World fertilizer price goes up but the government of Indonesia cut the budget of its subsidized fertilizer for poor farmers. On the other hand, the Minister of Finance is trying to finance new capital by scrapping from other sectors. Reverse Robin Hood policy in action?

The price of fertilizer has gone up 100%, cries the Indonesian Farmers Association (SPI) in the first week of this year. The rise started in October last year, triggered by the natural gas price increase which is about 70% of fertilizer cost, and has caused the closure of many private fertilizer companies around the world. Even China has decided to ban its fertilizer export to secure its domestic market availability.

This is a reasonable policy reaction given the fact that without adequate fertilizer food production would decline. Especially this year as La Nina will lengthen monsoon time and therefore will provide a better opportunity for rice farmers to increase their annual production. Provided, of course, they can get sufficient fertilizer in a timely manner.

Indonesia, fortunately, has a program to provide subsidized fertilizers for smallholder farmers since 1969. The budget for this year is Rp 25.3 trillion, not a small amount but 13% less than last year.

This decrease of fertilizer subsidy in the national budget at the time of commercial fertilizer drastic price increase, unfortunately, will ensure greater suffering for millions of poor farmers. Their access to subsidized fertilizer will diminish significantly not only because less amount of subsidized fertilizer will be produced, but more will be lost in the distribution network as the higher difference of subsidized fertilizer price and its commercial price will also increase its leakage to the black market.

Hence the Government of Indonesia needs to quickly enhance its subsidized fertilizer policy to overcome this double jeopardy faced by about 24 million poor farmers. To minimize leakage in the distribution system and to ensure those that need the most will get the subsidized fertilizer in the appropriate amount and in a timely manner.

This is not an easy task. The current policy, which was formed in 2006, is clearly over-ambitious without sufficient budget support. In fact, there are more farmers targeted in the program that did not get the subsidized fertilizer than those that did. The policy defined farmers with less than 2 hectares of land and producing 70 agricultural and fishery products are eligible to receive subsidized fertilizers. Last year less than one-third of the targeted farmers’ requests for subsidized fertilizer were met. This deficit has been going on annually since the policy was implemented, creating a long-standing annualized narrative of “subsidized fertilizer scarcity” in the last 15 years.

This year the narrative will become louder as millions more farmers will complain of not receiving adequate subsidized fertilizer. The risk of declining production is higher hence the rise of imported food, including rice, and the weakening of national food resiliency.

This is a likely scenario if no change in the subsidized fertilizer policy is initiated and implemented.

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The change hoped for by farmers is clear: the subsidized fertilizer budget must be so that all farmers are able to receive them in line with the proposed demand. This suggestion will certainly cause headaches for the Minister of Finance as it will need around Rp 65 trillion, an increase of around Rp 40 trillion from the current budget. However, if President Jokowi takes not even a quarter of the budget for the new capital, it will be possible.

If the budget cannot be met then decisions on which farmers are entitled to the subsidized fertilizer must be made more precise and the security of distribution must be increased.

The first decision to be made is which commodities should be entitled to subsidized fertilizer. In order to be fair, crops which prices are determined by the government, those with a price ceiling, should be prioritized. These are rice, corn, soybean, and small-scale sugarcane. Without sufficient subsidized fertilizer; production costs will soar and increase prices. This will cause high inflation causing the government to intervene in the market to force price reductions. However, without a significant increase in prices, farmers will face low profits or even losses. As such, the safest policy is one that ensures farmers receive subsidized fertilizer in line with their needs.

The next step in lowering costs, if needed, will be to prioritize farmers utilizing no more than one ha. This is because farmers with more than one ha in land usually have access to subsidized financing through KUR (People’s Business Credit) and are better able to manage increases in fertilizer prices. This access to financing isn’t available to farmers with less than one ha of land.

Currently, is it estimated that 20.2 million Indonesian farmers, or around 75% of farmers own less than one ha of land and 3.8 million farmers (14%) own less than two ha of land.

As the difference in price between subsidized fertilizer and commercial fertilizer is substantial, distribution of subsidized fertilizer to tens of millions of farmers all over Indonesia must be done properly and not only reach the right people but also delivered on time with the right quantity and type, all while being closely monitored. Poor implementation such as last year when subsidized fertilizer was already in distribution centers but farmers didn’t use fertilizer because the allocation decision hadn’t been made must not be repeated.

The government has actually continuously put efforts into improving implementation. An attempt at working together with the Himbara banking group to publish Kartu Tani (Farmer Card) for instance which felt modern at the time of launch now feels as though it needs to be updated through digital means such as that of the application PeduliLindungi. If needed, this could be done alongside distributing locally-made smartphones using The Ministry of Communication and Information Technology’s Telecommunications Public Service Obligation (PSO) budget to digitalize Indonesia’s farmers while helping the local industry. The digitalization of Indonesia’s farming sector will make managing national food security much more effective.

The digitalization of the subsidized fertilizer distribution system and policies to increase the precision of allocation will need time before they can be executed. Other than building physical and non-physical infrastructure, time is also needed for training and familiarizing farmers. As such it may be best to prepare next year’s budget and as for now, it is much more important, that the government increase the subsidized fertilizer budget so all farmers eligible are able to receive the fertilizer they need.