would be useful to guide research and policy. Research could also benefit from stronger links with, and incentives to respond to local needs on improving both productivity and environmental sustainability.

• 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 is most likely working 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.

• Government policies should prioritise investments in innovation, in particular at the adoption phase. The aim should be improving farmers’ skills to manage production and natural resources and ensuring incentives and capacities to find the best solutions to improve sustainable productivity in the specific location and context of each individual farmer. The knowledge and capacity of agencies such as the Indonesian Agency of Agricultural Research and Development could be strengthened, with more skilled extension workers and more accessible services for farmers in need, and co-working between researchers, advisors, and farmers. Investing in knowledge transfer and advice to farmers would improve decisions on the allocation of inputs such as fertilisers to local production needs, contributing to long-term agricultural productivity growth and poverty reduction.

• The BPNT electronic food voucher system in place since 2019 represents an important improvement in the effectiveness of the food assistance programme. The partial return to in-kind food assistance since 2023 reverses this trend and is likely to reduce policy efficiency. 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 government is aware that 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. The proposed reforms in 2024 to replace the subsidies based on cap prices may help to discipline the government expenditure on this programme but inefficiencies are likely to remain. Converting these subsidies into payments per unit of land would make the support more efficient in transferring income to farmers.

Development of support to agriculture

Figure 14.1. Indonesia: Development of support to agriculture

Table 14.1. Indonesia: Estimates of support to agriculture

Million USD

	2000-02	2021-23	2021	2022	2023p
Total value of production (at farm gate)	23 813	127 491	120 654	132 726	129 093
of which: share of MPS commodities (%)	71.96	80.34	79.54	81.21	80.26
Total value of consumption (at farm gate)	22 684	81 891	75 879	83 568	86 225
Producer Support Estimate (PSE)	1 355	6 917	4 709	2 549	13 491
Support based on commodity output	1 263	259	-6 711	-1 401	8 888
Market price support¹	1 263	259	-6 711	-1 401	8 888
Positive market price support	1 860	13 898	13 627	12 649	15 418
Negative market price support	-597	-13 639	-20 338	-14 050	-6 529
Payments based on output	0	0	0	0	0
Payments based on input use	82	6 644	11 405	3 937	4 589
Based on variable input use	19	3 984	6 165	2 770	3 016
with input constraints	0	0	0	0	0
Based on fixed capital formation	59	2 239	4 152	1 084	1 483
with input constraints	1	5	0	0	13
Based on on-farm services	4	421	1 089	83	91
with input constraints	0	0	0	0	0
Payments based on current A/An/R/I, production required	11	14	15	13	13
Based on Receipts / Income	11	14	15	13	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 (%)	5.58	5.22	3.57	1.87	10.09
Producer NPC (coeff.)	1.06	1.01	0.95	0.99	1.08
Producer NAC (coeff.)	1.06	1.06	1.04	1.02	1.11
General Services Support Estimate (GSSE)	623	648	565	659	719
Agricultural knowledge and innovation system	45	32	35	33	28
Inspection and control	14	53	83	52	25
Development and maintenance of infrastructure	323	192	177	184	215
Marketing and promotion	0	5	7	5	5
Cost of public stockholding	240	365	264	386	447
Miscellaneous	0	0	0	0	0
Percentage GSSE (% of TSE)	27.94	6.72	6.70	15.24	4.49
Consumer Support Estimate (CSE)	-1 476	-10 297	-4 927	-11 610	-14 353
Transfers to producers from consumers	-1 533	-11 746	-8 326	-11 701	-15 210
Other transfers from consumers	-293	-1 417	-700	-1 480	-2 072
Transfers to consumers from taxpayers	328	2 025	3 154	1 118	1 802
Excess feed cost	22	842	946	452	1 127
Percentage CSE (%)	-6.55	-13.00	-6.77	-14.08	-17.00
Consumer NPC (coeff.)	1.09	1.19	1.14	1.19	1.25
Consumer NAC (coeff.)	1.07	1.15	1.07	1.16	1.20
Total Support Estimate (TSE)	2 306	9 589	8 428	4 327	16 012
Transfers from consumers	1 826	13 163	9 026	13 181	17 282
Transfers from taxpayers	773	-2 157	102	-7 375	803
Budget revenues	-293	-1 417	-700	-1 480	-2 072
Percentage TSE (% of GDP)	1.21	0.75	0.71	0.33	1.16
Total Budgetary Support Estimate (TBSE)	1 044	9 330	15 139	5 728	7 124
Percentage TBSE (% of GDP)	0.56	0.71	1.28	0.43	0.52
GDP deflator (2000-02 = 100)	100	396	369	405	413
Exchange rate (national currency per USD)	9 322.08	14 796.84	14 307.82	14 845.71	15 236.99

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 (2024), “Producer and Consumer Support Estimates”, OECD Agricultural policy monitoring (database), https://data-explorer.oecd.org/.

Policy landscape

Main policy instruments

The Food Law of 2012 shapes Indonesia’s current agricultural policy and set of core objectives, focussed on the principles of food self-reliance (kemandirian pangan) and food sovereignty (kedaulatan pangan). The law stipulates that domestic food demand can only be met by imports if local food sources are insufficient (USDA FAS, 2019[1]). This focus is also reflected in the Strategic Plan of the Ministry of Agriculture 2020-24 which calls for:

• Self-sufficiency in the production of selected staple-food commodities (rice, maize, soybeans, sugar and beef) to ensure 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.

• Increasing farmers’ incomes to reduce the level of rural poverty (OECD, 2012[2]).

The BPNT, co-ordinated by the Ministry of Social Affairs (Ministry of Social Affairs (Ministry of Social Affairs (Kementerian Sosial), 2019[3]) gives eligible households a monthly cash transfer via a purchasing card that can be used to buy rice at the market price from selected retailers. In 2023 the transfer was IDR 200 000 (USD 13.1) per month and the number of beneficiary households was 18.8 million.

Input subsidies are provided for fertilisers and credit. The percentage of subsidy varies across fertiliser types, with urea receiving the highest rate, 81.3%, in 2023. 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 centres: the Food Estate (FE) programme brings together upstream and downstream activities in the food production chain.

Public investments in infrastructure are combined with exemptions 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. Facilitated by savings from reduced fuel subsidies since 2015 and responding to climate change, the government has pushed to improve irrigation infrastructure, mainly for rice production. This includes water pump and other irrigation infrastructure, and support for seeds in in new planted areas.

The National Food Agency (NFA/Bapanas) manages government food reserves and manages public interventions in the domestic market and imports through the state-owned enterprise Perum BULOG. The NFA is also responsible for market operations aimed at stabilising domestic prices. Perum 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[4]). Ceiling prices are in place for 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.

Indonesia restricts trade of strategic commodities (those associated with self-sufficiency targets: rice, maize, soybeans, sugar and beef). Food imports are only allowed when domestic food production is not sufficient. Additionally, food exports are allowed only after the demands of the National Food Reserve and staple food consumption are met. Importing companies must receive Ministry of Trade approval as registered importers for animals as well as a range of processed products manufactured from meat, cereal, sugar and cocoa.

The trade weighted average of applied Most Favoured Nation (MFN) import tariffs on agro-food products was 5.6% in 2020, with rice and sugar having the highest specific tariffs. Quantitative import restrictions and licensing are in place, notably for rice, sugar and beef. Certain import requirements are imposed for food safety and religious reasons. The MFN tariff schedule is updated every five years by the Ministry of Finance (Buku Tarif dan Kepabeanan).

A variable export tax on crude palm oil is based on a reference price. It is zero for prices below USD 750 per tonne but applies using a sliding scale between USD 3 and USD 200 per tonne when prices exceed that reference. 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. Variable export taxes are also in place for cocoa.

A biofuel mandate requires a blend rate of 35% for palm oil based biodiesel for all uses (Halimatussadiah et al., 2021[5]). A subsidy to biofuel producers is provided via the Indonesia Oil Palm Estate Fund (BPDP). The BPDP collects an export levy and redistributes it to producers of biofuels who sell their products domestically. A moratorium on the issuance of licenses for new palm oil plantations is in place since 2018 to combat palm oil-driven deforestation and loss of peatland.

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[6]).

Innovation for sustainable productivity growth

Strategic planning

Indonesia’s updated Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC) 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. While 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 strategic approach of Indonesia to promote innovation for sustainable productivity growth is based on the introduction of new technologies, breeds and seeds varieties, while facilitating adoption through the extension services. This approach emphasises increases in productivity. However, innovation adoption in Indonesia is hindered by lack of information, infrastructure, skills and working capital, and the limited capacities of the extension services. There are not specific targets in terms of sustainable productivity growth in Indonesia.

Research and innovation

Indonesia established a single National Research and Innovation Agency called Badan Riset dan Inovasi Nasional (BRIN) in 2021 to co-ordinate government R&D and innovation activities in an integrated manner. Consequently, R&D activities are no longer implemented by the MoA. The Ministry of Agriculture still has extension services co-ordinated by the Indonesian Agency for Agriculture Extension and Human Resources Development, including advisors working on technology dissemination and extension, particularly for small scale farmers. The former Indonesian Agency of Agriculture Research and Development (IAARD) transferred its research capacities to BRIN and was transformed in 2022 into a new agency on standards called Badan Standar Instrument Pertanian (BSIP).

New crop varieties and livestock breeds are developed by the private sector, universities and central and local governments. Between 2005 and 2021 the IAARD created 240 food crop varieties, 147 horticulture, 130 estate crops and 10 livestock breeds. After briefly slowing down during the pandemic and following the reform of the R&D public system, the pace of innovation in plant and animal breeding recovered such that 208 new crop varieties were released for dissemination in 2022 (Center for Plant Variety Protection and Agriculture, 2023[8]). These include 175 horticultural varieties (fruits, vegetables and ornamental plans), 23 food crop varieties, and 10 estate crop varieties.

In addition to new crop varieties and livestock breeds BRIN also develops on-farm technologies such as precision farming. These technologies are developed to improve production methods, make better use of marginal land and increase the efficiency of input use and feed formulation, and are expected to contribute to higher productivity while reducing the use of inputs such as fertilisers.

The main institution in charge of technology dissemination is the extension agency and its extension workers. The MoA targets having one extension worker in each village but is currently very far from that goal. The MoA also targets having one agricultural extension centre per sub-district, but currently there are only 5 762 such centres for the 7 252 sub-districts. The main challenges for technology adoption are lack of skills among advisors and farmers, weak knowledge flows between extension and research and poor telecommunication infrastructure, particularly in the east of the country.

Programme implementation

The government of Indonesia has issued several regulations to reduce agricultural GHG emissions, obliging farmers to implement environmentally sustainable practices. These regulations also apply for suppliers of inputs, irrigation systems and cultivation equipment (Bapenas, 2021[9]).

A Presidential Regulation in 2021 focused on the implementation of carbon economic value to achieve Nationally Determined Contribution (NDC) targets and control of greenhouse gas emissions in national development (Government of Indonesia, 2021[10]). This regulation defines a universal approach to measurement of the effort in reducing emissions, to be reflected in national targets. 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. For instance, subsidised inorganic fertilisers and conventional irrigation systems contribute to increased food production, but are also the largest contributors to agricultural GHG emissions in Indonesia. The economic value of carbon is used by the government to decide on how to support these activities.

Recent policy developments

Domestic policy developments in 2023-24

The Indonesian National Food Agency (NFA) introduced in March 2023 new caps on retail prices for medium and premium rice in different geographical areas to mitigate food price inflation. The maximum price for medium rice was increased by 15.9% on average over previous levels (which were set in 2017) and set at IDR 10 900 (USD 0.72) per kilogramme in zone 1 (Java, Lampung, South Sumatra, Bali, West Nusa Tenggara Barat, and Sulawesi); IDR 11 500 (USD 0.75) in zone 2 (Sumatra, South Sulawesi, East Nusa Tenggara Timur, and Kalimantan) and IDR 11 800 (USD 77) in zone 3 (Maluku and Papua).

The National Food and Drug Agency (BPOM) introduced a new regulation (No. 22/2023) with a more extensive list of prohibited raw materials in processed food and food additive ingredients. It strengthens the enforcement of this prohibition and introduces specific new standards for food. BPOM also introduced a new Law No. 23/2023 with additional requirements for the registration of food processing activities.

Food assistance

To help the poor to cope with food price inflation, Indonesia launched the non-cash rice transfer distributing programme to low-income households in two phases between March and May and between September and November 2023. A 10 kg allotment of rice per month was distributed to 21.35 million low-income households. The budgetary expenditure for this programme was IDR 18.6 trillion (USD 1.22 billion). This rice transfer programme is continued in 2024 with a budget of IDR 7.24 trillion (USD 4.8 billion), expected to reach 22 million households between January and March 2024. This programme has become an important additional form of in-kind food assistance, partially reversing the trend towards cash transfers in the last decade.

Fertiliser subsidies

In 2023 and 2024, fertiliser subsidies are provided by the Minister of Agriculture according to Regulation Number 10/2022. The fertiliser subsidy budget remained stable in 2023 at IDR 25.3 trillion (USD 1.66 billion) and was announced to be increased by 5.53% in 2024. Despite this budget stability, the volume of subsidised fertilisers decreased by 47.5% in 2023. While the price cap (Highest Retail Price, HRP) was relatively stable, the subsidy rate went up because of higher international prices of fertilisers and natural gas used in the production of fertilisers. With these high world prices, the budget only allowed for significantly smaller subsidised volumes, which in 2023 only met between 14% to 53% of the requirement, depending on the type of fertiliser (Directorate General of Infrastructure MoA, 2024[11]).

Table 14.2. Volume and maximum sale price of subsidised fertilisers in Indonesia

Fertiliser Type	Volume (thousand tonnes)			HRP (USD/kg)			Subsidy (USD/kg)
	2022	2023	2024	2022	2023	2024	2022	2023	2024
Urea	4 233	5 570	2 711	0.15	0.15	0.15	0.22	0.22	0.21
NPK	2 471	3 232	2 001	0.15	0.15	0.15	0.57	0.56	0.54
NPK special formula (for Cocoa)	12	211	20	0.22	0.22	0.22	0.54	0.53	0.51

The governance system of fertiliser subsidies was proposed to be changed in 2024. Two changes were proposed. First, an additional 55% increase in the 2024 budget for fertilisers. Second, a pilot reform in the fertiliser subsidy policy, moving from a subsidied price to direct payments to farmers based on the amount of fertiliser they use. The government would then distribute the available budget to reach the estimated volume of fertiliser needs. However, pilot projects of this new policy foreseen in the Provinces of Bangka Belitung Islands and South Kalimantan have been postponed.

Animal health

In June 2023, the Ministry of Agriculture (MOA) issued a decree regarding the Road Map for Foot and Mouth Disease Eradication from the Territory of the Republic of Indonesia. The plan includes the restocking of the dairy cattle population by importing livestock from abroad. To improve traceability systems for livestock and livestock diseases a registration and data collection system was introduced for all livestock using Eartag secure QR codes.

The Indonesian National Quarantine Agency (IQA/Barantin) was established in 2023, reporting directly to the president. This new agency integrates the former Agriculture Quarantine Agency (Barantan) under the Ministry of Agriculture and related units responsible for quarantine under the Ministry of Marine and Fisheries, and the Ministry of Environment and Forestry. The new agency aims to improve the quality of the quarantine services, pooling together the experience from different sectoral agencies and increasing the involvement of civil society into a participatory quarantine management.

Genetic engineering

A regulatory framework and control guidelines to monitor and evaluate the issuance of Genetically Engineered (GE) crops for cultivation was established in 2023. The Ministers of Environment & Forestry, Agriculture, Marine Affairs & Fisheries, and the Head of National Food and Drug Agency (BPOM) are the authorities responsible for approving and releasing GE products, as governed by MOA Regulation No. 23/2023. Based on the Presidential Regulation No. 45/2023, the National Quarantine Authority has been authorised to supervise and control imported genetically engineered products at the border, including plants, animals, and fish. In March 2023 genetically-modified HB4 wheat was approved for human consumption. This cereal had previously been approved for use as animal feed.

Palm oil and biofuel policies

Changes to the domestic market obligation (DMO) policy for palm oil were made in May 2023 in response to lower international prices. The new policy lowers the target for domestic cooking oil supply from 450 000 tonnes to 300 000 tonnes a month and tightens the target export ratio from 6 to 4 tonnes of exports per every tonne of palm oil used for domestic consumption. It also raises the incentives for packaged cooking oil, and releases, over the course of nine months, export permits that had previously been suspended.

In November 2023 the Ministry of Energy and Mineral Resources announced an increase in biodiesel production from 13.1 billion litres in 2023 to 13.4 billion litres in 2024. The ministry aims to maintain its biodiesel blending mandate at B35 (35% palm-based biodiesel), following a guidance in July for the handling and storage of biofuel fixing a maximum blending rate of 40% for diesel engines.

After a long dormant period for the bioethanol programme, in June 2023 the government announced bioethanol procurement based on the acceleration of sugar self-sufficiency goals. PR No. 40/2023 sets forth Indonesia’s target of achieving self-sufficiency in sugar production for human consumption by 2028 and producing 1.2 billion litres of sugarcane ethanol by 2030. In mid-July 2023, the Ministry of Energy and Mineral Resource issued Decree No. 252/2023 on specifications for 95 RON gasoline with 5% ethanol blending.

Policies to mitigate emissions from agriculture

The Designing Article 6 Policy Approaches (DAPA) programme to facilitate international carbon trading, funded by Norway, is a co‑operative initiative to support countries in reducing greenhouse gas emissions according to their Nationally Determined Contributions (NDCs). In Indonesia, the Coordinating Ministry of Economic Affairs (CMEA) leads the programme. An inter-ministerial Technical Advisory Committee (TAC) with six representatives is responsible for designing Indonesia’s participation in carbon markets, with a Policy Approach Proposal (PAP) and a NDC tracking tool. The DAPA Program has been extended until the end of 2024, to complete a bilateral carbon trading agreement (Mitigation Outcome Purchasing Agreement, or MOPA) between Indonesia and Norway. The programme also focuses on developing a mixed regulatory regime, combining carbon market and carbon tax strategies for achieving NDC targets. Indonesia aims to become one of the first countries to participate in international carbon trading.

Indonesia continues to strengthen the policy framework for net zero emissions from forests and land use and is currently developing a financing roadmap for the Forest and Other Land Uses (FOLU) net sink 2030 plan. In 2023 Indonesia finalised OneMap to clarify tenurial status of land in different functions across the country. Indonesia provides fiscal incentives to district governments to ensure they complete their spatial plans for FOLU and provides a financing roadmap to support restoration investments by local authorities.

Trade policy developments in 2023-24

Indonesia strengthened the food safety regulation on imports of wheat or other grains. The objective is to manage risks of exposure and spread of pests and diseases as well as food contamination. Importing companies are required to demonstrate their compliances with prevention measures such as being equipped with proper facilities that are free from plant pests. This includes heat treatment, modern logistic systems with unloading and transporting grain using a conveyor belt or modern packaging. Countries that may be affected by this regulation include Argentina, Australia, Bulgaria, Canada, Denmark, France, India, Lithuania, Moldova, Pakistan, Russia, Korea, Ukraine, the United States, and Paraguay. Indonesia also requires the Good Agriculture Practices used at the production level to be registered by the competent authority. This procedure aims to develop guaranteed traceability systems for safety compliance from farm level along the supply chain.

To guarantee government supply of rice in the face of global inflation, El Niño weather forecast and other food supply problems, Indonesia and India agreed in 2023 to allow the import of up to 1 million tonnes of rice. At the same time, the National Food Agency also approved the import of 1 million tonnes of rice from China to increase the government’s rice reserves for 2024 after a 5% decline in rice production. Finally, the government announced a rice import quota of 2 million tonnes for 2024 and waived duties for 1.5 million tonnes of rice imports out of quota. As of January 2024, 5 200 tonnes of rice from India or 0.5% of the agreed amount had been imported.

Policy context

Key economic and agricultural statistics

Indonesia is the fourth most populous country in the world with 276 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 12.4% 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 2022, 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 almost tripled in the last two decades to 20% in 2022. The country is also a large importer of agro-food products. Total agricultural area in Indonesia has increased by one-third in the last two decades and currently represents 2.2% 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.

Table 14.3. Indonesia: Contextual indicators

	Indonesia		International comparison
	2000*	2022*	2000*	2022*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	1 097	3 970	2.7%	2.9%
Population (million)	205	276	4.8%	5.2%
Land area (thousand km2)	1 878	1 893	2.3%	2.3%
Agricultural area (AA) (thousand ha)	47 177	64 600	1.6%	2.2%
			All countries1
Population density (inhabitants/km2)	112	144	52	64
GDP per capita (USD in PPPs)	5 346	14 653	9 363	25 965
Trade as % of GDP	26.3	20.1	12.3	16.6
Agriculture in the economy			All countries1
Agriculture in GDP (%)	15.6	12.4	2.9	3.8
Agriculture share in employment (%)	45.3	29.3	-	-
Agro-food exports (% of total exports)	6.8	19.6	6.4	8.0
Agro-food imports (% of total imports)	12.7	11.9	5.8	6.9
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	84	81	-	-
Livestock in total agricultural production (%)	16	19	-	-
Share of arable land in AA (%)	43	41	32	34

Note: *or closest available year.

1. Average of all countries covered in this report.

Sources: OECD statistical databases; International Labour Organization (ILO); UN Comtrade; World Bank, WDI; FAO database and national data.

Indonesia’s economy has grown at around 5% per year between 2000 and 2019, almost tripling 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 5in 2022 and 2023. The inflation rate has been steadily decreasing from almost 10% in the 2000s to 1.6% in 2021, rebounding to in 2022 and 2023. The rate of unemployment has remained stable around 4% in the last decade.

The value of agro-food exports has oscillated around USD 30 billion in the last decade but strongly increased in the last two years up to USD 57.2 billion in 2022 driven by a large increase in palm oil export value due to a peak of world prices for palm oil. Imports reached USD 28.2 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 significant share of agro-food imports (71%) is destined for further processing in Indonesia.

Indonesia’s agricultural production increased at an annual rate of 3% in 2012-21, well above the global average. Most of this growth is productivity driven: Total Factor Productivity (TFP) has increased by 1.6% 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 0.9 and 0.4 points to the production growth, respectively. Unlike in the 1990s, Indonesia’s growth in 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 2022. However, the sector’s shares of energy used has fallen since 2000 to 0.7% in 2022, while the share of GHG emissions has remained relatively stable at 13.3% in 2022, while the whole of agriculture, forest and other land use -in particular deforestation and forest degradation- 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 2022.

Table 14.4. Indonesia: Productivity and environmental indicators

	Indonesia		International comparison
	1991-2000	2012-2021	1991-2000	2012-2021
			World
TFP annual growth rate (%)	-0.1%	1.6%	1.7%	1.1%
			OECD average
Environmental indicators	2000*	2022*	2000*	2022*
Nitrogen balance, kg/ha	17.3	-68.6	32.1	28.2
Phosphorus balance, kg/ha	1.5	0.9	3.3	2.3
Agriculture share of total energy use (%)	2.4	0.7	1.7	2.0
Agriculture share of GHG emissions (%)	13.2	13.3	8.7	10.1
Share of irrigated land in AA (%)	11.5	10.5	-	-
Share of agriculture in water abstractions (%)	81.9	85.2	47.0	49.5
Water stress indicator	..	..	8.7	..

Note: * or closest available year.

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

Historical trends in agricultural policies

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. Indonesia launched an additional in-kind rice distribution programme to low-income households in 2023 and 2024, reversing the trend towards cash transfers programmes for food assistance.

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.

Table 14.5. 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 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, both leading to negative support to producers. Export taxes imposed on palm oil and cocoa result in negative support for those commodities. The negative price support to palm oil quadrupled in 2021 and 2022 due to skyrocketing world prices not fully transmitted to local consumers for which palm oil is a staple commodity, and fell with lower world prices in 2023. Budgetary transfers to producers (mainly input subsidies) are significantly smaller than the negative or positive support provided through producer prices. Food consumers are penalised by policy because the budgetary support they received represents only a small share of the negative support due to higher domestic prices of staple commodities such as sugar, maize, poultry, rice and eggs.

References

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

[9] 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 Panning. Jakarta.

[8] Center for Plant Variety Protection and Agriculture, P. (2023), Annual Report, https://ppvtpp.setjen.pertanian.go.id/.

[11] Directorate General of Infrastructure MoA (2024), Subsidized Fertilizer Policy Fiscal Year 2024., pp. Jakarta, 7 February 2024.

[10] 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.

[13] Government of Indonesia (2021), Updated Nationally Determined Conbtribution. Republic of Indonesia.

[5] 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.

[12] Ministry of Agriculture (2023), Decree No. 734 of 2022 on Determining the Allocation and Highest Retail Price of Subsidized Fertilizers in the Agricultural Sector Fiscal Year 2023.

[3] 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://doi.org/10.1787/9789264179011-en.

[1] 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.

[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 1.1 in (Government of Indonesia, 2021[13])).