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.