Food import quotas in Indonesia encourage bribes and price spikes and must be replaced with import tariffs, a panel of government advisers has urged, in a measure that could smooth the way for overseas investors to satisfy rising demand.
Southeast Asia’s largest economy has a growing population of 240 million, imports about 2 million tons of rice a year and is set to be crowned the biggest buyer of raw sugar this year.
The panel unveiled its findings on trade in staple foods, such as corn, soybeans, beef, rice and sugar, to cabinet officials this month and the measures could be adopted by year-end, panel member Hermanto Siregar told Reuters.
“Instead of giving imports through quotas, just open these markets,” said Siregar, an economist and a commissioner at Bank Rakyat Indonesia.
“Excess demand drives prices very high, and importers see a good prospect for profits and are willing to bribe to get licenses or quotas,” he added. “If you still want some control, put in place tariffs, which is more market friendly.”
The world’s fourth most populous nation relies on too few buyers for many food imports, added Siregar, and its markets should be opened up to more competitors.
“When the number of players are very few, it is easy for them to do price setting or fixing,” said Siregar, whose panel helps to formulate new economic policy at the request of President Susilo Bambang Yudhoyono.
As wealth increases in Indonesia, changing eating habits incorporate more meat and convenience foods, which is boosting imports of grains used in feed, such as corn and soybeans.
Policies to prize open markets could further benefit grain traders or producers in the United States, Brazil, India and Argentina, and livestock suppliers in Australia.
Indonesia uses quotas to balance the needs of the agriculture sector, which employs 40 percent of the workforce and contributes about 15 percent of GDP, against those of the poorest consumers, who can spend a third of their income on food and suffer worst from sudden price spikes.
Import quotas do not account for sudden spikes in demand and can easily be manipulated, but individual commodity tariffs would protect domestic farmers and could be changed to meet demand, Siregar said.
Trade Partners Criticize Policy
Indonesia’s policies on food and agriculture trade have been criticized by international trading partners, including the Organization for Economic Cooperation and Development.
More recently, the United States launched a World Trade Organization challenge to Indonesia’s rules on the import of horticultural products, animal products and animals.
The protests did not stop Yudhoyono from signing a food law to hasten self-sufficiency targets that critics say will add to curbs on trade of staples.
He must also decide on a regulation to keep houses or factories from being built on farmland during the period to 2015. Indonesia’s bid to become self-sufficient in beef by slashing import quotas drove up prices in Java.
The head of government coalition member Prosperous Justice Party (PKS) was forced to step down after investigations into claims it was involved in a beef import scam.
Indonesia has also set an emergency tariff on wheat flour imports to enable the government to wrap up an investigation on imports and the impact on domestic mills.
Other panel recommendations include promoting private and public investment to boost yields, policies tailored to provinces rather than specific commodities, and supporting appropriate action by regional governments.
Siregar’s panel, set up in 2011, presents its findings to the president every quarter. It kicked off its study last September after global prices of soy and corn hit record peaks following a devastating US drought.