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Analysis: Fertilizer subsidy increase suspected to be politically motivated

Jakarta Post - January 17, 2024

Tenggara Strategics, Jakarta – The Indonesian government has decided to raise the portion of its state budget for fertilizer subsidy, one of the Joko "Jokowi" Widodo administration's last actions ahead of the upcoming 2024 elections.

The decision brought attention due to it being in contrast with the second period of President Jokowi's government, which had previously opted to cut fertilizer subsidy. It also raised concerns that the decision was done with political motives ahead of the elections, with some doubting its effectiveness to the country's agriculture.

President Jokowi announced the Rp14 trillion (US$898.39 million) increase of the allocated state budget for fertilizer subsidy on Jan. 2, 2023. He claimed that the decision was taken to reduce imports of rice and other food commodities amid El Nino impacts on agricultural yields, especially as the country's population is projected to rise by 4 million to 4.5 million people annually. The president also explained that fertilizer supply troubles in the country has been affected by the impact of global crises, such as the Russo-Ukrainian War and the COVID-19 pandemic, to the worldwide fertilizer supply chain.

The Agriculture Ministry stated the current 1.7 million tons of fertilizer in stock it recorded is sufficient to fulfill the 1.6 million tons of fertilizer needed for the first planting season that spans from October 2023 to March 2024 for 3.9 million hectares (ha) of cultivated land, which will be worked on from January to February 2024. Furthermore, the ministry sated the increased fertilizer subsidy will be allocated for the second planting season. Jokowi, after discussing with Pupuk Indonesia Holding Company, said the 1.7 million tons of fertilizer includes 1.2 million tons of subsidized fertilizer.

However, Institut Pertanian Bogor professor and Association of Indonesian Seed Banks and Farmer Technology (AB2TI) chair Dwi Andreas Santosa noted the government's fertilizer subsidy expense soared from Rp17.62 trillion in 2013 to Rp34.31 trillion by 2019 based on Finance Ministry data, but dried milled rice grain production fell from 71.28 million tons to 54.6 million tons in the same period based on Statistics Indonesia data. He said corruption on 20 percent of the subsidy contributed to the policy not correlating with rice production.

Jokowi's decision to raise fertilizer subsidy by 70 percent year-on-year (yoy) to Rp40.68 trillion from Rp26.68 trillion in 2023 contrasted with the president's fertilizer policy during his second term when he cut the subsidy by Rp10 trillion.

The decision is suspected to be in support of Prabowo Subianto's presidential campaign, who has Jokowi's eldest son Gibran Rakabuming Raka as his running mate, by way of increasing Jokowi's approval rate so people would give support to the candidates that resemble with him the most. Jokowi had also raised fertilizer subsidy ahead of the 2019 general elections, and subsidies contributed to his current approval rating exceeding 73 percent.

The Agriculture Ministry denied that the fertilizer subsidy hike is politically motivated and claimed that the decision is done to increase agriculture production amid the El Nino weather phenomenon's impact. However, Center of Reform on Economics (CORE) Indonesia said Jokowi should have done the policy when the Russo-Ukrainian War caused fertilizer price to spike in 2022.

What's more

Indonesia's Ombudsman found issues in Indonesian fertilizer subsidy governance from its systemic study on preventing the misadministration of fertilizer subsidy governance that started in 2021, and investigation on suspected misadministration in subsidized fertilizer data and redemption that started in 2022. The Ombudsman found that issues surrounding the subsidized fertilizer include lack of clarity and effectiveness in both policy goal and subsidy recipient farmers criteria, inaccurate recipient data, incorrect subsidy distribution, and disproportionate budget plan design.

Meanwhile, presidential candidate Ganjar Pranowo included tackling the nationwide fertilizer shortage among his campaign promises. The goal is aimed to be done by getting foreign trade deals and other international partnerships to source some of its raw materials, except for natural gases which he noted could be prioritized to be sourced domestically. The former Central Java governor also claimed that the country needs at least three more fertilizer factories for both subsidized and non-subsidized fertilizers to address the issue.

What we've heard

Some sources say that the government has not sent a budget revision proposal for the additional fertilizer subsidy of Rp 14 trillion to the DPR that was stated by President Joko Widodo some time ago. Politicians in the DPR perceive this additional fertilizer subsidy as more political gamesmanship for the upcoming election, specifically to gain votes from the farming community. Presidential candidate Prabowo Subianto also raised the issue of subsidized fertilizer distribution in the first presidential debate.

Because of this, political parties in the DPR supporting the Prabowo Subianto-Gibran Rakabuming Raka pair do not question the additional fertilizer subsidy, even though the budget change infringes upon the DPR's rights to the budget.

As a political commodity, the Ganjar-Mahfud pair also promises additional subsidized fertilizer if they are elected. As a brief reminder, additional fertilizer subsidies also occurred in 2019, shortly before the presidential election.

Despite the additional subsidy, some farmers remain concerned that the distribution of subsidized fertilizer will not be fair. The main problem with fertilizer has always been distribution. Many farmers in certain areas have difficulty obtaining subsidized fertilizer. Moreover, the quantity of certain types of fertilizer distributed often does not match the needs. Other issues include the accuracy of data on fertilizer recipients and the effectiveness of supervision.

Usually, subsidized fertilizer is unavailable to farmers because it is too valuable a commodity for politicians, instead they get resold as non-subsidized fertilizer.

The Ministry of Agriculture is also suspected of being non-transparent when appointing official distributors and retailers. Many partner companies are affiliated with officials or members of the parliament. This further increases the potential of maladministration, susceptibility to deviations, and likelihood of corruption.

Sources at the Indonesian Ombudsman confirm these indications. The Ombudsman found that subsidized fertilizer leaks occur everywhere throughout the country.

[This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia's political and business landscape.]

Source: https://www.thejakartapost.com/opinion/2024/01/17/analysis-fertilizer-subsidy-increase-suspected-to-be-politically-motivated.htm