The authors gratefully acknowledge the excellent research assistance of Arief Ramayandi; the helpful comments and data assistance of Neil McCulloch, Rina Oktaviani, Peter Rosner, and Peter Timmer; the useful comments of workshop participants; and the significant work with spreadsheets undertaken by Marianne Kurzweil and Ernesto Valenzuela.
rather than through the price for the product. This protection may be explained through our hypotheses both as the main element in food self-sufficiency and as a result of the effect rice prices have on manufacturing wages through the cost of living. Since 2000, the rice industry has become more tightly protected; rice imports have been banned.
Second, during the long presidency of Soeharto, the country could afford aims (a) to (c) under good fiscal conditions, but not under bad fiscal conditions. So, good fiscal conditions meant more protection and bad trade policies, while bad fiscal conditions meant less protection and good trade policies.
Third, growing evidence from around the world convinced policy makers in Indonesia and most other East Asian countries to rely more on markets and less on government intervention. This evidence was based on theoretical arguments, statistical studies, and simple two-country comparisons such as Myanmar and Thailand, the German Democratic Republic and the Federal Republic of Germany, Austria and Hungary, and the Democratic People’s Republic of Korea and the Republic of Korea. The resulting policy shift was influenced by the collapse of the communist system and the victory of capitalism in the Cold War. This may have contributed to the long-term shift worldwide toward less manufacturing protec-tion and less agricultural export taxaprotec-tion beginning around the mid-1980s.
Fourth, following the democratic reforms that occurred in the wake of the Asian financial crisis of the late 1990s, agricultural protectionism increased some-what in Indonesia. Aggregate measures of protection indicate that these changes, along with reduced protection in manufacturing, caused a switch in the agricul-tural sector from net taxation to net subsidization (by a narrow margin) relative to manufacturing. However, these aggregate measures mask the fact that agricul-tural protection is concentrated in only two crucial industries: sugar and rice.
The next section describes the changing structure of the Indonesian economy, with an emphasis on the agricultural sector. The subsequent two sections provide overviews on government economic policy in general and on government policies toward agriculture during the period since independence. In the following sec-tions, we attempt to supply a political econometric explanation for the changing structure and pattern in agricultural distortions over the last three decades, esti-mates of which we provide for individual farm industries and for agriculture as a whole. The final section concludes.
Economic Growth and Structural Change
From 1968 to 2005, Indonesia’s gross domestic product (GDP) grew in real terms at an average annual rate of 6.3 percent. The broad characteristics of this growth are summarized in table 4.1. For ease of comparison with other Asian economies,
the table distinguishes between the preboom period prior to 1987 and the 10 boom years that preceded the Asian crisis of the late 1990s. During the precrisis decade of 1987–96, many Asian countries witnessed growth that was far more rapid than the growth in preceding decades. Indonesia also grew rapidly during this decade, but, as the table shows, the growth was only marginally more rapid than the growth during the previous two preboom decades. The country’s eco-nomic growth had been sustained over several decades. Output contracted during the crisis years, and, during the subsequent recovery period, growth averaged a more moderate 4.6 percent (see Fane and Warr 2007 for additional evidence on points discussed in this section).
As typically occurs in rapidly growing economies, agricultural output expanded more slowly than GDP, implying that there was a declining share of agriculture in aggregate output. The agricultural sector accounted for 56 percent of GDP in 1965. By 2004, this share had declined to 15 percent. Over the same period, the GDP share of manufacturing and other industry rose from 13 to 44 percent, and the share of services rose from 31 to 41 percent. For a more detailed study of the changing composition of the agricultural sector, one may conveniently use the BPS input-output tables that are available on Indonesia for 1971, 1980, 1990, and 2000. As incomes rise, the share of spending on starchy sta-ples usually falls, while the share of spending on meat, fruits, and vegetables usu-ally rises. The Indonesian experience fits this common pattern.
The output growth within agriculture was achieved despite a rapidly diminish-ing share of the supply of labor and capital. Furthermore, while agriculture grew more slowly than other sectors during boom periods, the growth rate also declined less during the crisis years than the corresponding rates of growth in other sectors. The agricultural sector has acted as a shock absorber; this was par-ticularly important during the crisis, when agricultural employment absorbed the large numbers of people laid off in urban centers. Although GDP grew much
Indonesia 167
Table 4.1. Real GDP Growth and Its Sectoral Components, Indonesia, 1968–2005
(annual average percent)
Preboom, Boom, Crisis, Recovery, Total, Sector 1968–86 1987–96 1997–99 2000–05 1968–2005
Total GDP 7.4 7.7 2.5 4.6 6.3
Agriculture 4.4 3.4 0.6 3.5 3.7
Industry, including mining 10.6 9.8 2.3 4.2 8.5
Services 7.8 7.9 4.0 5.7 6.6
Source:Author calculations based on World Development Indicators Database 2008.
more slowly during the recovery in 2000–05 than it had during the boom decade, agricultural growth did not fall with respect to the boom years.
Table 4.2 summarizes the changing composition of the value added in agricul-ture since 1971 based on data from the input-output tables. The output of paddy (unmilled rice produced at the farm level) contracted from 46 to 31 percent of agricultural value added, while the share of fruits and vegetables increased from 14 to 22 percent and the share of livestock rose from 0.6 to 5 percent.
It is somewhat surprising that the shares of intermediate inputs used in agri-culture actually contracted. The apparent reason is that fertilizer and pesticide usage was subsidized from the late 1960s until the late 1980s under a government rice-intensification program called Bimas (discussed below). When the subsidies were phased out, fertilizer and pesticide use contracted markedly, especially in rice production. Most intermediate goods used in agriculture are domestically pro-duced. Between 1980 and 2000, the annual share of imported intermediate goods in total intermediate goods used in the country increased from 3.8 to 10.2 percent.
In 1971, sales of paddy by farmers to intermediate users (rice millers) accounted for 56 percent of the total value of paddy output, implying that almost half of the output was being milled by individual households. By 2000, sales to Table 4.2. Subsector Shares of Agricultural Value Added,
Indonesia, 1971–2000 (percent)
Subsector 1971 1980 1990 2000
Paddy 46.1 38.0 37.5 30.8
Maize 3.1 3.7 4.1 5.9
Root crops 7.2 6.8 7.6 8.9
Fruits and vegetables 14.1 14.5 21.7 21.8
Other food crops 3.3 4.4 6.4 3.9
Rubber 5.5 5.2 2.0 5.5
Sugarcane 2.2 2.4 2.1 2.5
Coconut 5.2 4.3 3.3 3.7
Palm oil 2.9 2.1 2.4 2.3
Tobacco 2.5 1.7 0.7 0.3
Coffee 2.6 4.3 1.5 0.9
Tea 1.4 1.9 0.5 0.3
Cloves 1.4 3.0 1.6 0.9
Other agriculture 1.8 1.7 3.5 7.3
Livestock 0.6 6.0 5.0 4.9
Total 100.0 100.0 100.0 100.0
Source:BPS 1971, 1980, 1990, 2000.
intermediate users accounted for 98 percent of the total value of the output. Sim-ilar trends occurred in maize, rubber, sugarcane, palm oil, coffee, and tea.
The international trading position of the major agricultural commodities is summarized in table 4.3. The most important import-competing agricultural products are rice, sugar, maize, and soybeans. Major export-competing products include coffee, rubber, tobacco, tea, palm oil, copra, shrimps, and spices. Paddy is neither exported nor imported, but milled rice has historically been a major import item. Since 2002, rice imports have been officially banned, but some imports have still occurred. Cassava is mainly nontraded, although there are exports of its derivatives, manioc and tapioca. Much of the livestock subsector is also nontraded, although chickens are exported, while beef and dairy products compete with imports.
Indonesia 169
Table 4.3. Export Sales in Total Sales and Imports in Total Usage, Indonesia, 1971–2000
(percent)
Export share Import share Subsector 1971 1980 1990 2000 1971 1980 1990 2000
Paddya 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Maize 11.4 0.3 1.8 0.3 0.0 1.1 0.2 11.3
Root crops 4.7 3.7 0.7 0.3 0.0 0.1 0.0 0.1
Fruits and vegetables 0.1 0.2 0.2 0.3 0.6 1.1 0.9 4.9 Other food crops 4.3 0.3 1.9 0.4 0.0 22.7 18.1 47.7
Rubber 57.5 58.4 6.5 0.6 0.1 0.0 0.1 0.7
Sugarcane 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Coconut 6.6 1.2 0.3 1.5 0.0 0.0 0.0 0.1
Palm oil 2.3 33.5 29.5 0.2 0.0 0.0 0.1 0.2
Tobacco 7.4 12.3 7.6 0.0 1.6 7.3 15.6 0.0
Coffee 21.5 58.7 13.7 0.0 0.0 0.0 0.0 0.0
Tea 24.5 18.5 32.5 0.0 0.0 0.0 3.9 0.0
Cloves 0.0 0.0 0.1 3.0 47.4 12.7 0.0 24.5
Other agriculture 40.5 15.9 26.7 21.2 24.1 43.8 1.4 30.3
Livestock 1.2 0.0 1.8 2.1 0.0 0.5 0.9 8.4
Total Agriculture 7.5 9.3 2.8 2.6 1.3 2.8 2.0 8.7
Milled ricea 0.0 0.8 0.0 0.0 13.5 12.5 0.2 3.9
Fertilizers and 0.0 4.4 14.6 22.9 66.0 18.1 9.6 23.3 pesticides
Source:BPS 1971, 1980, 1990, 2000.
a. The input-output tables classify paddy (unmilled rice) as an output of the agricultural sector and milled rice as an output of the manufacturing sector