Indonesia has drafted a food law to speed self-sufficiency efforts by creating a new "super body" that could lead to greater curbs on imports and exports of staples, hinder much-needed overseas investment and eventually push up prices.
As Indonesia struggles to meet rising demand from an increasingly affluent population of 240 million, it is now the world’s top importer of sugar, Asia’s largest buyer of wheat, and imports about two million tonnes of rice and corn each year.
A copy of the law seen by Reuters, which is due to be signed off by the president by the end of 2012, shows that it covers areas such as food safety and the stocks, trade, purchase, prices, distribution and consumption of unspecified staples.
"In the new law we stress food sovereignty and autonomy," said Achmad Suryana, head of the Food Security Agency at the country’s agriculture ministry, adding that it gave priority to securing adequate food supplies from domestic sources.
"So, food import would be secondary or even the last resort," he said.
Consolidating many existing curbs on food items, such as import limits and tariffs to protect domestic farmers, the new law provides for the new body to be created within three years.
It will aim to help the government achieve self-sufficiency in staple foods such as rice, soybeans, sugar, beef and corn.
The new law puts domestic output and demand and the control of imports and exports at the heart of its efforts, which will finalize the expanded role of the state procurement agency, Bulog, into the "super body."
As with recent changes to the country’s mining laws, however, the framework of the food law leaves many details to be filled in or drafted later, making unclear its precise impact on business practices.
Global agribusinesses called for greater clarity on the details of the new food body, since its objectives can be interpreted in different ways and are opaque.
Greater restrictions feared
Critics say the new law could lead to more limits and trading curbs on the free flow of farm commodities, hinder overseas firms looking to invest to supply growing demand in the archipelago and ultimately, hurt the poorest consumers.
"It is a misguided pursuit of autarky (self-sufficiency) in agriculture which misses vast opportunities for efficiency and competitiveness in the sector," said independent analyst Kevin O’Rourke.
"I’ve read that the idea is to incorporate two, three of maybe four bodies into this new super body," he added. "Everything depends on how the president interprets the law and guides the new food agency."
The law could also hinder food processing industries, which have been promoted in Indonesia in recent years, he added, as they scramble for access to the cheapest raw materials.
Major food importers include U.S. giant Cargill for soybeans and Singapore’s Wilmar for sugar.
The new law also prohibits "hoarding or storing staple food," a clause that may create greater risk and uncertainty for commodity traders who stockpile, traders and analysts said.
Agriculture contributes around 15 per cent to the GDP of Indonesia, Southeast Asia’s largest economy, employing about 42 million people of a growing population of roughly 240 million.
As wealth levels rise and consumer tastes change and grows, Indonesia has attempted to vary its food basket beyond rice, while expanding and boosting yields in its home-grown commodities with limited success.
The law is one of a series of policy announcements this year, such as that on mining, which analysts say are linked to increasing economic nationalism ahead of Indonesia’s presidential elections in 2014.
"The new food law provides vast scope for state involvement throughout the agricultural sector," said O’Rourke. "It aims to ensure adequate supplies of affordable food, but by pursuing this through autarky, it risks accomplishing the opposite. You can have autarky or affordability, but you can’t have both."
Bulog to grow
After the worst U.S. drought in 56 years drove global prices of soybean and corn to all-time highs this year, Indonesia said it would extend the role of Bulog beyond rice to build bigger stockpiles of beef, corn, sugar and soybean.
Last month, Bulog sounded out U.S. government officials about securing soybean imports.
Bulog’s current role is to maintain rice supplies and stocks of between 1.5 million and two million tonnes, but its wider remit could see it protect domestic farmers by setting minimum prices, while consumers would benefit from a maximum price ceiling.
Although Indonesia sets import curbs and tariffs on commodities, it often scraps them when global prices spike.
In the past year, food producers have protested against soybean and corn import taxes, while farmers demonstrated against plans to import more sugar. Beef prices doubled because of cuts to import quotas.
The government, which is considering a wheat flour import tariff to protect domestic mills, also had its food policies criticized last month in a report by the OECD grouping of the world’s top economies.
"The moment you start having entities that control what can be imported and exported in what amounts, you drive up food inflation," said an executive at a major international agriculture firm, who asked not to be identified.
— Michael Taylor is a correspondent for Reuters in Jakarta.