Working Paper No. 48 Effects of Trade Liberalization on Agriculture in Indonesia: Commodity Aspects by Erwidodo and Prajogo U.

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2 The CGPRT Centre The Regional Co-ordination Centre for Research and Development of Coarse Grains, Pulses, Roots and Tuber Crops in the Humid Tropics of Asia and the Pacific (CGPRT Centre) was established in 1981 as a subsidiary body of UN/ESCAP. Objectives In co-operation with ESCAP member countries, the Centre will initiate and promote research, training and dissemination of information on socio-economic and related aspects of CGPRT crops in Asia and the Pacific. In its activities, the Centre aims to serve the needs of institutions concerned with planning, research, extension and development in relation to CGPRT crop production, marketing and use. Programmes In pursuit of its objectives, the Centre has two interlinked programmes to be carried out in the spirit of technical cooperation among developing countries: 1. Research and development which entails the preparation and implementation of projects and studies covering production, utilization and trade of CGPRT crops in the countries of Asia and the South Pacific. 2. Human resource development and collection, processing and dissemination of relevant information for use by researchers, policy makers and extension workers. CGPRT Centre Working Papers currently available: Working Paper No. 48 Effects of Trade Liberalization on Agriculture in Indonesia: Commodity Aspects by Erwidodo and Prajogo U. Hadi Working Paper No. 49 Effects of Trade Liberalization on Agriculture in Thailand: Commodity Aspects by Kajonwan Itharattana Working Paper No. 50 Effects of Trade Liberalization on Agriculture in Japan: Commodity Aspects by Hiroaki Kobayashi Working Paper No. 51 Effects of Trade Liberalization on Agriculture in the Philippines: Commodity Aspects by Minda C. Mangabat Working Paper No. 52 Effects of Trade Liberalization on Agriculture in Viet Nam: Commodity Aspects by Nguyen Trung Que and Nguyen Ngoc Que Working Paper No. 53 Integrated Report of the Project Effects of Trade Liberalization on Agriculture in Selected Asian Countries with Special Focus on CGPRT Crops by Michio Kanai and Boonjit Titapiwatanakun Working Paper No. 54 An Agricultural Statistical Profile of Bangladesh, by Mohammad A.T. Chowdhury and Harry Zulfikar (Continued on inside back cover)

3 Stabilization of Upland Agriculture under El Nino-induced Climatic Risk: Impact Assessment and Mitigation Measures in Indonesia CGPRT Centre Works Towards Reducing Poverty Through Enhancing Sustainable Agriculture in Asia and the Pacific Region

4 The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area of its authorities, or concerning the delimitation of its frontiers or boundaries. The opinions expressed in signed articles are those of the authors and do not necessarily represent the opinion of the United Nations.

5 WORKING PAPER 62 Stabilization of Upland Agriculture under El Nino-induced Climatic Risk: Impact Assessment and Mitigation Measures in Indonesia Bambang Irawan CGPRT Centre Regional Co-ordination Centre for Research and Development of Coarse Grains, Pulses, Roots and Tuber Crops in the Humid Tropics of Asia and the Pacific

6 CGPRT Centre Jalan Merdeka 145, Bogor Indonesia 2002 by the CGPRT Centre All rights reserved. Published 2002 Printed in Indonesia National Library: Cataloguing in Publication Irawan, Bambang Stabilization of Upland Agriculture under El Nino-induced Climatic Risk: Impact Assessment and Mitigation Measures in Indonesia / Bambang Irawan -- Bogor: CGPRT Centre, xix, 78 pp.; 25.5 cm. -- (Working paper series; No. 62) ISBN Agriculture -- Meteorology I. Title II. Series

7 Table of Contents Page List of Tables... vii List of Figures... ix Foreword... xi Acknowledgements... xiii Executive Summary... xv 1. Introduction 1.1 Background Research organization, objectives and data Performance of Agriculture in Indonesia 2.1 Role in national economy Pattern of rainfall and food crops cultivation Development of irrigated land Food crisis in 1997/1998: joint effect of El Nino and the economic crisis El Nino: Occurrence and Impact on Food Crops 3.1 Occurrence during Impact on rainfall decrease Impact on food area decrease: case of El Nino 1982 and Analytical method Decrease of area, production and yield by food crop Area decrease by season Area decrease by province in Impact on harvest pattern Analytical method Harvest shift by crop Mitigation program for an El Nino events Factors Influencing Vulnerability of Regions to El Nino Event: Case of Java 4.1 Conceptual framework Measurement of vulnerability Method of analysis Principal component analysis and region classification Performance of rice cultivation and area decrease in 1997 at kecamatan level in Java Variables for region classification and data Results of principal component analysis and kecamatan grouping Rainfall decrease, area decrease and vulnerability index by kecamatan group Partial effect of region variables on area loss and vulnerability Conclusions v

8 6. References Appendix vi

9 List of Tables Chapter 2 Page Table 2.1 Role of agricultural sector on Gross Domestic Product in Indonesia (%)... 4 Table 2.2 Role of the agricultural sector in labor absorption during the economic crisis in rural and urban areas... 5 Table 2.3 Food area harvested, entropy index and share of rice area by season in principle islands, average in Table 2.4 Food crop area by type of irrigation and by island in Indonesia... 9 Table 2.5 Evolution of rice production and input prices by period in Chapter 3 Table 3.1 El Nino and La Nina events by 25 years in Table 3.2 Monthly negative SOI in El Nino years Table 3.3 Mean monthly negative SOI and total cases of negative SOI by month in Table 3.4 Seasonal rainfall in 1982 and 1997 compared with average rainfall by province (mm) Table 3.5 Rainfall decrease in 1982 and 1997 compared with average rainfall by season and by province (%) Table 3.6 Decrease of water debit by water dam and by season in 1997 and 1998 in Central Java Table 3.7 Changes in area, production and yield of food crop in Indonesia in El Nino Table /1983 and 1997/1998 compared with 3-years moving average Area decrease compared with 3-year moving average of area harvested by season in 1982, 1983, 1997 and Table 3.9 Area decrease compared with 3-year moving average by province in Table 3.10 Cumulative distribution of area harvested by month in and in 1997 for wetland rice in Indonesia Table 3.11 Percentage of earlier harvested area by crop and by season in 1982 and 1997 in Indonesia Table 3.12 Percentage of earlier harvested area by crop and by season in 1983 and Table 3.13 Quarterly domestic procurement, import and market operations of rice by BULOG, Chapter 4 Table 4.1 Table 4.2 Table 4.3 Number of kecamatans with rice area and area decrease in 1997, by province on Java Island Percentage of kecamatans with rice area decrease by category and by province of Java in Distribution of kecamatans under high and low rate of area decrease In major districts Table 4.4 Mean values of variables for typology analysis of kecamatans in Java Table 4.5 Coefficient of principle factors and its correlations with variables Table 4.6 Mean values of variables by group of kecamatans vii

10 Table 4.7 Table 4.8 Table 4.9 Qualitative characteristic of each variable compared with mean values of all kecamatans, by group of kecamatan Rainfall decrease, area decrease and vulnerability index by group of kecamatans Regression coefficient between rainfall decrease, area loss and vulnerability index with explanatory variables viii

11 List of Figures Page Chapter 2 Figure 2.1 Monthly rainfall and food area harvested by major island in Figure 2.2 Relation between monthly area harvested, entropy index and rice share by major island in Figure 2.3 Evolution of agricultural input prices and price of US dollar during the economic crisis Figure 2.4 Southern Oscilliation Index (SOI) and ratio of farmgate price of food crop/urea price during the economic crisis Chapter 3 Figure 3.1 Behavior of annual Southern Oscilliation Index (SOI) in Figure 3.2 Monthly rainfall in 1982 and 1997 compared with average rainfall in Indonesia Figure 3.3 Monthly water debit of 20 dams in Central Java from January 1994 to December Figure 3.4 Percentage of annual wetland rice area compared with 3-years moving average area, Figure 3.5 Cumulative area harvested by month Figure 3.6 Evolution of negative SOI and percentage monthly harvested for wetland rice in Indonesia, in 1982 and 1997 (El Nino years) compared with average Chapter 4 Figure 4.1 Scheme of factors influencing vulnerability of a region against El Nino onset ix

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13 Foreword The El Nino-induced abnormal weather tends to be increasing in its frequency of occurrence, magnitude, duration and irregularity in recent years. Accordingly, it is urgent for rainfed upland agriculture, where most CGPRT crops are grown, to establish technological and institutional countermeasures to predict, avoid or minimize and recover from the damage caused by the abnormal weather, drought in particular. Responding to this vital need, the CGPRT Centre has been implementing a three-year research project, Stabilization of Upland Agriculture and Rural Development in El Nino Vulnerable Countries (ELNINO), since April 2000 in collaboration with partners from five countries: Indonesia, Malaysia, Papua New Guinea, the Philippines and Thailand. It is my pleasure to publish Stabilization of Upland Agriculture under El Nino Induced Climatic Risk: Impact Assessment and Mitigation Measures in Indonesia as one of the results of the project. The volume covers wide topics such as historical overview of El Nino-induced abnormal weather, its impacts on major food crops, and quantitative analysis of El Nino vulnerability. I believe the report is useful to prepare strategic proposals for technologies, farm management and administrative policies to stabilize upland crop production and farm economy leading to sustainable rural development in the region. I thank Dr. Bambang Irawan for his earnest and fruitful work. This study could only be accomplished with the continuous support from Centre for Agro Socio-Economic Research and Development of Indonesia. Dr. Rogelio N. Concepcion, Bureau of Soils and Water Management, Department of Agriculture, the Philippines, and Mr. Shigeki Yokoyama provided useful comments and guidance at various stages of the study as the regional advisor and the project leader, respectively. I also thank Dr. Douglas R. Stoltz for his editing services throughout the publication of the report. Finally, I would like to express my sincere appreciation to the Government of Japan for its support in funding the project. April 2002 Nobuyoshi Maeno Director CGPRT Centre xi

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15 Acknowledgements The study entitled Stabilization of Upland Agriculture and Rural Development in El Nino Vulnerable Countries was sponsored by the UN-ESCAP CGPRT Centre. This study is undertaken in five countries including Indonesia, Malaysia, the Philippines, Thailand and Papua New Guinea. I am very grateful to the CGPRT Centre for providing the opportunity to my country to be one of the participants in the study. In this regard, I appreciate the contribution of Dr. Haruo Inagaki, former Director of the CGPRT Centre, for his deep interest and guidance in the preparation and implementation of the study. High appreciation is due to also Dr. Nobuyoshi Maeno, Director of the CGPRT Centre, his leadership motivated us to finalize the study with our best effort. Special thanks are due to Dr. Joko Budianto, Director of Agency for Agricultural Research and Development (AARD) and Dr. Tahlim Sudaryanto, Director of Center for Agro Socio-Economic Research and Development (CASERD), for following me to be involved in the study. Their understanding and support are highly appreciated. I am deeply grateful to the project leader, Mr. Shigeki Yokoyama, and Dr. Rogelio Conception, the regional advisor. Their assistance and cooperation during the course of thestudy and fruitful comments in finalizing this report are highly appreciated. I would like to thank also Mr. Muhamad Arif, supporting staff of the CGPRT Centre, for his assistance in providing data required and setting the final report. Similar appreciation is due to Ms. Eni Sugiarto and Mr. Hadi Basuki, supporting staff of CASERD, for her diligence in data processing and his assistance in typing the report. Bogor, March 2002 Bambang Irawan Center for Agro Socio-Economic Research and Development Agency for Agricultural Research and Development xiii

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17 Executive Summary El Nino and La Nina: tendency during El Nino and La Nina events were shown by SOI value (Southern Oscillation Index). El Nino events were shown by large negative SOI, while La Nina events were correlated with positive SOI. The frequency of El Nino has tended to increase from once per 8 years during to once per 4 years during (Table 1). The extreme negative SOI particularly occurs in March, April, June, July, September, and October. This indicates that those months have higher probability than other months for drastic decrease of rainfall and increase of ambient temperature. This pattern of SOI is a disadvantage for Indonesian agriculture, because September/October is planting time and March/April is the maturing period for wet season farming, which contributes more than 60% of yearly production of food crops. For wet season farming, the decrease of rainfall occurring in September/October would result in failure of planting, while the decrease in March/April would result in failure of harvest because of water shortage. Impact of El Nino in 1982 and 1997 on rainfall The El Nino events of in 1982 and 1997 are the biggest ones in history, where the annual average SOI values were and respectively. The negative SOI occurred for 13 and 14 months respectively during similar periods, i.e. from March/April until May/June, while the large negative SOI lasted 11 months. Both El Nino events resulted in decrease of rainfall, particularly during the dry season, which occurred from May to August. The 1997 El Nino caused a greater decrease of rainfall than the 1982 event; -30.8% and -62.2% for wet and dry seasons in 1997, and -17.3% and -44.0% for wet and dry seasons in Table 1 El Nino and La Nina events by 25 year interval in Number of El Nino El Nino Events La Nina Events Period and La Nina Cases Year Annual SOI Year Annual SOI I ( ) 3 El Nino La Nina II ( ) 4 El Nino La Nina III ( ) 2 El Nino La Nina IV ( ) 2 El Nino La Nina V ( ) 9 El Nino La Nina SOI = Southern Oscillation Index. xv

18 In Java and Sulawesi the decrease of rainfall was consistently higher compared to the average over all provinces in both the 1997 and 1982 El Ninos. Since Java and South Sulawesi are major food producers (about 65% of national food crop production), El Nino events could disturb national food security. In Kalimantan the decrease of rainfall was relatively high during the 1997 El Nino, but quite low during the 1982 event. On the contrary, Sumatra, Bali and Nusa Tenggara experienced decreases of rainfall which were quite high in 1982 but relatively low in 1997 (Table 2). In irrigated areas, the 1997 El Nino resulted in a decrease of water debit of about 33% at the Jatiluhur Reservoir and about 30% at the Rentang Reservoir in West Java. Decrease of water debit also occurred in reservoirs in Central Java of between 5% and 60% in 20 observed reservoirs. Table 2 Rainfall drop in 1982 and 1997 compared with average rainfall by season and by province (%). Province Wet Season Dry Season All Seasons Wet Season Dry Season All Seasons Aceh North Sumatra West Sumatra Riau Jambi South Sumatra Bengkulu Lampung West Java Central Java Yogyakarta East Java Bali West Nusatenggara East Nusatenggara West Kalimantan Central Kalimantan South Kalimantan East Kalimantan North Sulawesi Central Sulawesi South Sulawesi Southeast Sulawesi Maluku Sumatra Java Bali/Nusatenggara Kalimantan Sulawesi Indonesia Impact of El Nino on food crops area The decrease of the food crops harvested area caused by El Nino was estimated at about 1.25 million ha in 1982 and 1.18 million in 1997, or -8.6% and -6.4%, respectively. The decrease occurred particularly in the dry season harvest (-15.3% and -11.4%) which covered areas of 821,000 ha in 1982 and 775,000 ha in Since most secondary crops are cultivated in the dry season, the impact of decreasing harvest area caused by El Nino was relatively high for those crops, i.e. between -8.6% and -22.0%, while the decrease of rice wetland harvest area was about -4.5% and -4% for 1982 and 1997, respectively (Table 3). xvi

19 Table 3 Area harvested of food crops in Indonesia in El Nino 1982/1983 and 1997/1998 compared with 3 year moving average. Wetland Rice Dryland Rice Maize Cassava Groundnut Sweet Potato Soybean Total Crops Area decrease ( 000 ha) , Area decrease (%) Five major provinces which suffered from decrease of food crops harvested area of more than 100,000 ha during the 1997 El Nino were Lampung, West Java, Central Java, East Java and South Sulawesi. These high figures could be understood, since those provinces are known as major food crop producers. Regarding the percentage of harvest area decrease, the eastern Indonesia region such as Sulawesi and Maluku suffered from quite high harvest area decrease, i.e. between -8.4% and -19.2%. Most of the provinces in Sumatra, such as Riau, Jambi, Bangka, and Lampung, also suffered from quite high harvest area decrease, while in Java only Central Java suffered from quite high harvest area decrease, i.e. -8.4% (Table 4). Table 4 Area of food crops compared with 3 year moving average by province in Province Area Decline ( 000 ha) Percentage (%) Aceh North Sumatra West Sumatra Riau Jambi South Sumatra Bengkulu Lampung West Java Central Java Yogyakarta East Java Bali West Nusatenggara East Nusatenggara West Kalimantan Central Kalimantan South Kalimantan East Kalimantan North Sulawesi Central Sulawesi South Sulawesi Southeast Sulawesi Maluku Average Impact on harvest pattern of food crops El Nino, which causes decreased rainfall, stimulated farmers to harvest their food crops earlier to avoid harvest failure from water insufficiency. During the 1982 El Nino, about 9% of the wet season harvest area was harvested earlier than the normal harvest pattern, while for the dry season the proportion was about 10%. For the 1997 El Nino those percentages increased to xvii

20 18% for the wet season and 11% for the dry season. This reflected the farmers response in facing climate uncertainty. Because of the long dry season in 1997, harvesting of food crops for the next season, which was the wet season in 1998, was done later than the normal harvest pattern. The late harvested food crops area during the wet season in 1998 was estimated at as much as 24% and 14% in the dry season. This strategy, however, resulted in lower yield and poor quality. Spatial distribution of vulnerable kecamatans and socio-economic and natural resource characteristics: the case of Java On Java 1,456 kecamatans were analysed to understand the spatial distribution of wetland rice area decrease caused by the El Nino Wetland rice area decrease occurred in 58% of kecamatans with an average rate of -6.9% per kecamatan, whereas those percentages for dryland rice area were 52% and -19.0%, respectively. This indicates that the El Nino led to a higher rate of area decrease for dryland rice, but the spatial distribution is lower compared to wetland rice. Most of the kecamatans under wetland rice area decrease were located in West Java, particularly in southern parts such as the districts of Sukabumi, Tasikmalaya, Garut, and Serang, and in southern parts of Central Java such as Wonogiri, and Magelang. Those kabupatens are generally located in highland regions. To understand more details of kecamatan characteristics under wetland rice decrease, Principal Component Analysis Methods were applied. This analysis included 16 variables which reflected characteristics of natural resource endowments, infrastructure, farmer households, and wetland rice performance for each kecamatan. The results show that kecamatans could be grouped into two major groups (G-1, G-4 and G-2, G-3 in Table 5) based on their natural resources: (a) kecamatans located in lowland regions which have low rainfall (about 1,600 mm per year), high proportion of technical irrigated land and moderate rainfall decrease in 1997 including about 29% of kecamatans; and (b) kecamatans located in highland regions which have fairly high rainfall (about 2,000 mm per year), low percentage of technical irrigated land, and higher rainfall decrease in 1997 including about 43% of kecamatans. Due to higher rainfall decrease and poorer irrigation network, the impact of area decrease is higher on highland kecamatans compared to lowland kecamatans. The wetland rice area decrease in both kecamatan groups occurred particularly in kecamatans with the following characteristics: high intensity of rice culture per year; in other words, most sawah lands of dry season were rice cultivated. Since the 1997 El Nino led to rainfall decrease, particularly in the dry season, this cropping pattern has higher probability of harvest failure for dry season culture; remote area or poor transportation infrastructure; lower availability of input kiosks; and high proportion of small farm sizes (Table 5). xviii

21 Table 5 Rainfall decrease, area decrease and vulnerability index by group of kecamatan. Variable Description of Variables Group of Kecamatans Lowland Area Upland Area G-1 G-4 G-2 G-3 Characteristics of kecamatan IN4 Proportion of village with paved main high low high low road IN5 Ratio of number household/number of low low low high cars IN6 Ratio of wetland area/number of water low low moderate high pumps IN7 Ratio of wetland area/number of high high low high agricultural inputs kiosk s HH1 Ratio of wetland area/household high moderate low low numbers (ha/household) HH2 Mean wetland size (ha/farm household) high moderate low low HH3 Percentage of farm household with low high low high wetland size < 0.50 ha per household (%) R1 Crop intensity per year (%/year) low high low high Number of kecamatans Percentage of kecamatans Number of kecamatans with area decrease Percentage of kecamatans with area decrease Rainfall decrease (%/kecamatan) Wetland rice area decrease (%/kecamatan) (-253) (-120) (-103) (-264) Mean of vulnerability index Wetland area (ha/kecamatan) 4,466 1,847 1,277 1,982 Production share to Java production (%) Note: ( ) Area decrease in hectare per kecamatan in xix

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23 1. INTRODUCTION 1.1 Background Food crops in Indonesia have an important role in agricultural development; the food crop sub-sector contributes more than 50% of GDP of the agricultural sector. Since food crop farming is relatively intensive in labor utilization, the food crop sub-sector also plays an important role in creating income for most of the population, especially in rural areas. There are eight major food commodities which are included in the food crop sub-sector, i.e. rice and other commodities included in CGPRT crops: maize, soybean, groundnut, mungbean, cassava, sweet potato and potato. The role of the CGPRT commodities in household consumption continuously increases from year to year due to economic growth and increase of household income, which results in a higher increase of protein foodstuff consumption such as soybean and groundnut rather than carbohydrate-containing foodstuff such as rice. Maize and cassava are likewise increasing household consumption of protein through their role in animal feed. Generally CGPRT crops are cultivated in upland regions which frequently face water problems, since irrigation networks in those regions are relatively rare. Meanwhile irrigated land, which is mostly in low land regions, is generally utilized for rice cultivation, since rice is the major staple food. Sometimes maize, soybean, mungbean and peanut are also cultivated on irrigated land in certain regions, but usually this is done during dry or marginal seasons. This cultivation pattern leads to risk of production failure due to water stress or climate variability, which is higher for CGPRT crops than rice. Since the 1980s El Nino events, which had caused abnormal weather changes, were recognized as one of the causes of agricultural production failure. El Nino related abnormal weather seriously disturbs the fundamental modes of crop cultivation and damages production of food and other commodities in the affected areas. The El Nino phenomenon has tended to increase in its frequency of occurrence, magnitude, duration, and irregularity in recent years and hence it is now the most dangerous factor in agricultural production. Accordingly, it is a most urgent subject for agriculture, especially for almost entirely rainfed upland agriculture, where most CGPRT crops are grown, to establish institutional countermeasures in order to minimize and recover from the damage. In the first place, it is extremely important to elucidate the tendency of El Nino historically, its impacts on food production at national and provincial levels, spatial distribution of vulnerable areas, and factors related to vulnerability of areas. Rural economic structure, infrastructures, resources and farming systems in vulnerable areas will be among the most important determinants of social potential to cope with the damage and hence will be a main focus of this study. In the second place, it is important to elucidate social impacts, mitigation strategy to cope with the damage at farm and household levels and factors or constraints related to the realization of the strategy. Depending upon the outcome of analysis, strategic policies to overcome El Nino problems will be proposed through technological, managerial and administrative tactics. 1.2 Research organization, objectives and data In general, the study is aimed at analyzing impacts of El Nino on the agriculture sector in Indonesia and analyzing mitigation strategy required in order to minimize and recover from the consequences induced (both at household and national levels). For this purpose, the study was carried out in two stages. The first stage was analysis at national and regional levels. The 1

24 Chapter 1 analysis was focused on understanding the phenomena of El Nino historically, its impacts on rainfall and food crops, and also on understanding characteristics of vulnerable areas related to El Nino onset regions. Historical secondary data from various publications were the major data of this study. The main sources for the basic data are: (i) ESCAP-CGPRT Center for food crop area and production by province, (ii) Central Bureau of Statistics for food crop area by kecamatan and other variables for analysis at kecamatan level, (iii) Agency for Meteorology and Geophysics for rainfall and (iv) the Australian Bureau of Meteorology for SOI (Southern Oscillation Index) data. The second stage of the study was analysis at the household level in vulnerable areas. The analysis focused on understanding the impact of El Nino at household and community levels (consumption, income, labor allocation, etc.) and mitigation strategies applied by farmers to anticipate El Nino onset. Primary data collected from farmer households and key informants at selected sites was the major information in the second stage of the study. Since the next El Nino event was predicted to be in 2001/2002, data collection will be carried out starting in August 2001 or at the beginning of the wet season in 2001/2002. Specifically, objectives of the first stage are: To understand El Nino phenomena, which covers the cycle of occurrence, interval of occurrence, monthly period covered, and magnitude, To analyze El Nino impacts on rainfall and food crop area, both at national and provincial levels, To understand spatial distribution of vulnerable areas and characteristics of resource endowments, infrastructures and households related to the areas, and To review institutional preparedness and policies of risk management related to El Nino onset. 2

25 2. Performance of Agriculture in Indonesia 2.1 Role in national economy With a large population (about 200 million people) the agricultural sector has an important role in food supply or food security in Indonesia. Due to higher labor utilization than other economic sectors, the agricultural sector in Indonesia also takes a role as the income source for most of the population, particularly in rural regions. This can be observed from the Population Census in 1990, which showed that around 53% of household income came from agricultural activities. Meanwhile, the number of households deriving their main income from the agricultural sector was around 49% of households, and most of them were in rural regions. To elucidate the role of each economic sector in the national economy, the structure of Gross Domestic Product (GDP) is the commonly used indicator. The structure usually changes very slowly due to rate of growth changes for each economic sector resulting from changes of the goods and services market situation or government policy on national economic development. Since growth of the agricultural sector is usually lower than that of other economic sectors, the role of the agricultural sector tends to be declining over the long term period. In 1970 the agricultural sector contributed 33% of total GDP, the highest compared to other contributing sectors such as industry, trade, oil and gas sectors which ranged from 8% to 16%. Most of the agricultural GDP came from the food crop sector which contributed 58% of agricultural GDP (Table 2.1). This reveals that the food crop sector had an important role in the national economy. The food crop sector also had important roles for both food security and labor absorption, since food crop farming is more intensive in labor absorption than other agricultural sectors. Due to the oil boom which led to a steep increase of oil sector GDP, the role of the agricultural sector decreased from 33% in 1970 to 23% in 1980 or about 1% per year. Since the agricultural sector played an important role in food security and labor opportunity, most of the income obtained from oil exports was allocated to support agricultural development, particularly the food crop sub-sector, which was realized in terms of irrigation network development, agricultural credit subsidy and agricultural input price subsidy. With the support of the green revolution, which enabled yield to increase, government policy increased food crop contribution to GDP from 58% in 1970 to 60% in Another important impact was the achievement of rice self-sufficiency in The achievement of rice self-sufficiency in 1984 motivated the government to reoriented development of the national economy. Since foreign revenue continuously decreased due to decreasing oil prices, while the government had to pay foreign debts, since 1985 development of the economic sector was focused more intensively to increasing income from exports. The reorientation of development policy caused a decrease of government support to the agricultural sector, because the export value of the agricultural sector was relatively low compared to other economic sectors. Since that year, many kinds of subsidies in the agricultural sector began to be reduced; just the opposite occurred in the industrial sector, excluding oil and gas, since the industrial sector was capable of producing higher export income than the agricultural sector. The reduction of government support to the agricultural sector led to a decrease of the agricultural sector growth rate, from 3.6% in to 3.2% in The other economic sectors suffered from even higher decreases, from 9.9% in to 9.3% in due to the world oil price drop that restrained oil sector growth to only 0.9% in , much lower compared to the growth rate in the previous decade, which was 6.9%. Meanwhile, most of the developed industrial sectors were industries with relatively intensive 3

26 Chapter 2 usage of imported raw materials. This occurred because the government had given protection to this type of industries in terms of subsidized tax on imported raw material and subsidized export credit. Table 2.1 Role of agricultural sector on Gross Domestic Product in Indonesia (%). Non- Sub-sector of Agriculture Year agriculture Agriculture Food Estate Livestock Fishery Forestry Crops Crops Growth of GDP (%) ,8 3, ,4 5, : -quarter I ,2 4, quarter II ,1 4, quarter III ,1 4, quarter IV ,1 4,7 1.3 Average ,1 4, quarter I ,9 3, quarter II ,9 3, quarter III ,9 8, quarter IV ,9 6,5 9.4 Average ,9 5, quarter I ,3 9, quarter II ,3 3, quarter III ,8 2, quarter IV ,0 1, Average ,7 4, quarter I ,0-1, quarter II ,0 4, quarter III ,1 3, quarter IV ,1 7,9-8.7 Average ,2 3, quarter I ,8-1, Source: Computerized database, Central Bureau of statistics, Indonesia. Entering the year of 1997, Indonesia suffered from a political crisis. The monetary crisis also occurred since August 1997 due to the rupiah depreciation against foreign currencies. At that time the value of the US dollar radically increased from around Rp 2,000/US $ in June 1997 to around Rp 10,000/US $ in December 1997 and Rp 15,000/US $ in June As a result of monetary and political multi-crises, the economy in 1998 contracted as much as -13.2% in Most of the GDP drop occurred in sectors other than agriculture, since those sectors were relatively intensive in using imported materials. Meanwhile, the agricultural sector was still capable of growing to the amount of 1.6%, which made the contribution of the agricultural sector to total GDP increase from 14.8% in 1997 to 17.3% in This reveals that the agricultural sector had higher resistance than other sectors in facing the economic crisis. Yet, as a consequence of the crisis, the labor burden in agricultural sector steeply increased from 35.8 million people in 1997 to 39.4 million in 1998, or an increase of around 9.9% (Table 2.2). The increase was due to urbanization as a result of labor migration from other economic sectors to the agricultural sector (Irawan and Sutanto 1999; Tambunan 1999). 4

27 Performance of Agriculture in Indonesia Table 2.2 Role of the agricultural sector in labor absorption during the economic crisis in rural and urban areas. Variable Number of workers (million) 1. Rural area Agiculture Non-agiculture Urban area Agiculture Non-agiculture Rural + urban area Agiculture Non-agiculture Annual growth (%/ year) 1. Rural area Agiculture Non-agiculture Urban area Agiculture Non-agiculture Rural + urban area Agiculture Non-agiculture Pattern of rainfall and food crops cultivation High dependence on climate is a specific character of agricultural production. Climate impacts on agricultural product supply at various stages of the market system, such as production, storage and distribution activities. Climate also influences agricultural production capacity, since generative and vegetative growth of each plant is influenced by climate conditions. Therefore, agricultural product prices usually fluctuate by season; during favorable climate or high production capacity, the price of an agricultural product drops due to supply increase, while the opposite occurs during bad weather conditions. In tropical regions, where rainfall is relatively high and fluctuating, production capacity and pattern of agricultural production in a year are highly affected by rainfall conditions. This is particularly true for food crops or seasonal crops. According to Bottema (1995) there are two variables of rainfall which relate to food supply or food security problems in every region; they are monthly quantity and distribution of rainfall. Rainfall quantity will determine the amount of food that can be produced or food production capacity in each region, while monthly rainfall distribution plays a role in food production/supply continuity over the year. Indonesia is an archipelago country which covers 13 thousand islands with 5 large islands, i.e. Sumatra, Kalimantan, Java, Sulawesi and Irian. Sumatra and Kalimantan have better patterns of rainfall than other islands, either in monthly quantity or distribution of rainfall (Figure 2.1). The mean monthly rainfall of these islands is 187 mm and 210 mm with coefficient of variation 39% and 40%, respectively. Mean monthly rainfall in Java and Sulawesi is lower at 154 mm and 160 mm, respectively. Java and Sulawesi also have higher variation of monthly rainfall (72% and 68%). This reveals that the rainfall gap between dry season and wet season in both islands is relatively high. There is no generally accepted definition of the beginning of wet season. For example, Schmidt et al. (1952) used the date by with 350 mm of rainfall had accumulated as the beginning of the first month of the wet season, while Evans (1964) used 200 mm instead of 350 mm (Yoshino et al. 1999). If we use criteria defined by Evans, then the wet season in Sumatra occurs between October April, while for Java, Kalimantan and Sulawesi it is November March, November May, and December April, respectively. As indicated in Figure 2.1, most of the yearly food crop harvest area is produced from cultivation in the wet season. In Sumatra, the proportion of harvest area for food crops in the wet season is around 65% of the annual 5

28 Chapter 2 harvested area, while in Java, Kalimantan and Sulawesi these proportions are about 60%, 64% and 54%, respectively. Figure 2.1 Monthly rainfall and food area harvested by major island in Monthly rainfall and food area harvested Average Rainfall (mm/month) Area harvested (million ha) Sumatera Sumatra Java Kalimantan Sulawesi Rainfall Area harvested Source: Agency for Meteorology and Geophysics, Indonesia ; Compiled by CGPRT Centre. In agricultural production systems, rainfall and other climate variables are uncontrollable exogenous factors. To reduce the probability of production failure, farmers should adjust the type of plants cultivated with the existing climate conditions. Types of plants cultivated during unfavorable climate condition are usually more numerous; on the contrary the plants cultivated during favorable climate conditions are more concentrated or specialized on certain plants which are the main priority of the farmers production objective. The production diversification or specialization basically is a strategy to keep down total production risk caused by climate variability. To illustrate crop diversification/specialization in relation with climate conditions, entropy index of the harvest area in the wet season and the dry season has been applied. The entropy index is an indicator of diversity which is constructed by the formula E = -3 Si lnsi where Si is area share of crop i to all crop area. A high index correlates with high variety of plants. As indicated in Figure 2.2, the entropy index negatively correlates with total food crop area. This means that food crop area will be more diversified when total harvest area becomes lower. 6

29 Performance of Agriculture in Indonesia Figure 2.2 Relation between monthly area harvested, entropy index and rice share by major island in Area harvested Food area harvested, Entropy index and Rice share Average Entropy, Rice share SSumatra umatera Java Kalimantan Sulawesi Rice share (%) 0 Area (million ha) Entropy (x 100) Source: Agency for Meteorology and Geophysics, Indonesia ; Compiled by CGPRT Centre. During the wet season most of the harvest area for food crops is utilized for rice; rice cultivation covered 64% to 92% of the total food crop harvest area in the wet season (Table 2.3.). During this period of cultivation farmers tend to concentrate their farming on rice for two reasons. First, rice is the staple food, so rice becomes the farmers main objective in food crop cultivation. For food security at the household level, farmers utilized most of their land for rice cultivation, particularly during the wet season. Second, rice cultivation requires a relatively high water supply and is less tolerant to water stress than other food crops. In other words, intensive rice cultivation during the dry season will increase the risk of production failure. Table 2.3 Food area harvested, entropy index and share of rice area by season in principle island, average in Food Area Entropy Island Season Harvested Index Share of Rice Area (%) (million ha) Wetland Rice Dryland Rice All Rice Sumatra Wet season Dry season Java Wet season Dry season Kalimantan Wet season Dry season Sulawesi Wet season Dry season Source: Compiled by CGPRT Centre; Agency for Meteorology and Geophysics, Indonesia. 7

30 Chapter 2 Generally, climate constraints for food crops are higher during the dry season than the wet season, particularly due to increase of water insufficiency during the dry season. To reduce production failure risk caused by water stress, farmers diversify their food crops during the dry season. The diversification process is carried out by substituting rice with other food crops which are more tolerant to water stress, so that share of rice area to all food crops area decreases during the dry season. The substitution process between rice and other food crops occurs for both wetland rice and dryland rice. As indicated in Table 2.3, substitution of rice by other food crops in the dry season generally occurs for dryland rice, except in Sulawesi. 2.3 Development of irrigated land The availability of irrigation could reduce variability of agricultural production caused by variability of rainfall since farmers could arrange water allocation in accordance with their needs. In other words, availability of an irrigation network could reduce production loss resulting from water or rainfall problems. This agricultural infrastructure is also important to maintain stability of the food supply all year round, because with the existence of an irrigation network food production is no longer concentrated in the wet season only. The relationship could occur since the availability of irrigation networks has enabled farmers to reduce problems of water insufficiency in the dry season, so that crop and production intensity in the dry season would increase. Because of the important role of irrigation networks in agricultural development and food security, development of infrastructure became the main priority in agricultural development in Indonesia. This can be seen from the share of the agricultural development budget allocated for development of irrigation networks, which was around 49% (Pasandaran and Taryoto 1992). Since Java island possesses better soil fertility than other regions, development of irrigation networks so far has focused on Java island. Therefore, it is understandable if most irrigated land utilized generally for wetland rice cultivation is located on Java (Table 2.4). From aspects of water source and investment budget, irrigated land in Indonesia could be grouped into three categories, i.e. technical irrigated land, semi-technical irrigated land, and simple irrigated land. Technical and semi-technical irrigated land are groups of irrigated land with water supply coming from water dams built by the government on big rivers, while water supply for simple irrigated land generally comes from small rivers and most of the required investment budget comes from the village community. The simple irrigated land generally has lower crop intensity than technical or semi-technical land. Around 83% and 75% respectively of technical and semi-technical irrigated land could be planted to rice 2 3 times per year, while for simple irrigated land the figure was only 57% (Table 2.4). Most of the technical and semitechnical irrigated land is located in lowland regions, while simple irrigated land is generally in highland regions. Even though irrigated land plays an important role in food production, total available irrigated area has continuously decreased, particularly on Java. Results of the agricultural census show that between 1983 and 1993 total agricultural land in Indonesia decreased by as much as 1.28 million hectares, and 68.3% of this was irrigated land (Rusastra and Budhi 1997). Around 79% of the agricultural land reduction occurred on Java island. Other regions outside Java suffering from relatively high reduction of agricultural land were the provinces of Lampung, Jambi, West Kalimantan and East Nusa Tenggara. There are two major causes of the irrigated land decrease in Java. The first cause is conversion to non-agricultural usage such as housing, road construction and industrial estates. Most of the conversion of irrigated land occurred on technical/semi-technical irrigated land in spite of various regulations to prevent conversion of productive agricultural land issued by the government. Second, land and water resources with potential for development as irrigated land are very limited in Java island. The area of land with potential for development as irrigated land 8

31 Performance of Agriculture in Indonesia on Java was estimated at only 83,000 hectares or about 1% of the total land potential for development of irrigated land throughout Indonesia. Table 2.4 Food crop area by type of irrigation and by island in Indonesia. Variables By type of irrigation (million ha) a. Irrigated land 3.41 (53.4) 4.02 (56.2) 4.35 (53.9) 4.78 (56.2) - technical irrigated 1.44 (22.6) 1.56 (21.8) 1.78 (22.1) 2.18 (25.6) - semi-technical irrigated 0.93 (14.6) 0.90 (12.6) 0.94 (11.7) 0.96 (11.2) - simple irrigated 1.04 (16.3) 1.56 (21.8) 1.62 (20.1) 1.65 (19.4) b. Non-irrigated land 2.96 (46.6) 3.15 (43.9) 3.70 (46.0) 3.72 (43.7) c. Total area 6.38 (100) 7.16 (100) 8.05 (100) 8.50 (100) By island (million ha) a. Irrigated land - Java 2.40 (70.3) 2.53 (63.0) 2.51 (57.6) 2.53 (52.9) - Other islands 1.01 (29.7) 1.49 (37.0) 1.84 (42.4) 2.25 (47.1) b. Non-irrigated land - Java 1.09 (36.7) 0.97 (30.9) 0.83 (22.5) 0.78 (21.0) - Other islands 1.88 (63.3) 2.17 (69.1) 2.82 (77.5) 2.94 (79.0) c. Total area - Java 3.49 (54.7) 3.50 (48.9) 3.39 (42.1) 3.31 (38.9) - Other islands 2.89 (45.3) 3.66 (51.1) 4.66 (57.9) 5.19 (61.1) Percentage of area cultivable for 2 or 3 rice crops per year (%) a. By type of irrigation - technical irrigated semi-technical irrigated simple irrigated non-irrigated b By island - Java Other islands Source: Agency for Meteorology and Geophysics, Indonesia ; Compiled by CGPRT Centre. 2.4 Food crisis in 1997/1998: Joint effect of El Nino and the economic crisis The El Nino event in 1997/1998 is often interpreted as the biggest one in the century. In the same year Indonesia suffered from a food crisis that made rice imports increase steeply from around 1-2 million tons in to 5.8 million tons in The question, then, is: was the food crisis caused by El Nino which led to abnormal weather changes? The question emerged since in 1997/1998 Indonesia was also suffering from the economic crisis, which could also have been the source of food production drop. Some people argued that the economic crisis was the main cause of the food crisis, while the El Nino event was only augmented this. On the other hand, others stated that the El Nino was the main cause, while the economic crisis augmented the situation. Using monthly data from 14 provinces, this section attempts to clarify the problem. Theoretically, farmers decisions in growing food crops are influenced by price of inputs, food price and the available technology. The economic crisis, which caused an increase of input prices, could also have caused decrease of inputs used by farmers, which then led to food production decrease caused by decrease of harvest area and yield. El Nino could also form the cause of harvest area and yield decrease due to water insufficiency. Meteorologically, the El Nino event was shown by a large negative SOI (Southern Oscillation Index), which is usually followed by decrease of rainfall. The above explanation reveals that change of input prices and SOI are indicators which could be utilized to analyze the cause of food production decrease in 1997/1998, whether it was economic crisis or the El Nino event. If the production decrease occurred while the SOI value 9