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Policy Response to the Impact of Global Food Crisis in Indonesia
Tahlim Sudaryanto
Indonesian Center for Agriculture Socio Economic and Policy Studies
Jl.A.Yani No.70, Bogor 16161, Indonesia
email: tahlim@deptan.go.id, tahlim@indo.net.id, 2011-07-14

Abstract

Skyrocketing food prices in the world market during 2007-2008 have raised concerns on the ability of the poor to meet sufficient food intake. However, the Indonesian government was able to stabilize domestic food prices and secure the availability of sufficient food stock. This achievement was brought about by sound government policy on food production, distribution, and social safety net program. Major policies that contributed to this achievement are: (a) Government subsidies and incentive system to promote higher food production; (b) Reducing tariff and non-tariff barriers applied to import on staple food; (c) Cash transfer and food price subsidy for the poor household. To promote a much more sustainable food security system, a second green revolution approach should be exercised. To promote diversification toward higher value commodities, the government policy should be focused on: infrastructure development, support to agriculture R&D and strengthening farmers' organization

Key words: food crisis, sustainable food production, second green revolution

Introduction

During the last decade, the Indonesian economy has shown a dramatic development. Average growth of Gross Domestic Product (GDP) has reached around 5.2%/year during 2000-2008. In 2008, when many countries in the world experienced a negative growth on GDP, Indonesian economy was able to maintain a positive growth at 4.6%. Agriculture GDP has also grown at an annual average rate of 3.26%. Inflation rate was also stable at around 6.2%/year during the same period.

However, unemployment rate was still a serious problem, approximately 9.2% on average, in the same period. Poverty incidence also remain high which was estimated at 35.0 million people (15.4%) in 2008. In 2009, poverty incidence is estimated to decrease to 32.5 million (14.2%). This segment of population is highly vulnerable to the external shocks in terms of natural disaster, as well as economic, social, and political disturbances.

Favorable economic condition in the past is somewhat disturbed by the so-called food-fuel-financial crises faced by many countries in the world in 2007-2008. Particular concern is put on the impact of the crises on food security. Accelerated food prices in the world market, which is partially transmited into the domestic market prices influence purchasing power of the majority of population, particularly poor household. Therefore, an appropriate policy measures are required to mitigate the adverse impact of the crises to the poor.

The primary objective of this paper is to assess the government policy response to the impact of global food security crises. This paper consists of five sections, beginning with introduction, while the second section reviews current status of food security in Indonesia. The impact of global food security crises is briefly discussed in the third section. Next, the paper focuses on the review of some government policy responses. Lastly, we identify major problems and challenges in view of achieving a much more sustainable food security system.

Current Status of Food Security

Review on current status of food security will include: trend on production, availability of energy and protein, and food import. Taking into consideration the importance of rice in Indonesian economy, then a substantial discussion on these aspects will focus on rice.

Rice Production

During the period of 1970-1990, rice production grew significantly at a rate of 4.33% per year ( Table 1(1331)). A high growth was mainly attributed to the growth of yield (3.00%/year), and partly to area growth. The high growth of yield indicated a significant technological progress, as a result of massive intensification program from Bimas Program which was introduced in the 1960s. Insus and Supra Insus Programs were launched in 1980s in combination with the introduction of the High Yielding Varieties (HYVs), especially IR64 which was introduced in 1985.

In the 1990-2000 periods, rice production grew at a rate of only 1.40% per year. This relatively low growth was attributed to many changes in the climatic condition, especially when El-Niño (in 1997) and La-Niña (in 1998) hit most of South East Asian Countries, including Indonesia. During 2000-2006 periods, rice production growth was slowing down further at a rate of only 0.80% per annum.

However, the declining trend of rice production was suddenly reversed in 2007. Rice production figures of that year showed a remarkable growth which reached a highest record of 57.05 million tons or 4.96% higher compared to that of 2006. This strong growth of rice production continued up to 2008, which reached 60.33 million tons, 5.46% higher than rice production in the previous year. With this achievement, Indonesia declared that it has reached self-sufficiency status on rice again in 2008 after achieving the same position in 1984.

Achievement on rice production during the last two years was mainly due to several factors, namely (Sudaryanto and Swastika, 2009): (a) good weather condition which enabled farmers to expand planted area; (b) high rice price transmitted from rising food prices in the international market; (c) conducive government policies on input subsidies, procurement price, and import control; and (d) special program to accelerate rice production involving the central, regional, and local governments.

Production of Other Food Commodities

The production of other staples have increased with varying degrees ( Table 2(1242)). Maize production has increased strongly at a rate of 8.2%/year during 2003-2008. Again, in 2008, in addition to rice production, maize production also showed an impressive growth (19.4%). Strong domestic demand for maize, particularly for animal feed industry, has pushed an upward trend of maize price at the farm level, which in turn provided sufficient incentive to the farmers to expand their planted areas and raise productivity. However, production of less profitable commodities, namely cassava and sweet potatoes, grew very slowly. In the case of cassava, production trend was even negative. This indicates that rapid expansion of rice and maize production has surpassed cassava and sweet potatoes production.

Vegetable production has shown a modest growth, with an average rate of 3.6% in 2003-2008. On the other hand, fruit production has increased significantly at an average rate of 7.3% in 2003-2008 and 11.1% in 2008. Strong demand for high value commodities, to some extent, has been responded by accelerating production growth of fruits and vegetables.

In terms of poultry and livestock, both beef and chicken meat have shown very strong growth with an average rate of 19.5% and 24.3%, respectively in 2003-2008. Egg production has also increased significantly at 8.0% during 2003-2008. Again, this performance is due to strong domestic demand growth coupled with favorable government policies on the development of these commodities.

Energy and Protein Availability

The increase in food production was also followed by increased availability of energy and protein during the 2003-2008 period. This already exceeded the value of nutritional sufficiency (VNS). The energy availability in 2008 was 3 145 Kcal/Cap/day, which was above the value of nutritional sufficiency at 2 000 Kcal/Cap/day ( Table 3(1432)). The protein availability was 83.28 gram/cap/day, which also exceeded the value of nutritional sufficiency of 52 gram/cap/day. The data also showed that the availability of energy and protein were substantially higher than its respected consumption levels. Based on these energy and protein figures, we can conclude that food security at macro level was sufficient.

In addition to the quantity of food consumption, another of its element is food composition. In this regard, nutritionists usually use the so-called Ideal Dietary Pattern (IDP) Index. The IDP Index has increased from 77.5 in 2003 to 82.8 in 2007. However, the proportion of energy sources from staple food is still considerably higher than that which comes from better quality food, such as fruits, vegetables, etc.

Import of Major Food Commodities

In 2003-2008, the agriculture sector has contributed current account surplus, which increased from US$ 6.4 billion in 2003 to US$ 17.0 billion in 2008. The surplus mainly originated from estate crops exports such as palm oil, rubber, tea, cocoa, and coffee. However, the food crops sub-sector has shown current account deficit which increased from US$ 1.8 billion in 2003 to US$ 3.0 billion in 2008. The deficit was particularly due to high import bill for rice, maize, soybean, and wheat. Similar direction was also observed for the animal husbandry sub-sector, which imports a significant quantity of beef cattle for fattening and also for its use as frozen meat.

The volume of rice imports has been fluctuating between 1970 and 2008 ( Table 4(1292)). The relatively high imports were recorded in 1980 and 1995. Since 2004, the volume of rice imports was actually declining, except in 2007 when Indonesia experienced a serious drought. Although the total volume of rice imports looks high enough, but if we calculate the figure in terms of import/capita, then the figure was actually small, around 0.84-8.28 kg (exclude the extreme case in 1980 and 1995).

In addition to rice, Indonesia still imports other food commodities namely maize, soybean, sugar, wheat, beef, and milk ( Table 5(1250)). Even though domestic production of maize is generally sufficient, but due to seasonal and geographical variations, the country still imports some maize. The import volume reached 1.8 million tons in 2006, but in 2008, decreased to only 466.5 thousand tons. With regard to wheat, we rely fully on import sources, because we do not produce wheat at all.

Another commodity which we still import significantly is soybeans. Around 60% of soybean demand is supplied by import sources. Beef and milk are also imported very significantly. Without any breakthrough on beef cattle production programs, Indonesia will continue to depend on imported meat in the medium to long-term period.

The Impact of Global Food Crisis

The issue on the world food crises is interrelated with the fuel (energy) and financial crisis. The impact of food-fuel and financial crisis on the economy of Indonesia was indicated by the significant drop of stock exchange. The composite stock price index (CSPI) has declined by over 40% in 2008 compared to that at the beginning of the year. Indonesia also experienced a significant depreciation of its currency, from Rp 9,300/ USD to around Rp 12,400/USD. The crisis had also pushed inflation rate. In October 2008, the inflation rate reached 10.98% ( Fig. 1(1192)). The largest contributors to the inflation were prices of food, transportation and housing.

The subsequent impacts are slowing down economic activities, particularly industries that depend on export market which in turn increase unemployment and poverty. About 13,000 workers were reported jobless from labor-intensive industries. The main factors influencing this situation are order cancellation, discontinued contract, failure in getting raw materials, and financial problem.

In spite of that situation, however, some other economic indicators showed positive signs. The domestic food prices (except for CPO) were relatively stable as compared to the fluctuated trends in the international market ( Table 6(1189) and Fig. 2(1115)). Rice and sugar prices were relatively stable while maize and soybean prices somewhat fluctuated (Susilowati and Rahman, 2009). The recent price turn down, especially palm oil, has made enterprises and farmers in difficult situation. In response to the problem, the government of Indonesia is trying to promote bio-diesel production using the CPO.

Performance of agriculture exports, however, could be considered much better than that of other sectors. While overall non-oil export went down in August 2008 by -0.4%, agricultural exports grew more than 40%. Agricultural exports during January-August 2008 increased by 44.0 % as compared to the same period in 2007. The main contributor was palm oil export that increased by 78.2 % in 2008.

Imports of consumption goods during September 2008 was lower than that of August 2008, i.e., from 7.5% to 6.77%; and imports of raw materials decreased from 76.0 % to 75.7 %. Meanwhile, imports of capital goods increased from 16.58% to 17.58%.

These numbers indicate a relatively small decrease of economic activities. The government believes that sound food security resulting from significant production growth serves as a strong foundation to maintain Indonesian economy.

To assess the impact of the crises to food security at the household level, the World Food Programme conducted a monitoring survey in May to August 2008. The objective of the survey was to collect and monitor data set on household food access and consumption, basic information on local market, cases of malnutrition (underweight) and related deaths among children under five-years old in seven cities and nine districts, in four regions.

Results of the survey indicated that the impact of high food price during January-July 2008 at household level in cities, towns and rural areas were relatively similar in terms of: (i) the increase of total household expenditure; (ii) the increase of food expenditure; (iii) the continuation and/or contract new debts, and; (iv) the delay of debt reimbursement. However, the extent of impact seemed to be higher among rural households, reflected by their higher percentage of food expenditure, poorer food consumption, lower cost for protein or micronutrient rich foods, and higher malnutrition cases. Approximately 50% of rural households who were already chronically food insecure before the crisis were likely to have weaker capabilities to cope with the shock, and hence, their food security would deteriorate earlier and more seriously compared to households in cities and towns.

In July 2008, the malnutrition incidence (underweight) among children under-five years old in the surveyed areas was 22%, and severe malnutrition incidence was 4.5% with the highest incidence in the rural areas (7%). The most popular coping mechanism among the households was purchasing more inexpensive foods and borrow something from relatives or neighbors.

Government Policy Response

The observed impact of the global food crisis, to some extent, reflects the influence of government policy response. The policy response consists of both short term and long term policies and actions. In the following, we describe briefly the nature of those policies.

Short-Term Policy

The primary goal of short-term policy is to mitigate the short-term impact of the crises and provide social protection for the most vulnerable groups of population. This policy includes a large scale social safety net program, with total budget of around Rp.60 trillion (US$ 5.7 billion) in 2008, and stabilizing domestic food prices.

The social safety net program covers around 19.1 million of poor households, which consist of: (i) distribution of subsidized rice (at 70% price subsidy, 15kg/month/household), (ii) cash transfer (Rp.100,000/month/household), (iii) free health care and (iv) subsidized education costs especially for primary and secondary schools. With these instruments, poor households are able to secure their minimum expenditure for basic needs such as food, health care, and education.

To stabilize domestic food prices from the impact of accelerating prices in the international market, the government implemented short term policies, namely (Hermanto, 2004): (i) reduced import tariffs, (ii) reduced value added taxes, (iii) undertook special market operation, especially for rice, cooking oil, (iv) subsidized soybean price for small scale processors, and (v) subsidized fuel price to small scale food processors through conversion of kerosene to LPG. These policies were subject to regular evaluation, and will be adjusted accordingly. For instance, the 5% import tariff on milk has been applied recently in response to the declining world market price.

Mid-Term to Long-Term Policy

This policy is intended to promote agricultural growth, securing domestic food stock, mitigating the adverse impact of climate change on food production, and alleviating poverty. These cover major food commodities such as rice, maize, soybean, sugarcane, and beef cattle. The primary instruments of these policies are: (i) improving irrigation infrastructure; (ii) delivering good quality seeds at subsidized price; (iii) subsidizing fertilizers; (iv) delivering farm credits with subsidized interest; (v) providing intensive extension services; and (vi) maintaining farm gate price of rice along with procurement by BULOG (state-owned enterprise). In securing domestic food stocks, the government will increase its stocks while at the same time facilitate regional government and communities to develop local food reserves. This includes promotion of other cereals, local roots and tubers production as buffer in times of rice shortages.

In light of mitigating the adverse impact and adapting to climate change, Indonesia has been implementing sustainable agricultural development and improvement of land and water resource management supported with appropriate and environment friendly technology, improvement of tropical forest management with intensive monitoring, assessment and law enforcement, enhancing people movement on tree planting and water saving practices throughout the country. Extension has also been done to develop preparedness in coping with exceptional climate condition.

In view of helping poor families to empower them to earn better income, a National Program on Community Empowerment has been undertaken. In 2008 it involves some 40 million people in 36,000 villages, among others, 10,000 villages are supported with "rural agribusiness development program", and 825 villages supported with "food self resilience program". This program basically helps poor households to develop economic activities, create job opportunities, and increase productivity.

Future Perspectives in Achieving a Sustainable Food Security

Problems and Challenges

Agricultural development since the early green revolution to date, has shown notable achievements, particularly in terms of staple food production and promotion of export crops. However, there are some persistent problems on both technical and policy sides which need further reform.

Persistence of small farms

Indonesian agriculture is characterized by the co-existence of a dual system. A small part of farm operators are large scale with a commercially oriented system. This farm type, mostly engages in export oriented estate crops, and to a lesser extent, do business in horticulture and livestock. However, majority of operators are small family farms (operate <0.5 ha), who are considered as subsistent and poor. According to agricultural census data, the number of small farms have increased from 9.59 million (45.3%) in 1993 to 14.07 million (56.4%) in 2003. Most of them engage in staple food production, particularly in Java. The persistence of small farms is due to several factors, namely (Sudaryanto, et.al., 2009): (i) high population pressure coupled with limited non-farm opportunities; (b) limited land resources along with conversion of agriculture land to other purposes; and (c) traditional practice of land inheritance, which causes a piece of land become smaller overtime.

Diversification on a slow mode

The growth of urban and export market for high value commodities (estate crops, horticulture, and livestock) is considered as new opportunities to which farmers allocate their scarce resources. However, structural transformation in terms of higher share of high value commodities is not apparently significant. Again, according to agricultural census data, food crops farmers declined from 49.1% in 1993 to 39.2% in 2003. On the other hand, some farmers who were engaged in growing horticultural crops increased from 13.6% in 1993 to 20.2% in 2003. Therefore, majority of farmers still grow food crops as their main commodities. More favorable policies can motivate farmers to keep staying in the rice sector.

Over-intensification

Intensive application of chemical inputs is considered to be harmful to the environment. Physical and chemical characteristics of soil (particularly irrigated) are no longer appropriate from a sustainability point of view. Therefore, there is a growing view on the need to apply a much more environment-friendly production technology. For instance, there is a broader initiative to promote a much more balanced fertilizer use, by applying organic fertilizers.

Increasing public spending

The achievement on rice self sufficiency also implies a huge public spending for infrastructure development, subsidies, and program management. In 2009, government budget for fertilizer subsidy reached a record high of around Rp.17 trillion (US$ 1.6 billion). This subsidy is accounted more than twice to the total development budget of the Ministry of Agriculture. There is a growing concern whether the subsidy should be reallocated to some other alternative public investment which provides greater impact to the farming community.

Future Perspectives: The Second Green Revolution

The first green revolution, that used some intensive technologies including high yielding varieties, fertilizers, irrigation and pest management, has brought a significant increase in rice productivity in Indonesia. During 1970-1984, rice yield grew by 3.68% per annum and it led Indonesia from being a country which has a deficit income to become self sufficient in rice. However the growth of rice productivity has gradually declined. During 1985-2008, it only reached an average of 0.95% per annum. Some underlying issues have been identified among others: (i) highly focused and reliable irrigated land; (ii) intensive use of chemical inputs; (iii) ignorance of the environment damage; (iv) ignorance of local indigenous and local resources endowment; (v) more focused on production, not farmers income.

Responding issues of food security, food safety, climate change as well as food-fuel and financial crisis, Government of Indonesia has reiterated the concept on "The Second Green Revolution" (Apryantono, 2008). This approach basically addresses a greener way of increasing production, by way of: (i) extensification, utilizing less favorable environment such as dry land, swampy land, and rain-fed area; (ii) rice-based farming diversification utilizing local indigenous; potential resources (land, water and climate) and indigenous technologies; (iii) utilization of high and environment-friendly technologies (high yield varieties, land-water-weed control, farming management) in view of improving farmers' income; (iv) intensification taking into account the issues of clean water, nutrition and health as well as rural development; and (v) institutional engineering including extension, training, and land reform.

The basic approaches in developing technology innovation in the second green revolution are: (i) reorientation of breeding technology for improving high variety rice and genetic potential of hybrid rice; (ii) actualization of genetic potential by implementing land and water technology, integrated management and prescriptive agriculture; and (iii) integration of crop-livestock farming for improving farmers' income. The basic technology used in the green revolution are: (i) integrated crop and resource management including balanced fertilizer (organic-an organic) and pest management; (ii) integrated crop-livestock and utilization of organic matter; (iii) integrated land and water management system in swampy and tidal swamp areas; (iv) direct seeding and pest control in irrigated and up-lands; and (v) diversification and crops combination in dry lands among others.

Indonesia has been applying the green revolution concept through: (a) integrated crop and resource management; including integrated pest management, in around 1.5 millions has. (2008) and will expand to 2.0 millions has. (2009) of paddy intensification areas, using farmers fields school method; and (b) application of integrated crop-livestock farming (rice-cattle, oil palm-cattle) in some project areas.

Conclusion and Implication

The global food crisis in 2007-2008 has raised serious concerns in many developing countries in terms of the ability to secure a sufficient food supply, particularly for the poorest segment of the population. Indonesia has responded properly to the crisis, so that the country was able to escape from deeper and broader impacts of this economic shock.

Major short-run policy responses exercised by the government are: (a) stabilization of staple food prices by accumulating stock and reducing barriers to import; (b) implementation of broader safety net programs, so that poor households are able to meet their basic needs on food, health care, and education. In the medium and long-term perspective, the government accelerates food production programs to secure food supply from domestic sources. However, this policy creates some consequences in terms of public spending and discouraging diversification toward high value commodities. In the future, a much more sustainable food production system, and a "second green revolution" approach should be exercised.

To increase farmers' income and alleviate poverty, diversification toward high value commodities should be promoted. This requires larger public investment on rural infrastructure and research and development. Budget sources to finance these agenda may come from reallocating huge subsidies which were meant to cover the food crop sector. This policy should be complemented with the strengthening of farmers' organization.

References

  • Apryantono, A. 2009. "Toward Sustainable Agriculture and Food Security". Paper Presented at the Ministerial Roundtable, the 65th Session of the Commission, UN-ESCAP, Bangkok, 27-29 April, 2009.
  • Apryantono, A. 2008. "Indonesia Response to Food_Fuel and Financial Crisis: with a Perspective of the Second Green Revolution". Paper presented at the High- Level Regional Policy Dialogue, Organized Jointly by UN-ESCAP and Government of the Republic of Indonesia, Bali, 9-10 December, 2008.
  • Hermanto, 2004. "Implementasi Kebijakan Perberasan Nasional (The Implementation of National Rice Policy)". Suara Pembaruan, 15 January 2008.
  • Sudaryanto,T., S.H. Susilowati, Sumaryanto. 2009. "Increasing Trend of Small Farms in Indonesia: Causes and Consequences". Paper presented at the 111th EAAE-IAAE Seminar: Small Farms: Persistence or Declined? University of Kent, Canterbury, UK, 25-26, June, 2009.
  • Sudaryanto, T.,D.K.S.Swastika. 2008. "Development and Policy Issues in Indonesian Rice Industry. Paper presented at the "Rice Policy Forum", International Rice Research Institute, Los Banos, Philipinnes, 18-19 February, 2008.
  • Susilowati, S.H. 2009. "Policy Measures for Food Price Inflation in Indonesia: Implication for Rice Industry Development and Food Security". Paper presented at the Australian APEC Study Centre Training Course. "Food Security, Structural Reform and Food Price Inflation: A Training Program in Resolving Policy Conflicts" June 17-24, 2009, Melbourne, Australia.
  • Susilowati, S.H., B.Rahman. 2009. "Perkembangan Harga Pangan dan Implikasinya Bagi Masyarakat Perdesaan" (Trend on Food Prices and Its Impact to Rural Household). Dalam (In) K.Suradisastra, Y.Yusdja, A.R.Nurmanaf (eds). Prosiding Seminar Nasional Dinamika Pembangunan Pertanian dan Perdesaan: Tantangan dan Peluang Bagi Peningkatan Kesejahteraan Petani (Proceeding of the Seminar on the Dynamic of Agriculture and Rural Development: Challenge and Opportunities in Increasing Farmers Welfare. Pusat Analisis Sosial Ekonomi dan Kebijakan Pertanian, Bogor.

Index of Images

Figure 1 Inflation Rate in Indonesia, 2007-2008

Figure 1 Inflation Rate in Indonesia, 2007-2008

Figure 2 Comparison between International and Domestic Price of Rice, 2006-2009

Figure 2 Comparison between International and Domestic Price of Rice, 2006-2009

Table 1 Harvested Area and Production of Rice in Indonesia, 1970

Table 1 Harvested Area and Production of Rice in Indonesia, 1970

Table 2 Trend on the Production of Other Food Commodities, 2003-2008

Table 2 Trend on the Production of Other Food Commodities, 2003-2008

Table 3 The Availability of Energy and Protein for Consumption, 2003-2008

Table 3 The Availability of Energy and Protein for Consumption, 2003-2008

Table 4 Trend of Rice Imports, 1970-2008

Table 4 Trend of Rice Imports, 1970-2008

Table 5 Imports of Major Food Commodities, 2003-2008

Table 5 Imports of Major Food Commodities, 2003-2008

Table 6 Comparison of International and Domestic Price Trend, 2007- 2008

Table 6 Comparison of International and Domestic Price Trend, 2007- 2008

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