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.