Omnibus Law and Agriculture
President Jokowi\'s government continues to encourage the implementation of the omnibus law to attract investment in various sectors, including in the agricultural sector.
President Jokowi\'s government continues to encourage the implementation of the omnibus law to attract investment in various sectors, including in the agricultural sector.
Development in the agricultural sector, the main source of food for humans, has thus far tended to be neglected due to priorities in the manufacturing or service sectors. In fact, agriculture needs special attention to meet the needs of Indonesia\'s population and the growing world population. In 2045, Indonesia\'s population is projected to reach 320 million people. At the same time, the performance of the agricultural sector has increasingly declined. The contribution of agriculture to Indonesia\'s gross domestic product (GDP) declined from around 50 percent in 1960 to only 12.72 percent in 2019.
The omnibus law is present with the intention of answering the problem through simplification of business licensing and investment facilities and requirements. The implementation of the omnibus law has the potential to modernize the agricultural sector with much needed investment and innovation. However, there are some things that deserve further attention. The following are some of the positive impacts of the implementation of the law, which is also called the Job Creation Law, in the agriculture sector if it is passed.
Inviting foreign capital
In accordance with its objectives, the Job Creation Bill removes regulations that are considered burdensome for investment. According to the Asian Development Bank (ADB), agricultural investment in Indonesia mostly comes from farmers\' groups themselves, while the value of private investment is still very low. The foreign investment reaches only 0.01 percent of total private investment for agriculture.
Regulations have so far burdened investment in agriculture, one of which is in the horticulture subsector. Law No. 13/2010 concerning horticulture in Article 33 limits the use of horticultural facilities from abroad and gives emphasis on the requirements for the priority of facilities containing local components.
Article 100 of the same law limits foreign investment to only large horticultural businesses with maximum capital of 30 percent. Foreign investors are also required to place funds in domestic banks as equal to their capital holdings. These regulations certainly make investors think twice about entering the horticulture subsector.
In the Job Creation Bill, these regulations are replaced by regulations that are more friendly to investment inflows. Article 34 of the Job Creation Bill revises Horticulture Law Article 33 to invite horticultural facilities from within and/or abroad. Article 100 states that the government encourages investors for horticultural ventures.
The same thing is found in the plantation sector and in agriculture in general. Besides inviting foreign capital, the Job Creation Bill facilitates business licenses that previously had to pass through multiple
layers of bureaucracy, ranging from asking for the agriculture minister\'s recommendations to later requesting the trade minister\'s permission. This process is being simplified in the form of licensing from the central government. As Indonesia is becoming more open to investment and foreign facilities, agriculture can utilize existing capital and technology to drive productivity and efficiency. This will support Indonesia\'s ambition to become a world food barn in 2045.
Liberation of seed distribution
The problem of seedlings is a fundamental issue in the agricultural sector. Thus far the distribution of seeds is very limited, so farmers often have trouble accessing quality seeds. Article 63 of the Horticultural Law allows the entry of seeds only when the seeds cannot be produced domestically or if domestic needs have not been fulfilled and it must go through a complicated licensing process. This regulation is revised in the Job Creation Bill to allow for an easier seed entry and distribution process.
Importing seeds and seedlings in the livestock sector is also facilitated through Article 35 of the Job Creation Bill, which revises Law No. 18/2009 on poultry and animal health (which was later amended by Law No. 41/2014). Article 13 of the Animal Husbandry Law limits the supply and development of livestock seeds and/or breeding seeds to prioritize domestic production and takes into account the people\'s economic capabilities.
Besides that, Article 15 of the Animal Husbandry Law stipulates requirements for the entry of seeds and/or seeds with a process that must obtain the recommendation of the agriculture minister, then permission from the trade minister. If the Job Creation Bill is passed, this requirement will be made easier through business licensing.
Food trade barriers
The Job Creation Bill also makes it easier for Indonesians to access quality and affordable food through imports. A study by Heufers and Patunru (2018) estimates that protectionist trade policies have so far resulted in economic losses to Indonesia amounting to Rp 303 billion per year. This is due to the fact that food prices in Indonesia continue to be higher than international food prices. For example, the price of rice in Indonesia, which is roughly Rp 12,000/kilogram, is twice as expensive as the international price of rice, which is around Rp 6,000. High food prices cause 22 million Indonesians to suffer from hunger with the potential of malnutrition.
The openness of imports through the Job Creation Bill is an important breakthrough for Indonesia\'s food security. Imports so far have been limited based on Law No. 18/2012 on food, which states that food availability is a condition of the availability of food from domestic production and national food reserves, and imports can only be done when the two main sources are not meeting the needs.
In the Job Creation Bill, this concept is changed so that imports become one of the sources of food availability. Article 14 of the Food Law is also amended so that the sources of food supply come from domestic food production, national food reserves and food imports. In line with this, Law No. 19/2013 on the protection and empowerment of farmers is being amended so that Article 30, which used to prohibit people from importing if domestic agricultural commodities were considered sufficient, now accepts imports as a source of consumption needs.
The Job Creation Bill has the potential to have a positive impact not only on investment, but also on public health.
The openness of Indonesia\'s food trade is good news for Indonesian consumers, even to farmers who have also suffered from high food prices. Liberalization of food imports can strengthen food security and also improve the level of nutrition in Indonesia. Based on cross-country studies in 116 developing countries, Smith and Haddad (2015) found that import access was one of the main factors in reducing stunting. The Job Creation Bill has the potential to have a positive impact not only on investment, but also on public health.
Environmental issue
Beyond the ease of investment and business, the Job Creation Bill has risks to environmental sustainability. Law No. 39/2014 on plantations stipulates environmental conditions, such as
environmental impact analysis, suitability of regional spatial planning and suitability of plantation plans to obtain plantation business licenses (Article 45). This requirement is continued in Article 67 which stipulates that plantation business actors must conduct an environmental impact analysis, efforts to manage and monitor the environment, as well as provide facilities, infrastructure and emergency response systems to combat fires. In the Job Creation Bill, these articles are abolished. This does not mean that the government does not care any more about the environment, because the revision of Article 67 still states that every plantation business actor must maintain the preservation of environmental functions.
This environmental issue deserves further monitoring if the Job Creation Bill is passed by the House of Representatives (DPR). Environmental sustainability in the agriculture sector is essential.
Agricultural land
One of Indonesia\'s biggest agricultural challenges so far has been the conversion of land into urban areas or those that have been altered into manufacturing. This land conversion issue could worsen because the Job Creation Bill makes it easy to convert land for public use and/or national strategic projects. Previously, Law No. 22/2019 concerning sustainable agriculture cultivation systems required strategic studies, preparation of land conversion plans, exemption of ownership rights from owners through compensation, and the provision of replacement land for agricultural cultivation land. However, in the Job Creation Bill, these conditions are removed.
Moreover, land with the function of a complete irrigation network is now allowed to be converted, with the condition that it is obliged to maintain the function of the complete irrigation network. If the government wants to continue to boost the agricultural sector as seen from the ease of investment and agricultural business licenses, it must also pay attention to the issue of land conversion. Agricultural land must continue to be included in the government\'s development priorities to ensure our food production continues to increase.
Felippa Amanta, Researcher at the Center for Indonesian Policy Studies (CIPS)