Addiction to Food Imports

KOMPAS/TOTOK WIJAYANTO

Enny Sri Hartati

In the era of economic openness, importing goods or services has certainly become common practice, and some time it is even a necessity, because trade cooperation with other countries cannot be established if there is no reciprocal agreement. In short, there is no single country in the world that runs its economy by only exporting without importing, especially in the free trade era, when trade barriers such as import and export duties have mostly been removed.

Almost all countries are competing to pursue efficiency with a special focus on highly competitive products. Moreover, technology and global supply chain have become more advanced. In order to pursue efficiency, a product no longer relies on raw materials or components from a local source. Now raw materials are sourced from a number of countries. Of course, only countries with high competitiveness are selected in the global supply chain.

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In such a condition, importing goods or services will certainly not be a problem, and it even can help improve domestic economic productivity. This includes the easing of import policy to encourage investment, especially in the manufacturing industry.

Meanwhile, Indonesia has abundant natural resources, ranging from commodities originating from the bowels of the earth (mining products) to those above the bowels of the earth (agriculture, plantations, and forestry), in addition to the marine resources such as fishery and salt in the country’s vast ocean which has the second longest coastline in the world (95,181 kilometers ).

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Ironically, Indonesia, instead, relies heavily on imported raw materials for its manufacturing industry. As of February 2021, data from the Statistics Indonesia (BPS) indicated 74.39 percent of the country’s imports consisted of raw/auxiliary materials, while capital goods and consumers goods only accounted for 14.93 percent and 10.68 percent, respectively. It means that the industrialization policy is not based on the development of the added value of the local commodities. Even more ironic, although the largest portion of imports consisted of raw materials, Indonesia\'s exports were still dominated by primary products at 53.5 percent, while exports of manufactured goods accounted for only 46.5 percent.

Kompas/Bahana Patria Gupta

Piles of imported rice from Pakistan that arrived in 2018 at the Bulog Warehouse of the East Java Divre in Buduran District, Sidoarjo Regency, East Java, Thursday (25/3/2021).

In fact, the largest portion of the non-oil and gas industry consists of the food industry, which is around 24 percent. Unfortunately, the industry still relies on imported raw materials. Throughout 2020, cereal imports were the country’s fourth-largest non-oil and gas imports, which reached US$3.23 billion.

Among the largest food imports in 2020 were wheat ($2.6 billion), sugar ($1.94 billion), soybeans ($1 billion ), garlic ($585.78 million), corn ($172.6 million), and salt ($94 million).

Economic rent

The growing dependence on food imports is not solely caused by the shortage of supply in the country. The most recent example is the discussion regarding the government’s plan to import rice at the time when the country has a rice production surplus of about 12.5 million tons. The import plan was made because BPS estimated that, until May 2021, the rice production would be only about 17.5 million tons, in addition to the rice stocks at the end of December 2020 which reached 7.3 million tons, while the estimated demand is 12.3 million tons.

President Joko “Jokowi” Widodo later said that there would be no plan to import rice until June 2021. Despite the decision to delay the rice imports, the State Logistics Agency (Bulog) still buys the rice from farmers at a price below the government’s purchasing price (HPP). With the relatively high price difference, which reaches more than Rp 2.5 trillion (about $178.5 million) per 1 million tons, rice imports have the potential to become a hunting ground for rent seeking. In addition, Bulog is also facing problems in rice procurement and distribution due to the change in the government\'s food aid mechanism.

Also read: Questioning Rice Import Plan

Apart from rice, a discussion also occurs over the decision to increase the salt import quota to 3.07 million tons. The plan to increase salt imports by 13.7 percent from 2.7 million tons in 2020 2.7 was made when local farmers’ salt production was still unabsorbed. The pretext is that the import plan is intended to meet the demand for industrial salt, which reaches 3.8 million tons.

KOMPAS/TOTOK WIJAYANTO

The process of unloading raw sugar from the Philippines at Tanjung Priok Port, North Jakarta, Tuesday (18/2/2020).

No less interesting is the classic problem rooted in the importation of sugar, because Indonesia is the largest sugar importer in the world with annual production of 4.7 million tons. The government is facing a dilemma with the approaching fasting month of Ramadan and Idul Fitri, when demand for sugar usually increases sharply.

Under the pretext of stabilizing sugar prices, the government decided to issue import permits for 680,000 tons of raw sugar and 150,000 tons of white crystal sugar. Meanwhile, the value of sugar imports during January-February 2021 had already reached $ 481.7 million, an increase of 99.38 percent compared to the same period in 2020.

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The price disparity in the domestic and international markets does provide economic incentives for imports. The import is also often used as a justification for price stabilization to avoid fluctuation in the price of staple foods. At the same time, the inefficiency as the root of the problem in domestic food production, has never been completely resolved.

It also seems silly that the low productivity in the food production is used as an excuse to remove fertilizer subsidies. In fact, fertilizer subsidies are needed to provide economic incentives to improve farmers\' welfare. Instead of getting more prosperous, farmers are always being sacrificed to maintain price stabilization.

So, don\'t be angry if food imports are needed. Also, don\'t be angry if people are no longer interested in becoming farmers and instead sell their fertile , which can further increase the conversion of farming land for other purposes. Of course it will be a tragic paradox for an agricultural country, like Indonesia.

ENNY SRI HARTATI, senior researcher at the Institute for Development of Economics and Finance (INDEF).

This article was translated by Hendarsyah Tarmizi.