Minggu, 10 Januari 2010

Fertilising soil organically, a slow track with turbulence period to Cuban Model? Indonesia

Fertilising soil organically, a slow track with turbulence period to Cuban Model? Indonesia

A review with focus to the state Budget

Riza V. Tjahjadi

Go Organic 2010” popularly understood and justified as promotion arguments by urban-based activists on organic farming, also, of course, by both provincial and district level of ministry of agriculture. BioTani Indonesia has also once reminding to the newly appointed minister by pointing out a big size vertical banner hang over on one of the buildings within ministry of agriculture during a stakeholders’ consultation on transgenic crop in the mid of January 2005. However since 2002 when this jargon or placate: “Go Organic 2010” launched, in fact, has not been recognising within the state budget. None any word except organic farming, and APPO, Alat Pembuatan Pupuk Organik or tools/equipments for producing organic fertilizer, and so on, which were allocated within subheading: Subsidy (subsidising organic fertilisers) and socials package per ministry allocation (Bantuan Sosial), etc. (see also: Pernyataan Posisi jaker PO 2009, http://biotaniindonesia.blogspot.com/ (mixed, English & Indonesia versions)

As to pursue efficient a state budget, whilst diversified both to the chemical fertiliser industries and farm practices, in the fiscal year 2008 the state has been driving farmers returning organic fertiliser in their farms. In the fiscal year 2010 subsidy of chemical fertilizers drop, from Rp 17.5 trillion in 2009 to Rp Rp 14.7 trillion. This state policy also seems as one of approaches to solve primary problems to be overcome or issues to address in relation to rice production and profitability and farmer incomes that is soil sickness – the rest are leveling off rice production and productivity, kand conversion and fragmentation, drought and flood (Climate anomaly), water scarcity, and farmer’s welfare.

The state subsidiy of organic fertilizer was around 345,000 tons in the fiscal year 2008, and 450,000 tons in 2009 which, if converted 0.5 ton per hectare as calculated by the minister of agriculture (2008), it would be 690,000 hectares in 2008 and 900,000 hectares in 2009 (see: Tables). In the reality it may not reach to these amounts of which several factors faced in procurement, production and distribution in the village level etc. with considering two things. First, there was a kind of restriction by the minister of finance by not disburse to all budget allocation including subsidy/public service obligation, PSO (including seeds, fertilizers, food, miller rice maintenance, etc.) for financial verification– such as identified by audit report by Badan Pemerika Keuangan, BPK or the Supreme Audit Agency to the state budget 2007 and 2008. The rest of fund, noted by BPK within the report, was kept in bank account of minister of finance. Subsidy for fertilizer amounted Rp2,844,357,844,858.00 not be disbursed. Although organic fertilizers was not specifically mentioned, or perhaps excluded from such restriction, but waiting the next audit report to the state budget 2009 will help for more detail analysis. Secondly, news reports from mass media will also helpful to catch pieces of reality. For example, on 8 February 2009, Sales Manager for North Sumatera of PT Petro Kimia Gresik Sudigdo disclosed absorption of organic fertilizers in the fiscal year 2008 was only 3,000 tons, although it was sold with very cheap price, as ceiling price: Rp500 per kilogram (Antara online, 8 Pebruari 2009 15:19 WIB: Petrokimia Ajak Kerjasama Bangun Pabrik Pupuk Organik). Speculative interpretation will say 3,000 tons was part of total allocation to that state-owned company; not for total allocation to four companies.

Simply comparison to Cuba – which was popularly known as revolutionary shift from chemical into completely organic fertilizers in 1990s – then, Indonesia moves with very slow as to add a slow tract beside fast tract of development external inputs via the state intervention into agriculture practices in the country. All the state subsidy of organic fertilizers was directed to rice farming where horticultures or secondary crops left behind.

An illustration behind the state subsidy as reported the export oriented gas policy in the past had been driven more by the need to earn as much foreign exchange as possible failing to foresee possible difficulties with the rapid growth in domestic consumption. The country has been bound under long term contracts to export the bulk of its gas production. It is not free to use its natural wealth to feed its industries such as chemical fertiliser factory. At least one major fertilizer factory PT Asean Aceh Fertilizer (AAF) has been closed over scarcity in supplies of gas feedstock. PT Pupuk Iskandar Muda (PIM) was forced to suspend operation for the same reason. Ironically the two factories are located in area of one of the country's largest gas fields in Nanggroe Aceh Darussalam (Data Consult, 2008).

Chemical fertiliser factories could not buy gas from producers at a price prevailing in international market as they sell their production at a government set price, which is much below the market level. With the highest retail price (HET) set by the government, a fertilizer factory could pay not more than US$2 per MMBTU of gas. As identified gas accounts for 50%-60% of the urea fertilizer production cost structure (Data Consult, 2008). This crucial problem seems persistent over the years. By mid December 2009 it was reported PT Pusri will be forced stop operation if the government not seriously solve of gas feedstock problem.

Although face problems gas supplied PT Pupuk Sriwijaya, parent company of state-owned fertiliser producers, it was reported on July 21, 2009, net profit of Rp2.112 trillion last year, surged 32% from 2007 on higher sales and operating margin. According to Pusri's financial report the company recorded net sales revenue of Rp36 trillion or about US$3.6 billion (at Rp10,000/USD) where in 2008, jumped 63% from 2007 at Rp22.2 trillion.

PT Pusri is the parent company of PT Petrokimia Gresik, PT Pupuk Kujang, PT Pupuk Kaltim, PT Pupuk Iskandar Muda, and PT Rekayasa Industri (engineering firm). Pupuk Kaltim is in the process to raise funds from the capital market. Pusri booked operating profit of Rp4.78 trillion last year, increased 73% from 2007 and then net profit of Rp2.12 trillion (against Rp1.58 trillion in 2007). Pusri had a consolidated asset of Rp31 trillion as of December 31, 2008, increased 36% from December 2007. The fertilizer companies normally produce ammonia, urea, and compound fertilizers (State fertilizer cos booked US$210 M profit, July 21, 2009 in Indonesia Today by Yosef Ardi ). By end of 2009, however, PT Pupuk Kaltim, the biggest fertiliser producer reported in Indonesia as it supplies two-thirds of the country’s urea fertiliser production in the first half of the year, the company’s revenue dropped by 26 percent to Rp 3.7 trillion ($373.7 million) on the back of lower fertiliser prices, meanwhile its profits before tax stood at Rp 370 billion. In 2008, the company booked Rp 627.8 billion in net profits, a 52 percent increase from a year earlier (The Jakarta Post, 24 December 2009). Ten days before it was reported, PT Pusri will be forced stop operation in 2012 if problem with gas feedstock is not solved.

Years back, as observed, total subsidy increased sharply, from 2005 to 2008, due to input prices for chemical fertilisers influenced by oil price situations in the international market. As being known, a decade ago, by December 1, 1998, subsidy for fertiliser abolished as had been dictated by IMF, but in 2003 the government began allocated subsidy in the state budget (Tjahjadi, 2005: Agriculture Liberalisation and Bioprivateering, Input for Seacon). In the period 2005 and 2008, realisation fertiliser subsidy as well as direct aid was distributed by six the state-owned producers (PT Pupuk Sriwijaya, PT Pupuk Petrokimia Gresik, PT Pupuk Kujang Cikampek, PT Pupuk Kaltim, PT Pupuk Iskandar Muda, PT Sang Hyang Seri) and one state-owned for seeds and fertilisers distribution (PT Pertani) have shown increased tendency (NK dan APBN 2009; IV-24).

In the perception of chemical fertiliser industry, between 2008 and 2009 demand for urea will still increase, and decrease in 2010 as the subsidy revoked, but it will tend to increase in the following years. The subsidy termination for urea will result in demand instability since there will be disparity between purchasing power and sale price of urea. However, this is likely to recover by 2013. Interestingly, when the demand for urea decreases as subsidy is revoked, the demand for other N-based fertilizers such as NPK and ZA increases (Bowo Kuntohadi, Marketing Director of PT. PUSRI, n.d.)

The use of balanced fertilizer (NPK) in the future, he predicted, will increase if subsidy for NPK is still in place while that of Urea is revoked, assuming that commodity prices also increase.

The following section illustrates model simulation by changing variables influencing demand for fertilizer. It is assumed that there are increases (data per 2006) in :
(1) Paddy area by 1.25%;
(2) Maize area by 3%;
(3) Oil palm area by 6%;
(4) Rubber area by 5 %;
(5) Paddy price by 10 %;
(6) Maize price by 10%;
(7) Oil Palm by 10%;
(8) Rubber price by 10%;
(9) No Subsidy for Urea from 2010 and its price will be determined by the market.

Macro target pursued by the government, let say, in 2009, includes (1) PDB of agriculture grow with around 4.6%, (2) labour absoption target to 44.2 million people or expected increase 0.8 million people, (3) malnutrition incident decrease with around 1.0%, (4) Term of trade of rice farmers expected between 115 and 120, and (5) trade balance sheet of agriculture will surplus around US $ 16.22 billion. In production side, for 2009 target covers (1) rice production reach between 63 and 64 million tons unmilled rice or increase 5.0% compare to 2008, (2) corn production reach 18 million tons or increase 10.0% compare to 2008, (3) soybean production 1,2 million tons or increase 30.0% compare to 2008, (4) canesugar production 3.3 million tons or increase 20.0% compare to 2008, also (5) meat cow production 411,000 tons or increase 10.0% compare to 2008. (Apriantono, 21 Jan 2008: Raker dng DPR RI or a Public Hearing with Commission IV on Agriculture and Fisheries of Parliament; See previous my posting: Hybrid Rice, Indonesia. State Subsidising Corporates, mass-scaling to farmers with environment-friendly. Edited by Riza V. Tjahjadi)

The use of fertilizers in the farmers’ field had been identified as overdosage. Back to more than decade ago a study by Roche (BIES Vol. 30, No.1, 1994) found that in the irrigated area of Java, Sumatra and Sulawesi, the use of fertilizers had been overdosage. Nitrogen fertilizer use in Java had been 33-55% above the recommended dosage; 42-66% for Phosporus, 4-6% for Potassium. Meanwhile in Sumatra Island, the excess usage of chemical fertilizer a little bit lower: 6-22% for Nitrogen; 4-23% for Phosporus; and 1-5% for Potassium. Furthermore farmers in Sulawesi Island have been applying 13-17% over dosage of Nitrogen, 10-25% of Phosporus, and 8-10% of Potass.

This is because the Indonesian farmers are subsistence farmers. The average size of land holding is less than 0.5 hectare. They do not have any alternatives to earn their incomes. To shift to other crops is very risky for the family’s life because other crops such as vegetables and fruits although they are somewhat quick yielding, but they are perishable product and require good handling and marketing systems. Farmers do not have capability for that and marketing systems and handling in general are still poor in Indonesia. On the other hand rice or rice could be more durable than vegetables and fruits. Furthermore farmers in Jawa Island tend to place food security as the first priority

Whenever the rise in agricultural inputs prices especially for fertilizers has forced some farmers to reduce the application of the chemical fertilisers and supplement part of them with the organic fertilisers. However, there is a constraint since the application of organic fertiliser is not practical and more costly compared to the chemical inputs. Moreover, the supply of organic fertilizer is also too little compare to its demand because the number of cattle has been declining in the last decades. Also there is a competition/ challenge between the demand for feeds for the existing cattle and for raw materials of organic fertiliser. An appropriate technology is needed as to produce organic fertilisers to be similar to the chemical fertilisers.

Organic farming needed for 9 provinces; overall for food security

With considering the average of growth Factor Productivity of wetland Paddy, Teddy Lesmana et all (2008) proposing two schemes in developing organic farming in Indonesia. The areas under Decreasing Rapidly category (- 5.0 % and above) is possible for promoting organic farming in short run; totally 9 provinces. Meanwhile areas Decreasing Moderately (-3.0 % to -4.99 %) and Decreasing Slightly categories (< - 3.0 %) is possible for promoting organic farming in long run totally 19 provinces. Decreasing Slightly (< -3.0 %) are South Sulawesi, South Sumatera, North Sulawesi, Bali, Maluku, Papua, DKI Jakarta. Decreasing Moderately (-3.0 % to -4.99 %) are Banten, Lampung, East Jawa, Jambi, Central Jawa, Gorontalo, North Sumatera, West Sumatera, West Jawa, Riau, South Kalimantan, Central Sulawesi. The areas with Decreasing Rapidly (-5.0 % and above) are Central Kalimantan, East Kalimantan, Nusa Tenggara Timur, Bangka Belitung, DI Yogyakarta, Nusa Tenggara Barat, Bengkulu, West Kalimantan, Southeast Sulawesi (Teddy Lesmana et all National Study on Indonesia, Organic Agriculture, Indonesian Institute of Sciences, LIPI 26-28 March 2008). However, the rest 3 provinces were not covered by Lesmana et all. Total provinces, by December 2008, in Indonesia are 33 with 483 Regencies+ Municipalities and 75,666 villages (BPS: Socio-Economic Indicators, March 2009).

The organic fertilizers, however, are used for restoring and improving soil structures and this can be considered as complement to chemical fertilizer usages. Hence the demand for organic fertilizer increases as demand for chemical fertilizers raises (Bowo Kuntohadi, Marketing Director of PT. PUSRI, The Medium Term Outlook for Agriculture and Fertilizer Demand in Indonesia, Bowo Kuntohadi, Marketing Director of PT. PUSRI. n.d.) As understood, subsidies is one of non-discretionary spending in the state budget. Subsidies of fertilisers and seeds within the state budget targeted to support national food security program (Pokok-Pokok Kebijakan APBN 2009 or Main features of Policy on the State Budget 2009, Ministry of Finance, Jakarta, October 2008). The state budget allocated subsidy to seeds and fertilisiers and carry out as public service obligation, PSO by the state-owned companies. Minister of agriculture, then, through a decree set allocation fertilisers – in general - should be delivered by the state-own chemical companies. For illustration in 28 December 2007, the ministry decree assigned PT Petrokimia Gresik distributing 300 thousand tons, PT Pupuk Kalimantan Timur 25 thousand tons, PT Pupuk Sriwijaya and PT Pupuk Kujang 10 thousand tons each for fiscal year 2008. In the early years of the subsidy (with two types: Financial Subsidy within the state budget, or APBN, and Economy Subsidy that is market price) of organic fertilisers within state budget allocated directly to fertilizer industry – totally four state-own companies - where the industry, by no choice, should procure organic fertilisers from the small scale organic fertilizer makers with the price set up by the government. The industry, later, distributing and sell these organic fertilizers to group of farmers. In recent years the industry began to build their-own small scale plant. Over time, organic fertiliser in the eyes of chemical industry is a big business opportunity. Total estimation for national demand of organic fertilisers is around 24 million tons per year for 12 million hectares rice fields, as calculated by the executive director of PT Petrokimia Gresik, Arifin Tasrif. In 2009 it was reported there were 20 small-scale organic fertiliser factories in the physical development stage, where capacity production of one unit of the factory may reach 10,000 tons per year. Meanwhile investment needed around Rp1 billion – which the average rupiah set at 9.400, then, revised to 11,000 for US$1 in fiscal year 2009.

“At present we have around 51 local partners and by end of 2009 we hope have around 130 partners,” he said. Arifin Tasrif added PT Petrokimia Gresik has set target 200 units will be operated by local partners. These factories located in four provinces: South Kalimantan, North Sumatera, Lampung, and West Jawa (www.bumnwatch.com). In addition, PT Petrokimia Gresik has also offered franchise system of organic fertilizers to local investors as to anticipate the case of chemical fertilizer scarcity during planting season of rice (www.tempointeraktif.com) which repeated happened over decades.

APPO in fiscal year 2010 State subsidy for fiscal year 2010 slightly changed into different pattern. There will no more organic fertiliser subsidy but the state budget allocated in the form of equipments for making organic fertilisers, and cattle as source of organic matter. Fertiliser in general in fiscal year 2010 allocated around Rp 14,757,259,000,000 (fourteen trillion seven hundred fifty seven billion two hundred fifty nine million) covered the price subsidy Rp11,291,459,000,000, chemical fertiliser distribution directly to groups of farmers Rp 1,610,800,000,000, and reimbursement for previous fiscal year Rp1,500,000,000, subsidy with cattle Rp250,000,000,000, and Unit APPO for making organic fertilizers/ composts Rp105,000,000,000. In addition, the regent level administration granted authority to monitor distribution of fertiliser subsidy through farmers’ definitive plan needs groups (or RDKK, Rencana Definitif Kebutuhan kelompok (Article 9: 1 and 4 of the law No. 47 on the State Budget for fiscal year 2010). FYI, the average rupiah exchange rate set at Rp10,000 per US$1 for 2010.

Reduction to Subsidy in the 2010 state budget will save government budget for about Rp 10 million. This budget can be utilized for farming infrastructures development, such as irrigation and building small-scale organic fertilizer factory. One unit of small-scale organic fertilizer factory only need Rp 350, as cost per insertion, it includes the cost to grow 30 cows to produces compost, as said by minister of agriculture on 6 May 2009. If the company succeeded to build 10,000 units of small-scale organic fertilizer factory that will cost Rp 3.5 million, which it will absorb 10,000 workers whilst adds the cow population around 300,000. Thus, fertilizer type will be more varied and the farmer can self-produce organic fertilizer, he explains (Suara Karya: Fertilizer Subsidy Will be Decreased to Reduce Misuse, n.d., 2009).

By and large, organic farming in general which allocated in the state budget will get bigger amount, whenever organic fertilizers subsidy adds with other elements. In the budget spending according program, activities and type of spending, at least, there are three items allocated in the fiscal year 2010. Integrated crops for husbandry, compost and biogas allocated Rp 34,827,071,000. Development of organic farming and sustainable agriculture allocated Rp 21,287,792,000, and again, integrated crops for husbandry, compost and biogas (TP) allocated Rp7,568,000,000 (President Regulation, 09-12-11, Attachment_2_Perpres2010. p.34). Total amount of these three items are Rp 63,682,863,000. Average rupiah exchange rate set at Rp10,000 per US$1 for 2010.

In the fiscal year 2009 organic farming in general which allocated in the state budget was bigger amount than this year... (3) development of organic farming and sustainable agriculture allocated Rp27,2 billion (Anggaran Belanja Pemerintah Pusat 2009 Bab IV, IV-86) output is expected… (3) issuance of 30 certifications of organic agriculture products, compost processing developed in 300 farmers’ groups, biogas processing in 300 husbandry farmers’ groups, and physical development of 150 compost processing units, integration crops and husbandry in 21 regencies, and development organic horticultures in 6 provinces ( 2009 Anggaran Belanja Pemerintah PusatBab IV, IV-87)

Above all, this is a good trend as increasing farmers’ access to organic fertilizer and composts. Further observation may disclose more crucial problems that should be solved. Supporting farmers to produce organic fertilizer through equipments for producing organic fertilizer (Alat Pembuatan Pupuk Organik, APPO) as well as home made organic fertilizers (Rumah Pembuatan Pupuk Organik, RPPO), as introducing a kind of eco-technological package, may be escalating cost of cultivation and social expenditure of the farmers – with additional cost to operational and maintenance (O&M) of these machines, meanwhile purchasing power parity of rice farmers is well known low despite term of trade of farmers relatively good enough. Other aspects, just to mention few, which should seriously be considered is a contrast between instant culture and mindset of most rice farmers using ready-to-use fertilizers versus euphoria to built organic fertilizer factory in the village. Then, there was also a skeptical view. A vice chair of the Indonesian Chamber of Commerce and Industry chapter West Jawa showed concerns to small scale industry in the provinve would not able to meet quota to procure organic fertilizers for fiscal year 2009, due to only few small and medium scale enterprises (SMSEs) involved. Thus the involvement of SMSEs in the procurement of organic fertilizers was not in clarity manner, in turn, it’s shown the half-heart intention utilising sub-contract procurement scheme by the state-owned company as entry point of empowerment approach to SMSEs. Another angle, as seen in the eyes compost producer, namely PT Komposindo Granular Arendi, with a trademark Rabog in East Jawa, subsidy price given to two the state-own fertiliser companies, in turn, have creating unfair competition in the market.

State’ scenario to protect farmers by fulfilling fertilizers subsidy with less than 1 percent of total state budget in short run may seem as transferring duty into hand of farmers if a framework that lays out the State’ policies less sensitive toward the lessons available from the realities. Steps and patterns: 1) State-Equipments-Farmers, then: 2) State-factory company-Farmers, now, back to: 3) State-Equipments plus cattle-Farmers, is likely trials and errors approach, therefore should be examined comprehensively. In negative extreme perspective, who will get the first impact and consequences whenever chemical fertilisers availability less and lessen meanwhile organic fertilisiers could not enough supply to their farms? Farmers at large… and, later, potentially threat for food security. Hope it will not happen..!

Jakarta, 8 January 2010

Note: previous years of situation of organic farming in Indonesia, see:

Tjahjadi, R.V. (2003) Organic Agriculture mushrooming, but climate change serious affecting. A skecth of from Indonesia. An article in IFOAM’ magazine. 2003.

Tjahjadi, R.V. (2004) Organic Farming in Indonesia, Retro and Reflection of Current Situations, Report prepared by Riza V. Tjahjadi, BioTani Indonesia Foundation. Report prepared to UN-IFAD, through IFOAM. Jakarta 10 December 2004. Indo-OrganicsFarm-10Dec2004.pdf; expanded version.

Tjahjadi, R.V. (2005) in IFAD (2005) Organic Agriculture and Poverty Reduction in Asia: China and India Focus (2005). The reports on Asian countries other than China and India provided useful further insight into the current situation of organics in the region. These were provided by: Thailand - Gajendra Singh, Dean, Asian Institute of Technology - Extension, Philippines - Magsasaka at Siyentipiko Para sa Pag-unlad Ng Agrikultura consortium, Japan - Kenji Matsumoto, Director, Japan and Organic and Natural Foods Association. Indonesia – Riza V. Tjahjadi, Executive Director, BioTani Indonesia Foundation. The United Nations International Fund for Agriculture Development (IFAD). New York, July 2005; see, also: IndoOrganic-SituationerJan_2005shortVer.Pdf

Wai, O.K. Organic Asia 2006. Humus Consultancy. n.d.


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