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World Bank Document AS132 FILE COPY Vol. 3 This report was prepared for use within the Bank and its affiliated organizations. Public Disclosure Authorized They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized ECONOMIC DEVELOPMENT OF INDONESIA (in six volumes) VOLUME III ANNEX 1 - AGRICULTURE Public Disclosure Authorized Z COzmr It C February 12, 1968 0 6 Asia D Public Disclosure Authorized Asia Department U CURRENCY EQUIVALENTS Currency Unit - Rupiah Floating Rate (November 1967) (1) B. E. Market Rate U.S.$ 1. 00 = Rp. 150 1 Rupiah = U.S.$ 0.007 1 Million Rupiahs = U. S. $ 6, 667 (2) Curb Rate U.S.$ 1. 00 = Rp. 170 1 Rupiah = U. S. $ 0. 006 1 Million Rupiahs = U. S. $ 5, 882 This report was prepared by a mission that visited Indonesia from October 17 to November 15, 1967. The members of the mission were: 0. J. McDiarmid Chief of Mission 3. K. Abadian Chief Economist Jack Beach Power N. D. Ganjei Fiscal (I.MJ.) D. Juel Planning G. W. Naylor Industry (Consultant) G. J. Novak National Accounts J. Parmar Industry R. E. Rowe Agriculture M. Schrenk Industry H. van Helden Transportation E. Levy (part time) Statistics Mrs. N. S. Gatbonton (part time) External Debt Miss G. M. Prefontaine Secretary Messrs. R. Hablutzel and W. Ladejinsky also contributed to this report. Since the mission's visit substantial changes have occurred in the effective exchange rate structure and prices have risen at a more rapid rate than during the previous months of 1967. These developments may require reconsidera- tion of the magnitudes in the 1968 budget. However they have not altered the basic conclusions of the mission in respect of the performance and prospects of the economy. ANNEX 1 AGRICULTURE CONTENTS Chapter Page 1 Importance and Problems of Agriculture 1 2 Food Production 5 3 Tenancy and Agrarian Reform 29 4 Smallholder Production of Cash Crops 39 5 Estate Agriculture 42 6 Imports, Credit and Production Potential 50 7 Forestry and Fisheries 53 8 1968 Project Aid Program 55 Appendix 1 - Irrigation 60 Appendix 2 - Prospects for Cash Crops 68 Appendix 3 - Forestry and Fisheries 90 Appendix 4 - Agricultural Credit 102 AGRICULTURE CHAPTER 1 IMPORTANCE AND PROBLEMS OF AGRICULTURE 1. It is impossible to describe in this report Indonesian agriculture in detail. Our purpose is to highlight key features, to indicate the effect of present government policies and to suggest the directions which these should follow after the current period of stabilization. 2. Comprising over 3,000 islands totaling 190.4 million ha., which stretch along the equator for some 5,000 km., Indonesia possesses a wide variety of climates and soils. This diversity is enhanced by limited areas of significant altitude which allow some cultivation of all but the strict- ly temperate crops, although some of the latter, for example, apples and Irish potatoes, are grown in a few areas where altitude permits. Agricultural production ranges in method and intensity of production from that practiced by virtual stone age communities in parts of !est Irian, to the highly de- veloped estate agriculture of North Sumatra. Table 1 gives land utilization and population, and Table 2, areas under and production of the principal cash crops. The production of crops, livestock, fish and forest products accounts for between 50 and 55 percent of the national income, and provides the livelihood of about 75 percent of the population. It is estimated that a minimum of 50 percent of the population is largely self-sufficient in respect of food, living in a partially non-monetized economy. The total labor force working for wages is currently between 33 and 35 million, of which 50 percent works in agriculture. 4. The predominance of the agricultural sector in the economy is also reflected in its contribution to exports. In 1966 agricultural and related produce accounted for 82 percent of non-petroleum exports in terms of value, and rather more than 73 percent of all exports.1/ Export taxes on agri- cultural products produce more than 20 percent of government revenues apart from foreign aid. 5. The performance of the agricultural sector, like most other sectors of the economy, has been unsatisfactory over the last 30 years. Farm origi- nating exports have declined and food imports (especially of rice) have had to be maintained. The limited statistical data available indicates that overall agricultural output at constant prices (base = 1960) increased by only 10-12 percent between 1958 and 1965. In the same period food crop pro- duction increased by 24 percent, total farm cash crop production was practi- cally stagnant while estate crop production declined by 2.3 percent. 1/ Actual exports plus an estimated U.S.$ 60 million equivalent, Indonesia's oil revenues. - 2 - Table 1 Population and Land Use A. Population 1964 1965 1966 1967 1. Total (millions) li54T 107.0 liW. 112.3 Area (km2) 1,904,340 Density per km2 55 56 58 59 2. Active Population (1964) Percent of total 32 3. Active in Agriculture (196) Percent of total 23 Percent of active 71 B. Land use (early 1960s) 1. Forests Area (km2) Percent Forest reserves 175,998 Other forests. 1,OL1,748 Total 1,217,746 63.9 2. Land used by smallholders Rice land Irrigated 43,013 Rainfed 18,238 Other Crops 142,773 Total 204,024 10.7 3. Land held by estates 17031 0.9 L. Other land, including grasslands swamps, inland waters, roads and settlements. 465,539 24.5 B. Grand Total 100 Note: Land use figures are designed to give a general picture of the situation, and have been developed by the mission from a range of sources. Apart from data relating to Java (see Table 2) and forest areas other data are subject to wide error. - 3 - Table 2 I. ESTIMATED PRODUCTION AND AREA OF PRINCIPAL CASH CROPS, 1960-1965 PRODUCTION 1960 1961 1962 1963 I64 196/ 19661/ (000 metric tons) Sugar 967 943 878 833 1,181 1,143 1,014 Tea 83 80 84 76 87 89 87 Coffee 98 96 111 164 87 105 116 Rubber 679 699 697 706 716 726 752 Palm Oil 11 15 141 148 160 163 151 Palm Kernels 33 3h 33 33 35 36 36 Cocoa 1 0.8 0.6 0.6 o.6 0.4 0.8 Tobacco 69 84 143 161 125 121 137 Fiber 20 16 8 4 3 4 7 Spices 121 137 121 119 105 59 67 Copra 1,239 1,361 1,387 1,379 1,193 N/A 1,350 AREA. T0O hectares) agar 96 93 137 121 154 150 156 Tea 128 111 170 126 125 126 127 "offee 270 281 281 298 314 333 342 Rubber2/ 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Iil Palms 88 88 88 90 90 86 90 Cocoa 5 5 5 4 4 4 4 Tobacco 163 208 1L4 261 140 148 153 Fiber 10 I 2 2 2 2 & Kapok 135 146 169 142 133 136 125 Coconuts 1,649 1,593 1,553 1,822 1,822 1,822 1,822 17 Preliminary. 2/ Productive area is assumed constant. 7ource: FAO Report, January 23-February 23, 1967, amended by the mission where additional information was available from the authorities. 6. In Volume 1 of this report the general constraints which have afflicted the economy as a whole are described. Agriculture has suffered from the failure of the Government to maintain an efficient infra-structure and good communications, features of paramount importance in an insular nation, all regions of which experience protracted periods of high rainfall. The lack of adequate development credits, even for the potentially viable estate sector has been another major constraint. The loss of managerial and commercial skills, resulting from the exodus of expatriate senior person- nel from the formerly foreign-owned estates and commercial establishments, also has had adverse effects on agriculture as has the drying up of foreign investment following widespread nationalization, Government policies have severely restrained the activities of indigenous entrepreneurs in agriculture and, not least, traders in agricultural produce. Agriculture has suffered also from the poor performance of the official agencies responsible for sup- porting agricultural development, especially those responsible for agri- cultural extension and research. Today, government policies are taking a more realistic and rational trend, but much has to be done to correct the mistakes and deficiencies of the past. Below, and in appropriate appendixes, the more important problems of agricultural development are discussed in the context of the four main categories of agricultural and related activity: (i) The food crop agriculture; (ii) The smallholder production of cash crops; (iii) The estate production of cash crops; and (iv) Forestry and fisheries. While there is a degree of overlapping between the first two categories, the four categories each have their own problems and potentials. CHAPTER 2 FOOD PRODUCTION 7. Food production is far from being the only agricultural activity even in Java or on the densely populated islands of Bali and Lombok. Table 1 shows present land utilization on Java. Food crops use more than 75 percent of the cultivated area of the island and the great bulk of the agricultural population there is primarily concerned with its production. 8. However, at the present time Java is unable to produce sufficient food to feed its population and in particular is deficient in rice. Imports from the Outer Islands cannot fill the deficit, and the Government, despite a chronic shortage of foreign exchange, imports rice from abroad primarily to feed Java's population.
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