Prioritizing plantation bill's aim

Prioritizing plantation bill's aim

Lin Che Wei, Director, Independent Research & Advisory, Jakarta

There are only a few areas in which Indonesia ranks highly in
the world: badminton, plantation products and corruption.

In the plantation product sector, Indonesia is one of the
largest producers of pepper (#1), palm oil (#2), rubber (#2),
coconut(#2), cashew nut (#2), cocoa (#3), coffee (#4) and tea
(#5). Despite being the largest producers in these commodities,
Indonesia is not a price leader.

Why it this the case? Since colonial times, Indonesia has been
unable to fully benefit from its strategic geographical location,
huge land area and favorable climate. We believe there must be
something wrong with our plantation policy that causes this
predicament.

Recently, the House of Representatives has drafted a
plantation bill to promote interaction among various stakeholders
of plantations. In a document prepared by Awal Kusuma, chairman
of Commission III that oversees the drafting of the bills, three
objectives are highlighted: First, to create a bill that is fair
to all stakeholders; second, to establish sustainable plantation
practices; and third, to create a competitive plantation
industry.

At face value, this triple objective looks wonderful, as it
seems to encompass all crucial aspects of the industry. However,
in reality these objectives become complex, as they tend to
contradict each other.

For example, an environmentalist demanding full protection for
the environment, cannot also insist on fairness to all
stakeholders. On the other hand, an industry that puts full
emphasis on fairness to all stakeholders might not be
competitive.

We have to decide which single objective encompasses the other
objectives indirectly and thus can formulate a well-balanced
policy. When it comes to choosing the top priority of a
comprehensive industry policy, it is not always easy to make a
decision.

It is the same with the plantation bill -- which one should
come first, sustainability, competitiveness or fairness?

On the surface, fairness should, ideally, come first. However,
fairness is very subjective and can be easily misinterpreted.
Without proper quantitative parameters, "fairness" could easily
be abused to benefit only a select group.

The more troublesome questions that arise are: What is the
definition of fairness, and fair in whose eyes?

Indeed, defining "fairness" should be the central aim of the
plantation bill. The importance of fairness and its definition is
undeniable, as the bill appears to embrace a very ambitious
objective -- that of regulating the ethics and code of conduct of
the plantation industry.

In this market economy, any attempt to try and encourage
intra-industry interaction via regulating ethics or special
interests will result in inefficiency.

The lawmaker should realize that plantation stakeholders
consist of people with varied backgrounds. It is precisely
because of such diversity that fairness in one area might be
unfair in another. If the lawmaker wants to realize these highly
ambitious objectives, Indonesia's plantation policy should be
based on complex input-output analysis, rather than on a purely
populist policy.

Input-output analysis, complemented by economic and
sociological accounting matrices, is an important tool for the
government to develop its plantation policy. The government must
use it to analyze the impact of a plantation policy on
productivity, the environment, price, employment and revenue.

We are sometimes blinded by a lofty, ideal objective to
achieve fairness to all people. As far as I am concerned,
however, the success of the plantation bill lies in its
applicability and operativeness. The result of successful bills
should be measurable in terms of an improvement in the people's
welfare, increase in company profits and a heightened Indonesian
role in international trade.

Forget the ideal state of fairness, in which everyone will be
happy. It will be very difficult to implement a policy under
which there is no winner or loser. The ideal state does not exist
any more, so we must learn to manage the problem using plantation
strategies that support competitive and sustainable practices
while minimizing the social cost.

Alternatively, a lawmaker might consider a single objective,
namely to create a prosperous and competitive plantation industry
-- if it is accepted that plantation contributes positively
toward economic growth and sustainable practices.

The next question that arises is how to improve Indonesia
plantation competitive advantage without sacrificing the
environment and with minimal social cost. The ability to improve
competitiveness requires a broader discussion of labor,
environment, industrial, infrastructure policies.

To encourage the investment to spur the growth of plantation
industry , it is vital that appropriate regulatory environment
and reform program, along with a macroeconomic framework and
policy are determined. In this light, plantation bills must be
understood as only one element of a wider plantation blueprint to
promote competitive, sustainable and fair plantation industry.

A competitive, sustainable and fair plantation industry
requires an institutional and political framework to ensure that
key constituencies and stakeholders bearing the burden of the
adjustment actively participate in implementing the new economic
policy so there is clear ownership and vision. To achieve a
successful plantation bill, all input from all stakeholders
should be considered.

As the bill is likely to make adjustments, it will,
unavoidably, produce winners and losers. It is important that the
plantation bill also addresses the interest of those parties that
will be affected most negatively, while taking into account
changed and changing global dynamics, such as globalization,
liberalization and regionalization that underlie growing
competitive pressures in the world economy and changes in the
basis for competing on the global market.

The commodities' prices have been buoyant over the last few
quarters, driven by global economic recovery which, in turn,
spurs more sustained demand. Lower interest rates have also
helped producers to save on financing costs.

The strengthening of the rupiah, however, is not helping
Indonesian companies, as the country's plantation industry is
hampered by high production costs caused by the absence of a
clear policy.

Even though labor is cheap in Indonesia compared to other
neighboring countries, so is productivity. Technical skills are
also low, which ensues in high personnel costs, as expatriates
are still recruited into key positions. All these factors need to
be taken into the account -- the ideal plantation bill must be
developed from a clear perspective into these advantages and
disadvantages, and thus allow Indonesia to become not only the
largest producer, but also the price leader in plantation
products.