Jakarta, IO – The Indonesian Government and state-owned PT Pupuk Indonesia are working on changing the fertilizer subsidy scheme to cash transfers that will be directly made to the farmers’ bank accounts or digital wallets. This plan is President Joko Widodo’s response to the March 15, 2023, meeting demanding a single price of fertilizers in the market. What happens now is that identical products can be sold at different prices, both subsidized and non-subsidized. The significant price disparity has become one of the sources of moral hazard.
Transforming the subsidy scheme from products to cash transfers requires upstream-downstream system support. Upstream, the crucial point is to provide valid data on subsidy beneficiaries. The Government is now integrating farmers’ data at the Agriculture Ministry with those on the Acceleration of Extreme Poverty Elimination. Downstream, or in the distribution, the Government is currently testing iPubers, an integrated application of subsidized fertilizer by PT Pupuk Indonesia (Persero) and the Agriculture Ministry, launched in June 2023. In August 2023, the Government targets iPubers to be integrated with the digital Farmer’s Card.
The notion of changing the fertilizer scheme from subsidizing goods to subsidizing people has been discussed since 2015. However, it was put on hold and never put into action, not only because of the massive budget required (an average of IDR 25 trillion per year), but the problem with subsidized fertilizer also includes the gap between supply and demand and the effectiveness of subsidies in terms of distribution and production.
Referring to the e-RDKK ( the electronic Collective Needs Definitive Plan), the annual demand for fertilizer is around 24 million tons, but only about 40 percent is covered. Its main objective is to use the subsidized fertilizer program as an instrument to increase agricultural commodity production. Unfortunately, even though the fertilizer subsidy budget continues to rise in the last decade, food production does not follow suit. Indeed, fertilizer is only one of the determinants of production. However, it is also an indispensable primary need.
It will be problematic if this production element has a distribution problem. Referring to the study by the Indonesian Ombudsman (2021), subsidized fertilizer management may have five potential maladministration. First, the criteria for farmers receiving subsidized fertilizer are not detailed in the regulation, in this case, the Agriculture Ministerial Regulation. Second, data on farmers receiving fertilizer subsidies are inaccurate. The data of subsidized fertilizer recipients is collected yearly; it involves a long process, yet only yields imprecise results. If inaccurate data is used as the basis for distribution planning, it will only create a mess.
Third, the farmers have limited access to obtain subsidized fertilizers, and the process of appointing distributors and authorized retailers is not transparent. Fourth, the mechanism for distributing subsidized fertilizers is not aligned with the principles of public service delivery and the “Precise Six” principle: the precise kind, the precise amount, the precise price, the precise place, the precise time and the precise quality. Fifth, the mechanism for monitoring subsidized fertilizers has not been effective. Of the five issues examined by the Ombudsman, the crucial point lies in one item: data. In this context, the 2023 Agricultural Census (ST 2023) data could be a good option for improving management.
ST 2023 adopts the latest information and communication technology, including geospatial technology. With geospatial technology, ST 2023 can accurately produce data on agricultural business actors by name, by address and by business volume, including land size and business location. With these kinds of data, ST 2023 offers a database that can be used as a foundation for solving various problems that trouble the agricultural sector, such as inaccurate subsidies for agricultural production facilities. Of all the existing input subsidies, the most important is the fertilizer subsidy.
The transformation of the fertilizer subsidy scheme from products to cash transfers must first start from the subsidy target: what kind of farmers are eligible to receive subsidized fertilizers? Referring to Agriculture Ministerial Regulation 10/2022 on Procedures for Determining the Allocation and Highest Retail Price of Subsidized Fertilizers in the Agricultural Sector, the distribution of subsidized fertilizers is aimed at farmers who meet the requirements, such as those who are members of farmer associations, registered with SIMLUHTAN (Application for Agricultural Consultation Management Information Systems), work on a maximum of two hectares of land and use a Farmer’s Card. The farmers can redeem subsidized fertilizers at official kiosks designated to serve local farmer groups.
On the one hand, these requirements are very relaxed – or lack detail. Do the farmers here only include farm owners or also tenant farmers and sharecroppers? Do the requirements include all farming businesses? In the new regulation, two types of subsidized fertilizers (ZA and NPK) are only provided for nine commodities: rice, corn, soybeans, chilies, shallots, garlic, locally-produced sugarcane, cacao and coffee. The restrictions on only nine commodities are unfair to farmers cultivating other commodities. On the other hand, it is widely known that only a small number of farmers are members of farmer associations and registered with SIMLUHTAN. Again, another unfair condition for farmers.
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Restricting the subsidies to farmers working on a maximum of two hectares of land is also unjust, especially because it does not differentiate the types of farmers, such as food farmers, horticultural farmers and other farmers. The data collected by ST 2023 on small-scale farmers should be taken into account. Unlike the previous census, ST 2023 adopts the Food and Agriculture Organization (FAO) version of the concept and definition of small-scale farmers. FAO classifies small-scale farmers into two categories: physical and economic. The physical aspect includes the agricultural land managed and the number of livestock raised. Farmers who manage less than two hectares of agricultural land and three tropical livestock units or TLU (one TLU is equivalent to a cow) are classified as small-scale farmers. From an economic standpoint, farmers who earn less than IDR 18.8 million a year are categorized as small-scale farmers.
Regardless of the criteria, it is important to consider budget availability and the principle of fairness. On the one hand, the budget is limited. On the other hand, the demand for subsidies is massive; a priority has become a necessity. One point that should be contemplated is the aspect of strengthening national food security. From here, the priority commodities and the targeted subsidy recipients can be decided. This design must be integrated with the Government’s food reserves, which are managed by state-owned food companies. In short, transforming the fertilizer subsidy scheme from subsidizing products to subsidizing people must include the creation of an integrated upstream-downstream ecosystem.