In response to demands for more tax cuts for the agriculture industry, the Finance Ministry says numerous incentives are already available and the biggest challenge to the industry in fact lies in the lack of proper policy planning and execution.
Deputy Finance Minister Anny Ratnawati said the 2012 state budget had allocated Rp 41.9 trillion (US$4.7 billion) for agriculture development projects, which included Rp 4.1 trillion for agriculture infrastructure development and Rp 8.2 trillion for irrigation management.
As for incentives, Anny said the government had provided value-added tax cuts and import tax cuts on goods that should factor into an increased production capacity. She argued that the question was not whether more incentives were needed, but rather the willingness of relevant stakeholders to sit down and identify challenges that were unique to each type of agriculture.
“Each agriculture sector has its own character. For example, when farmers produce, we cannot tell them to stop for fear of over production. Another issue is that most of our farmland is fragmented into small parts because farmers often divide their land equally among their children as a legacy. This fragmentation causes high costs for individual farmers,” Anny, who mentored President Susilo Bambang Yudhoyono for his doctorate degree in agriculture, said at her office in Jakarta on Tuesday.
Anny said that should more incentives be needed in the future, the relevant ministries — the trade and industry ministries — could always arrange them, “but we need to focus on developing well-planned, practicable programs.”
Speaking at the Food Security Summit on Tuesday, Trade Minister Gita Wirjawan said he supported calls for the eradication of added-value tax or income tax for producers of several key commodities, corn in particular.
Separately, Industry Minister Mohammad Hidayat also boasted of the government’s plan to give fiscal incentives and numerous other types of facilities for investors in the agriculture and food business, especially those in remote areas.
Hidayat said the government initiative to establish a so-called Food Estate in Merauke, Papua, was hampered by the absence of supporting infrastructure, thus more incentives were needed.
Anny said there had been much over-simplifying of issues and challenges faced by the agriculture industry.
“Agricultural trade is not simple. For example, if you go to Sulawesi and meet cacao farmers, you will wonder why they do not ferment their own cacao beans. Their answer is that the transportation cost for their fermented cacao is too expensive,” she said.
“Another example was shown in coffee plantations during the 97-98 crisis. Coffee commodity prices reached an all-time high due to the soaring US dollar. But farmers opted to spend rather than investing their profits,” she added.
As a country with a population of 240 million, growing by an average of 1.5 percent a year, Indonesia struggles to the meet growing demand for food products. The production growth of rice, the most popular food commodity in the country, is struggling due to issues such as the scarcity of land, farmers migrating to other types of commodities and hoarders forcing up prices.
Central Statistics Agency (BPS) data shows that rice production decreased by 1.08 million tons to 65.39 million tons in 2011 compared to the previous year, meaning the country failed to meet its 2011 production target of 70.60 million tons of rice.