The agriculture sector’s contribution to Indonesia’s gross domestic product (GDP) has dropped from around 50 percent in the 1960s to just 12.72 percent in 2019, as is typical in the process of strong economic growth. Contributing to that decline is also a lack of investments in agriculture, particularly in research and development, as evidenced by a study from the Asian Development Bank. Most agriculture production still entails traditional, manual labor by smallholder farmers that are outdated, inefficient and expensive.

This may soon change because of the omnibus bill on job creation. The bill, while controversial, promises comprehensive reform that would invite investments and help create jobs across various sectors.

In agriculture, the bill may make way for two major breakthroughs: a more conducive environment for investments and a more liberalized food trade. There is huge potential for the proposed policies to improve the agriculture sector, but they also come with risks.

The first potential major breakthrough in the agriculture sector from the bill is an industry that is more conducive to investments. The bill proposes to revise current regulations that restrict foreign investments or infrastructure in agriculture and welcomes foreign investments and infrastructure. Law No. 13/2010 on horticulture for example, restricts foreign investments just for large-scale businesses and allows only up to 30 percent foreign ownership of seed breeding companies.

The bill, among other things, states that the government encourages investments in the horticulture industry, and the unnecessary prerequisites would be removed.

Likewise, Article 33 of the Horticulture Law also limits the use of foreign horticulture infrastructure and states that at least 30 percent of the infrastructure component must be sourced from domestic production. This is revised in the bill, saying that domestic and/or foreign infrastructure are welcomed in the horticulture industry.

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Even farmers would benefit, as most farmers are net buyers of food who also suffer from expensive food items.

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In addition to removing the regulatory barriers to investments, the bill also aims to simplify licensing and permit issuances. Currently, agribusinesses often have to go through multiple layers of bureaucracy, such as obtaining a recommendation from the Agriculture Ministry first and then from the Trade Ministry. The bill will centralize the licensing process at the Investment Coordinating Board (BKPM).

The bill seeks to improve the ease of doing business in agriculture, though this may come at a cost to the environment. For example, Law No. 39/2014 on plantations requires plantation businesses to conduct an environmental impact analysis and to adhere to regional plans before obtaining a license. It also requires plantation firms to have fire management infrastructure and system.

In the bill, these requirements will be replaced with a broad article that states “plantation businesses must preserve the environment” without any further requirements or penalties.

The absence of any environmental regulation is worrying, especially for Indonesia, which last year saw 942,000 hectares of forests and lands razed in wildfires. The omnibus bill should not turn a blind eye to the environment for the sake of investments. Without the environment or any land left, what would be left to invest in?

The second potential breakthrough is trade liberalization in food and agriculture. The bill proposes to revise Article 36 of the 2012 Food Law and Article 30 of the 2013 law on farmers’ protection and empowerment so that not only local production but imports are also the sources of food for the nation. This is a significant shift from the historically protectionist regulation that considers import only as the last resort, allowed only when national production and stocks are not enough to meet domestic demand.

Opening up food imports is good news for Indonesian consumers, who have long suffered from high food prices. Even farmers would benefit, as most farmers are net buyers of food who also suffer from expensive food items.

According to Statistics Indonesia (BPS), on average, people in Jakarta spend about 37 percent of their expenditure on food and 48 percent in West Papua. Indonesia’s rice prices, for example, have constantly been twice more expensive than international prices. A 2018 study by Rainer Heufers and Arianto Patunru estimated that the price premium “taxed” Indonesian consumers approximately US$98 billion between 2013 and 2015.

Improving the affordability of food through imports will benefit all Indonesians and especially help the 22 million who still suffer from chronic hunger and the 9 million children who suffer from malnutrition, stunting and wasting to access better quality food.

However, the proposal to open up imports would undeniably be a concern for farmers who are the backbone of agriculture, given their concerns that they will not be able to compete with foreign commodities that are produced much more efficiently and cheaply.

Their concern is indeed worrying, as the production costs of rice per kilogram in Indonesia is two and a half times higher than that in Vietnam. Farmers could indeed lose out to imports.

With the spirit of investments as reflected in omnibus bill, the government must also invest in our farmers to ensure they are not left behind without any safety nets. Investments must help farmers increase their competitiveness, such as through agriculture research and development, increased use of technology, access to financing and access to high quality seeds.

The government can also help train farmers to shift to other commodities with higher comparative advantages or equip them with skills or machineries for value-added activities that can increase their income.

Another worthwhile investment could be retraining farmers to help them diversify their income. United Nations Food and Agriculture Organization data shows that 30 percent of the average gross annual income of farmers comes from nonagricultural sources or selfemployment, such as small enterprises. Diversifying farmers’ income can help protect them from shocks to their livelihood

Progressive regulations on investments and trade liberalization in the bill would benefit the agriculture sector as a whole and Indonesian consumers but may potentially cost the environment and individual farmers.

These are not two sides of a tradeoff to be decided by the government, but they all must be considered carefully. The government should be able to improve agriculture and food security without sacrificing environmental sustainability and farmers’ welfare.

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Researcher at the Center for Indonesian Policy Studies. The views expressed are her own.

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