The economic aspects of fertiliser distribution in East Java (Indonesia)

Abstract

Self-sufficiency in rice production was set as a policy goal in the First Five Year Plan of Indonesia, 1969-1973 (REPELITA I). Incentives to increase rice production are not provided by increasing the price of rice, since the Indonesian Government believes that this would have a destabilising effect on the economy as a whole. Instead, farmers are encouraged to increase rice production through the subsidisation of input prices, particularly manufactured fertiliser prices, under the Bimas/Inmas scheme. However, the subsidised price for fertiliser distributed to Bimas/ Inmas farmers creates a dualistic market for fertiliser and results in leakages from the official network to private distribution channels. In turn, this reduces the quantity of fertiliser which rice farmers receive at the subsidised price. The low distribution margins for the official network also discourage distribution services and hence reduce the flow of fertiliser with respect to both amount and timing of delivery. Thus it would appear that official distribution faces conflict in objectives: efforts to reduce the costs of fertiliser for Bimas-Inmas farmers and distributors tend to reduce or delay the quantity of fertiliser reaching the participants in the intensification schemes. The advantage to Bimas farmers of credit subsidisation may also be offset by various inefficiencies of the official distribution network, particularly with respect to procedural difficulties encountered in obtaining credit. This study examines the nature and problems of fertiliser distribution through official and private networks and proposes various hypotheses which can be tested to judge and compare the efficiency of these networks. The information required to test such hypotheses will be collected following the final draft of this dissertation.