OECD calls on Indonesia to reform agricultural policy
October 11 2012: The Organization for Economic Cooperation and Development (OECD) has called on the Indonesian government to gradually reform its policies on agriculture and horticulture, which remain underdeveloped despite their immense economic potential.
Policy reform would help Indonesia attract more investment to develop its agribusiness, which currently accounts for 15 percent of gross domestic product (GDP) and 38 percent of employment in the country, the organization said in its 289-page report, titled “OECD Review of Agricultural Policies: Indonesia”.
“In very general terms, it is incredibly important now, beginning today, to move away from expensive subsidies and protection [against agricultural imports] to much more strategic investments to help this country shift to the next stage of development,” OECD director for trade and agriculture, Ken Ash, said on Wednesday during the release of the report at the Agriculture Ministry in Jakarta.
Too much money was earmarked for fertilizer subsidies, whose benefits were enjoyed more by fertilizer producers than Indonesian farmers, Ash added.
The government currently earmarks Rp 17 trillion (US$1.77 billion) in farming subsidies, around 90 percent of which comes in the form of fertilizer subsidies, according to the Agriculture Ministry’s special staffer on international cooperation, Tahlim Sudaryanto, the only senior official at the ministry who attended the press briefing of the report.
The Paris-based group of rich economies also suggested that Southeast Asia’s largest economy should be more open to international trade because with its population of 240 million and status as the world’s 10th-largest food producer, Indonesia and every one of its agricultural policies matter greatly for the rest of the world.
However, Indonesia currently “remains relatively restrictive compared with other Asian developing countries”, the OECD report says, arguing that the situation may scare off investors from the country’s highly lucrative agribusiness sector.
At present, Indonesia protects its domestic farmers by imposing import limits and tariffs on several crucial agricultural products, such as rice, wheat, sugar and soybean. The country also sets export taxes on major commodities that it ships overseas, such as palm oil and cocoa beans, to promote value-added industries.
“The inconsistent and unpredictable nature of import measures is reducing the incentive to trade with Indonesia,” the OECD report reads.
Indonesia’s agricultural and horticultural sectors have come under the spotlight recently, as various international stakeholders have suggested the government should increase productivity in the sectors to sustain its 6-plus percent economic growth.
Global consulting firm McKinsey & Company said that Indonesia’s agricultural and fisheries sectors promised at least $450 billion worth of business opportunities.
In its report released in September, McKinsey estimated that revenue from agriculture and fisheries would increase at a rate of 6 percent per year over the next 18 years, with Java and East Nusa Tenggara predicted to experience the fastest development. (sat)