Grace Nirang, Jakarta – Indonesia's plans to impose higher tariffs on a string of agricultural commodities might not help farmers as intended but instead raise consumer prices and encourage smuggling, analysts say.
They also say the benefits are likely be swallowed up by traders and intermediaries ahead of farmers in Indonesia's long and convoluted trading chain.
"Basically, we need tariffs to help our smallholder farmers profit from their farming activities, but I'm afraid it will be traders who will benefit," said H.S. Dillon, agriculture analyst at the Center of Agriculture Policy Studies.
"Imposing higher tariffs should be a temporary measure and it probably won't be effective in helping farmers at all." Indonesia, with a population of some 210 million, is among the world's largest importers of commodities such as rice and sugar and imposes comparatively low import tariffs.
Farmers have long complained about the influx of cheaper, imported commodities which have dragged down prices and discouraged them from increasing output.
In the latest round of tax increases, the Finance Ministry last week raised import tariffs on raw and white sugar by 50 rupiah ($0.0056)/kg and 100 rupiah/kg respectively.
Last month, Agriculture Minister Bungaran Saragih said the government was considering imposing a duty on corn and soybeans and hiking the duty on rice from its current level of 30 percent.
Porous borders
Industry sources say any moves to increase tariffs must be accompanied by strong enforcement or illegal imports would surge.
They say thousands of tonnes of imported foodstuffs arrive in Indonesia every year unreported, due to collusion with officials or through smuggling.
"The data we receive from exporting countries on the volume of sugar exported to Indonesia is always higher than the data from customs and excise," said Farukh Bakrie, chairman of the Indonesian Sugar Association.
Indonesia's vast and porous borders make smuggling relatively easy. Vessels bringing thousands of tonnes of rice or sugar from Vietnam or Thailand can dock in small islands off Sumatra and sell the commodities in Java or other islands as locally-produced.
"Ideally, higher tariffs should be followed up with tough enforcement in the field. But it is difficult for us to imagine that it would be fully enforced," said analyst Yayok Bayu Krishnamurti of the state Bogor Agricultural University (IPB).
While farmers have long bemoaned low tariffs, they have also benefitted from the policy. Low tariffs have helped contain the price of basic staples such as rice which has a large weighting on the local consumer price index.
"With more than 75 percent of our farmers also net consumers of rice and other foodstuffs, they will be the ones who are hit hard by rising prices," said Bustanul Arifin from the private think-tank Indef.
Indonesia's inflation fell for the fourth consecutive month in June, with a year-on-year level of 11.48 percent compared to 12.93 percent a month earlier.
Sweetener
In another sign of its protectionist stance, Trade and Industry Minister Rini Suwandi last week flagged sugar subsidies for farmers to encourage them to produce more of the commodity and reduce dependency on imports.
The planned 500 rupiah per kg subsidy – which has to be approved by the Finance Ministry – would cost the government an estimated 350-400 billion rupiah per year. Analysts say that this is a cost the cash-strapped government can ill afford, and that it goes against the spirit of free trade adopted by Indonesia in 1998.
"The government should be very careful. If these protectionist measures don't work well, Indonesia will be regarded as one of the countries which fails to cope with its free trade commitment," Indef's Arifin said.
Imported foodstuffs began flooding the local market after the government liberalised trade practices as part of an agreement with the International Monetary Fund in 1998. Prior to the agreement, the State Logistics Agency (Bulog) had an import monopoly on basic foodstuffs.
Analysts say a policy of higher tariffs should also come with a commitment by the government to use the proceeds to develop the agriculture sector, which employs around 60 percent of the population.
"If you want to increase production, you have to make farming profitable. The availability of farming materials at affordable prices, not tariffs, is the most important thing for farmers," Dillon said.