Agriculture Reference
In-Depth Information
that trade liberalization should be developed based on fairness and openness,
under equal opportunities among countries and level playing fields among eco-
nomic players.
5
Issues of unfairness in trade liberalization have emerged more signifi-
cantly because the removal of fertilizer subsidy was not supported by the neces-
sary incentive policies to increase production. If anything, these policies were
not comprehensive or not working properly. Mass delivery of subsidized farm
credit of Rp 10.5 trillion (equivalent to US$1.2 billion) during President
Habibie's transitional administration failed to stimulate rice production. This
subsidized credit program was usually criticized for not involving the banking
sector directly in the policy formulation. The banks were only channeling the
subsidized credit program, not executing it. In other words, the subsidized credit
program failed mainly because of the lack of infrastructure and institutions
necessary to implement these credit policies.
The half-way measures of trade liberalization were seen as being respon-
sible for the productivity decline, because the low price of rice has become a
disincentive for farmers to increase production and productivity. In spite of de-
clining fertilizer use, and the decrease in the harvest area of rice in 2000 to 11.7
million (from 11.9 million) hectares, rice production reached about 51.5 mil-
lion tons of unhusked rice (equivalent to 32.4 million tons of rice). Unfortu-
nately, lower farm revenues for the majority of farmers, resulting from a con-
tinued decline in the farmgate price of rice, created mounting pressure on the
government not to liberalize the rice trade, but instead to increase protection
through a tariff increase.
Abolition and Re-Emergence of Tariff Protection
The pressures to protect domestic rice grew significantly during President Ab-
durrahman Wahid's administration, who was elected by the Peoples Assembly
in a very openly democratic general election in 1999. Because the pressures
were so intense, the government restored the protection policy using an import
tariff on rice, the most common protection mechanism currently allowable
under the WTO agreement.
6
Import tariffs for rice were set at Rp 430 per kilo-
gram or approximately 30 percent of the world price at an exchange rate of Rp
5. The newly launched U.S. farm bill was evidence that protectionism still exists in devel-
oped countries. In the 1990s, U.S. Government support accounted for just over a fifth of total rice
producer revenues, and these were being gradually reduced in line with WTO commitments. How-
ever, this trend was reversed in the mid- to late 1990s. By 2000/01, government subsidies—largely
through credit programs—accounted for two-thirds of total rice producer revenues. The total U.S.
farm subsidies for rice in 2000/01 were $1.4 billion. By dividing this amount by the U.S. rice ex-
port of the 2.6 million tons, the average farm subsidy to rice exports was equal to approximately
$530 per ton (Tabor, Sawit, and Dillon 2002).
6. The Decree of Ministry of Finance 368/KMK.01/1999 on Import Tariff of Rice and Sugar
was effective on January 1, 2000.
