Recipe for Disaster

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  • TEMPO.CO, JakartaFindings by Tempo from its investigation into garlic imports prove that the commodities import quota system should not be continued.

    THIS system provides loopholes for corruption and is a cash cow for rent-seekers. In the end, consumers and the public lose out. Under the quota system, commodity imports come under the control of a few people who can hoard goods and flood the market whenever they choose.

    This mistake began with a fundamentally flawed concept. In 2017, when Amran Sulaiman was minister of agriculture, the government proclaimed its support for self-sufficiency for all strategic crops, from sugar and garlic to soybeans. This unrealistic ideal would be realized through a counterproductive strategy: involving businesses as both importers and farmers.

    Since then, businesspeople have been urged to plant commodities, with the temptation of obtaining import quotas as long as domestic production is insufficient to meet the market’s demand. Every year, Indonesia needs on average 500,000 tons of garlic because local production only meets 4 percent of demand. Garlic is a subtropical plant that is difficult to grow in tropical Indonesia.

    Minister Amran has decreed that self-sufficiency must be achieved by 2021. For four years, importers will be obliged to plant 5 percent of the import quota that they request because productivity has been set at 6 tons per hectare. As they do not own land, importers have been allowed to work with farmers to plant garlic on the land that they own.

    Clearly this policy provides opportunities for abuses. Importers will not care whether the garlic that they plant grows or not because their motive is simply to obtain an import quota so they are able to maximize their profits. According to calculations by the People’s Coalition for Food Sovereignty, importers made a profit of Rp8.4 trillion from imports from China in 2018.

    The calculation is simple. They buy garlic from China at Rp7,200 per kilogram, then sell it in Indonesia for Rp26,600 per kilogram. This huge margin is the minimum when domestic prices are normal. Their profits are much higher when prices increase as a result of shortages, such as happened at the beginning of January 2020, when the price of garlic reached Rp46,000 per kilogram.

    With an average margin of Rp20,000, businesses that are awarded a quota of 10,000 tons will make a profit of Rp200 billion. The temptation to make such huge profits opens the door to corruption. A number of importers have said that they were asked to pay bribes between Rp1,500 and Rp3,000 for each kilogram of garlic imported in order to obtain an import permit from the previous minister of trade, Enggartiasto Lukita.

    Even on the field, the obligation to plant crops has not gone well. According to the agriculture ministry, half of the importers, from a total of 75-80 companies per year, have failed to meet their obligations to plant garlic. The ministry has removed the companies that fail from the list of businesses that will receive quotas in the following year. However, companies are able to evade these consequences by changing the name of their businesses. Poor oversight means that these tactics are in practice undetectable.

    As a result, self-sufficiency in garlic has failed, but rent-seekers continue to reap the benefits. In a meeting with the House of Representatives on January 20 this year, garlic importers stated that they were unable to successfully cultivate the crop. As well as not having the experience of farming, garlic is not suited to Indonesia’s tropical climate.

    This should have made the government realize that self-sufficiency in commodities that are not suitable for Indonesia’s climate will only bring disasters. Determining imports using a quota system also brings no benefits because it leads to state capture corruption, graft that is a result of an obligation to follow the rules.

    The Indonesian government should not continue pursuing the illusion of self-sufficiency in commodities that cannot be grown in Indonesia. Imports are nothing to be ashamed of. As long as they are according to demand based on a healthy market mechanism, there should be no allergy to imports. Companies will work out for themselves how much they need to import in line with demand and the size of the market. The government simply needs to monitor these products so that they are safe for consumption.

    The government should focus its energies on cultivating the crops that our farmers can grow. There are many commodities that can be grown for export to the international market. Meanwhile, domestic demand for crops can be met by a combination of imports and domestic production.

    Read the Complete Story in this Week's Edition of Tempo English Magazine