ROLE OF MINERAL FERTILIZERS IN TRANSFORMING AGRICULTURE IN INDONESIA

REGIONAL STRATEGIC ANALYSIS AND KNOWLEDGE SUPPORT SYSTEM (RESAKSS) ASIA CONFERENCE

CAMBODIA, SEPTEMBER 2013

FITRIA YASMIN

Presentation Agenda

Policy Options

Fertilizer: Demand-Side Issues

Fertilizer: Market Structure

Fertilizer: Supply-Side Issues

Pricing Environment

Indonesia’s Agriculture Sector

Problems in Fertilizer Sector

Agriculture Sector at Glance

• Providing food for 246 million of population.• 13 percent of National Gross Domestic Product• 35 percent of national work force• 54.5 million hectares of total 181 million

hectares land area

Indonesia: from rice importer to exporter to importer

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

Export Quantity (tonnes)Import Quantity (tonnes)

Source: Derived from FAO (2013)

Fertilizer: Demand-Side Issues

Source: Derived from FAO (2013

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Nutrient Consumption in Indonesia 1990-2011

N ConsumptionP2O5 ConsumptionK2O Consumption

Ton

Nut

rien

ts

Domestic Fertilizer Consumption by Product

Year Consumption ( tonnes)

Urea AS TSP/SP-36 NPK

Agriculture Industry

2007 4,249,409 592,225 701,647 764,821 637,456

2008 4,557,823 516,265 751,325 588,123 955,708

2009 4,623,889 372,096 888,607 706,937 1,417,703

2010 4,279,901 586,225 687,864 644,858 1,473,345

2011 4,528,949 499,238 953,759 731,502 1,794,767

NPK consumption is dominated by NPK Phonska, with grade 15:15:15, granulated

Market Structure

Domain Actors Structure

Production 5 manufacturers member of PT Pupuk Indonesia Holding Company (Public/state-owned enterprises)

Monopoly

Import 76 importer companies Competitive

Distributor 2,485 companies: 291 public, 1,920 units of private companies, and 274 units of cooperatives.

Competitive

Retail 40,077 units kiosk Competitive

Nutrients Supply

Domestic nutrients Supply:N = 91 percent of the total 3.97 million tonnes P2O5 = 72 percent of the total 675,000 tonnes

Imported:K2O = 100 percent

Urea Production

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

Urea Production of PIHC Subsidiaries

Pupuk SriwidjajaPupuk Kujang CikampekPupuk KaltimPupuk Iskandar MudaPupuk Petrokimia GresikTOTAL (PIHC)

Year

Ton

nes

Non-Urea Production

Fertilizer Production

2007 2008 2009 2010 2011 2012

Ton/Year Ton/Year Ton/Year Ton/Year Ton/Year Ton/Year

SP-36 488,847 742,986 636,207 441,223 521,486

AS 652,486 692,604 767,837 792,917 818,810 812,123

NPK 763,444 1,194,983 1,838,039 1,853,039 2,179,853 2,893,868

ZK 3,593 4,718 7,568 8,662 2,954 8,447

Organic1,617 80,174 294,555 260,705 341,476 761,657

Supply Chain

Plants Importer

Distributor

Farmers/Farmer Organizations

Plantation CompaniesRetailer

Distribution System

Pricing Environment

Fertilizer for rice farming is subsidized by the government. The price is administered by the government through the stipulation of maximum retail price (MRP or HET)

Subsidy is given to the producers, not the farmers.

Maximum Retail Price (IDR/kg)

No.Type of

Fertilizer 2008 2009 2010 2011 2012

1 Urea 1,200 1,200 1,600

1,600 1800

2 ZA 1,050 1,050 1,400 1,400 1,400

3 SP36 1,550 1,550 2000 2000 2000

4 KCl - - - - -

5 NPK 1,750 1,750 2,300 2,300 2,300

8 Organik 500 500 500 500 500

Average ratio of urea/rice price = 0.69Average kg of rice/paddy needed to buy one kg of N= 1.48

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -

50

100

150

200

250

300

Ratio of Urea Price and Rice Price

Rice PriceUrea Price

USD

/to

n

*rice price is at farm-gate

If subsidy is removed…

Illustration for 2010 if subsidy is removed, HET is not applied which means that urea price is not subsidized:

Urea price: IDR 4,500/kg (USD 436/ton) Rice price at farm gate: IDR 2,720/kg (USD 264/ton)Ratio Urea/Rice price = 1.65Ratio N/Rice = 3.63

Note:Conversion using exchange rate 1 USD = 10,320 IDR

LOGO

Budget Allocation for Fertilizer Subsidy = Heavy Fiscal Burden

IDR 6.8 trillion in 2007IDR 14.9 trillion in 2008IDR 17.4 trillion in 2009IDR 18.7 trillion in 2010IDR 16.4 trillion in 2011IDR 16.9 trillion in 2012

Summary: Problems in Fertilizer Sector in Indonesia

• Lack of farmers’ knowledge on proper location-specific use of fertilizer

• Lack of monitoring and controlling that subsidy sometime not reaching the target (retailers selling above HET price, forgery of subsidized fertilizer, subsidized fertilizer is sold to companies at unsubdized price, etc)

• Market distortion due to dual pricing system• Unstable gas supply for fertilizer production

Policy Options

• Long-term contract of natural gas supply• Invest more on public goods (irrigation, agriculture roads,

R &D, extensions)• Improve farmer database system• Gradually reduce subsidy• Socialize the recommendation of location-specific balanced

fertilizer allocation = empower extension officers• Enforce good monitoring and controlling system