Indonesia Should Lure Investors to Improve Food Security

Indonesia, the biggest palm oil producer and second largest for rubber, should make agriculture more attractive for investors to improve food security, said the Organization for Economic Cooperation and Development.

Curbs on foreign ownership, complicated land rights, the need for numerous permits and licenses and inadequate transport and irrigation are among factors discouraging investment, it said in a review of the country’s agricultural policies.

Palm oil slumped 23 percent this year because of rising stockpiles in Indonesia and Malaysia, as rubber advanced 2.4 percent. While the country is the 10th biggest farm producer, ahead of Germany and Argentina, investment in agriculture is low compared with its share of gross domestic product, the OECD said. The nation has high fertilizer subsidies and restrictions on trade, said Ken Ash, OECD director of trade and agriculture.

“What we think needs to happen is to shift away from this kind of subsidy to more strategic investments, spending money on people, education and training and on physical infrastructure,” Ash told reporters in Jakarta today.

Indonesia limits foreign holdings in food-crop farms of more than 25 hectares (62 acres) to 49 percent, the OECD said. Import and export curbs isolate the country’s farmers from external markets and increase food costs, it said.

“The focus on self-sufficiency as a means to achieve food security is misplaced” because protecting imports to boost farmer returns raises costs and hurts competitiveness, it said.

Indonesia, the world’s fourth most populous country, has imposed a quota and licensing system on imports of rice, sugar and meat to protect producers. The country also has export taxes on palm oil and cocoa beans to boost domestic processing. Agriculture, which employs about 42 million people, represented 15 percent of the economy in 2010, the OECD said.

“Achieving self-sufficiency on food commodities, namely rice, maize, soybeans, sugar and beef, will remain our development priorities,” said Hari Priyono, secretary general at the Agriculture Ministry.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE