Indonesian Farm Estate Project Could Repeat Past Mistakes

30 September 2020 Mervyn Piesse, Research Manager, Global Food and Water Crises Research Programme

Background

Government officials in Jakarta have long believed that self-sufficiency in rice production will lead to better food security. In keeping with that belief, President Joko Widodo recently announced an initiative to convert 770,000 hectares of land into farm estates to increase rice production. Pilot projects are set to be launched in Central Kalimantan and North Sumatra by the end of 2020. The initiative could experience similar challenges to earlier agricultural projects, however, as some of the land is not well-suited to rice production.

Comment

After the Food and Agriculture Organization (FAO) noted that global food security could be undermined by the Covid-19 pandemic, Indonesia announced that it would seek to reduce its food imports. Indonesia is the leading importer of wheat and rice. The Indonesian climate is unsuitable for growing wheat, but it could lift rice production to reduce its dependence on Vietnam and Thailand.

The production of major staples such as rice and wheat has remained above average in 2020 and, at a global level, there is no shortage of food. The FAO even noted in June that there is unlikely to be a Covid-19-induced food crisis. Global food security has not diminished as a result of food shortages, as countries have mostly refrained from imposing trade barriers and the international trade of food has largely continued unabated.

The pandemic restricted Indonesia’s ability to import food for a short time, due to disruptions in global supply chains and distribution networks. Vietnam also imposed rice export bans from 24 March to 30 April, which posed a risk to Indonesia’s rice supply. Those disruptions were short lived, however, and most of the decline in Indonesian food security is due to the decline in the purchasing power of most households.

Indonesia has long sought to reduce its dependence on food imports and doing so could improve its food security. Previous attempts to increase domestic food production have created significant environmental problems, however, and failed to measurably lift agricultural production. The Mega Rice Project (MRP), for instance, which sought to convert one million hectares of peatland into rice paddies, was launched in Central Kalimantan in 1996. Thousands of kilometres of drainage and irrigation channels were built and large tracts of peatland were drained. As the peat dried out, it became highly flammable. In 1997, smog from burning peatland covered millions of square kilometres of South-East Asia for several weeks, a phenomenon that has been repeated every year. The MRP failed, mainly because the nutrient-poor soil was not suitable for the kind of rice cultivation practiced in other parts of Indonesia.

To avoid the problems associated with the MRP, most of the pilot project in Kalimantan will be located in areas of shallow peat, which have been identified as suitable for rice production. Parts of the project will be located on coastal wetlands instead of peatland. Coastal wetlands pose their own set of challenges, however, including very acidic soils and high concentrations of iron pyrite, which is highly toxic to crops. Soil acidity can be reduced with the application of lime, but that would likely require such a large quantity that it could pose environmental problems itself or be uneconomic.

Similar programmes in other parts of Kalimantan have proven to be uneconomic, with rice yields of about four tonnes per hectare. The projected yield in Central Kalimantan is expected to be about three tonnes per hectare. Continuing to import rice from other parts of South-East Asia is likely to be more economical, but poses the risk of supply shortages if trade is disrupted.

Indonesia is likely to achieve a better economic outcome by restoring the peatland and focussing on other agricultural reforms, rather than clearing more land for agriculture. In its latest Indonesian economic report, the World Bank states that:

restoring peatland would have large multiplier effects associated with increased agricultural production and would also greatly reduce the risk of fires and related costs to the economy … A more effective strategy to increase agricultural production both for commercial and food security purposes would be to increase the productivity of existing agricultural land … To that end, reallocation of wasteful fertilizer subsidies toward investments in extension services could ensure a better match of crop choice with land suitability, enhance seed quality, and reduce post-harvest loss. It would also build human capital in agriculture, helping to modernize this key sector.

The clearing of land for new agricultural plots is a simple and seemingly effective policy idea in theory, but in practice is likely to be costly and possibly futile. Improving the productive capacity of existing farmland and farmers is likely to be a more effective policy option.

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