Doubts raised over RI's agricultural liberalization

The Jakarta Post, Jakarta

Poor farm productivity and a flood of imported agricultural goods call into question Indonesia's low tariff policy just as the country has agreed to join China, Japan and India in free trade pacts, according to a World Bank discussion panel.

Indonesia has liberalized its agricultural sector while most other countries are maintaining high trade barriers, participants in Thursday's discussion said.

"Tariffs are really low, I have not seen anything like that in any other country," World Bank economist Mona Haddad said during a workshop on trade organized by the World Bank.

She said that aside from Malaysia, Indonesia owned among the lowest and most simple tariff rates, and yet its agricultural goods faced a bulwark of trade barriers protecting markets in both developing and developed countries.

Haddad said the situation was unfair but added that "if we were to raise tariffs, what makes sense to Indonesia is to ask what would increase (farm) productivity rather than to merely react to this unfairness".

On top of unfavorable trade conditions, farmers' inability to increase their productivity to match a fast growing population has forced Indonesia to turn to overseas producers to meet its food demands.

Indonesia has seen a steady flow of rice imports drag rice prices down, which has become a disincentive for paddy farmers to plant rice. But the more paddy farmers who shift to other crops will widen the supply-demand gap, increasing the need for more rice imports.

In 10 years rice imports increased by more than tenfold to 5.8 million tons in 1998, making Indonesia one of the world's biggest rice importers.

The supply gap in sugar is even more stark, with annual consumption at about 3.3 million tons, exceeding output by 1.6 million tons.

A stream of cheaper imported sugar, however, has brought a number of local sugar mills to the brink of collapse.

"How the increase in trade liberalization has not raised productivity, we don't know yet," Haddad added.

Doubts over Indonesia's liberalized agricultural sector come on the heels of three agreements creating free trade areas between ASEAN markets and China, Japan and India.

But to what extent these deals will tear down agricultural trade barriers remains uncertain, considering the issue is being heavily debated in talks at the World Trade Organization (WTO).

Developing countries charge their developed counterparts with foot dragging. Rather than lowering tariffs, developed countries continue to subsidize their farmers to penetrate developing markets with cheaper products.

At the same time trade barriers in the form of high and complex import tariff rates and health and environmental standards block agricultural products from developing countries entering developed countries.

Indonesia's agricultural sector generates about 18 percent of the country's gross domestic product (GDP), which measures the total value of goods and services a country produces every year.

And about half of Indonesia's total labor force works in the agricultural sector, according to Haddad.

Bayu Krisnamurthi of the Bogor University of Agriculture said that although Indonesia's present liberalized agricultural sector was hurting farmers, increasing tariffs might not necessarily be the right answer.

"The question we must ask is on whose side are we, the consumers or the producers?" he told participants.

Underpinning the low import tariff policy was the need for food security, he said, explaining that the country's political elite did not want to risk social unrest sparked by food shortages.

He added that much of the problems plaguing the agricultural sector were compounded by domestic inefficiencies.

According to him, the government should raise import tariffs temporarily to allow the local agricultural sector to restructure itself.