Self sufficiency in rice production revives Indonesian agriculture

Through a series of focused initiatives, the Ministry of Agriculture (MoA) has managed to bolster food production, and with President Joko Widodo placing special emphasis on the segment, rice cultivation has received a boost. In terms of growth, few crops in Indonesia have prospered as much as rice over the past few years. In an effort to advance agriculture and promote food security, the government has ramped up endeavours to encourage the use of new technologies, increased the amount of rice fields and subsidised fertiliser. As a result, Indonesia can once again claim self-sufficiency in rice production. In late 2016 Amran Sulaiman, the minister of agriculture, told local press that national production of unhusked rice reached 79.4m tonnes that year, up from 75.4m tonnes in 2015 and 70.9m tonnes in 2014. Production is expected to reach 81.6m tonnes in 2017.

The ability of the nation to increase production to the point where it no longer needs to import the staple can be attributed to policies to mechanise agriculture, repair outdated infrastructure and expand rice fields. Some 130,000 ha were added in 2016 for a total of 9m ha. While these efforts have already yielded impressive results, there is still significant room for growth, with many industry onlookers pointing to the nation’s potential capacity for rice exportation. Jason Murphy, president director of Bentoel, told OBG, “There is much opportunity for the Indonesian agricultural sector to further develop and increase productivity. For this to work, the private sector needs to continue working with farmers to develop best practices, and as a consequence, raise both crop quality and yields.”

PROGRESS: Indonesian farmers have faced low yields in recent years, but they are beginning to reap the rewards of government efforts to achieve the country’s formerly high levels of food production. Despite being the third-largest rice producer in the world, Indonesia was a rice importer until 2016, although brief periods of rice self-sufficiency were achieved in the mid-1980s and in 2008-09. Prior to the most recent period of self-sufficiency, Indonesia was importing around 3m tonnes of rice per year, mainly from Thailand and Vietnam, according to investment research firm Indonesia Investments. This dependence on rice imports was caused in part by the inability of farmers to plant more than once a year due to the use of traditional production techniques, and demand for rice from the country’s own population. According to data from the Coordinating Ministry of Economic Affairs, Indonesia is among the world’s largest consumers of rice, with an average of 115 kg of rice eaten per capita each year.

EQUILIBRIUM TRAP: As in many emerging economies, a good proportion of Indonesian farmers have also been subject to the so-called low-level equilibrium trap, a reoccurring cycle of poor access to inputs and capital resulting in less than optimal output. Concentrated efforts to improve efficiency and reduce production costs, however, have yielded impressive results. Considering these high consumption figures and the added risk of importing rice given inflation, President Widodo’s administration has adopted a mixture of policies to address concerns over imported food. The government has allocated a larger portion of the national budget to the rice segment. According to local media reports, the government distributed 160,000 agriculture machines across the country in 2016 alone. These included rice transplanters, rice milling machines, combine harvesters, power threshers, corn shellers, tractors, dryers and water pumps.

In addition, one of the government’s most important gains was made in local production. Sulaiman told local press in 2016 that due to improved harvesting techniques and better access to inputs, production costs for rice have fallen 2.76%, with the cost of harvesting one hectare down from Rp13.06m ($984) to Rp12.7m ($957). The MoA’s efforts to expand rice fields has become a key pillar of the government’s food security programme. In 2016 the ministry expanded rice fields by 129,096 ha across 27 provinces. In April 2017 the MoA announced that it planned to add 80,000 ha to the country’s total rice fields by the end of the year, all of which would be outside of Java.

TAKING STOCK: As it stands, 90% of rice production is carried out by smallholder farmers, who hold less than 0.8 ha of land on average, according to Indonesia Investments. Geographically the majority of rice is produced in the South Sumatra province, followed by West Java, Central Java, East Java and South Sulawesi. By the end of 2016 total rice production had risen 31% since 2008, from 60.3m tonnes to 79.4m tonnes, according to MoA and UN Food and Agriculture Organisation (FAO) figures. In terms of reserves, Indonesia usually maintains a rice stock of 1.5m-2m tonnes. This stock and prices are managed by the Indonesian Bureau of Logistics (BULOG), which has a monopoly on rice imports and exports. As of the second quarter of 2017 the government-set price floor for unhusked rice was Rp3700 ($0.28) per kg. In addition, Sulaiman announced that the government would buy all unhusked rice produced by local farmers in order to support this price-support policy.

According to figures from Statistics Indonesia, in January 2017 the average price of unhusked rice reached Rp5500 ($0.41) per kg, but dropped slightly to Rp5200 ($0.39) in April 2017 before recovering to Rp5450 ($0.41) three months later in July 2017.

SELF-SUFFICIENCY: It is uncertain whether the government will be able to maintain self-sufficiency in rice over time. Arguably, the segment has never been in a better position, with the adoption of modern techniques on the rise, new regulations and improved infrastructure. Likewise, officials continue to work to increase production and control exports and imports. On the back of higher output Indonesia is planning to export at least 100,000 tonnes of rice in 2017. While this figure sounds modest, it represents a significant turnaround considering the country imported around 1.3m tonnes of rice in 2016.

However, there is some concern that the nation’s pursuit of self-sufficiency in the rice segment may hinder food resilience and prices, which affect low-income consumers. According to an OECD report published in October 2016, rice accounts for 50% of dietary energy supply in Indonesia.

Despite BULOG’s intervention in the food market, the price of rice in the country remains high. In 2016 the average Indonesian wholesale rice price was approximately $0.87 per kg, while the international average was around $0.40 per kg.

While there has been some improvement, with prices falling to around $0.79 per kg in March 2017, this remains considerably higher than in Cambodia at $0.42, Thailand at $0.33 and Vietnam at $0.31, according to the FAO. Addressing the high price of rice will remain a critical policy concern going forward.