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The Roles of Input Policies in
Transforming Agriculture in Indonesia
Bustanul Arifin
barifin@uwalumni.com
Professor of Agricultural Economics at UNILA
Professorial Fellow at InterCAFE and MB-IPB
Senior Economist with INDEF-Jakarta, Indonesia
International Conference on “Agricultural Transformation in Asia: Policy Options for
Food and Nutrition Security”, September 24-26 of 2013, in Siem Reap, Cambodia
Research Objectives
1. Identify key drivers of changes in seed and fertilizer
policies in modern history of Indonesian agriculture,
2. Examine policy process on agricultural inputs (fertilizer
and seed) to contribute to agricultural development on
Indonesia, and
3. Formulate strategies to improve policy environment for
promoting sound input use.
Agricultural Inputs and Production Performance
• The use of fertilizer and (high-yielding) seed grow very
rapidly since the Green Revolution Era in the 1970s.
• Five Efforts: seed, fertilizer, plant density, irrigation and
drainage, and pest and disease management.
• Seven Efforts: Five Efforts+ marketing and financing
• Farm Formula (Rumus Tani): Fertilizer to rice price ratio
• Policy priority of agricultural inputs: food crops, related to
policy strategy for food self-sufficiency & food security.
• After 1980s: Cash crops also obtained attention in order
to increase foreign earnings from export commodities:
rubber, coffee, cocoa, coconut, oil palm, tea, clove etc.
Transformation—
Major Agric Policy
Soekarno
(1945-1966)
Soeharto I
(1966-1985)
Soeharto II plus
(1986-2003)
Yudhoyono
(2004 – now)
Share of Agric-PDB >30% 20-30% 15-20% <15%
Share of Agric-labor >50% 45-50% 40-45% <39%
Agricultural Growth Low (<3%) High (6%) Low (3-4%) Low (3%)
Agric Major Policy Mass Guidance Green Revolution Green Revolution Agric Revitalizing
Agric Input Policy Introducing
modern inputs
Agric inputs for
self-sufficiency
Response to
drought & crisis
Organic input
grows rapidly
-Fertilizer Subsidy Not specific, but
guidance on use
Started in 1971
Price subsidy
Removed -1998
but re-introduced
Compound-NPK,
No subsidy
-Seed Subsidy Modern seed
was known
Package of agric
inputs plus credit
Package of agric
inputs plus credit
Private sector
grows rapidly
Policy process Top-down: Food,
& Peasant first
Top-down: Oder-
& Command
Dialog with some
stakeholders
Democratization:
Dynamic drivers
Historical: Structural Transformation in Indonesia
Source: Synthesized by the author
Structural Transformation: Incomplete Process?
0
5
10
15
20
25
30
35
40
0
200
400
600
800
1000
1200
1400
Agriculture value added per worker (constant 2000 US$)
GDP per capita (constant 2000 US$)
Agriculture, value added (% of GDP)
GINI index
Poverty headcount ratio at rural poverty line (% of rural population)
Poverty headcount ratio at urban poverty line (% of urban population)
Source: BPS
Production Performance of Strategic Foods
Strategic Foods 2008 2009 2010 2011 2012
Rice
Harvested Area (ha) 12.327.425 12.883.576 13.244.184 13.203.643 13.445.524
Productivity (ton/ha) 4,89 5,00 5,01 4,98 5,15
Production (ton dry paddy) 60.325.925 64.389.890 66.411.469 65.756.904 69.056.126
Maize
Harvested Area (ha) 4.001.724 4.160.659 4.131.676 3.864.692 3.957.595
Productivity (ton/ha) 4,08 4,23 4,43 4.56 4.90
Production (ton dry grain) 16,317,252 17,629,748 18,327,636 17,643.250 19.387.022
Soybean
Harvested Area (ha) 590.956 722.791 660.823 622.254 567.624
Productivity (ton/ha) 1,31 1,25 1,24 1,37 1,48
Production (ton dry bean) 775.710 974.512 907.031 851.286 843.153
Sugar
Harvested Area (ha) 436.505 441.040 435.000 430.000 440.000
Productivity (ton/ha) 6,11 5,70 5,11 5,27 5,22
Production (ton sugar) 2.668.428 2.517.374 2.300.000 2.270.000 2.300.000
Source: BPS (various issues)
Use of Fertilizer by Cropping Farms
Cropping Farms No
Fertilizer
Chemical
Fertilizer
Organic
Fertilizer
Chemical+
Organic
Total
Rice
Farm Households 1,225,700 10,155,465 94,112 3,516,860 14,992,137
Percentage (%) 8.18 67.74 0.63 23.46 100.00
Maize
Farm Households 1,010,330 2,472,889 134,648 3,096,828 6,714,695
Percentage (%) 15.05 36.83 2.01 46.12 100.00
Soybean
Farm Households 215,717 492,888 85,173 370,699 1,164,477
Percentage (%) 18.52 42.33 7.31 31.83 100.00
Sugarcane
Farm Households 2,819 131,633 4,324 56,683 195,459
Percentage (%) 1.44 67.35 2.21 29.00 100.00
Source: BPS, 2009
Use of Seeds by Cropping Farms
Cropping Farms Farm Households
Percentage of
Farms (%)
Percentage of
Total *)
Rice 14,992,137 84.08
Hybrid 430,996 2.87 2.42
High-Yielding 10,947,289 73.02 61.40
Local Seed 3,613,852 24.10 20.27
Maize 6,714,695 37.66
Hybrid 3,651,210 54.38 20.48
Composite 341,377 5.08 1.91
Local Seed 2,722,108 40.54 15.27
Soybean 1,164,477 6.53
High Yielding 452,029 38.82 2.54
Local Seed 712,448 61.18 4.00
Sugarcane 195,459 1.10
High Yielding 134,726 68.93 0.76
Local Seeding 60,733 31.07 0.34
Total Farm Household 17,830,832
Source: BPS, 2009
*) This does not add to 100% as a farm household usually grows more than one crop
Fertilizer Shortage during Planting Season
1. Production : Supply of gas vs. individual performance
2. Distribution: Min. of Agriculture vs. Min. of Trade
3. Institution: Demand for fertilizer (RDKK) is not easy
4. Price: Disparity between MRP(HET) vs. actual
5. Subsidy: Gas subsidy vs. price subsidy
6. Trust: Price audit on cost of production vs. HET rise
Expenditures on Fertilizer Subsidies
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
5 000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
IDR/kg
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
18 000
20 000
IDR billion
Expenditure on fertiliser subsidies (right scale) Ceiling price for urea (left scale)
International price of urea (left scale)
Source: OECD (2012), Ministry of Agriculture (2011)
Allocation of national ag. spending (actual), 2001-09
State Budget: Spending on input subsidy
• Increase in public spending on agriculture has gone to subsidize inputs (fertilizer, seeds, food for the poor). Credit remains low.
• In 2009 fertilizer subsidies were 4.5 times its 2001 level, while irrigation remained at the same level. This needs policy changes.
• Previous studies suggest that the relationship between public spending and growth in the agriculture sector. Spending on public
goods has positive impact on growth, spending for private goods might have negative impact on growth (World Bank, 2009).
Change in national ag. spending (actual) by type, 2001-09
Source: World Bank staff calculation using MoF and SIKD data
Note: 1) Sub-national 2007 spending was from budget data; 2) Sub-national 2008-09 spending was estimated; 3) Post 2009 sub-national spending on
agriculture data is not available 4) More detailed notes on categories of agriculture sector spending
4 7
12 12
19
28 3130
35 29
30
32
20
21
26
2629
34
33
32
28
34
39
27 26
40
29 32 28 25
31
19 17 16
0
20
40
60
80
100
2001 2002 2003 2004 2005 2006 2007 2008 2009
Percent
Fertilizer subsidies Other subsidies Agriculture R&D Irrigation
PresidentDPR-House of
Representative
Media AcademicsNGOs
DPR-
Senate
Fertilizer
Industry
Seed Industry
Farmer
Organizations
Ministry of State
Owned
Enterprise
Ministry of
Trade
Ministry of
Industry
Ministry of
Agriculture
Coordinating
Ministry of
Economics Affairs
BULOG
Food Security
Agency
Consumer
Groups
Chambers of
Commerce and
Industry
Ministry of
Finance
Provincial, DIstrict
Food Security Agency Provincial, District
BULOG
Governor, Mayor
Provincial, District
Agricultural Services
Actors in the Policy Process of Agricultural Inputs and Food Security in Indonesia
PresidentDPR-House of
Representative
Media AcademicsNGOs Senate
Fertilizer
Industry
Seed Industry
Farmer
Organizations
Ministry of State
Owned
Enterprise
Ministry of
Trade
Ministry of
Industry
Ministry of
Agriculture
Coordinating
Ministry of
Economics Affairs
BULOG
Food Security
Agency
Consumer
Groups
Chambers of
Commerce and
Industry
Ministry of
Finance
Provincial, DIstrict
Food Security Agency Provincial, District
BULOG
Governor, Major
Provincial, District
Agricultural Services
66
5
5
5
444
3
3
3
32
2
2
2
1
1
1
1 1
3 1
Influence Level of Actors in the Policy Process of Agricultural Inputs and Food Security
Concluding Remarks: Policy Implications
• Agricultural input policies in Indonesia have led to substantial
increase in input use, hence contributing to agricultural
development and structural transformation;
• Unbalanced use of fertilizer imply inefficiency and dynamic
disequilibrium, hence agricultural performance;
• Key drivers of changes in seed and fertilizer policies:
– 1950s-1960s: spirit to achieve self-reliance, BIMAS & INMAS
– 1970s-1980s: Green Revolution, subsidy, infrastructure development
– 1990s-2000s: Severe droughts, Asian Crisis, IMF intervention
– 2004-present: Subsidy dependency, “democratization”, inefficiency
• Policy process has entered into more complex economic (and
political) interests and decentralized government and autonomy.
Policy Recommendation for the Future
• Continue sharpening the formulation, organization and
implementation of input subsidies to improve policy accuracy;
• Determine an exit strategy for the input subsidies by integrating
efficiency improvement and bureaucratic reforms;
• Evaluate crucial level of moral hazard among fertilizer users by
determining he degree of fungibility of subsidy given to farmers;
• Improve institutional arrangements of agricultural input
subsidy, i.e. how the demand for fertilizer and see and farm level
(RDKK) could be monitored by government agencies at central
and local.
• Shift to more decentralized subsidy mechanism, by conducting a
thorough assessment on distinctiveness and location-specific;
• Revive the roles of agricultural extension agents (PPL), rural

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Input policies in Indonesia- Bustanul Arifin

  • 1. The Roles of Input Policies in Transforming Agriculture in Indonesia Bustanul Arifin barifin@uwalumni.com Professor of Agricultural Economics at UNILA Professorial Fellow at InterCAFE and MB-IPB Senior Economist with INDEF-Jakarta, Indonesia International Conference on “Agricultural Transformation in Asia: Policy Options for Food and Nutrition Security”, September 24-26 of 2013, in Siem Reap, Cambodia
  • 2. Research Objectives 1. Identify key drivers of changes in seed and fertilizer policies in modern history of Indonesian agriculture, 2. Examine policy process on agricultural inputs (fertilizer and seed) to contribute to agricultural development on Indonesia, and 3. Formulate strategies to improve policy environment for promoting sound input use.
  • 3. Agricultural Inputs and Production Performance • The use of fertilizer and (high-yielding) seed grow very rapidly since the Green Revolution Era in the 1970s. • Five Efforts: seed, fertilizer, plant density, irrigation and drainage, and pest and disease management. • Seven Efforts: Five Efforts+ marketing and financing • Farm Formula (Rumus Tani): Fertilizer to rice price ratio • Policy priority of agricultural inputs: food crops, related to policy strategy for food self-sufficiency & food security. • After 1980s: Cash crops also obtained attention in order to increase foreign earnings from export commodities: rubber, coffee, cocoa, coconut, oil palm, tea, clove etc.
  • 4. Transformation— Major Agric Policy Soekarno (1945-1966) Soeharto I (1966-1985) Soeharto II plus (1986-2003) Yudhoyono (2004 – now) Share of Agric-PDB >30% 20-30% 15-20% <15% Share of Agric-labor >50% 45-50% 40-45% <39% Agricultural Growth Low (<3%) High (6%) Low (3-4%) Low (3%) Agric Major Policy Mass Guidance Green Revolution Green Revolution Agric Revitalizing Agric Input Policy Introducing modern inputs Agric inputs for self-sufficiency Response to drought & crisis Organic input grows rapidly -Fertilizer Subsidy Not specific, but guidance on use Started in 1971 Price subsidy Removed -1998 but re-introduced Compound-NPK, No subsidy -Seed Subsidy Modern seed was known Package of agric inputs plus credit Package of agric inputs plus credit Private sector grows rapidly Policy process Top-down: Food, & Peasant first Top-down: Oder- & Command Dialog with some stakeholders Democratization: Dynamic drivers Historical: Structural Transformation in Indonesia Source: Synthesized by the author
  • 5. Structural Transformation: Incomplete Process? 0 5 10 15 20 25 30 35 40 0 200 400 600 800 1000 1200 1400 Agriculture value added per worker (constant 2000 US$) GDP per capita (constant 2000 US$) Agriculture, value added (% of GDP) GINI index Poverty headcount ratio at rural poverty line (% of rural population) Poverty headcount ratio at urban poverty line (% of urban population) Source: BPS
  • 6. Production Performance of Strategic Foods Strategic Foods 2008 2009 2010 2011 2012 Rice Harvested Area (ha) 12.327.425 12.883.576 13.244.184 13.203.643 13.445.524 Productivity (ton/ha) 4,89 5,00 5,01 4,98 5,15 Production (ton dry paddy) 60.325.925 64.389.890 66.411.469 65.756.904 69.056.126 Maize Harvested Area (ha) 4.001.724 4.160.659 4.131.676 3.864.692 3.957.595 Productivity (ton/ha) 4,08 4,23 4,43 4.56 4.90 Production (ton dry grain) 16,317,252 17,629,748 18,327,636 17,643.250 19.387.022 Soybean Harvested Area (ha) 590.956 722.791 660.823 622.254 567.624 Productivity (ton/ha) 1,31 1,25 1,24 1,37 1,48 Production (ton dry bean) 775.710 974.512 907.031 851.286 843.153 Sugar Harvested Area (ha) 436.505 441.040 435.000 430.000 440.000 Productivity (ton/ha) 6,11 5,70 5,11 5,27 5,22 Production (ton sugar) 2.668.428 2.517.374 2.300.000 2.270.000 2.300.000 Source: BPS (various issues)
  • 7. Use of Fertilizer by Cropping Farms Cropping Farms No Fertilizer Chemical Fertilizer Organic Fertilizer Chemical+ Organic Total Rice Farm Households 1,225,700 10,155,465 94,112 3,516,860 14,992,137 Percentage (%) 8.18 67.74 0.63 23.46 100.00 Maize Farm Households 1,010,330 2,472,889 134,648 3,096,828 6,714,695 Percentage (%) 15.05 36.83 2.01 46.12 100.00 Soybean Farm Households 215,717 492,888 85,173 370,699 1,164,477 Percentage (%) 18.52 42.33 7.31 31.83 100.00 Sugarcane Farm Households 2,819 131,633 4,324 56,683 195,459 Percentage (%) 1.44 67.35 2.21 29.00 100.00 Source: BPS, 2009
  • 8. Use of Seeds by Cropping Farms Cropping Farms Farm Households Percentage of Farms (%) Percentage of Total *) Rice 14,992,137 84.08 Hybrid 430,996 2.87 2.42 High-Yielding 10,947,289 73.02 61.40 Local Seed 3,613,852 24.10 20.27 Maize 6,714,695 37.66 Hybrid 3,651,210 54.38 20.48 Composite 341,377 5.08 1.91 Local Seed 2,722,108 40.54 15.27 Soybean 1,164,477 6.53 High Yielding 452,029 38.82 2.54 Local Seed 712,448 61.18 4.00 Sugarcane 195,459 1.10 High Yielding 134,726 68.93 0.76 Local Seeding 60,733 31.07 0.34 Total Farm Household 17,830,832 Source: BPS, 2009 *) This does not add to 100% as a farm household usually grows more than one crop
  • 9. Fertilizer Shortage during Planting Season 1. Production : Supply of gas vs. individual performance 2. Distribution: Min. of Agriculture vs. Min. of Trade 3. Institution: Demand for fertilizer (RDKK) is not easy 4. Price: Disparity between MRP(HET) vs. actual 5. Subsidy: Gas subsidy vs. price subsidy 6. Trust: Price audit on cost of production vs. HET rise
  • 10. Expenditures on Fertilizer Subsidies 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 5 000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 IDR/kg 0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 20 000 IDR billion Expenditure on fertiliser subsidies (right scale) Ceiling price for urea (left scale) International price of urea (left scale) Source: OECD (2012), Ministry of Agriculture (2011)
  • 11. Allocation of national ag. spending (actual), 2001-09 State Budget: Spending on input subsidy • Increase in public spending on agriculture has gone to subsidize inputs (fertilizer, seeds, food for the poor). Credit remains low. • In 2009 fertilizer subsidies were 4.5 times its 2001 level, while irrigation remained at the same level. This needs policy changes. • Previous studies suggest that the relationship between public spending and growth in the agriculture sector. Spending on public goods has positive impact on growth, spending for private goods might have negative impact on growth (World Bank, 2009). Change in national ag. spending (actual) by type, 2001-09 Source: World Bank staff calculation using MoF and SIKD data Note: 1) Sub-national 2007 spending was from budget data; 2) Sub-national 2008-09 spending was estimated; 3) Post 2009 sub-national spending on agriculture data is not available 4) More detailed notes on categories of agriculture sector spending 4 7 12 12 19 28 3130 35 29 30 32 20 21 26 2629 34 33 32 28 34 39 27 26 40 29 32 28 25 31 19 17 16 0 20 40 60 80 100 2001 2002 2003 2004 2005 2006 2007 2008 2009 Percent Fertilizer subsidies Other subsidies Agriculture R&D Irrigation
  • 12. PresidentDPR-House of Representative Media AcademicsNGOs DPR- Senate Fertilizer Industry Seed Industry Farmer Organizations Ministry of State Owned Enterprise Ministry of Trade Ministry of Industry Ministry of Agriculture Coordinating Ministry of Economics Affairs BULOG Food Security Agency Consumer Groups Chambers of Commerce and Industry Ministry of Finance Provincial, DIstrict Food Security Agency Provincial, District BULOG Governor, Mayor Provincial, District Agricultural Services Actors in the Policy Process of Agricultural Inputs and Food Security in Indonesia
  • 13. PresidentDPR-House of Representative Media AcademicsNGOs Senate Fertilizer Industry Seed Industry Farmer Organizations Ministry of State Owned Enterprise Ministry of Trade Ministry of Industry Ministry of Agriculture Coordinating Ministry of Economics Affairs BULOG Food Security Agency Consumer Groups Chambers of Commerce and Industry Ministry of Finance Provincial, DIstrict Food Security Agency Provincial, District BULOG Governor, Major Provincial, District Agricultural Services 66 5 5 5 444 3 3 3 32 2 2 2 1 1 1 1 1 3 1 Influence Level of Actors in the Policy Process of Agricultural Inputs and Food Security
  • 14. Concluding Remarks: Policy Implications • Agricultural input policies in Indonesia have led to substantial increase in input use, hence contributing to agricultural development and structural transformation; • Unbalanced use of fertilizer imply inefficiency and dynamic disequilibrium, hence agricultural performance; • Key drivers of changes in seed and fertilizer policies: – 1950s-1960s: spirit to achieve self-reliance, BIMAS & INMAS – 1970s-1980s: Green Revolution, subsidy, infrastructure development – 1990s-2000s: Severe droughts, Asian Crisis, IMF intervention – 2004-present: Subsidy dependency, “democratization”, inefficiency • Policy process has entered into more complex economic (and political) interests and decentralized government and autonomy.
  • 15. Policy Recommendation for the Future • Continue sharpening the formulation, organization and implementation of input subsidies to improve policy accuracy; • Determine an exit strategy for the input subsidies by integrating efficiency improvement and bureaucratic reforms; • Evaluate crucial level of moral hazard among fertilizer users by determining he degree of fungibility of subsidy given to farmers; • Improve institutional arrangements of agricultural input subsidy, i.e. how the demand for fertilizer and see and farm level (RDKK) could be monitored by government agencies at central and local. • Shift to more decentralized subsidy mechanism, by conducting a thorough assessment on distinctiveness and location-specific; • Revive the roles of agricultural extension agents (PPL), rural