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Abstract
As in many other developing countries, the concerns about food security in
Indonesia during the 1980s and early 1990s resulted in policies aimed at achieving self-sufficiency
in food crops. The Government of Indonesia (GOI) combined price
interventions and economic incentives to encourage agricultural production, especially of
the staple crops. From 1985 to 1998, Indonesia started a series of domestic and trade
reforms emanating from a combination of unilateral undertakings, the country’s
commitments to the WTO, and the government’s agreement with the IMF following the
1997/98 financial crisis.
This study computes nominal protection rates and producer support estimates
(NPR and PSE) for Indonesia for the period 1985-2003 for six agricultural commodities,
rice, maize, sugar, soybeans, crude palm oil, and natural rubber (representing more than
two-thirds of Indonesian agricultural output) in an attempt to quantify the net effects of
these policies. The NPRs and PSEs computed for Indonesia show that in spite of the
reforms, the GOI has protected its agriculture over the past twenty years, although not
uniformly across commodities. Although the reforms went a long way in reducing trade
and domestic regulations on agricultural products, the study results demonstrate a return
to protection for some commodities in recent years.
The results presented in this study must be interpreted with the usual caution
associated with the estimation of support indicators in general and the PSEs in particular
due to the assumptions and judgments made when computing their various components.
In the study, the choice of transportation costs and marketing margins may have
underestimated the value of these activities, inflating or deflating (depending on the cost)
the value of support accruing to producers. The choice of markets to compare
international and domestic prices, in spite of the attention given to the differences in
processing and accounting for marketing costs, may raise the issue of whom is actually
benefiting from the support, the farmer, the miller, or the trader. The process of “scaling-up” the PSE values to all of agriculture without examining the policies affecting the noncovered
commodities underscore the necessity for a more comprehensive study, which
would include other agricultural sectors, for example the livestock sector. Nevertheless, a
reasonable assessment of support for agriculture in Indonesia over the period 1985-2003
emerges from the analysis presented.