Minister to ask Middle East for $1b to develop rural infrastructure

Minister to ask Middle East for $1b to develop rural infrastructure

The government launched last week a blueprint for the
revitalization of the country's underdeveloped agriculture,
fisheries and forestry sectors, as part of an effort to help
support higher growth and reduce massive unemployment. Minister
of Agriculture Anton Apriyantono talked to The Jakarta Post's
Rendi A. Witular and Zakki P. Hakim on the ministry's challenges
and priorities, as well as how the blueprint may improve farmers'
lives. The following are some of the more pertinent excerpts from
the interview:

Question: What are the main concerns in the agricultural sector?
Answer: First and foremost, it is the problem of financing. We
are in dire need of credit schemes for the sector. And then, the
infrastructure. Many regions are not supported with adequate
infrastructure -- vital to improve the sector.

We need infrastructure to ensure flows of farm products. We
need roads, ports, transportation means, irrigation and
electricity to encourage and support post-harvest activities.

Next, we have numerous problems in marketing the products.
There is a very long chain of distribution in the trade of farm
products, where farmers usually get the least profit margin. Not
to mention the issues in global trade, where international prices
are distorted due to heavy subsidies given to farmers for their
farm products. There is no way our farm products can compete
against their subsidized products.

How much do we need to improve infrastructure in rural areas?
As an illustration, 40 percent of our irrigation system is
damaged, due to age and lack of maintenance.

Governments after the Soeharto administration apparently only
set aside a small percentage of the state budget to maintain and
develop rural infrastructure, despite many promises.

After so long, the current government is now trying to live up
to its commitment.

But of course, we will also seek other sources of funding.

We're now turning toward the Middle East, where countries such
as Saudi Arabia, Qatar, Kuwait and institutions like the Islamic
Development Bank (IDB) have offered opportunities for the sector.
On May 20, I will be going to the Middle East to open a new
market, offer investing opportunities in the agro-based
businesses and industries as well as rural infrastructure. We
will request at least US$1 billion -- that would be our minimal
target in the initial phase.

Will the money be allocated also for credit schemes for farmers?
No. We have to think about other sources for that.

But, there should be a bank dedicated for the agricultural
sector. For example, we need to encourage Bank Rakyat Indonesia
(BRI) to return to its original focus as the bank for farmers and
fishermen. Such an effort would need a lot of good will from the
government, in concrete terms, not simply rhetoric about
commitments to farmers.

Have you talked to the State Minister for State-Owned Enterprises
as the institution responsible for the bank? How would the
government "encourage" BRI considering that it is now partially
owned by private shareholders, no longer a fully state-owned
bank?
I haven't spoken to the State Minister, but we have raised the
issue with the President and he understands.

Why BRI? Because the bank already has a vast network in the
rural areas across the country. To redirect the bank, the
government needs to provide "subsidies" in the form of credit
guarantees.

However, we can also develop sharia-based financing models to
promote profit-sharing schemes instead of the conventional
interest-based schemes. I can't understand why banks have so
little interest in the farm sector. They seem to perceive the
sector as a long-term, high-risk investment. But why do they
invest in the property sector, which is also a long-term
investment and proven to have higher risks?

How should the farmers overcome the long chain in farm trade
activities?
The problem is in the weak farmer institutions. They are not yet
strong enough or widely spread. We need strong farmer
organizations for them to have better bargaining power.

Ideally, such organizations, like KUD or Village Cooperative
Units, should pool the farmers' outputs and have a direct channel
to wholesaler markets. By cutting the long chain of distribution,
it is possible to increase the profit margins for the farmers.

So, how can the blueprint help revitalize the sector?
We are looking forward to a Presidential Regulation very soon
that will become a legal umbrella for the government's
commitment, vision, mission and strategy in revitalizing the farm
sector. I expect it to contain details on who will be responsible
for what and bind all related sectors and institutions.

Part of the government commitment would be to provide fiscal
incentives for farmers and investors such as a tax holiday, which
could be in the form of, or at least include, removing Value
Added Tax (VAT) on certain farm products. In general, the
blueprint is aimed at improving the country's food security and
boosting exports of farm products.

Speaking of food security, are we now self-sufficient in our
supply of rice? Because now every six months the media can be
seen pursuing whether or not the government will lift its ban on
rice imports as if we may fall short on supply?
As we all can see, last year we reached self-sufficiency in rice
supply. However, in today's multilateral trade environment, we
cannot shut ourselves off from imports of a commodity
permanently, it would be against the World Trade Organization
(WTO) rulings.

After all, we couldn't be 100 percent sure that we will remain
permanently self-sufficient. Back in 1984, we celebrated our
self-sufficiency in rice, but we needed two decades to reach at
point again.

There are many factors beyond our control determining each
harvest, such as the ever-changing climate, therefore it would be
safer if we evaluate a ban on imports each semester.