ASIAN DEVELOPMENT BANK

Transcription

1 TAR:INO ASIAN DEVELOPMENT BANK TECHNICAL ASSISTANCE TO THE REPUBLIC OF INDONESIA FOR THE AGRICULTURE SECTOR STRATEGY REVIEW October 1996

2 no Timer) ^+ ^rlrjree.e; 1.a CURRENCY EQUIVALENTS (as of 15 September 1996) Currency Unit - Rupiah (Rp) Rp1.00 = $ $1.00 = Rp2,341 (i) (ii) The exchange rate of the rupiah is determined by Bank Indonesia under a system of managed float. An exchange rate of Rp2,295 to $1.00 has been used in this Report, being the rate prevailing at the time of fact-finding. ABBREVIATIONS BAPPENAS BULOG CBS INPRES MOA PJPII REPELITA VI REPELITA VII TA - Badan Perencanaan Pembangunan Nasional [National Development Planning Agency] - Badan Urusan Logistik [Food Logistics Agency] - Central Bureau of Statistics - Instruksi Presiden [Presidential Instruction] - Ministry of Agriculture - Indonesia's Second Long-Term Development Program - Rencana Pembangunan Lima Tahun VI [Sixth Five-Year Development Plan (1994/ /99)] - Rencana Pembangunan Lima Tahun VII [Seventh Five-Year Development Plan (1999/ /04)] - Technical Assistance NOTES (i) (ii) The fiscal year (FY) of the Government ends on 31 March. In this Report, I" refers to US dollars.

3 Ii. i ravel 5, I. INTRODUCTION 1. During the 1995 Country Programming Mission, the Government of Indonesia (the Government) requested Bank technical assistance (TA) to finance a review of the agriculture sector. A Bank TA Fact-finding Mission visited Indonesia from 7-16 December The need for the TA was established through wide ranging discussions with the Government, and an understanding reached on the scope, cost, terms of reference for consulting services and implementation arrangements.' The TA is a firm Project in the Bank's 1996 Country Program for Indonesia. II. BACKGROUND AND RATIONALE 2. Agricultural development in Indonesia has been broad-based and relatively rapid. During the past two decades, average growth rates of 3.8 percent per annum have supported a tripling of real rural incomes, achievement of near self-sufficiency in rice, and a significant reduction in the incidence of rural poverty. However, during the past five years, agricultural growth has slowed to an average of 2.9 percent per annum, and, during the past two years, output has tended to stagnate. The slowdown in agricultural growth has contributed to an increasing reliance on imported foodstuffs and a widening gap between agriculture and nonagriculture sector incomes. 2 While agriculture is no longer the leading sector in the Indonesian economy, it still provides about 17 percent of gross domestic product, employs close to half of the labor force, and generates a quarter of non-oil foreign exchange earnings. 3. The prospects for agriculture in the medium term are mixed. On the positive side, rapid technological changes in food crop production and a changing domestic demand pattern in response to rising incomes, as well as changes in global markets, have opened new opportunities for increasing agricultural incomes and reducing rural poverty through diversification of output. However, against this positive view, limited scope for increasing rice productivity, the mounting loss of irrigated land in Java to urbanization and industrialization, and the technical and social difficulties associated with promoting diversification and agricultural development outside Java pose formidable constraints to sustained agricultural growth and development. On balance, despite the potential difficulties, considerable scope remains to increase agricultural productivity and to raise farm incomes by diversifying into higher value products and opening up some of the millions of hectares of land that, environmental and social considerations notwithstanding, could be deployed for agricultural production purposes. 4. Indonesia's Second Long-Term Development Program (PJPII) provides a strategic vision of economic and social development over the next 25 years. While PJPII envisions a process of rapid industrialization and structural change, agriculture continues to play a central role as a source of employment and incomes for many small farmers, a provider of strategic foodstuffs and raw materials, the main engine of growth in eastern Indonesia, and a guardian of the nation's precious supply of fragile natural resources. In line with the objectives put forth in PJPII, the Sixth Five-Year Development Plan (REPELITA VI), covering 1994 to 1999, places heavy emphasis on raising farm incomes, increasing productivity, promoting competitiveness and export orientation, focusing more attention on the agricultural needs of eastern Indonesia, stimulating agribusiness investment, and decentralizing the management of agricultural services. The TA first appeared in ADB Business Opportunities in September Per capita gross domestic product in agriculture is one-sixth that in the other sectors.

4 2 5. Meeting this new and challenging set of objectives calls for a major reorientation of public sector support in the agriculture sector. Reorientation of public sector support for agriculture is a difficult and complicated process. Current policies, programs, and institutions were designed in an era when the overriding concern was with rice production and with the imperative of feeding rapidly growing numbers of low-income, agricultural households. Policies put into place to achieve those objectives (such as price and trade controls, Government marketing programs, input subsidies, state-owned plantations, commodity production targets, and centrally-managed, commodity-based support services) have become constraints to enhancing agricultural competitiveness. These policies, and in some cases the accompanying institutions, are not well suited to facilitating the development of a market-based, dynamic, agriculture sector capable of holding its own in both domestic and international markets. Although there is a general recognition of the need to operate within a more market-based framework, it has proven difficult to move away from the system of administrative controls and agricultural market restrictions. At the same time, the changing constellation of agriculture sector objectives implies the need to develop new policies, programs, and institutional approaches to difficult challenges such as diversification; regional development (in particular in eastern Indonesia); and stimulating agribusiness. 6. The TA is designed to assist the Government to assess its development options and plan future sector strategies, policies, and institutional alternatives in the agriculture sector. An issues-oriented assessment is needed because (i) agricultural development objectives are numerous, making it difficult to set priorities and identify appropriate strategies; (ii) reorienting agriculture development requires a continuous process of monitoring new initiatives and seeking more appropriate alternatives; (iii) improved cross-sectoral, inter-institutional cooperation and coordination is required to forge appropriate and effective agricultural support measures; and (iv) fairly major changes are likely to be required in public policy and institutional support. 7. The TA will also make a positive contribution to Indonesia's agricultural planning process. This task will be closely coordinated with the preparations for REPELITA VII (Seventh Five Year Plan Period [1999/ /04]). The national planning process, coordinated by BAPPENAS (the Government's National Development Planning Agency), relies on a mix of regional plans and ministry-by-ministry planning submissions, the latter generated from the plans put forth by the specialized agencies and directorate generals of each ministry. Within this process there is a high degree of bureaucratic fragmentation and compartmentalization, making it difficult to achieve consistency within the sector or across different regions. The traditional planning process also tends to accord great emphasis to commodity output targets, and far less to more aggregate sectoral development objectives, strategies, and public policies. The TA takes a different approach by (i) focusing on thematic sectoral development issues (rather than commodity matters); (ii) providing a forum to assess a number of key issues where the need for interinstitutional consultation and cooperation is required; and (iii) contributing to a process of high level interministerial reflection and review of policy and institutional alternatives for agriculture development. Through these mechanisms and associated documentation, the Project is expected to provide an input into the ongoing process of agricultural policy formulation. Key issues of concern to senior policymakers will be reviewed and reported. Appendix 1 shows the framework for the TA. B. One Project outcome will be to improve the effectiveness of external assistance to agriculture. The more clearly articulated the agriculture strategy and policy framework, the

5 3 easier it will be to design investment measures in support of agricultural development. Special attention will be provided to the changing requirements for external assistance in the agriculture sector. In this regard, the TA should help guide future public investment undertakings and assist the donor community, and in particular the Bank, to identify priority areas for future assistance. A. Objective III. THE TECHNICAL ASSISTANCE 9. The TA will assist the Government to assess its development options and plan future strategies, policies, and institutional alternatives in the agriculture sector. The assessment will be made as the outcome of a consultation process between stakeholders in the agriculture sector in order to shape a shared vision of the challenges and options for reorienting the Government's support for agriculture, rural economic reconstruction, and agribusiness development. B. Scope 10. Working in close cooperation with the Secretary General and the staff of the Bureau of Planning of the Ministry of Agriculture (MOA), the TA will support REPELITA VII preparations by assessing changes in the environment for Indonesian agriculture, the policy and institutional constraints to enhancing competitiveness, agriculture's current and potential contribution to regional balance, poverty reduction and environmental sustainability, and emerging institutional requirements. Background papers on the important issues facing agriculture will be prepared as inputs to a roundtable of senior decision makers in the public and private sectors at which the future direction of the Indonesian agriculture sector can be discussed. The TA will stimulate different sector stakeholders, such as BAPPENAS, MOA, Ministry of Food, Ministry of Forestry, Ministry of Industry and Trade, Ministry of Home Affairs, Ministry of Public Works, the Food Logistics Agency (BULOG), Ministry of Cooperatives and Small Enterprise Development, Local Government, and the private sector (including farmers), to jointly review and discuss policy issues during preparation of the issues papers and at the roundtable itself. Each paper, while based on a review of existing materials and consultations with stakeholders, will focus on the issues involved; the available policy options; and their economic, social, budgetary and (where appropriate) environmental implications. The issues paper will cover the following topics: (i) (ii) (iii) (iv) (v) (vi) (vii) implications of the changing global trading environment and the need for domestic market reform; constraints on, and opportunities for, further growth in agriculture; the role of the Government and the private sector in facilitating small-scale farmers and agribusiness development; the implications of technological change; agriculture and development in eastern Indonesia; ways in which small-scale farmers and other rural dwellers can be brought into the process of policy formulation and the role agriculture might play in poverty reduction; agriculture and environmental sustainability;

6 4 (viii) (ix) decentralization of agricultural support services; and changing requirements for external assistance in Indonesia and the role of the Bank. C. Cost Estimate 11. The total cost of the TA is estimated at $688,000 equivalent of which the foreign exchange component is estimated at $316,000 and the local currency component at $372,000 equivalent. It is proposed that the Bank finance, on a grant basis, the entire foreign exchange cost and a portion of the local currency cost amounting to $284,000 equivalent, for a total of $600,000 equivalent. The Government will contribute the remaining local currency cost of $88,000 equivalent. The cost estimates and financing plan are given in Appendix 2. D. Implementation Arrangements 12. BAPPENAS will be the Executing Agency but there will be active involvement by other line agencies, in particular, MOA. A TA Steering Committee will be chaired by BAPPENAS and will include senior personnel from MOA and other relevant agencies. BAPPENAS and MOA will assign suitable counterpart staff to participate actively in the work conducted under the TA and provide support facilities including office accommodation. 13. It is envisaged that a total of 46 person-months of consulting services will be required, 9 person-months for international consultants and 37 person-months for domestic consultants, spread over a period of ten months. Consultants will be engaged by the Bank in accordance with the Bank's Guidelines on the Use of Consultants and other arrangements satisfactory to the Bank. Because the technical requirements of the Project are not considered to be complex in nature, the Simplified Technical Procedure will be used for the submission of technical proposals. 14. Through an international consulting firm, a core team of one international and two domestic consultants will be recruited for the duration of the TA. The international consultant will be the team leader and will work full time in Indonesia for approximately 7.5 months with an intervening period of about two months of half-time work at his or her home office. A second international consultant with considerable stature in Indonesia agriculture policy, to be recruited by the international consulting firm during implementation, will work for one-half month, serving as a resource person for the proposed roundtable. The two core domestic consultants will work for the full ten months of the Project. The core team will be responsible for managing and coordinating Project activities, drafting five of the nine issues papers, organizing the roundtable discussions, and organizing and supervising the provision of the other four issues papers by domestic consultants. A total of 17 person-months of domestic consultancy services will be required to support the preparation of the issues papers not prepared by the core team. In addition, the core team will produce a summary of the roundtable discussions and be responsible for finalized versions of the issues papers for inclusion in the final report. 15. The Project will be carried out in two phases. During the first phase, the core team will review the changing economic environment for the agriculture sector, prepare detailed guidelines for the issues papers, recruit and engage other domestic consultants, commence

7 U. i ravel 5, preparation of the issues papers, and identify participants in the roundtable. During the second phase, the draft issues papers will be completed, roundtable consultations held, and the draft and final reports completed. Draft terms of reference and reporting requirements for the consultants are set out in Appendix 3. A range of expertise will be required in agricultural policy; international trade; the Indonesian agriculture sector and its institutions; Indonesian regional development, agribusiness development, agricultural production, and farming systems; and socioeconomics. The international expert (the team leader) will be an economist with expertise in agricultural policy in Indonesia. The other international expert (a resource person for the roundtable) will be a policy analyst with experience in Asian food policy matters. The two locally recruited full-time core team members will have expertise and experience in agricultural policy and institutional development. Local experts with relevant expertise will be engaged by the consulting firm as domestic consultants to draft the issues papers not covered by the core team. The Project is expected to be completed by September IV. THE PRESIDENT'S DECISION 16. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance, on a grant basis, to the Government of the Republic of Indonesia in an amount not exceeding the equivalent of $600,000 for the Agriculture Sector Strategy Review, and hereby reports such action to the Board.

8 Appendix 1, page 1 PROJECT FRAMEWORK Design Summary Targets Monitoring Mechanisms Assumptions 1. Sector Goals To assist Indonesia to assess A policy framework and set of The Policy Framework for Continued political commitment to development options and plan future supporting institutions, from the agriculture. broad-based development in strategies, policies, and institutional public and private sectors, that agriculture. alternatives in the agriculture sector. respond to incentives in a way that allows these objectives to be Strategies promulgated by the Interministerial willingness to met. Government in the agriculture define and support policy, sector. program, and institutional reform in agriculture. 2. Objective/Purpose To review agricultural policies and to Assess the need for a strategic Technical Assistance (TA) Government commitment to formulate strategies for improved reorientation of agriculture sector reports, reviews, and tripartite interministerial consultations on performance in the agriculture sector. development efforts in light of meetings. agriculture strategy and policy. past performance and changing sectoral constraints. Active leadership of the interministry dialogue process by Establish a process of National Development Planning interministeriai assessment and Board (BAPPENAS) and Ministry of review to identify policy options Agriculture (MOA). for a strategic reorientation of public sector support to agriculture. Establishment of an interministerial steering committee to assess sector strategy and policy. (Reference in text: page 2, para. 7)

9 Appendix 1, page 2 3. Outputs Design Summary Targets Monitoring Mechanisms Assumptions Key stakeholders review and discuss Options for improving sector TA reports, reviews, and tripartite Active involvement of Government issues papers on: strategies, policies, and programs meetings, long-run monitoring of counterparts and a well functioning that can be incorporated into agricultural plans and policies. interministry steering committee. (i) implications of the changing national plans or can be global trading environment and the implemented by participating need for domestic market reform; agencies. (ii) constraints on, and opportunities for, further growth in agriculture; (iii) the Government's role in smallscale farmer and agribusiness development; (iv) the implications of technological change; Establishment of a multiministry, consultative planning process to assess sectoral needs and opportunities, formulate strategies, suggest changes in policy and programs, and build consensus within the Government over new modes of providing public support for agricultural development. (v) agriculture and development in eastern Indonesia; (vi) agriculture's role in poverty reduction; (vii) agriculture and environmental sustainability; (viii) decentralization of agricultural support services; and (ix) changing requirements for external assistance in Indonesia and the role of the Bank. Consultative roundtable discussion of senior decision makers on agriculture sector strategy and policy. 4. Activities Analysis of secondary data and Well-researched reviews that TA reports, reviews, and tripartite Access to necessary data, reports, existing studies in each of the 9 confront the lessons of past meetings. officials, and other stakeholders. output areas. experience with the changing challenges facing the sector A high level of cooperation by Consultation with representatives of today. Project counterpart staff in the different agriculture agencies and development of the issue papers, stakeholders groups, including Clear and articulate assessment of especially the private sector and the the options for reorienting the Willingness of concerned officials farm community in Eastern Indonesia, Government's efforts, with to discuss possible options for to identify future strategy, policy, and considerable attention devoted to strategic change in multiministry institutional options. the timing and sequencing of committees and meetings. practical, implementable Preparation of draft issues papers. initiatives. Guidance and review of each of the issues papers by the Project Steering Committee. Interministerial discussion and review of the issues in an agriculture sector roundtable. Preparation of final versions of issues papers and the final report. Interministerial discussion and review of these initiatives. Incorporation of the findings into Seventh Five-Year Development Plan (REPELITA VII) and, more broadly, into changes made in agriculture strategy and policy.

10 8 Appendix 2 COST ESTIMATES AND FINANCING PLAN M I t e m Foreign Exchange Cost Local Currency Cost Total Cost A. Financed by the Bank 1. Consultants (remuneration and out-of-pocket expenses) International 232, ,000 Domestic - 197, , Equipment 21,000-21, Seminars, Workshops, and Training - 23,000 23, Studies, Surveys, and Documents 1,000-1, Contract Negotiations 5,000-5, Miscellaneous Administration and Support Costs 15,000 27,000 42, Contingencies 42,000 37,000 79,000 Subtotal 316, , ,000 B. Financed by the Government 1. Counterpart Staff - 36,000 36, Office Accommodation - 18,000 18, Support Services - 34,000 34,000 Subtotal - 88,000 88,000 Total 316, , ,000 (Reference in text: page 4, para. 11)

11 9 Appendix 3, page 1 CONSULTANT'S TERMS OF REFERENCE 1. The core team, consisting of one international and two domestic consultants, will be responsible for producing the issues papers on agriculture sector policy and institutional reform. The long-term international consultant, as team leader, will be responsible for producing the final report, including the integration of the findings of the other core team members, other domestic consultants, and the results of the roundtable. Working in close cooperation with representatives of the Executing Agency and the Project Steering Committee, the core team will prepare detailed guidelines for each of the issues papers that will be prepared, and will carefully supervise the work of other domestic consultants to be engaged during implementation. 2. The consultant will also coordinate closely with related projects. A. Phase I 1. Assessment of the Changing Agricultural Environment 3. Through consultation with representatives of key agricultural agencies, cooperatives, the private sector, and nongovernment organizations, the core team will prepare the first two issues papers as follows: (i) Implications of the Changing Global Trading Environment and the Need for Domestic Market Reform (a) (b) Examine issues related to changes in major global markets and the main implications of changing trade arrangements on the opportunities and challenges for agriculture. Suggest ways in which Indonesia can take advantage of changes in global market conditions. More specifically, review short-and medium-term market prospects for Indonesia's main agricultural commodities (rice, corn, wheat, soybean, poultry, rubber, oil palm, and coconut), with particular emphasis on changing global demand and supply conditions. Review findings of international assessments of the medium-term global supply and demand situation and agricultural price prospects. Discuss the implications of changing market conditions for Indonesia. Review the agricultural market reform commitments that Indonesia has made under international trade agreements. Discuss the implications that trade reform, globally and in terms of Indonesia's specific reform commitments, will have on agriculture. Assess options for future agricultural trade reform and the implications of possible changes to the trade regime for the agriculture sector. Assess the comparative advantage of irrigated rice, oil palm, and other major agricultural products in Indonesia. As far as possible, quantify the comparative advantage using one of the standard methodologies but make maximum use of existing analyses and other secondary sources. (Reference in text: page 5, para. 15) U. i ravel 5,

12 10 Appendix 3, page 2 (c) Briefly review major trade, subsidy, and marketing policies in agriculture and propose a graduated agenda for enhancing competition and reducing policy or institutional distortions to efficient operation of agricultural markets. Assess the implications of restrictions on food commodity imports and industrial crop exports, and provincial or other local restrictions on the internal marketing of agricultural commodities. Review also restrictions on trade in agro-inputs and subsidies provided on fertilizer, rural credit, and other agro-inputs. Building on the findings of research conducted by the Directorate General of Agro-Industry (Ministry of Industry and Trade) and the Agribusiness Board of the Ministry of Agriculture (MOA), review other regulatory restrictions to the licensing and operation of agribusiness enterprises. Classify the restrictions in terms of their relative importance to impeding different categories of agroenterprise. Propose alternative agendas for agricultural deregulation and assess the likely impacts of such change on agricultural performance, trade, and the Government budget. Constraints on, and Opportunities for, Further Growth in Agriculture (a) (b) Synthesize and summarize existing knowledge and understanding of the main economic, institutional, social, and technical barriers to increasing growth and development in agriculture. More specifically, review the main technical, social, and economic barriers to agricultural growth and development, especially those associated with the agricultural credit and marketing systems. Such constraints should be identified for key commodities and for major regions of the country. Prioritize the constraints, in order to identify those that are most immediately binding in the different regions. Discuss the implications of key constraints for framing agriculture sector strategies and policies. Review ways in which a continuous monitoring and assessment of development constraints can be used to improve agricultural planning and programming. Summarize the domestic agricultural demand outlook and review options for enhancing the responsiveness of agriculture to changing patterns of demand. Provide special attention to areas likely to experience rapid demand growth (e.g. horticulture, livestock, fisheries, and industrial crops). As far as possible, disaggregate the demand assessment by urban and rural areas and by income groups. For commodity groups likely to experience rapid demand growth, suggest sources of growth that could be employed to meet demand. Particular attention should be given to expansion of the agricultural land frontier, labor absorption, mechanization, resource management improvements, agricultural intensification and other new technologies, introduction of new "high-value" commodities, reduction in waste and other marketing costs, and investment in value-added processing as potential new sources of growth. Identify ways in which the Government can provide an enabling environment conducive to tapping these new sources of agricultural growth.

13 11 Appendix 3, page 3 4. Each issues paper will focus on the policy and institutional issues and will be of a length and format suitable for use by senior policymakers. Where necessary, conclusions reached in the issue papers will be supported by appropriate appendixes. In addition to being an important input into the REPELITA planning process, the review of the changing operating environment for agriculture should help set the context for the preparation of issues papers in Phase II. 2. Plan and Initiate Implementation of Phase II Issues Papers and the Roundtable 5. Develop an implementation plan for assessing issues affecting the formulation of policy and institutional measures to support agriculture during REPELITA VII. For each of the remaining issues papers, prepare detailed terms of reference. Identify issues papers that will be prepared by the core team, and for the other issues papers, identify and engage a team of domestic consultants. 6. Develop a plan for an intersectoral roundtable to review the findings of the issues papers. The plan should include the proposed dates, participating institutions, and the venue for the roundtable. Efforts should be made to ensure active consultation with the different agencies that are expected to participate. B. Phase II: Assessment of Sector Issues and Reform Options 7. Following the issues papers drafted under Phase I, an additional seven issues papers will be drafted. The papers will focus on the policy and institutional issues and again will be of a length and format suitable for use by senior policymakers. Where necessary, conclusions reached in the issues papers will be supported by appropriate appendixes. 0) Government and Private Sector Role in Facilitating Small-scale Farmer and Agribusiness Development: Assess strategies undertaken to promote investment in commercial agriculture and agro-industrial development. Examine the process by which property rights in rural land are provided, and suggest mechanisms that can be used to improve landuse management. Draw on cases conducted in different parts of the region to suggest ways in which secure property rights can be promoted. Where titling and land registration are deficient, suggest mechanisms for accelerating this process. In addition, suggest an appropriate role and set of measures that Government may pursue to spur agribusiness development. Examine the measures now being pursued by the Government, and assess the degree to which these are appropriate for the public sector, whether they fill a real perceived need in the private sector, and whether they are likely to be effective. Devote special attention to approaches related to improving the role and effectiveness of farmers' groups, cooperatives, and small-scale agro-industry. Develop a strategy for coordinated and coherent assistance to the development of the agroindustry sector. Such a strategy should be clearly prioritized and include practical, operational recommendations suited to the prevailing institutional fabric of the public and private sectors.

14 12 Appendix 3, page 4 The Implications of Technological Change: Discuss the proposed strategy for remolding the agricultural information system, including research, training, and extension. Review the proposed establishment of a network of technology assessment institutes. Identify ways in which these new institutes can coordinate their activities with those of the other research centers, local universities, and other centers of agricultural research. Examine the governance of the research system and suggest ways in which user input can be reflected more directly in the governance and financing of the research system. Assess the implications of the assumption of high-level extension efforts by MOA within the Technology Assessment Institutes, and discuss measures to improve the quality and accountability of the extension service. Review the recent decentralization of the extension service, and identify key lessons from that process. Building on a recent review of the extension service, assess ways in which the extension service can be revitalized. Identify options for coordinating national and local efforts at technology generation and diffusion. More generally, identify initiatives that could be taken during the next five years to accelerate the generation and diffusion of suitable agricultural technology in Indonesia. Agriculture and Development in Eastern Indonesia: Assess the degree to which agriculture contributes to development in Eastern Indonesia and to the ways in which agriculture's contribution to regional development efforts can be improved. Examine progress made in incorporating locallyspecific agriculture efforts in area-based regional development programs. Examine also the progress made in targeting grants for agricultural development purposes to less well-endowed areas of Eastern Indonesia through the Presidential Instruction (INPRES) program and other transfer schemes. Assess ways in which voluntary groups and local universities can improve their contribution to agricultural development in Eastern Indonesia, and the ways in which the Government can best forge constructive partnerships with these groups. Examine the scope for spatial and land-use planning to contribute to regional development aims and objectives. In this context, review the progress made in developing agroecological zoning and discuss ways in which socioeconomic information could be better linked to this material. Discuss ways in which land-use planning can be used to guide development, particularly in the more fragile areas of Eastern Indonesia. Assess the causes for marketing bottlenecks and market failures in Eastern Indonesia. Examine the different mechanisms and degree to which Government can play a role in helping to overcome these agricultural marketing problems. Devote particular attention to priorities for market infrastructure in areas slated for priority attention to agricultural development. Drawing on recent experience with private-sector supported nucleus estate projects, discuss ways in which private-public partnerships can be utilized to stimulate agricultural growth and employment generation in Eastern Indonesia.

15 13 Appendix 3, page 5 (iv) (v) (vi) Ways in Which Small-scale Farmers and Other Rural Dwellers Can Be Brought Into the Process of Policy Formulation and the Role Agriculture Might Play in Poverty Reduction: Examine the distribution and status of people engaged in agriculture who are classified as poor and, more specifically, draw on the Central Bureau of Statistics' poverty profile to identify villages where poverty is most acute. Again draw on Central Bureau of Statistics surveys to develop profiles of poor rural households and review the programs aimed at addressing rural poverty. Examine the main programs targeting support to poor villages and particularly the degree of participation by beneficiaries. Review the known approaches for involving farmers and other rural dwellers in agricultural and rural policy formulation (including land-use planning) and suggest a range of options that could be implemented in the Indonesian context together with the resources that would be required for their implementation. Agriculture and Environmental Sustainability: In the context of agricultural expansion into potentially fragile areas, assess existing and potential mechanisms to ensure that environmentally sustainable approaches to agricultural development are encouraged. Examine the issue of agricultural extensification (i) generally, and (ii) in the context of the proposed large-scale clearing of lands to establish rice and oil palm estates in Kalimantan and Sulawesi. Discuss measures that could be taken to offset adverse environmental effects of agricultural extensification. In this context, review the possible modes for introducing improved technology packages where slash and burn cultivation continues. Provide specific recommendations for investments aimed at improving the environmental sustainability of agriculture, for strengthening institutions charged with protecting the rural environment and with improving knowledge and awareness in the area of agriculture and environmental sustainability. Decentralization of Agricultural Support Services: Review and assess the rationale for assignment of different agricultural support service functions to different levels of Government. Analyze the experiences associated with the decentralization of agricultural extension and the pilotefforts aimed at decentralizing administration to selected regencies. Review the decentralization experience in other parts of the Government, most notably health and education, to identify the best practices and drawbacks to further decentralization and regionalization efforts. Assess the implications of decentralization and regionalization in terms of the changes implied in the role, mandate, size, and operating procedures for Central Government agencies. Draw on the lessons of decentralization experience in agriculture and in other parts of the Government, to develop a set of recommendations for facilitating an orderly and effective decentralization of agricultural services. U. i ravel 5,

16 14 Appendix 3, page 6 (vii) Changing Requirements for External Assistance to Agriculture and the Role of the Bank: For the major external funding agencies, and with particular attention to the Bank, review the assistance programs in agriculture and identify needs for possible modification of the level, composition, or delivery mode of external assistance, in light of anticipated changes in the agricultural development strategy. The views of each of the major agencies should be solicited in preparing this issues paper. The conclusions of this assessment should be used to make recommendations to the Government and the Bank for future agriculture sector programs and project formulation during the next planning period. 8. The aforementioned assessments should be based on available data, information, and secondary studies. An action-oriented, consultative process should be used to elicit the views and suggestions of the agriculture sector stakeholders in preparing the roundtable issue papers. Consultations should not be limited to Central Government agencies, but should also be held in different parts of Indonesia, particularly within different regions of Eastern Indonesia and with other potential stakeholders, including the private sector and the farmers where appropriate.' 1. Roundtable Consultations 9. Organize a roundtable on Agricultural Policy and Institutional Development for REPELITA VII under the guidance of the Executing Agency. Make arrangements for participation by leading policymakers in the key agricultural institutions. Utilize the findings of the issues papers and the interventions of the international resource person to stimulate communication and catalyze interministerial consideration of policy and institutional reform options. Full participation in the roundtable by representatives of the private sector and by those in local government should be encouraged. In conjunction with the Executing Agency, MOA and other agencies, identify mechanisms for ongoing interagency, interstakeholder review and assessment of alternative policy and institutional options for sustainable development of agriculture in Indonesia. 10. The international resource person, a policy analyst with wide experience in the region, will help to facilitate interministerial discussions during the roundtable by bringing to bear lessons from agriculture sector policy and institutional reforms in other nations. The international resource person should also assist in reporting on the findings from the roundtable consultations. 2. Reports 11. The following reports will be prepared and submitted to the Government and the Bank under the TA: The degree of consultation with farmers will of necessity be very limited because of time and resource constraints; however, such consultation should be attempted where possible on issues directly impacting at the farm level. I,CVICW 1110 UCGCIMCUILCMUII experience In Uuier parts Ur the uovernmem,

17 15 Appendix 3, page 7 (i) (ii) Inception Report: This report will be submitted to the Bank and discussed by the Steering Committee within two months of the commencement of the TA. It should summarize the findings of the review of the changing environment for Indonesia's agriculture sector, present detailed outlines for each of the issues papers, provide a detailed program for addressing the issues, and identify the key institutions to be involved in the roundtable. Draft Final Report: The report will be submitted to the Bank and the Steering Committee within nine months of the commencement of the TA. The main findings of the issues papers should be summarized briefly in the report, and supported by detailed appendixes that review each of the agricultural policy and institutional areas investigated under the Project. Final Report: This report will be submitted ten months after the start of the TA or one month after receipt of comments from the Government and the Bank on the draft final report, whichever is later. It should summarize the discussion of key policy and institutional reform issues addressed at the roundtable on agricultural policy, provide a detailed discussion of the results of the policy analysis, and summarize the TA activities and achievements. The final report should include recommendations for facilitating continued cross-agency communication to support the ongoing reorientation of Government support for agriculture.