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Newsletter | CIPS Celebrates Policy Changes Freeing up Indonesian Agriculture!

Dear readers,

On Monday afternoon the Indonesian Parliament passed into law the single largest set of policy reforms since Indonesian democracy began two decades ago. The focus is on economic reforms to increase economic growth and attract investment into Indonesia.

Source: CNBC Indonesia

We are celebrating several policies in food security and agriculture that CIPS has long been advocating for! They plan to open up Indonesia’s food trade and increase the role of the private sector in raising agricultural productivity. The winners will be poor Indonesians with better access to affordable food and generally more food security.

Here are the highlights. They have been picked from a law that has more than 900 pages. So bear with me, if this newsletter is longer than usual. It just carries so many positive messages.

Food Imports

Previously, Indonesian laws only allowed considering imports when domestic supplies were insufficient.

The new law:

  • Acknowledges imports as a legitimate source of food (but also seeks to protect farmers, fishermen, and micro and small food actors through tariff and non-tariff trade measures).

  • Drops import restrictions as a strategy to support farmers and plans to boost domestic agricultural growth instead.

  • Removes penalties on imported agricultural commodities when national stocks are considered sufficient.

  • Permits imports of horticulture, livestock, and animal products.

  • Removes existing weight limitations on feeder cattle imports.

What does it mean for Indonesians?

Lifting import restrictions gives market access for much cheaper international commodities. Poor Indonesians will benefit the most. They have been suffering from excessive domestic prices even before they were the worst affected by the global Covid-19 crisis. They will now be able to access more nutritional food at affordable prices. Less restrictive import practices will give a higher market share to Indonesian private enterprises and initiatives. They can buy from the best sources and respond more flexibly to the market demand.

Seed Imports

Previously, the laws put a strong focus on domestic seed production and severely restricted seed imports and private sector participation.

The new law:

  • Removes provisions on horticultural seed import licensing.

  • Allows seed imports by the private sector after obtaining a license from the central government.

  • Allows seed imports to fulfill the needs of livestock seeds and breeders.

  • Allows the import of veterinary drugs.

What does it mean for Indonesians?

Boosting domestic agricultural productivity is a far better strategy to feed the nation, rather than banning food imports. Insisting on domestically produced seeds and food caused many Indonesians to remain malnourished. Domestic productivity rates are lower than in comparable agricultural economies. When new and more productive seeds were not available, Indonesia’s agriculture had to grow by increasing the acreage. This caused deforestation and harmed all Indonesians. Farmers will now have access to higher yields, thus protecting the environment and opening opportunities for increased incomes.

Foreign Ownership

10 years ago, the Law on Horticulture reduced the maximum stake foreigners can hold in local horticultural businesses to 30% from previously 95%. It gave foreigners four years to divest and get in line with the new cap. As a result, many international businesses withdrew from Indonesia.

The new law:

  • Removes the cap on foreign investment for plantations, horticulture, and livestock/animal husbandry.

What does it mean for Indonesians?

The presence of international companies brings technologies and knowledge into Indonesia. This creates higher agricultural productivity for local farmers. The presence of foreign businesses also opens job opportunities for Indonesians. At least one global company has already stated in an interview with CIPS that they will consider returning to Indonesia.

We’ve compiled a summary of key changes in the Omnibus Job Creation Bill related to food and agriculture for download here.

Not all that glitters is gold!

Although these policy reforms present new opportunities for Indonesia’s food security, we are also raising some concerns:

  1. Indonesia is notorious for the slow or failed implementation of new laws. Enforcing this new law across 34 provinces will be no easy feat.

  2. The re-centralisation of granting import licences is a step back from previous decentralisation efforts. This fails to recognise vastly different contexts and realities of Indonesia’s many provinces and districts.

  3. Ensuring environmental sustainability of Indonesia’s agriculture appears to have been compromised in these reforms. The possible impact on climate change is deeply concerning for a country home to swathes of rainforests and biodiverse ecosystems.

And CIPS has been super busy ever since Parliament made its decision last Monday.

While CIPS was busy assessing the potential impacts of the new reforms, you can also be sure we were vocal about them. Our press releases have been picked up by all major Indonesian newspapers!

Felippa Amanta, our Head of Research also made some waves on Twitter. Her twitter thread responded to a message by President Joko Widodo claiming that Indonesia’s agriculture grew by 16.24%. Felippa responded that this only compared growth to the previous quarter. If compared to last year, the sector only grew by 2.19%. She highlighted that Indonesia’s agriculture is still far from improving the livelihoods of poor farmers. Her messages received 1,720 Retweets and 4,850 Likes in the last 24 hours. The vast majority commented positively.

For now, this should be enough for a single mail. I have so much more to share but will send more updates over the next couple of weeks!

Salam hangat,

Rainer Heufers

Executive Director


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