T

he Indonesian government’s highly politicized protectionist stance toward rice imports and foreign investment in the agricultural sector is continuing to impact negatively on food security in the country.

Despite this, the government continues to defend its 2004 ban on rice imports, supported by the powerful Indonesian Farmers’ Union (HKTI), arguing that higher rice prices encourage production and rural development. However, with the majority of farmers controlling small plots and many renting land from larger landowners, it is questionable as to whether artificially high rice prices really provide any tangible benefit to the majority of farmers. In fact, empirical evidence suggests the 2004 ban on imports has actually increased the poverty rate in Indonesia.

Generally speaking, Indonesia faces two problems — food availability and food accessibility — in its pursuit of food security. These two issues are primarily caused by low production levels, which are caused by a lack of infrastructure, lack of innovation, poor logistics and high transportation costs, all of which are exacerbated by low rates of both domestic and foreign investment in agriculture and infrastructure.

The import ban as a means to stimulate production through artificially higher domestic rice prices has done little to resolve these problems, with shortages in supply continuing to plague the domestic market. This was evident with the State Logistics Agency (Bulog) spending US$180 million on importing rice in 2010, up from $160 million in 2007.

To combat this weakness in food security in Indonesia, a twin-track approach is needed, in which increased investment, both domestic and foreign, as well as increased regional trade are at the forefront of policy. In order to realize this strategy of increasing foreign investment and fostering trade, the government first needs to remove draconian barriers to entry of foreign investment and liberalize rice imports.

Despite the current ban on imports, Indonesia still demonstrates a high level of dependency on rice imports from other ASEAN countries, with Bulog regularly being forced to import rice to cover shortages in the national rice stock. This trade reveals that the rice market within ASEAN is already well established.

This established rice market should be seen as a big opportunity to strengthen Indonesia’s food security situation rather than as a failure on the part of the government to achieve food security and protect farmers.

For Indonesia to guarantee a safe food supply in the globalized world, these markets provide a perfect opportunity to diversify the sources from which rice is procured, reducing the risk of regional shortages caused by failed harvests. Furthermore, the rice trade could help to further enhance intra-ASEAN trade, promoting not only food security within ASEAN but also broader trade cooperation within ASEAN.

As part of trade liberalization, the government must lift domestic investment in agriculture and infrastructure to ensure that Indonesian farmers can remain competitive in the global market. Currently, lamentable logistics and transportation networks contribute to higher prices and shortages in regional areas, as well as an erosion of Indonesian farmers’ competitiveness in international markets. The continued development of domestic agriculture would also help shield Indonesian consumers from any fluctuations in world rice prices.

As a landmark of this local development in agriculture and infrastructure, the government needs to improve the local climate for foreign direct investment (FDI) in order to ensure that Indonesian farmers can remain competitive in the global market. Small steps have already borne fruit in this regard with the liberalization of laws preventing foreign investment in the staple food industry in 2010, leading to a tenfold increase in FDI in the agricultural sector in 2011.

Despite these improvements, however, several large investment projects, such as the Bin Laden Group’s $4 billion investment in the staple-food industry in Papua, have been stalled or abandoned, with potential investors blaming bureaucratic red tape, overlapping regulations and corruption for their failure to materialize.

Clearly, on this front the government must not only reduce barriers to entry but also improve the local conditions for investment through combating corruption, complicated bureaucracy and uncertainty in the investment climate in Indonesia.

In terms of food security, it is essential that the government reconsider its protectionist mindset toward rice production by viewing regional trade and foreign and domestic investment as the best approaches to achieve a safe and sustainable food supply in Indonesia.

Perhaps the first step the government needs to take, however, is to acknowledge that improving the nation’s food security is not a political game but an obligation to ensure the human right to food is achieved.

The writer, a School of Economics graduate at the University of Western Australia, Perth, is a fellow at the Centre for Strategic and International Studies, Jakarta.