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Bulletin of Indonesian Economic Studies

ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20

INDONESIAN RICE PRODUCTION: POLICIES AND

REALITIES

Pantjar Simatupang & C. Peter Timmer

To cite this article: Pantjar Simatupang & C. Peter Timmer (2008) INDONESIAN RICE

PRODUCTION: POLICIES AND REALITIES, Bulletin of Indonesian Economic Studies, 44:1, 65-80, DOI: 10.1080/00074910802001587

To link to this article: http://dx.doi.org/10.1080/00074910802001587

Published online: 16 Jul 2008.

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INDONESIAN RICE PRODUCTION:

POLICIES AND REALITIES

Pantjar Simatupang C. Peter Timmer

Centre for Agro-Socioeconomic Stanford University, Stanford, and Center Research (CASER), Bogor for Global Development, Washington DC

Indonesian rice production grew rapidly between 1977 and 1982, but the sufﬁ_{ciency achieved in 1984 was short-lived. Growth declined gradually from about}

1982, eventually stabilising at a low rate in the late 1990s. This paper discusses fac-tors that have inﬂ_{uenced these outcomes over the last}ﬁ_{ve decades, in an attempt}

to inform policy makers interested in trying to restore self-sufﬁ_{ciency. The earlier}

experience showed that self-sufﬁ_{ciency was technically feasible, but also that its}

achievement was costly, both ﬁ_{scally and in economic opportunities forgone. Little}

appears to have changed in this regard, and recent attempts to shift this cost to con-sumers by raising rice prices have increased poverty. We show that increases in rice production could best be achieved by rehabilitating irrigation infrastructure and revitalising research and extension activities. However, large investments by the government in rice should not be undertaken in the absence of thorough economic cost–beneﬁ_{t analysis.}

INTRODUCTION

Growth in rice production is popularly perceived as the most important indicator of agricultural development in Indonesia. Rice is the major crop for small farms, and the rice value chain is a key sector of the rural economy. Rice is also the food staple, and domestic demand for rice is very large. Historically, the thin world market for rice has meant that rice self-sufﬁ_{ciency was perceived as the key to}

ensuring national food security. Although the growing world market may mean that Indonesia does not need to be self-sufﬁ_{cient for this purpose (Dawe 2008,}

in this issue), Indonesia is likely to continue to grow more than 90% of the rice it consumes for the foreseeable future.

Much emphasis in the policy debate on rice has focused on the presence and quantity of imports. The status of rice imports is also perceived as an indicator of government policy preferences: allowing rice imports is considered anti-farmers and banning them pro-farmers. Consequently, public discussion has focused on whether the government should or should not allow rice imports, rather than on trends in rice production as the root cause of imports. In practice, because imports are administratively determined, they occur when domestic prices rise to politi-cally unacceptable levels, and this typipoliti-cally happens when domestic production fails to meet domestic demand. Thus understanding the trend and determinants of rice production is essential to formulating effective rice policy.

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The growing gap between domestic production and demand can be due to rap-idly rising demand or to slowly growing domestic supplies. We argue here that decelerating growth in rice production is the main factor in this failure, although the chronically low level of post-harvest efﬁ_{ciency also keeps domestic supply}

below its potential.

PADDY PRODUCTION TRENDS

Growth of rice production over ﬁ_{ve decades is shown in}ﬁ_{gure 1. With such a}

volatile series, the determination of breaks in the trend of growth is necessarily somewhat arbitrary.1_{Nevertheless, we think it useful to break this period into}

four separate growth phases, based simply on visual inspection of the data. These phases are 1955–77, when annual growth was constant (but highly variable) and of the order of 3.1%; 1977–82, when trend growth accelerated rapidly to about 7.0%; 1982–98, when the trend growth rate declined steadily (but with much lower vari-ance); and 1998–2005, when the growth rate stabilised at around 1.2%.

Proﬁ_{le of growth in rice production}

All of these trend breaks are plausible, in the sense that each corresponds roughly to a major event or change that had a signiﬁ_{cant impact on rice production. The}

Old Order (Soekarno) era, which encompassed more than half of the ﬁ_{rst growth}

phase, was a period of prolonged political turmoil created by separatist rebel-lions, frequent cabinet shufﬂ_{es, the struggle for West Irian, the ‘Confrontation’}

of Malaysia, and political power plays. During this time the nation’s energy was

1 The outlier results in 1969 and 1973 made it difﬁ_{cult to derive plausible estimates of}

trend breaks using econometric techniques.

Source: Raw data from the Ministry of Agriculture.

FIGURE 1 Annual Growth of Rice Production (%)

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 -20

-10 0 10 20 30 40

Old Order

New

Order Crisis

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so absorbed by political matters that economic development—including the rice-producing sector—was neglected. The main focus of the ﬁ_{rst several years}

of Soeharto’s New Order government was on dealing with the macroeconomic mess inherited from the previous regime, and the incoming government had few resources with which to push agricultural development. Moreover, technological breakthroughs were unavailable during most of this period. Chemical fertilisers were in their early adoption stage and their distribution was spatially uneven and sporadic, even though sawah expansion was quite easy. The result was that the average paddy production growth rate was modest at a time when the population was still growing rapidly.

The economy was stabilised within a few years, and the incoming government pledged to focus on development rather than political issues. A main priority was to boost rice production to achieve rice self-sufﬁ_{ciency. With the boom in world}

oil prices that commenced in 1973, the government was able to make huge invest-ments to enhance rice production, including for sawah development, irrigation system rehabilitation and expansion, construction of input delivery systems, farm

ﬁ_{nancing and an extension system. High-yield, short growing-cycle, high-input}

‘green revolution’ rice varieties were also introduced on a large scale. These early efforts were frustrated by droughts and pest outbreaks that caused severe rice harvest failures (Timmer 1989), but continuing research and innovation created new pest-resistant and higher-yield varieties (HYVs), and the eventual result was that rice production accelerated rapidly from about 1977 until 1982.

A prolonged drought in 1982–83 caused signiﬁ_{cant rice harvest failures, and}

proved a bad omen. The trend growth rate of rice production peaked at roughly 7% around 1982, and then declined continuously through about 1998. Although self-sufﬁ_{ciency was achieved in 1984, this was short-lived. Growth in per capita}

consumption of rice slowed as the income elasticity of demand declined. The price of rice in world markets declined signiﬁ_{cantly because of the widespread}

adop-tion of green revoluadop-tion technology in rice-producing countries, and much of this decline was gradually passed through to Indonesian farmers after the mid-1980s. Perhaps more importantly, the expensive program under which self-sufﬁ_ciency

had been achieved was difﬁ_{cult to sustain following the end of the oil boom in the}

early 1980s and the dramatic decline in world oil prices in 1986. Fertiliser prices were gradually increased in order to reduce the now unaffordably large budget subsidy that had been needed to achieve self-sufﬁ_{ciency, so farmer pro}ﬁ_tability

was squeezed from both sides. At the same time, higher valued crops began to be competitive with rice, and more attractive jobs in the rapidly expanding manufac-turing and service sectors began to draw labour out of agriculture.

The green revolution, which was based on breeding seed improvements, also stalled during this period, providing a further explanation for the deceleration of growth. There is some evidence that potential yields from new HYVs were even declining (Peng et al. 1999), reﬂ_{ecting a world-wide phenomenon wherever the}

subsequent technology breakthrough—hybrid seed—was not widely adopted.2

In addition, over-intensiﬁ_{cation resulted in declining rice yields in some areas}

(Pingali, Hossain and Gerpacio 1997).

2 Indonesia still has little capacity to produce hybrid rice seeds domestically, and in late 2007 announced a program to import them from China (Sijabat 2007).

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The steady decline in the rice production growth rate appears to have been arrested in the post-crisis period (although the level at which it has settled is well below that achieved during the Old Order and the early years of the New Order). The stabilisation of production growth seems somewhat paradoxical: the huge debt-service requirements of the immediate post-crisis bailout of the banking sec-tor meant that few government resources were put into rice production; mean-while reduced government spending on maintenance and expansion led to the degradation of supporting infrastructure such as irrigation, rural roads and public agricultural institutions (Simatupang, Rusastra and Maulana 2004). The stabilisa-tion of output growth in this period may partly be explained by the improvement in the relative price of tradables that resulted from the depreciation of the rupiah, coupled with a shift towards greater protection of agriculture starting in 2000 (Fane and Warr 2008, in this issue).

Since the launch of the government’s strategy for revitalising agriculture, for-estry and ﬁ_{sheries in 2005, substantial new resources have been injected into the}

sector, with increases in the subsidies for fertiliser, seed and credit, as well as a larger budget for public procurement and distribution through the Rice for Poor Families program (Raskin).

CONTRIBUTIONS TO RICE PRODUCTION TRENDS Harvested area and yield

Harvested area has grown at an average rate of a little over 1% per annum through-out the period under consideration, and grew signiﬁ_{cantly faster during the 1977–82}

acceleration phase. Increases in average yield contributed roughly twice as much as this to growth during the ﬁ_{rst growth phase, and well over three times as much in}

the short second phase of rapidly accelerating output. But yield increases since the early 1980s have been much lower than previously, and their contribution to the overall growth rate has been rather less than that of increases in harvested area.

Because rice has a short age to maturity, harvested area depends on both arable land area and cropping intensity. The deceleration in harvested area expansion after the short period of output acceleration could, therefore, be due both to a deceleration in expansion of arable land and to a reduction in cropping intensity. Unfortunately we do not have the data needed to compute cropping intensity except for sawah rice in some years. Still, decomposition of rice production from sawah provides revealing explanations about production constraints in the latter part of the period under consideration (table 1).

The area of sawah in Java has been declining since the early 1980s (see also table 4 below). The only positive source of growth in rice harvested area in Java came from rapidly increasing cropping intensity, which more than compensated for declining land area. Outside Java, the wetland paddy area increased in the 1980s and early 1990s, but then declined in the late 1990s. It is clear that the main rice production constraints are, ﬁ_{rst, limited available arable land and, second,}

declining yield (land productivity). The only source of rice production growth in Indonesia since the mid-1990s has been increased cropping intensity.

The fact that the slow growth in production results mainly from a slow expan-sion in land area and declining yields presents a problem for the government’s agricultural revitalisation program (Government of Indonesia 2005), which aims

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at increasing rice production signiﬁ_{cantly. The potential for boosting cropping}

intensity is quite limited, and the limits of such expansion can be reached very fast. If the recent trends in both productivity and land area devoted to paddy per-sist, it is reasonable to predict that rice production will continue to stagnate, and will even decline, in the future.

Harvest and post-harvest industry

Paddy production is regularly reported by the central statistics agency (BPS) as a standing crop estimate at farm level, but rice available for consumption is also determined by losses during harvest and post-harvest activities. Efﬁ_{ciency of}

the harvest and post-harvest industry is thus an important determinant of rice supply at consumer level, an aspect often overlooked in discussing rice supply in Indonesia.

To our knowledge, there are only two comprehensive studies of paddy losses in Indonesia—in 1986/87 and 1994/95. A comparison of these (Maksum 2002) suggests that total harvest and post-harvest losses were high at around 21%, and changed little over the eight-year interval between the studies (table 2). The largest losses—totalling around 15%—occurred during harvesting and threshing. Loss in transportation was quite low and decreasing, suggesting improvements in the transportation system. While storage loss increased during the 1986/87–1994/95 period, losses in milling declined. Mechanisation and government programs to develop modern rice mills undoubtedly contributed to the reduction in milling

TABLE 1 Sources of Sawah (Wetland) Rice Production Growth (% p.a.)

Region 1981–85 1986–90 1991–95 1996–2000

Java

Land area –0.32 –0.15 –0.42 –1.04

Cropping intensity 1.89 0.86 0.88 2.78

Yield 2.80 2.29 1.37 –1.29

Total 4.37 3.00 1.83 0.45

Outside Java

Land area 0.74 2.56 1.46 –4.04

Yield 2.66 1.75 0.38 –0.27

Total 5.63 4.65 3.16 1.16

Indonesia

Land area 0.22 1.40 0.70 –2.83

Yield 2.66 1.93 0.79 –0.83

Total 4.82 3.63 2.37 0.75

Source: Computed by authors from unpublished BPS data.

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losses, but evidence on milling ratios presented below indicates that this decline was reversed as milling machinery aged. Harvest and post-harvest losses may have changed signiﬁ_{cantly in the 12 years since the second study, but no credible}

estimates for more recent years are available, adding to the controversy over rice supply estimates. A new survey of this important issue would be very helpful.

The size of the harvesting loss is determined primarily by the system of labour organisation. There are three main systems in rice farming: open access (bawon/ keroyokan), tied-contract (ceblokan) and trader–harvester (tebasan). Losses during threshing are determined mainly by the technology used. In Indonesia, paddy threshing is conducted either by slapping (banting/gebot) or using mechanical equip-ment (powered or manually operated). The choice of threshing system is closely related to the harvesting labour system used. Open-access and ceblokan harvesting systems are generally associated with banting threshing, whereas trader–harvester systems are associated with mechanical threshers. The largest loss occurs with open-access harvesting and the slapping threshing system (18.6%), and the lowest occurs with labour-group (or trader–harvester) harvesting and mechanical thresh-ing (5.9%) (Hasanuddin et al. 2002). Utami and Ihalauw (1973) found that the har-vest loss with the bawon open-access system reached 42.5% of total yield, owing to stamp-down loss, dropping and left-over loss, transportation loss (when the rice is transported from the ﬁ_{eld to the landowner’s house), losses during the distribution}

of the harvesters’ share (including cheating) and handling losses. Banting remains the most widely practised form of rice threshing in Indonesia, and therefore losses remain high. This suggests that efforts to promote ‘managed harvesting’, using labour groups and mechanical threshing, would reduce harvest losses.

Another striking trend is the decline in the rice-milling ratio for paddy, from 70% in the 1950s to around 60% in the early 2000s (table 3). The declining milling ratio also reduces rice availability at the consumer level for any given level of pro-duction, but this has generally been overlooked both in policy formulation and in estimating national rice supply.3

3 Since 1996 the formal milling ratio used in estimating national rice availability has re-mained at 63.2%, and thus over-estimates rice availability.

TABLE 2 Paddy Harvest and Post-harvest Losses (%)

Activity 1986/87 1994/95

Harvesting 9.2 9.6

Threshing 5.5 4.8

Transporting 0.6 0.3

Drying 1.9 2.2

Milling 3.5 2.7

Storage 0.3 1.1

Total 21.0 20.8

Source: Maksum (2002).

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Laboratory tests show that the milling ratios of new machines with standard operating procedures have been quite stable at around 65% (Tjahjohutomo et al. 2004). The declining average milling ratio in commercial rice mills is due to the increasing number of ageing machines (which use the single-pass system), and to the prevalence of mobile operations with small-scale units. The study shows that larger rice mills have higher milling ratios, reaching 68.5%. The low industry average milling ratio indicates technical inefﬁ_{ciency in the industry, although its}

economic efﬁ_{ciency may actually not be low under the investment climate facing}

rice millers (Timmer 1973).

Conversion of arable land to other uses

Potential agricultural land is ﬁ_{xed by nature, and its conversion to arable land is}

costly. At the same time, conversion of arable land to non-agricultural functions continues because of population growth, structural change in the economy and urbanisation. Since the beginning of the 1980s, total arable land area in Indonesia has increased continuously except between 1991 and 1995 (table 4). This is not true of Java, however, where total arable land has been stagnant since the end of the 1980s, while outside Java the total has increased steadily, again except between 1991 and 1995. Expansion has occurred mainly in estate plantations, which have more than doubled in area in the period under consideration. Agricultural land on Java is used mainly for food crops, and land productivity and land-use inten-sity are higher here than outside Java. This regional pattern of growth of agri-cultural land implies signiﬁ_{cant change in the regional structure of agriculture.}

Future growth of agriculture, including rice, will be outside Java. The historical dominance of Java, in rice in particular and food production in general, will fade gradually.

These trends in total agricultural land area seem inevitable. On the one hand, potential agricultural land for expansion is available only outside Java. On the other

TABLE 3 Paddy–Rice Milling Ratio, 1949–2004 (%)

Crop Season Location Milling Ratio

1 1949 Java, Madura 69.0

2 1950 Java, Madura 71.2

3 1974 Java 64.6–65.1

4 1979 West Java, East Java, Bali, South Sulawesi 64.8

5 1981 East Java 66.3

6 1982/83 8 provinces 64.6

7 1985 15 provinces 65.9

8 1994/95 15 provinces 63.2

9 1997/98 West Java (Karawang, Subang) 62.0

10 2002 East Java 62.0

11 2004 6 provinces 59.0

Sources: 1–8: Nugraha et al. (1988); 9: Munarso et al. (1998); 10: Handaka et al. (2002); 11: Tjahjohutomo et al. (2004).

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hand, agricultural land conversion to other functions will continue accelerating both in and outside Java. The pace of conversion is much faster in Java because of its faster expansion of infrastructure, urbanisation and industrial complexes. This is part of the structural transformation that occurs as the economy grows and the population increases. Conversion of arable land to other uses, particularly in Java, will continue accelerating.

The decline in sawah, both on Java (since the data coverage began in the early 1980s) and outside Java (in the mid-1990s), is the main reason for reduced growth in the harvested area of rice. In part this reﬂ_{ects a shift towards other food crops,}

and some horticultural crops such as garlic and peppers that can also be planted on that land. Such conversion does not necessarily represent a welfare loss, either for the farmers concerned (who presumably switch because they anticipate a gain from doing so), or for the country as a whole (if rice can be imported from other countries).

If increasing rice production is a policy objective, therefore, it is likely to require the expansion of agricultural land outside Java, where the potential for new land development is still quite large. There are almost 16 million hectares of land potentially suitable for sawah conversion, consisting of 3.5 million hectares of swampy land and 13.3 million hectares of dry land (Government of Indonesia 2005). Sawah development requires supporting public infrastructure, particularly irrigation systems and transport development, and thus tends to rely on gov-ernment support.4_{Of course, whether such support is appropriate depends on}

4 Few private actors are willing to bear the costs associated with such investments, be-cause their public good nature makes it difﬁ_{cult for private actors to capture the full bene}ﬁ_t

from the investment.

TABLE 4 Trends in Use of Arable Land (‘000 ha)

1981–85 1986–90 1991–95 1996–2000 2001–04

Java, of which: 7,423 7,539 7,287 7,260 7,314

Temporary fallow 89 104 8 66 61

Estate plantation 597 659 628 624 655

Wet paddy ﬁ_{eld (sawah)} _3,466 _3,440 _3,407 _3,303 _3,280

Off Java, of which: 33,122 36,439 35,226 39,451 45,685

Temporary fallow 8,750 9,497 7,486 8,437 9,981

Estate plantation 7,898 9,470 11,799 15,227 17,276

Indonesia, of which: 40,545 43,978 42,835 46,710 52,999

Temporary fallow 8,839 9,602 7,568 8,503 10,042

Estate plantation 8,495 10,130 12,427 15,851 17,932

Source: BPS (Central Statistics Agency), Statistical Year Book, various years.

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whether the rate of return on the investment is similar to that for other important public projects.5

Degradation of irrigation systems

Technical irrigation is the key to increasing yield, cropping intensity and produc-tion stability. This is especially true for high-yielding rice and other food crops that require continuous water availability for a good harvest. Huge investment in irrigation development was one of the key factors explaining the rapid expan-sion of rice and other food crop production in the late 1970s and early 1980s. But since the mid-1980s irrigation development and maintenance have been slowing down, and this has contributed to declining rice production. In particular, govern-ment spending on irrigation fell drastically during the years 1987–90. After a short rebound it fell again in 1998, and has increased little since (Fuglie and Piggott 2006). The reduction in funding has resulted in some degradation of irrigation systems. In particular, the most recent statistics show that about 22% of canals (serving some 6.8 million hectares of irrigated sawah) are damaged, including 5% that are severely damaged (table 5). A similar proportion of Indonesia’s 273 large dams are severely damaged.

If the government wishes to revitalise the rice industry, it will need to rehabili-tate and expand the irrigation system. Again, this is primarily a matter of public investment, although private farmers, organised into water-user groups, need to be actively involved in the design and management of these facilities. Indeed, evi-dence from the World Bank (2006) shows that the economic rates of return from such investments can be high when a participatory approach is taken towards rehabilitation. Irrigation development generally requires such large investments

5 It might be argued that reduced reliance on imports enhances food security, and that this should therefore create a premium that should be added to the rate of return on rice expan-sion. However, as noted in other papers in this issue (e.g. Dawe 2008; Dorosh 2008), this is a subject of some controversy.

TABLE 5 Condition of Irrigation Systems in 2006

Unit Total of which

Severe Damage

Some Damage

Total Damaged

Canals ‘000 irrigated hectares

6,772 341 1,179 1,520

% 5.0 17.4 22.4

Dams N 273 14 5 19

% 5.1 1.8 7.0

Reservoirs N 11,547 49 0 49

% 0.4 0.0 0.4

Source: Department of Public Works.

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that most regional (province and district) governments are unable to fund large-scale irrigation facilities, although they clearly need to be involved in their design and management. Funding still needs to be the responsibility of the central gov-ernment, because many irrigation systems cut across regional boundaries.

Over-intensive land use

A further explanation for declining land productivity is soil degradation due to excessive use of external inputs and over-intensive land use. This is especially true for sawah. Modern rice varieties require substantial external inputs (particularly inorganic fertilisers and pesticides), intensive soil preparation and continuous irrigation, which may cause long-term negative impacts on soil quality. Continu-ing excessive use of phosphate and potassium fertilisers induces unbalanced soil nutrient content (Sofyan, Nurjaya and Kasno 2004). Crop harvests take nutrients, including organic matter, out of the soil. This problem is aggravated by high land-use intensity through year-round multiple cropping.

Excessive chemical fertiliser use in rice farming has long been identiﬁ_{ed as a}

problem (Roche 1994). Indonesian sawah suffer from over-intensiﬁ_{cation or soil}

fatigue syndrome (Adiningsih 1997; Christianto 1997).6_{The soil is now de}ﬁ_cient

in organic matter and micro-nutrients. Recent studies indicate that 66% of sawah

6 This syndrome is not unique to Indonesia. It is common in other countries that widely adopted high-input – high-output HYVs (Pingali, Hossain and Gerpacio 1997).

TABLE 6 Adoption Rate (Proportion of Planted Area) and Potential Yield of New Varieties

Year Dominant Varieties

Proportion (%)

Potential Yield (tonne/ha)

Year Released

1980 PB 36 36.2 4.5 1978

PB 38 9.4 4.5 1978

PB 32 8.0 4.5 1977

1985 PB 36 28.9 4.5 1978

Cisadane 22.8 4.5–5.5 1980

PB 42 5.2 5.5 1980

1990 IR 64 15.7 5.0 1986

Cisadane 13.3 4.5–5.5 1980

PB 36 10.3 4.5 1978

1995 IR 64 47.1 5.0 1986

Cisadane 6.4 4.5–5.5 1980

PB 42 4.1 5.5 1980

2000 IR 64 43.1 5.0 1986

Way Apo Boru 6.2 5.0–8.0 1998

IR 66 4.6 4.5–5.0 1989

Source: National Seed Agency, various years.

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suffers from low organic content (Kasno, Setyorini and Nurjaya 2003), and the prevalence of zinc deﬁ_{ciency has reached 30% (Al-Jabri, Soepartini and Ardi}

1991). Sofyan, Nurjaya and Kasno (2004) found that some degree of magnesium deﬁ_{ciency in Java affects 18–83% of total}_sawah_{. The physical properties of the soil}

have also been degraded. All of these aspects have caused long-term declines in land productivity. Under such conditions, fertiliser subsidies may not only fail to increase yield, but may exacerbate the decline in soil health.7

Over-intensiﬁ_{cation may be one reason why total factor productivity of rice}

farming in Indonesia has been declining (Simatupang et al. 1995) because over-intensiﬁ_{cation causes not only declining yields but also increased production}

costs and hence declining farmer competitiveness. Tackling over-intensiﬁ_cation

will require new farming techniques, including the use of organic fertilisers and site-speciﬁ_{c nutrient management technologies.}

Declining emphasis on technology innovation and dissemination

Most food crops have faced either lower or stagnant yields since the second half of the 1980s. One of the causes for this is the failure to introduce land-saving technological innovations. This is due both to a failure to achieve technological breakthroughs by means of research and development (R&D) and to barriers to technological dissemination from R&D institutions to farmers. The high-yielding variety most commonly used in 2000 was introduced 14 years earlier (table 6), and the new varieties introduced since the crisis have failed even to maintain the yield potentials achieved by the late 1990s (table 7).

Fuglie and Piggott (2006) identify at least four critical issues facing agricul-tural R&D. First, R&D systems are heavily dominated by the government, whose budget allocation for R&D is highly unstable and has declined in real value since

7 However, the degree to which soil degradation explains the stagnation in rice yield is controversial. Lindert (2000) undertook an exhaustive study of long-term soil quality trends in Indonesia between 1940 and 1990. He found that in sawah on Java, soil nitrogen and organic matter did decline up to around 1970, but remained stable after that, while phosphate and potassium levels improved. In off-Java sawah, he found more evidence of soil quality decline, especially after 1970.

TABLE 7 Average Yield Potential of New High-yielding Rice Varieties (tonne/ha)

1970–75 1976–80 1981–85 1986–90 1991–95 1996–2000 2001–03

Wetland 5.0 4.8 4.8 5.0 5.7 6.5 6.2

No. of varieties

3 11 21 7 8 14 13

Dryland n.d. 3.8 3.3 3.5 3.6 4.0 3.2

No. of varieties

2 6 6 6 2 2

n.d. = no data available.

Source: National Seed Agency, various years.

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1986. Second, universities have signiﬁ_{cant intellectual capacity but rely primarily}

on winning competitive grants and other projects from the Ministry of Science and Technology and other government agencies. Third, private sector agricul-tural research is still relatively small in scale and is focused on a few estate crops, hybrid crops, poultry and pesticide utilisation. Fourth, intellectual property rights for inventions are relatively new for Indonesia and remain poorly enforced.

Experience from the East Asian region suggests that revitalising the R&D system will require a signiﬁ_{cant increase in government funding and private}

participa-tion. Recent initiatives to promote research universities could be supported by the government, and policies could be designed to encourage private sector support. Agricultural R&D could be liberalised to open up opportunities for private par-ticipation in this strategic sector, especially by reviewing the existing tight regula-tions on seed importation, new variety release and multi-location trials. Finally, intellectual property right regulations and enforcement could be reviewed with a view to providing better incentives for the private sector, including individual researchers, to undertake research.

During the 1970s and 1980s the government developed an integrated rice tech-nology delivery system. For seed multiplication, it built seed production centres at the provincial level. An integrated national extension service was also developed, with ﬁ_{eld extension of}ﬁ_{ces (}_{balai penyuluhan pertanian}_{) built in all sub- districts}

(kecamatan) and ﬁ_{eld extension agents (}_{penyuluh pertanian lapangan}_{) assigned to all}

villages. The government also established village cooperatives to distribute farm inputs. The overall system was centrally coordinated by the Mass Guidance (Bimb-ingan Massal, Bimas) Coordinating Board, headed by the president at the national level, the governor at provincial level, and district, sub-district and village heads at each lower level. This centralised command system was quite effective in deliver-ing input-embodied technologies from research institutes to farmers.

The extension service systems have been decentralised in recent years, and are now managed by district governments. Unfortunately, not all district govern-ments are supportive of, or capable of facilitating, effective extension services. Bimas has been closed down and, without government support, many village cooperatives have closed as well (although many were in any case corrupt and did not pursue the interests of villagers).

Thus the agricultural technology delivery systems are in disarray. This may explain why some newly developed technologies in the research institutes are slow to reach farmers. Although many new HYVs have been released, only a few are widely used, with most farmers still using very old varieties. IR-64 rice, released in 1986, is still the most commonly used. The experience of the last several years suggests that the policy of reducing government involvement in technology delivery systems has not been managed properly. Some elements of these systems are private goods, but if the government reduces its involvement, it needs to pro-mote private business involvement to take over government roles.

CONCLUSION

The phase of rapidly accelerating growth in Indonesia’s rice production lasted only a few years, from about 1977 to 1982; growth then began to decelerate gradu-ally until the late 1990s, stabilising at a low rate following the crisis. With the

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average post-crisis production growth rate lower than the population growth rate, and far lower than the rate of growth of average incomes, steadily increas-ing imports of rice would appear inevitable unless there is a signiﬁ_cant

produc-tion turnaround. Given political sensitivities attaching to rice imports, this is an opportune moment to investigate the problems facing rice production and ana-lyse the costs and beneﬁ_{ts of boosting its growth again.}

The analysis above shows that the slow growth rate of paddy production is due to stagnant growth in the absolute extent of sawah, declining soil fertility caused by over-intensiﬁ_{cation, and degradation of supporting infrastructures}

(particu-larly irrigation and extension systems). These production problems cannot be solved with price policies, which have been the main focus of government policy. If increasing rice production is the aim, then it will be necessary to concentrate on new sawah development, rehabilitation and expansion of irrigation systems, creation of an environment conducive to private investment in R&D, promotion of a better balance between chemical and organic fertilisers in rice farming, and revitalisation of the extension system.

There appears to be some scope for increasing the paddy-to-rice conversion ratio if problems with existing labour institutions in harvesting and inefﬁ_ciencies

in the post-harvest industry can be alleviated, although this would amount to a one-off, rather than ongoing, source of increased production. Improving efﬁ

-ciency would require the gradual replacement of the traditional bawon harvesting system with contracted harvesting, and substitution of mechanical threshers for the banting threshing system. The rice milling industry could be revitalised by rehabilitation and replacement of under-performing rice mills, but such invest-ments may not be proﬁ_{table, even with stronger attempts to improve the rural}

investment climate.

The government’s current approach uses rice price support (through import restrictions) and fertiliser and other input subsidies, but these are relatively inef-fective because production capacity seems to be fully utilised with existing tech-nology and infrastructure. Restricting rice imports tends, rather, to ignite rice price escalation, harming rice consumers, and thus increasing poverty. If the aim is to increase rice production, the direction of rice policy would need to be read-justed from import controls to enhancing production capacity.8_{Policy is already}

beginning to move in this direction.

The experience of the late 1970s and early 1980s shows that rapid acceleration of rice output is possible, but suggests also that the costs of bringing this about may be large both ﬁ_{scally and in terms of the better economic opportunities forgone.}

Redirecting the large budget for fertiliser subsidies might pay for some of the pro-posed programs, but a broader analysis of the costs and beneﬁ_{ts of investments}

to expand rice production is also needed. Rice self-sufﬁ_{ciency ‘at any cost’ is not a}

viable policy, nor is it sensible. Indonesia easily has the ﬁ_{nancial capacity to import}

rice, even if foreign exchange earnings from other parts of the agricultural sector alone are considered. A careful study of demand growth, the economic potential of land for crops other than rice and alternative earning opportunities for rural

8 It is not clear that there is much of a role for the government in inﬂ_{uencing the}

renova-tion of the post-harvest rice industry, however, since this involves private sector decisions about the proﬁ_{tability of the investments.}

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labour all need to be part of the analysis. If such a study indicates that continued public support for rice production is needed, then the evidence presented in this paper can help to focus policy makers’ attention on the real problems facing the rice sector—inefﬁ_{ciency and declining productivity—rather than on the size of}

the import gap and the degree of rice self sufﬁ_ciency.

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The 26th

Indonesia Update Conference

INDONESIA BEYOND THE WATER’S EDGE:

Managing an Archipelagic State

The Australian National University

Friday and Saturday, 19–20 September 2008

Indonesia is the world’s largest archipelagic state. More than half its share of the earth’s surface is sea, and the marine frontier presents Indonesia with economic opportunity and political and strategic challenges.

Indonesia has been affected more than most countries in the world by a slow revolution in the management of the seas. Whereas Indonesia’s seas were once conceived administratively as little more than the empty space between islands, successive governments have become aware of the need to establish regulatory regimes in marine areas to manage the allocation of marine resources, to guard national security and to provide human services to those at sea. The effective transfer to the seas of regulatory regimes such as territoriality that took shape on land has been an enduring challenge to Indonesian governments.

This conference examines Indonesia’s response to that challenge. Presentations will address maritime boundaries and security, marine safety, inter-island shipping, the development of the archipelagic concept in international law, marine conservation, Indonesian sea-farers, illegal ﬁ_{shing, and the place of the}

sea in national and regional identity.

Speakers include Hasjim Djalal, Djoko Sumaryono, Rili Djohani, Gerry van Klinken, Howard Dick, John Butcher, James Fox, Michele Ford, Lenore Lyons, Vincent Ashcroft and David Ray.

Conference convenor

Robert Cribb Research School of Paciﬁ_{c and Asian Studies,}

ANU College of Asia and the Paciﬁ_c

robert.cribb@anu.edu.au

The annual Indonesia Update is presented by the Indonesia Project, Economics Division, Research School of Paciﬁ_{c and Asian Studies (RSPAS), and the}

Department of Political and Social Change (RSPAS) in the ANU College of Asia and the Paciﬁ_{c, The Australian National University (ANU). Support from the}

Australian Agency for International Development (AusAID) and the ANU is gratefully acknowledged.

Enquiries Indonesia.Project@anu.edu.au Ph +61 2 6125 3794

Fax +61 2 6125 3700

<http://rspas.anu.edu.au/economics/ip/IU08/>

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