Modelling the impacts of trade and agricultural reforms in Indonesia

Author: Linden Whittle

Overview

Agriculture is important to Indonesia’s economy and the livelihoods of tens of millions of people.

The Indonesian Government plays an active role in agricultural markets through import regulation and input subsidies to meet objectives around food security and poverty reduction.

Given the size of the Indonesian economy and population, Indonesian policies can have far reaching implications for other countries in the region, including Australia. For example, reducing barriers to trade and agricultural support in Indonesia will have implications for the competitiveness of Australian agricultural exports.  

This report presents estimates of the economic impacts of some recent and hypothetical reforms to Indonesian agricultural and trade policies.

These reforms were chosen in consultation with the Centre for Indonesian Policy Studies and include:

1. streamlining import approval processes for agricultural products, and
2. the removal of fertiliser subsidies for Indonesian farmers.

The reforms were explored using ABARES’ Global Trade and Agriculture Model (AGTAM) and were assessed against their impacts on 1) Indonesia’s food security, economic growth and income distributional effects within the country, and 2) Australia’s economy and agricultural exports.

Key findings

• Streamlining non-tariff measures for importing agricultural products in Indonesia would generate economic growth and improve food security for Indonesian households. Australian exporters could also benefit because of reduced barriers to trade.
• Removing fertiliser subsidies for agricultural producers in Indonesia would lead to a rise in prices for crops in Indonesia given existing import restrictions, pointing to the need to take a broader approach to reform. Adverse impacts on households could be reduced through appropriate compensation payments providing an alternative use of budgetary funding currently allocated to fertiliser subsidies.

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