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Bulletin of Indonesian Economic Studies

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A New Approach to Rice Intensification

Leon A. Mears Online Publication Date: 01 July 1970 To cite this Article: Mears, Leon A. (1970) 'A New Approach to Rice Intensification', Bulletin of Indonesian Economic Studies, 6:2, 106 - 111 To link to this article: DOI: 10.1080/00074917012331331668 URL: http://dx.doi.org/10.1080/00074917012331331668

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Vol 6 No 2, July 1970

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A New Approach to Rice Intensification

On 20 May 1970 the Government of Indonesia announced its decision to discontinue, after the 1970 dry season crop, its reliance on Bimas Gofung Rojong, the rice intensification strategy in which foreign private contractors were involved in the supply and distribution of current inputs, such as fertiliscrs, pesticides and credit.' Bimas Gofung Rojong is to be replaced by rejuvenated programs of National Bimas and Inmas relying entirely on domestic administration. As intensification of rice production is given major emphasis in Indonesia's Five Year Plan, this important decision raises a number of questions. What are the reasons for this change? How have domestic conditions altered to permit consideration of such an abrupt changc? What economic implications can be expected? Brief answers to these three questions arc given in the following note.
MAJOR REASONS FOR THE CHANGE

These can best be discussed in relation to the original rationale for Bimas Gofong Rojong. Co-operation with foreign contractors was first considered in 1968. Direct support to facilitate adoption of new technologies, to provide domestic and foreign credit for inputs and to organize related logistical activity needed to be greatly extended if production targets were to he reached. The area required for the Bimas Gotong Rojong was expected to amount to more than one million hectares, implying a thousand-fold expansion of the original pilot Bimas Project of 1964. The domestic cost of inputs for the directly intensified area alone (that is, Bimas hut not Inmas areas) was expected to exceed RplO billion annually. In a situation where inflation was not yet fully under control and in which the banking system was suffering from shortcomings in disbursing necessary credit to farmers for fertiliser, insecticide and other inputs, this posed
'See the Djakarta Tinrcs, 21 May 1970, p. 1. For a more detailed description of the various Bimas programs, bee Bullelin 11, pp. 2 9 4 7 .

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a herci an ta: Moreover. a rge portion of these physical inputs had to be imported.' For a country hard pressed for foreign exchange, financing the rcquired imports posed a tremendous burden. Evidcnce had also come to light on shortcomings in the domestic organisation for input distribution, for giving information on new techniques on such a large scale and for providing other related services. Insecticides, in particular, were the least likely of the new inputs to be used by farmers in the intensification program. It was hoped that foreign suppliers might help demonstrate the effectiveness of insecticide as wcll as providing short term suppliers' credit and then transporting the fertiliser and high-yielding seed to the farmers for repayment in kind at harvest time. The foreign companics were also expected to help in aerial spraying of insecticides which, it was hoped, would maximise its effective use during the crucial phase of program expansion. More generally, the Government was aware that the rice intensification program was intimately bound up with other aspects of its overall development program, including price stability, rice price policies, marketing and processing activities. These other aspects that impinged directly on the success of the intcnsitication program had to bc improved before market forces could be expected to play an important part and thus reduce the need for direct Government intervention. Bimas Gotong Rojong, with its foreign participation, was from the beginning viewed as a temporary measure. Its phasing out had already begun with the reduction of Bimas Gotong Rojong areas originally planned for the dry season crop in mid1970. The process would probably have continued more gradually had it not bzen for two important factors. One was the increasing evidence that the benefits originally expected from the program wcre not being fully realised. and the second was Indonesia's improved capacity to handlc the program itself. Among the difficulties the program cncountered, two factors were of particular importance. Large budgetary deficits resulted from failure to obtain the expected volume of credit repayment in kind and from difficulties in handling and processing the paddy repayments that were made. During the first year of the Bimas Gotong Rojong program, the consequent revenue shortcomings amounted to approximately RplO billion ($30 million). Even this might have been tolerated had there been strong evidence that the program was achieving a material
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increase in production. Such evidence as became available on the production effects of the program was generally discouraging. There were also technical shortcomings. The timing of aerial spraying frequently conflicted with requirements when planting periods were staggered. The insecticidcs and fertilisers supplied by foreign contractors were not always appropriate. In other instances, the chemical formulations were undesirable as they differed from those to be expected from future domestic production, In some cases, the pcsticides provided were reported to be harmful to vitally important inland fishing.
IMPROVED PROSPECTS FOR AN E F F E C M V E DOMESTIC PROGRAM

Between 1968 and 1970 the economic cnvironment directly and indirectly relevant to rice intensification programs had materially improved. The runaway inflation had been brought under control. Government revenues had shown sharp increases. With additional revenues and continuing foreign aid, and with the experience gained during the first year of Repelita, it now appeared possible to dispense with suppliers credit from foreign contractors without serious risk that finance for other development activities would be impaired. The adoption by the Government of a rice price policy designed to secure adequate incentive prices for the fanner, it was believed, would enable market forces to play a much more important part in inducing farmers to use production-increasing inputs and in cnabling them to make prompt repayment of credits provided for these inputs. O n the marketing side, roads were being improved, and Bulog (the Food Board) had installed approximately 300 small new rice mills in rural areas to help secure for farmers greater returns from their production. Commercial millers were rapidly increasing operating levels after the removal of Government restrictions on operating, storage and transport. By 1970, the Bank Rakjat Indonesia, which was responsible for providing direct input credits to the farmers, had successfully innovated and tested the use of village unit banks to provide direct credit to individual farmers over limited areas. These had been sufficiently successful to encourage their expansion over extended areas. Bank Rakjat Indonesia had demonstrated
See, for example, the disappointing reports on productivity increase in the series of Evaluation Studies carried out under the auspices of the Agro-Economic Suivey at Inititut Pertmian, Bogor.

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also the value of mobile credit units for improving the provision and repayment of credit on a less intensified basis than with village units but over much larger areas. This ncw organisation available for distributing cash credits gave grounds for confidence that serious collection losses would now be much less than under the procedures involved in the Gotong Rojong program. By 1970 the Government also felt more easily able to assume responsibility for the foreign exchange costs of the program. Accumulated stocks of fertilisers and insecticides reduced foreign exchange requirements for the coming year. Required imports could be obtained on longer term credits than usually available through Gotong Rojong contractors. In any case, it had become increasingly evident that the one year suppliers credit provided by the foreign contractors yielded its major advantage only in the first >car of the program. Thereafter, as earlier credits had to be repaid annually, credit relief came only from any additional financing associated with the programs expansion. The establishment, late in 1969, of the Bimas Supervisory Board (Badan Pembina Bimas), with strong powers delegated from the Prcsident,? was designed to centralise responsibility and to ensure better co-ordination between the many ministries and agencies involved in the rice intensification activities. The Board has prepared detailed plans to correct program shortcomings and is ready to help in their implementation. These plans emphasise better communications among all involved. Agency teams are expected to explain details of their programs at subdistrict levels and be available at those levels to eliminate bottlenecks. Technical teams will join them to assure that improved cultivation methodology is passed on. A major expansion is expected in the lower levels of the extension service, bringing with it more highly trained personnel who will have time to promote and assist with more demonstration plots at village levels. Expansion of fertility trials throughout Bimas areas will provide improved guidance for more economic use of expensive inputs. Finally, improved guidance on insecticide use is planned to concentrate use of this input in areas where returns are expected to be largest. All this gives greater confidence that Indonesians themselves will be able to run the program effectively.
Presidential Decree No. 95, 1969.

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The use of foreign contractors had been most helpful in the actual movement of fertiliser and other physical inputs directly to the farmcr. Even hcre, valuable experience has been gained by existing organisations and planned changes in the distribution machinery are expected to yield further improvement. PN Pertani, the organisation originally responsible for distribution of these inputs. has begun to rationalise and improve its distribution organisation. The Covernmcnt has also agrced to allow PN Pusri (the domestic manufacturer of urea) to participate more extensively in fertiliser distribution. Fertiliser and insecticidc distribution will be opened to other state and private enterprises which have shown capacity for distribution over wide areas. In addition, the mobile teams will be expected to help correct deficicncies as they arise.
ECONOMIC IMPLICATIONS

The new policy i? expected to yield a number of advantages. 1. Budget losses should be materially reduced. Deficiencies in collections of loans made to farmers are expected to be much less than the losses on Gutong Rojong repayments of credits made in kind. 2. The foreign exchange cost of imported inputs will be at a minimum in 1970 in view of the high level of stocks that has accumulated. As time goes on, the foreign exchange requirements of the rice program should decline. Expanded domestic fertiliscr production will gradually reduce total import requuements. Whcre inputs must still be imported, long term development credits can replace one year supplier credit to ease the economic burden. 3. Increased concentration is planned on areas with highest yield potentials. This is being made possible by rchabilitation of irrigation works, by improvcd knowledge about the location of effectively irrigated areas and by tests now under way of new high yielding sccd varieties which may well reveal technological possibilities far beyond those of the PB seed varieties. As these prospects materialise, greater output can be expected from available human and financial resources. 4. As the intensification program increases in effectiveness, it should prove possible to reduce the inducements now needed to compensate farmers for their expected risks. Increased participation of the private sector in input distribution and of newcomers in rice processing promises to have similar effects. 5. The execution of the new policy will no doubt, in practice, fall short of plans and hopes. Such shortcomings must be

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expected, but the new approach developed in the light of several years experience and the growing competence of the Indonesian administrators of the program make it reasonable to count on a significant net gain. Some incidental losses, while regrettable, will be a price worth paying for the experience Indonesians will gain in running their own Bimas and Inmas, themselves fully responsible for solving the problems on the road to greatly increased rice production. Leon A. Mears

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