POLICY ALTERNATIVE FORMULATION OF FERTILIZER SUBSIDY POLICY IN INDONESIA: A SYSTEMATIC REVIEW OF EMPIRICAL STUDIES

• Main Author: Gatria Andani, Sasha
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/57927
• Institution: Institut Teknologi Bandung

Since it was first introduced about 60 years ago as part of the Green Revolution, various countries in Africa and Asia have implemented fertilizer subsidy policies, including Indonesia. Apart from the many potential benefits, the fertilizer subsidy policy has also been criticized by economists, development agencies and policy analysts. Fertilizer subsidy is seen as an inefficient way to allocate limited public resources and can encourage excessive use of fertilizers. In addition, the higher fertilizer subsidy budget is not in line with the limited impact on productivity and the decline in rice production. The political and economic processes that underlie fertilizer subsidy policies will make it difficult to eliminate them. Often fertilizer subsidy policies are not based on strong empirical evidence. This study aims to produce policy alternative formulations of fertilizer subsidy policies in Indonesia through understanding the potential and challenges of the agricultural sector in Indonesia, the historical evolution of fertilizer subsidy policies in Indonesia, and systematizing the practices of implementing fertilizer subsidies policies in various countries related to output, outcome, and impact of the policy, as well as through a comparative analysis between fertilizer subsidy policies in Indonesia and studies resulted from systematic review. This study uses the method of literature review and systematic review. The results of the study showed that that there were several study findings, including: First. Indonesia's agricultural potential is in the form of potential land for food crops, the diversity of plant cultivation as a food source, and the availability of human resources, as a factor of agricultural production. However, the utilization of agricultural potential is faced with several challenges, including: (1) Nutrient management, land tenure by small-scale farmers, and the phenomenon of land conversion that can have implications for crop production; (2) Food diversity is collided with the community's intimate preference for rice which also causes limited policy options; and (3) low labor productivity in the agricultural sector. Second. The historical evolution of the fertilizer subsidy policy in Indonesia shows that the subsidy iv is a sensitive policy in which the political and economic process underlie fertilizer subsidy policy, due to the significant amount of the subsidy budget and the many parties involved. Third. The author identified 22 studies that assessed the effect of fertilizer subsidy policies, most of which reported positive impacts, such as on output: an increase in fertilizer use, changes in crop allocation (crop varieties and/or cropping patterns), and increased farmer efficiency in terms of farming activities; outcomes: increase in crop yields, increase in household income, decrease in food prices, increase in consumption, household food security, marketing of crops, and increase in farming profits; impact: reduction in poverty, increase in supply, demand, and wages of labor, increase in welfare, positive impact on child nutrition and diet quality of female farmers, and distribution of total surplus. Based on the study findings, the authors conducted a comparative analysis between the fertilizer subsidy policy in the studies resulted from systematic review and the fertilizer subsidy policy in Indonesia in several aspects, including: (1) determining the target beneficiaries; (2) part of a “wider sector strategy”; (3 support the development of private sector fertilizer markets; and (4) have an exit strategy. The current subsidy policy needs to be changed in order to reach its optimal potential and be in line with Indonesia's agricultural potential. The author formulates policy alternative formulation of fertilizer subsidy policy so that it has supporting factors to increase the optimal potential of the policy and can be in line with agricultural potential in Indonesia: (1) Criteria for targeting beneficiaries that is “productive poor” farmers and prioritizing vulnerable groups; (2) Optimal utilization of e-RDKK and Farmer Cards; (3) There is a clear statement regarding the performance indicators of the fertilizer subsidy program; (4) Integration with other agricultural subsidy policies through the provision of a holistic package of agricultural inputs, such as the provision of fertilizers along with seeds adapted to location-specific food commodities, and accompanied by a guarantee of commodity prices as well as training from extension workers or other agricultural agents regarding soil health management practices; (5) Development of a competitive fertilizer market with guaranteed availability of fertilizers to remote areas; (6) The Government of Indonesia needs to prepare an exit strategy to anticipate possible changes in subsidy policy due to the large fiscal burden in the future. Subsidy policy is not a single solution to achieve various development goals because it is multidimensional in nature, so it needs an agricultural approach that is also multidimensional in nature and must be built into a more comprehensive policy package.