The revival of interest in self-sufficiency in Indonesia and its likely consequences

Following the global spike in food prices in 2008, there has been a renewed interest in food security. A modest increase in prices over long-term trend in 2009 and some forecasts of higher commodity prices in the longer term have reinforced concerns. In addition, export bans imposed by some countries in 2008 lend support to the view that the international market can no longer be relied upon to deliver adequate supplies at reasonable prices. In response, many countries are attempting to reduce reliance on imports and achieve self-sufficiency where possible. In Indonesia, policies are being implemented to increase domestic production of not only staples such as rice, but of non-staple products such as sugar and soybeans. Furthermore, policies have been introduced to reduce the country’s dependence on beef imports, with the objective to move to becoming 90 per cent self sufficient by 2014. A computable general equilibrium model, GTAP, is used to analyse the impacts of moving towards complete self-sufficiency in live cattle and beef. Before running the scenarios, the Armington elasticity between domestic and imported cattle is estimated for Indonesia rather than using those provided. The revised, lower, estimate significantly influences the results, suggesting virtually eliminating cattle and beef imports beef is still achievable, but at an even more significant cost to consumers and taxpayers. Annual welfare would be reduced by an estimated US$458 million if cattle and beef imports were reduced by 90 per cent. Alternative policies may be more suitable. A $40 million subsidy to cattle producers is a transfer that creates fewer distortions and welfare losses but is well short of the needed to achieve self-sufficiency. A policy of subsidising research and development would provide greater gains, although these could take some additional time to show benefits.