Redesign farm policy

Redesign farm policy

President Megawati Soekarnoputri's widely criticized current
tour of Europe could still go a long way in serving national
interests if her attendance at the second World Food Summit in
Rome leads her to full awareness of how vital food security is
and how urgent is the need to restore agricultural development on
top of her government policy agenda.

Heartening indeed is that an early sign of reckoning is
already on the horizon. Agriculture minister Bungaran Saragih,
who is accompanying Megawati, asserted that the President has
approved a plan to increase import tariffs on food commodities
and other farm produce to protect Indonesian farmers.

The Indonesian delegation to the Food Summit seems to have
increasingly realized that like air and water, food is too vital
a commodity to be left entirely at the mercy of the market
mechanism.

It is an irony that at a time when the International Monetary
Fund has been flexing its financial muscle to pressure Indonesia
into opening wide its agricultural market, food producers in the
United States and Europe are enjoying huge subsidies that enable
them to dump their cheap produce on the international market,
including Indonesia.

Only last month U.S. President George W. Bush signed a US$170
billion farm bill that grants heavy subsidies and other forms of
farm support to such export crops as wheat and soybean, whereas
farmers account for only about 2 percent of the American
population.

The World Bank has estimated that farm-support policies in the
developed countries grouped in the Organization for Economic
Cooperation and Development cost about $330 billion a year, or
around 1.3 percent of their gross domestic product, even though
agriculture accounts for less than 5 percent of their national
income. The financial support is more than five times higher than
their average spending on overseas development assistance and
twice the value of farm exports from developing countries.

The governments that generously grant such huge farm subsidies
are the very ones which have staunchly preached to developing
countries that government intervention distorts market and
resource allocation and spreads benefits unevenly. When the
Uruguay Round implementation in agriculture is supposed to have
been completed for developed countries, their subsidized food
exports have been undermining the markets and farm development in
the least developed countries.

The Indonesian government is, however, well advised to realize
that trade policy (tariff protection) is only one element, and in
fact not the most important one, of a comprehensive agricultural
development program needed to enhance food security, reduce
poverty and protect the environment.

Even the tariff measure alone would pose a dilemma in view of
the country's heavy reliance on imports for such food commodities
as rice, sugar, corn and soybean and meat.

First of all, high tariff barriers would be rendered
meaningless without an efficient and honest customs service and
would instead increase margins for smugglers.

Sharply increasing import tariffs at a time when dependence on
imports is still very high would steeply raise food prices and
strengthen inflationary pressures until domestic production can
expand to reduce the domestic deficit.

Since high food prices would inflict the heaviest burden on
poor households as food usually accounts for more than 60 percent
of their spending, well-managed social safety net programs are
needed.

Most important is that there should be a national political
consensus to support the policy and to make consumers willing to
pay high food prices. It is such political consensus that has
enabled governments in developed countries to allocate huge sums
of taxpayers' money to support their farmers. It is also a
similar political commitment that has made consumers in Japan and
South Korea willing to pay unusually high prices for their food.

However vital food security is, the blunt reality is that
food-crop farmers never find themselves among the highest earners
in the rural areas, especially in Java where the average farmer
household ownership of farmland is very small. Food security
therefore should only be part of a broad-based rural development
program because the ultimate goal is to increase rural household
incomes from farm and off-farm activities.

It is indeed high time to revisit our rural development
program, notably its agricultural component, even though it is
not an easy task given the severe state budget restraints.

But if the government is really serious about its commitment
to placing rural development, notably food security, on top of is
policy agenda, that policy should be translated into the
promotion of a conducive regulatory and economic environment to
encourage farm production.

Most important too is that the government should improve
ministerial coordination and cooperation with local
administrations in mobilizing resources into such basic
infrastructure as irrigation, transportation and processing
facilities, rural financial networks and farm research stations
designed to meet area-specific conditions.