CORE assesses soybean subsidy effective in easing production cost pressures

Jakarta (ANTARA) - Eliza Mardian, a researcher at the Centre of Reform on Economics (CORE) Indonesia, assesses that the government’s soybean subsidy policy is an effective short-term step to mitigate production cost pressures for tofu and tempeh businesses.

“This subsidy is quite effective as a short-term measure to dampen shocks because it is targeted and distributed directly to producers via Bulog,” Eliza told ANTARA in Jakarta on Wednesday.

According to her, tofu and tempeh entrepreneurs have long faced thin profit margins, so subsidising raw materials can help ease production costs. She noted that this assistance can help entrepreneurs maintain production volumes and product quality, as well as prevent the reduction of the size or quality of tofu and tempe.

Eliza believes the distribution mechanism through Perum Bulog is relatively better than a general subsidy because it can reduce the risk of leakage to unintended parties. “The distribution mechanism via Bulog is relatively better than a general subsidy because it reduces the risk of leakage to non-target parties,” she said.

The government, through the Coordinating Ministry for Food Affairs, has decided to provide a soybean subsidy of Rp2,000 per kilogram through Bulog for 250,000 tonnes in the initial stage, with a total budget of approximately Rp500 billion. The subsidy will be directed specifically to tofu and tempeh entrepreneurs to ensure raw material prices remain lower.

Eliza mentioned that the soybean subsidy has the potential to curb price increases for processed soybean products, which serve as an affordable protein source for lower-middle-class communities. In her view, reducing input costs can help maintain public purchasing power while supporting social food security amidst inflationary pressures.

“This intervention also plays a role in restraining food inflation pressures, specifically on processed soybean commodities, supporting the purchasing power of the lower-middle class, and maintaining social stability amidst global price volatility,” she stated.

However, Eliza warned that the effectiveness of the subsidy remains limited to a three-month horizon and carries the risk of a price rebound once the subsidy period ends. For the long term, she believes the government needs to prioritise increasing domestic production, diversifying import sources, and improving the efficiency of the soybean value chain.

Eliza stated that soybean agricultural productivity needs to be increased through research into superior varieties that are adaptive to tropical climates. According to her, soybean yields need to be pushed from around 1.5 tonnes per hectare to 2.5 to 3 tonnes per hectare or more.

Furthermore, she believes the government needs to provide incentives to farmers through input subsidies, business credit, insurance, and guaranteed prices. “The expansion of planting areas through the optimisation of dry land or crop rotation systems must also be integrated into a coordinated national programme, with the target of gradually reducing import dependency,” she said.

Furthermore, she encouraged the diversification of soybean import partners to countries such as Brazil, Argentina, and Canada, accompanied by currency hedging and long-term contracts. She also noted that supply chain efficiency needs to be improved through investment in modern warehouses, reducing post-harvest losses, and the adoption of processing technology for tofu and tempeh MSMEs.

“Supporting policies such as integration into the national food security strategy, public-private partnerships, and the promotion of alternative cheap protein diversification are also important complements so that demand pressure does not rely solely on soybeans,” she concluded.