Indonesia lacks clear plan for agricultural sector

Indonesia lacks clear plan for agricultural sector

Fitri Wulandari, Dow Jones/Jakarta

Indonesia's new administration has promised sweeping changes in
the country's agriculture sector, but the government is yet to
spell out clearly how it would turn that into action, raising
concerns that eventually the change of government could mean
little to sector.

The Ministry of Agriculture has said it will focus on
improving food security, developing agro businesses and improving
farmers' welfare with an aim to increase revenue from agriculture
and agro-based industries to US$12 billion in 2009 from an
estimated $7.8 billion in 2004.

"Output of agricultural produce and processed products are
expected to increase, boosted by value-addition," said Minister
of Agriculture Anton Apriyantono.

But industry players say the government is yet to lay out a
clear policy for the sector that can absorb 40 percent of
Indonesia's 102.8-million-strong work force in 2004. Without
drastic changes, the sector will continue to face the same
problems that limited productivity and expansion under the
previous administrations, they said.

"We need more action, not just political statements," said
Kris Hadisubroto, chairman of Indonesian Association of Oleo-
Chemical Producers (Apolin), an edible oil industry lobby group.

Underscoring the problems faced by the industry, agriculture's
share in the country's total gross domestic product shrank to 15
percent in 2003 from 15.6 percent in 2000, according to the
Central Statistics Agency (BPS).

The sector grew just 3.23 percent on year in the first nine
months of 2004, compared with an overall GDP growth of 4.89
percent during the same period.

Altering policies that block the growth of the agriculture
sector should be high on the government's agenda, said Zulhefi
Sikumbang, chairman of Indonesian Cocoa Association (Askindo). He
cited the case of a 10 percent value-added tax imposed on
agriculture commodities sold to the domestic processing industry
as an example.

"Agriculture will go nowhere unless the government eliminate
this unfavorable tax policy," Zulhefi said. The cocoa processing
industry has been the hardest hit by the tax, he said.

The tax has discouraged the growth of the domestic agro
processing industry because it increases the cost of raw
materials, in turn forcing growers to export most of their
produce in raw form, without any domestic value addition.

Indonesia's agriculture sector has the scope to develop as a
significant player in the economy with the plantation sector as a
major source of growth, because of the strong demand for
plantation crops, said Bustanul Arifin, an economist with
Jakarta-based Institute for Development of Economics and Finance
(Indef).

"The plantation sector (mainly palm oil and rubber) will be
the backbone of agriculture in 2005 and beyond," he said.

The government has already set out a plan to increase
plantation output by 5 percent every year in the next five years,
but again, there are no details on how this will be achieved.

Exports of agriculture products in the first nine months of
2004 rose to $1.96 billion from $1.86 billion in the same period
of 2003. The government expects exports of agriculture products
to reach $9 billion by 2009.

In what could be an indirect benefit to the sector, however,
the change of government has raised hopes that the economy would
do better in 2005, which in turn could ensure exchange rate
stability, crucial to the growth of the plantation sector.

"Steady exchange rates ... will revive private sector
(investments), including in the agro industry," said Derom
Bangun, the chairman of Indonesian Palm Oil Producers Association
(Gapki).

A weak currency as had been seen in recent years, may bode
well for commodity exporters but would also raise raw material
costs, sometimes more than negating the benefits of increased
exports, he noted.

Averaging Rp 8,985 against the dollar in November, the rupiah
has weakened 7 percent since last year.

Despite a steady growth in area in recent years, the
plantation sector continues to face serious productivity issues
because of the existence of a large number of small farmers who
own uneconomical plots of land.

"You can't ask them to replant or (increase the size of their
land holding) to boost production," as many of them are poor
farmers, said Suharto Honggokusumo, executive director of the
Indonesian Rubber Association (Gapkindo).

According to Rachim Kartabrata, executive secretary of
Indonesian Coffee Exporters Association (AEKI), there has been
little assistance from the government to help farmers manage the
plantations.

"The farmers need more training and financing to improve their
farming techniques and they hardly get it," said Rachim.

That, has resulted in stagnant, if not declining, output.

Indonesia's coffee bean output in 2005 is likely to be
unchanged from the 360,000 tons produced in 2003-2004, while
cocoa bean output may fall to 375,000 tons from an earlier
projection of 385,000 tons in 2004, according to latest
estimates.

Oil palm and rubber could be the only exceptions where output
could see a rise in 2005.

Gapki has projected Indonesia's CPO output around 11.6 million
tons to 11.8 million tons of in 2005, up from a projected 10.8
million tons in 2004.

Similarly, the International Rubber Study Group (IRSG)
estimates Indonesia's rubber output to reach 2.16 million tons in
2005, a 9 percent increase from a projected 1.98 million tons in
2004.