Agriculture Reference
In-Depth Information
9,000 per U.S. dollar. The policy objective was to protect rice farmers from
cheaper imports and to maintain domestic rice provisions at an affordable price
for rice consumers living below the poverty line.
Several arguments in favor of protection have emerged, such as the in-
feasibility for most of Indonesia's small farms of 0.5 hectares or less to com-
pete with large, well-capitalized, and highly subsidized agrobusiness firms in
the developed countries. Uneven access to information, market infrastructure,
and technology are among the important factors that make the agricultural sec-
tor in Indonesia and in other developing nations incomparable to that in devel-
oped nations. Indonesian agriculture is especially constrained by a scarcity of
arable land, high rate of agricultural land conversion to other uses, and low level
of human resource development. Trade liberalization has been viewed as the
trigger of surging imports of several food crops, of reducing farm income, and
of increasing migration of the poorest farmers and landless laborers to already
overcrowded urban slums (Nainggolan 2000).
In addition, under free trade, it was argued that variability in world rice
prices would be transmitted directly to the domestic market. World rice prices
have historically been much more volatile than Indonesia's domestic rice
prices over the past two decades. A high degree of price risk or instability could
penalize poor consumers and complicate the management of small paddy farms.
Special-interest groups, particularly from urban consumers, have persistently
advocated a high priority to stable rice prices. But critics of urban or industrial
bias in agricultural development have argued that the phenomena could not be
directly related to trade liberalization, but rather to inconsistent domestic food
price policies and agricultural policies in general.
Regardless of import tariffs, however, rice imports occur even during the
main harvest season, and there is ample evidence that a substantial portion of
the rice is being smuggled or under-invoiced to avoid the import tariffs. The dis-
parity between world prices and the domestic retail price of rice contributes to
the flow of rice imports via wide-open and huge coastal areas and ports in In-
donesia. Meanwhile, in the 3 years since trade has been liberalized, rice pro-
duction has been 2 percent below the levels reached prior to liberalization. On
a per capita basis, the difference has been even more significant. Per capita rice
production was nearly 10 percent higher in the years immediately proceeding
liberalization than in the 3 subsequent years of liberalized rice trade. Rice yields
were rising at a slow pace (approximately 1 percent per year) for the decade
prior to trade liberalization. Since that time, rice yields have fallen by 0.15 per-
cent per year. However, rice area has continued to increase since 1998, sug-
gesting that farmers have few options other than paddy production on their
flooded fields, but productivity is falling. This scenario is consistent with low
rates of profitability in paddy production and declining levels of agro-input use
(Tabor, Sawit, and Dillon 2002).
