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Indonesia's Food Law Backfires
Written by Our Correspondent
Monday, 08 April 2013
Getting self-sufficient in rice, sort of
Prices of many foods skyrocket
In its intensifying drive for economic nationalism, the Indonesian
government once again appears to have mistepped, with the passage of a food
self-sufficiency law that has driven the price of beef to more than it costs in
Tokyo, considered one of the world's most expensive cities.
Nor is beef the only food that has skyrocketed. The price of garlic is up
by eight times the normal price. Critics lay the blame on the Ministry of
Agriculture, which has fallen behind issuing recommendation letters for
importers to obtain revised import licenses under the new food law. The delay
from January to March meant that garlic was stockpiled in ports and unable to
make it to market. Chilies, a crucial ingredient in Indonesian cooking, have
more than tripled in price.
Indonesia, with 237 million people on 17,000 islands, has been attempting
to reform its agricultural sector since the 1997-1998 Asian Financial Crisis,
which deeply affected the country's economy. Since that time it has put in
place a large number of reforms with the objectives of achieving food security
through production of rice, sugar, soybeans, maize and beef, ensuring that
prices are affordable for consumers, diversifying production away from
carbohydrates to animal-based products, raising the level of competitiveness
for agricultural products and improving the lot of farmers.
Rising food prices are crucial to Indonesia, the world's fourth most
populous country, which despite its attractiveness to investors continues to
rank 124th of 187 countries in the 2011 Human Development Index, with food
insecurity and malnutrition continuing. Despite the remarkable socio-economic
and political progress since the strongman Suharto was ousted in 1998, 7.7
million children had stunted growth, with stunting higher than 30 percent in
some districts according to the World Food Program.
While tariffs have been brought down from 20 percent to 5 percent over
the intervening years and import monopolies and licensing have been largely
abolished, corruption in the food process is endemic and debilitating despite
abolishing the licensure procedures. Several years ago all beef was stopped
from coming into the country when government officials were attempting to
blackmail suppliers. Australian beef was stopped again in 2011, although this
time because of an outcry in Australia over the lack of humane treatment of
animals being slaughtered in Indonesia. Agricultural products regularly
disappear from the market, not because of shortages but because of officials
seeking to blackmail the importers.
At the root of the problem today is the new Food Law, passed on Oct. 18,
2012, and signed by President Susilo Bambang Yudhoyono in November, that was
intended to institutionalize self-sufficiency in food production and "food
sovereignty" as overarching food security policies, according to the US
Department of Agriculture's Foreign Agricultural Service.
Among its provisions, Article 14 states that "Sources of food supply are
from domestic production and national food reserves. In the case of shortage of
food supply from those two sources, food can be fulfilled by importation, as
needed." Another provision, Article 24, limits the export of food, saying
exports "can be carried out by taking into account the needs of domestic food
consumption and national interest. The export of staple food can only be
carried out after the fulfillment of domestic consumption and national food
reserves."
The new law has driven overall prices up as much as 15 percent across the
board, adding to rising inflation, which has in turn driven inflation to 5.6
percent in March after a 4.31 percent increase in February. That and other
issues have driven the rupiah downward falling to Rp9,772:US$1 from about
Rp9,100 a year ago.
In recent months, officials have drafted new trade and industry laws that
have concerned American and European multinationals operating in country
because of fears they will constrict investment and cut further into market
access in a country increasingly in the grip of economic nationalists. The
country has been the focus of investor concerns for months as officials have
constricted the ability to operate on the part of multinationals, particularly
in the extractive industries such as oil and gas and minerals. (See Indonesia
Trade Law Worries Multinationals)
The food security law is considered to be very much a part of that trend.
Indonesia's Ministry of Trade and a USAID program drew 200 people to a
conference last month at the Borobudur Hotel in Jakarta to discuss the new law,
with many people critical of it.
Kym Anderson, a consultant for the USAID program, told the conference
that the food law is a blunt protection instrument that makes no economic
sense. Food trade protection, he said in his presentation, "reduces overall
efficiency of national resource use in agriculture. This may help some poor
households, but at the expense of other households while unnecessarily helping
some non-poor groups."
Siswono Yudo Husodo, a member of the House of Representatives (DPR)
Commission IV, which oversees agriculture, underlined the need for a food
policy at the Borobudur meeting, saying that the law had been passed and is
here to stay regardless of the problems, which have driven food sellers in
Jakarta and other cities to the wall.
Siswono said Yudhoyono is backing the food security agenda by agreeing to
raise research and development on food production to 1 percent of GDP in the
upcoming budget, and that the government had produced a draft law on the
protection of farmers, according to a report by the American Chamber of
Commerce in Indonesia.
Anderson said that one option to counteract the new food trade
restrictions would be the passage of new export disciplines and a special
safeguard mechanism in the World Trade Organization's currently stalled Doha
Development Round of trade negotiations.
In its 2012 OECD Review of Agricultural Policies: Indonesia, (available
by subscription only) the 32-member Organization for Economic Cooperation and
Development warned that trade is an essential part of food security strategy
and that relying only on domestic production may make Indonesia vulnerable to
fluctuations in supply. "Thus," the report said, "to improve food security the
country needs to have the ability to buy food on international markets. Import
protection is inconsistent with Indonesia's objective to be a trading nation
and increase its export performance."
However, the report said, "A growing number of administrative
requirements are being placed on imports. While many of these are justifiable
from a food safety or sanitary perspective…others appear to be introduced to
specifically reduce the 1uantity of imports, increase the cost of importing, or
make the process of importing more difficult. These need to be reformed, at
least by improving their transparency."
That does not appear to be an objective of the Indonesian government,
however.
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