ROLE OF MINERAL FERTILIZERS IN TRANSFORMING AGRICULTURE IN INDONESIA
REGIONAL STRATEGIC ANALYSIS AND KNOWLEDGE SUPPORT SYSTEM (RESAKSS) ASIA CONFERENCE
CAMBODIA, SEPTEMBER 2013
FITRIA YASMIN
Presentation Agenda
Policy Options
Fertilizer: Demand-Side Issues
Fertilizer: Market Structure
Fertilizer: Supply-Side Issues
Pricing Environment
Indonesia’s Agriculture Sector
Problems in Fertilizer Sector
Agriculture Sector at Glance
• Providing food for 246 million of population.• 13 percent of National Gross Domestic Product• 35 percent of national work force• 54.5 million hectares of total 181 million
hectares land area
Indonesia: from rice importer to exporter to importer
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
Export Quantity (tonnes)Import Quantity (tonnes)
Source: Derived from FAO (2013)
Fertilizer: Demand-Side Issues
Source: Derived from FAO (2013
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Nutrient Consumption in Indonesia 1990-2011
N ConsumptionP2O5 ConsumptionK2O Consumption
Ton
Nut
rien
ts
Domestic Fertilizer Consumption by Product
Year Consumption ( tonnes)
Urea AS TSP/SP-36 NPK
Agriculture Industry
2007 4,249,409 592,225 701,647 764,821 637,456
2008 4,557,823 516,265 751,325 588,123 955,708
2009 4,623,889 372,096 888,607 706,937 1,417,703
2010 4,279,901 586,225 687,864 644,858 1,473,345
2011 4,528,949 499,238 953,759 731,502 1,794,767
NPK consumption is dominated by NPK Phonska, with grade 15:15:15, granulated
Market Structure
Domain Actors Structure
Production 5 manufacturers member of PT Pupuk Indonesia Holding Company (Public/state-owned enterprises)
Monopoly
Import 76 importer companies Competitive
Distributor 2,485 companies: 291 public, 1,920 units of private companies, and 274 units of cooperatives.
Competitive
Retail 40,077 units kiosk Competitive
Nutrients Supply
Domestic nutrients Supply:N = 91 percent of the total 3.97 million tonnes P2O5 = 72 percent of the total 675,000 tonnes
Imported:K2O = 100 percent
Urea Production
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
Urea Production of PIHC Subsidiaries
Pupuk SriwidjajaPupuk Kujang CikampekPupuk KaltimPupuk Iskandar MudaPupuk Petrokimia GresikTOTAL (PIHC)
Year
Ton
nes
Non-Urea Production
Fertilizer Production
2007 2008 2009 2010 2011 2012
Ton/Year Ton/Year Ton/Year Ton/Year Ton/Year Ton/Year
SP-36 488,847 742,986 636,207 441,223 521,486
AS 652,486 692,604 767,837 792,917 818,810 812,123
NPK 763,444 1,194,983 1,838,039 1,853,039 2,179,853 2,893,868
ZK 3,593 4,718 7,568 8,662 2,954 8,447
Organic1,617 80,174 294,555 260,705 341,476 761,657
Supply Chain
Plants Importer
Distributor
Farmers/Farmer Organizations
Plantation CompaniesRetailer
Distribution System
Pricing Environment
Fertilizer for rice farming is subsidized by the government. The price is administered by the government through the stipulation of maximum retail price (MRP or HET)
Subsidy is given to the producers, not the farmers.
Maximum Retail Price (IDR/kg)
No.Type of
Fertilizer 2008 2009 2010 2011 2012
1 Urea 1,200 1,200 1,600
1,600 1800
2 ZA 1,050 1,050 1,400 1,400 1,400
3 SP36 1,550 1,550 2000 2000 2000
4 KCl - - - - -
5 NPK 1,750 1,750 2,300 2,300 2,300
8 Organik 500 500 500 500 500
Average ratio of urea/rice price = 0.69Average kg of rice/paddy needed to buy one kg of N= 1.48
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -
50
100
150
200
250
300
Ratio of Urea Price and Rice Price
Rice PriceUrea Price
USD
/to
n
*rice price is at farm-gate
If subsidy is removed…
Illustration for 2010 if subsidy is removed, HET is not applied which means that urea price is not subsidized:
Urea price: IDR 4,500/kg (USD 436/ton) Rice price at farm gate: IDR 2,720/kg (USD 264/ton)Ratio Urea/Rice price = 1.65Ratio N/Rice = 3.63
Note:Conversion using exchange rate 1 USD = 10,320 IDR
LOGO
Budget Allocation for Fertilizer Subsidy = Heavy Fiscal Burden
IDR 6.8 trillion in 2007IDR 14.9 trillion in 2008IDR 17.4 trillion in 2009IDR 18.7 trillion in 2010IDR 16.4 trillion in 2011IDR 16.9 trillion in 2012
Summary: Problems in Fertilizer Sector in Indonesia
• Lack of farmers’ knowledge on proper location-specific use of fertilizer
• Lack of monitoring and controlling that subsidy sometime not reaching the target (retailers selling above HET price, forgery of subsidized fertilizer, subsidized fertilizer is sold to companies at unsubdized price, etc)
• Market distortion due to dual pricing system• Unstable gas supply for fertilizer production
Policy Options
• Long-term contract of natural gas supply• Invest more on public goods (irrigation, agriculture roads,
R &D, extensions)• Improve farmer database system• Gradually reduce subsidy• Socialize the recommendation of location-specific balanced
fertilizer allocation = empower extension officers• Enforce good monitoring and controlling system