$Unique_ID{bob00215} $Pretitle{} $Title{Indonesia Chapter 3C. Crop Development} $Subtitle{} $Author{Riga Adiwoso-Suprapto} $Affiliation{HQ, Department of the Army} $Subject{production million tons government percent oil per hectares foreign total see pictures see figures } $Date{1982} $Log{See Coffee Production*0021501.scf See Clearing Land for Exploration*0021502.scf } Title: Indonesia Book: Indonesia, A Country Study Author: Riga Adiwoso-Suprapto Affiliation: HQ, Department of the Army Date: 1982 Chapter 3C. Crop Development Rice has been the staple of the diet, and the government has devoted its scarce resources especially to its development. The Bimas and Inmas programs focused on rice production from the start, although in the latter half of the 1970s they began to include other food crops. Most of the efforts to encourage the use of modern inputs and better cropping patterns were successful, except in 1972 when the government's attempt to control all the marketing of fertilizer had a severe effect on the crop. Thereafter, yields generally increased until 1976 and 1977, when a particularly harmful insect pest, the brown plant hopper (wereng), destroyed much of the new rice varieties. The rapid introduction into the choicest farm areas of varieties that were resistant to the wereng resulted in major improvements. In 1980 and 1981 there were record harvests of over 20 million tons of milled rice (see table 8, Appendix). Although the good rice harvests have permitted imports to fall to their lowest level in over a decade and have taxed the stockpiling capacity of Bulog to its limit, problems remained. The newer rice varieties demanded the farmer's close attention and well-timed applications of fertilizer and irrigation. In the event of drought, the shortfalls could be enormous. In the constant race between the development of new plant genotypes and the natural evolution of insect biotypes, however, the scientists appeared to be ahead, at least temporarily. More important for the welfare of farmers on the Outer Islands was the development of new strains of dryland rice and other food crops, the development of which has lagged behind that of sawah rice. Maize was the second leading food crop and was particularly important for lower income groups. Better fertilizer use in East Java Province, where about 60 percent of the crop was farmed, has increased yields from about 1.2 tons per hectare in the 1969-71 period to some 1.5 tons per hectare in 1977-80. Current breeding efforts focused on the development of quick-maturing and disease-resistant varieties adapted to regional climate differences and taste preferences. The other major food crops were cassava, soybeans, and peanuts. Until recently, research in cassava has been neglected. Although yields were about 25 percent above their level in 1969-71, they were less than half those achieved in other parts of Southeast Asia. Research in the development of new varieties of soybeans and groundnuts was better than that for cassava, but based on research results elsewhere, startlingly improved yields were probably not attainable. Overall, the prospects for the food crop sector were good, although the nation could be expected to be a net importer of from 4 to 6 million tons of rice equivalent until the end of the century. Perennial tree crops were planted on approximately one-third of the total cropland and were important to smallholder incomes as well as to the balance of payments. Rubber and coconut plants covered about 80 percent of the rubber area devoted to tree crops. Smallholders worked most of the crop and nearly all of the coconut, coffee, cloves, and pepper holdings. Public estates and a few private estates dominated tea and oil palm production. In the early 1970s the production of most estate crops, except for oil palm, stagnated as the trees aged, and government attention began to focus on food crops. Under Repelita III the government was attempting to make up for this neglect, and production was improving (see table 9, Appendix). The government's plan was to invest the equivalent of some US$16.7 billion to expand the area under tree crops from 6 million to 8.2 million hectares by the end of the 1980s. In addition, one-third of the existing area was to be rehabilitated. One Malaysian newspaper called these plans wildly ambitious and reported that officials would be satisfied if half of the objectives were reached. The plans centered on the expansion of rubber, oil palm, and coconut estates, particularly in areas developed by transmigrants, such as the Sumatran provinces of Jambi, Riau, and Aceh, and on Kalimantan. The cooperation of the World Bank has been enlisted for the development of 10 tree-crop estates. Indonesia was once the largest producer of natural rubber in the world, and was second only to Malaysia at the start of the 1980s. Rubber cultivation provided full-time employment for some 2 million farmers and part-time work for 6 to 8 million others. There were about 1.9 million hectares of smallholder rubber plots averaging about 1.5 hectares each, concentrated on Sumatra and Java. The area under the control of government and private estates has been declining and totaled about 450,000 hectares, of which some 200,000 were government owned in 1977. Production was centered on Sumatra, Java, and Kalimantan. The productivity of government and foreign estates was much higher than on smallholder and private domestic estates, where over three-quarters of the trees were over 30 years old. During the 1980s the government planned to rehabilitate 40 percent of the existing area and add 500,000 hectares to smallholder areas. The nation was also the second largest producer in the world of oil palm and coconut products. The area planted with oil palms nearly doubled in the 1969-79 period to 232,000 hectares. Public estates accounted for about 70 percent of the total, and private estates for all the remainder, except for about 1,000 hectares under smallholder production. The government's estate projects should increase smallholder cultivation to about 8,000 hectares by the mid-1980s. Since 1978 the government has diverted most of the nation's exports to domestic consumption to replace imports of coconut oil. Farms devoted exclusively to coconut production were located on the Outer Islands, particularly Sulawesi and Sumatra. On Java, where a little under one-third of production took place, the coconut crop was secondary to others. Production of coconut oil had been unable to meet domestic demand since 1978, although the nation continued to export copra. Poor planting and management procedures have resulted in decreasing yields, and the government intended to plant or replant 310,000 hectares and rehabilitate 75,000 hectares under Repelita III; eventually, more than 1 million hectares would be replanted. Indonesia was the second largest producer of sugar in the world before World War II but has been a net importer since independence. A massive program to stimulate production began in 1981, when the government doubled producer prices to entice smallholder production. It was hoped that production would expand from 1.4 million tons in 1981 to 3.4 million tons in 1988. The government planned to rehabilitate 43 of 58 existing sugar mills to handle this increased volume as well as to build 18 new mills. About 300,000 hectares on the Outer Islands were to be converted to sugar production. Most experts thought the plans too ambitious, not only because of domestic constraints but also because of the poor international market. Coffee production, directly or indirectly, supported the lives of 6 million people. A major program to replant the aging stock of trees succeeded in raising output in the late 1970s, and the full effects of this effort were beginning to be realized in 1982. Because the government has had difficulty in increasing its export quota, the replanting program has slowed (see Trade Patterns, this ch.). The nation's coffee exports have often been criticized for their low quality, a factor that contributed to the rising stock of unsold coffee in 1982. Livestock Smallholders, who owned nearly all of the livestock in the country, used their animals for draft power, manure, meat, and for future sale. The most common draft animal was the water buffalo, numbering about 2.5 million in 1980. Both male and female cattle chiefly of the humpbacked zebu variety and numbering 6.4 million in 1980, were also used for draft power. Most livestock, including some 12 million sheep and goats, were simply tethered near the home or put out to pasture on communal grazingland. Commercial breeding of livestock was limited and centered on raising pigs and poultry for urban consumers. Indonesia had traditionally been a net exporter of livestock products but in 1980 became a net importer. The livestock population was small compared with other countries in Southeast Asia and in 1980 averaged only seven head of large livestock per 100 persons. The water buffalo population has been decreasing as modern vehicles and tillers have become more widespread. The stagnation of the cattle population has had even more serious implications for the food supply. Hampered by the low birth rate, high slaughter rate, and concentration of breeding on Java where green fodder is scarce, the domestic supply has been unable to keep up with rising urban demand. The high prices for beef in the cities and inadequate extension services to farmers resulted in the slaughter of calves and cows well before the economically optimal time. On the positive side there has been a rapid increase in the supply of poultry and dairy products. The number of chickens and milk cows has been increasing by over 6 percent per year since 1969, and egg and milk production has been growing by over 9 percent per year. Since 1978 the government has been providing technical assistance to poultry farmers, particularly in or near urban areas, and has done much to improve the dissemination of superior breeds and modern medicines. The milk processing industry, much of it dominated by foreign joint ventures, utilized milk from domestic cooperatives for only one-tenth of its production. As a result, only about half of the production from dairy cooperatives was sold to processors, while much of the other half was wasted. In 1982 the government issued new regulations requiring processors to increase the domestic content of their products. Forestry Indonesia has the largest forest resources in Asia; about 122 million hectares of tropical hardwoods-55 million hectares in Kalimantan and Sumatra-were of commercial value. Production grew by over 9 percent per year during the 1969-80 period, peaking in 1978 when the nation's exports were over half of total world trade. At the end of 1980 some 500 concessionaires conducted logging operations on 49 million hectares of land; about 70 were partly or wholly foreign owned. Exports of timber grew by over 49 percent per year during the 1969-80 period. Teak was grown on plantations, mostly on Java, but in much smaller volume than other hardwoods from logging operations. The rapid exploitation of the nation's forests, in order to earn foreign exchange, to clear new lands for farmers of food crops, or to provide firewood for farm households, has resulted in concern over forestry management and rehabilitation. Some observers have suggested that the lowland forest areas of Kalimantan and Sumatra will be completely depleted in 20 to 30 years and that unless corrective measures are implemented, it will take decades more to regenerate. In some areas of Sumatra the degradation of river catchment areas has approached that which occurred centuries earlier on Java. The government policy was to determine quotas on the basis of estimated sustained yields. Inadequate information on the exact density of forests, not to mention the reluctance of loggers to implement costly procedures of selection and replanting, hampered the government's efforts. Ironically, the first major successful effort to limit forestry operations occurred as the government acted to build a plywood and timber processing industry. Exports dropped sharply in 1981 and 1982 after foreign logging companies were required to build plywood plants in order to receive export quotas (see Manufacturing, this ch.). In its concern over forestry management, the government was also acting to provide added training for its small staff of forestry extension agents, many of whom were part-time employees. The slowdown in foreign logging operations was an excellent opportunity for the government to gather better information on the extent of forest degradation, but there were undesirable side effects. The transmigration program, which used forestry areas for many sites, was impeded, and the nation's earnings of foreign exchange were reduced. [See Coffee Production: Yields a livelihood for millions of Indonesians. Courtesy Foreign Agriculture] Fishing The fishing sector provided the main source of animal protein in the diet and accounted for about 7 percent of agricultural output in 1980. The apparent consumption of fish products, however, was only 11 kilograms per person in 1980, just over one-third that in Malaysia and the Philippines and far short of the government's long-term objective of 30 kilograms per person. The total catch of saltwater fish was 1.4 million tons in 1980 and had grown by over 5 percent per year since 1968. The freshwater catch was 439,000 tons and was growing more slowly. Large commercial enterprises dominated the sea-fishing industry, which produced primarily for export. Many of these operations were foreign owned, chiefly joint ventures with Japanese companies. Some 850,000 coastal operators used small boats and traditional gear to catch about 7 percent of the total. About 14 percent of the 270,000 coastal vessels were motorized in 1980, compared with 2 percent of the total in 1970. About 500,000 people cultivated fish in 180,000 hectares of brackish ponds, 40,000 hectares of freshwater ponds, and 80,000 hectares of rice paddies. There was much room for improvement in the fishing sector, and estimates of the annual sustainable yield were as high as 6 million tons. In aquaculture the government hoped to improve yields from the 1979 average of about 1,250 kilograms per hectare to 1,500 kilograms in the first part of the 1980s by improving the quality of extension agents, supplying better fish stock, and encouraging the use of fertilizer. The coastal fishing industry was constrained by the lack of adequate onshore facilities for freezing and marketing the catch, as well as by the outmoded equipment. In 1981 the government banned large-scale commercial fishing in the nearby waters off Java, Bali, and Sumatra to protect the traditional fishing industry, but substantially improved yields would require greater expenditures on modern equipment. The state-owned sea fishing companies have been operating at a loss, and joint ventures seemed to be the most profitable way to increase production. The offshore grounds were frequently fished by illegal trawlers from the Republic of Korea (South Korea) and Taiwan. Industry The government's industrial policy was to exploit efficiently the nation's mineral resources, create employment opportunities, replace imported products with domestic supplies, and spread the benefits of industrial modernization outside the main island of Java. The rapid increase in oil revenues after the mid-1970s afforded the government a good opportunity to accomplish these goals through public investment. During the 1975-80 period public enterprise investment in industry grew by over 17 percent per year in real terms and was expected to increase by over 30 percent per year in the first half of the 1980s. A flurry of contracts at the start of the decade foretold expenditures equivalent to US$12 billion on crude oil, natural gas, petrochemicals, fertilizer, cement, pulp and paper, mining, and metals facilities. Few of these projects were especially labor intensive, but most fit the country's resource endowment. Many had strong linkages to other sectors of the economy, and some were located on the Outer Islands. It was the government's apparent hope that these large-scale investment projects would stimulate small-scale development in the private sector. Mineral Production and Processing The exploitation of crude oil and natural gas reserves dominated the mining industry, but Indonesia was also a leading producer of tin and nickel. Other minerals mined in significant quantities included bauxite, copper, and iron sands. The general trend in recent years has been to expand the refining and processing facilities located on Indonesian soil and to capture greater revenues for the domestic economy from the nation's many foreign joint venture partners (see table 10, Appendix). Mineral Fuels Indonesia was the world's twelfth largest producer of crude petroleum and fast becoming a major producer of natural gas. Although estimates of total reserves are never reliable and the government did not issue official figures as a matter of policy, minimum total reserves of oil were estimated by one government scientist to be about 44 billion barrels and those of natural gas to be almost 46 billion barrels of oil equivalent. Total production as of 1981 had exceeded 8 billion barrels, and proven reserves were around 10 billion barrels. Of the estimated total reserves of oil and natural gas, about 36 percent were thought to be onshore, 27 percent in shallow waters connected to the onshore basins, and the rest in deep waters offshore, where expensive technologies would have to be applied. Pertamina produced only 5 percent of all crude petroleum in 1980; 47 percent was produced under work contracts with foreign oil companies or under production-sharing arrangements with foreign joint ventures. The biggest producer, Caltex of the United States, had a work contract that was to expire in 1983, at which time the government hoped to shift to a production-sharing arrangement. Production sharing was the most profitable scheme for Pertamina, which insisted on taking 85 percent of total output and on claiming formal ownership of all well equipment upon its introduction into Indonesia. The contract terms for foreign ventures have consistently hardened since the 1960s. Pertamina suffered near financial collapse in 1975 after it accumulated debts in excess of US$10 billion. Partly as a result of this financial disaster, but also because of the government's desire to stiffen the terms for foreign companies, oil exploration came to a near halt. Special tax incentives and the successful renegotiation of Pertamina's debt under tight central bank control attracted new oil exploration in 1977, and in the following year the number of new wells increased rapidly. The drilling hiatus, however, caused a steady decline in production from the peak of 1.63 million barrels per day in March 1977. After a partial recovery in 1980 and 1981, the worldwide oil glut of 1982 caused crude oil production to fall below 1.30 million barrels per day, the OPEC ceiling imposed on Indonesian crude. The maximum sustainable operating capacity for Indonesian wells was estimated to be 1.65 million barrels per day in 1982. Exploration for new fields and the conservation of domestic resources were becoming increasingly important to the nation's oil managers. Seven of the 11 oil-producing basins in 1982 were experiencing declining production because of their age. In most oil basins, one huge field predominated. The largest, the Minas field in central Sumatra, had been exploited since colonial times, and further significant production depended on using expensive water-flooding and steam-injection techniques to force out the remaining oil. Although the success ratio for wildcat drilling in 1980 and 1981 was high, most of the new finds have been small. The best prospects were off the northwest shore of Java, north of Samarinda on Kalimantan, near the Natuna Islands in the South China Sea, and on remote Irian Jaya. Thirteen of the 38 potential oil-yielding basins had yet to be drilled as of 1981. The ability to maintain the nation's exports was therefore dependent on reducing domestic demand, which grew at over 12 percent per year during the 1970s in the face of oil subsidies. The National Energy Coordination board was established in 1980 to recommend pricing and investment policies. In order to reduce the nation's dependency on imports of refined fuel products, the government has invested heavily in the expansion of domestic refining capacity. The long-delayed construction of a hydrocracking plant at Dumai in Sumatra was to be completed in 1983. Pertamina was adding capacity to the existing facilities at Balikpapan and Cilacap. By the mid-1980s domestic refining capacity should double from the 1981 level of about 515,000 barrels per day. The government's hopes for the future rested on natural gas, the production of which grew by about 3 percent per year during the 1971-76 period and then boomed by over 26 percent per year through 1981. Over three-quarters of the 23 million cubic meters of gas utilized in 1980 were turned into liquefied natural gas (LNG) for export to Japan and South Korea, with whom Pertamina had negotiated long-term contracts. The remainder was used as fuel for the production of steel, cement, and fertilizer. About 6.7 million cubic meters of gas were wasted and had to be flared in 1980. In order to capture this lost energy, Pertamina had contracted for the addition of two new production trains each at the Bontang and Arun LNG plants. Talks were continuing with South Korea for the further expansion of the plant at Arun. If the natural gas finds in the Natuna Islands field were as large as expected, new liquefaction plants would be constructed nearby. The current expansion alone was expected to double the existing LNG production capacity of about 8.2 million tons of oil equivalent. Coal is the third major hydrocarbon found in Indonesia, and hundreds of deposits existed on Sumatra, Kalimantan, Sulawesi, Java, Timor, and Irian Jaya. About 80 percent of the estimated resources were on Sumatra, Data for total reserves were even less reliable than those for crude oil, but proven reserves on Sumatra alone were 225 million tons. One estimate at the Department of Mines and Energy suggested that total reserves were in the neighborhood of 17 billion tons nation wide-the majority being lignite or brown coal-and there was little question that the total reserves were among the largest in the world. The 300,000 tons of coal produced in 1980 seemed small compared with the peak production in 1941 of over 2 million tons. The coal industry was unable to compete with the petroleum industry, and production declined to a low of 156,000 tons in 1974. As of 1982 the government had renewed its interest in alternative sources of energy, however, and the two state coal companies were improving and expanding their operations at the two principal mines, at Ombilin and Bukit Asam on Sumatra. Most of the coal was consumed domestically for power production at the mining site, for railroad fuel, for thermal power generation, and for smelting operations. In 1982 the government subsidized the sale of coal, including that for export, but as petroleum prices were allowed to rise, coal mining would inevitably become more profitable. In 1981 five production-sharing agreements were signed with foreign firms to begin exploration on Kalimantan. Projected domestic demand for coal in 1980 was about 10 million tons. [See Clearing Land for Exploration: For new petroleum fields and conservation of known resources is increasingly important to Indonesia. Courtesy Resources Management International] Other Minerals Tin production continued to grow in the early 1980s, maintaining Indonesia's position as one of the top producers in the world. The country's measured reserves were between 750,000 and 1 million tons, located onshore and offshore of the islands in the Lingga group in Riau Province and in the Bankinang area of Sumatra. Indonesia was the world's third largest producer in 1980, producing nearly 32,000 tons. A state-owned mining company, the major producer, increased its number of dredgers to over 40 in 1980 and rehabilitated its smelting facilities on Bangka Island. Although total production from these furnaces has been only 75 percent of capacity in recent years, the completion of an expansion project boosted total capacity to 39,000 tons in 1980. The international market for tin was depressed in 1982, but if demand picks up in the long run, Indonesia could become the second largest producer after Malaysia. Nickel was mined by one state enterprise together with a large international joint venture. Active exploration in the early 1970s found that there were approximately 824 million tons of nickel-bearing laterite deposits, chiefly on Sulawesi and on several island groups between Halmahera Island and the northwestern tip of Irian Jaya, as well as in the outer reaches of Kalimantan. In 1982 production was located at two sites, on Sulawesi and on Gebe Island, east of Halmahera Island. Most of the metal was exported as raw ore or in matte form, but some 4,000 to 5,000 tons were processed into ferronickel. The completion of the first-phase construction of a smelting plant in Soroako, in South Sulawesi Province, made this facility the largest in the world. The expansion was expected to increase annual capacity to about 36,000 tons in the early 1980s. Bauxite was mined on and around Bintan Island by another state-owned company. All of the production, about 1 million tons per year, was exported. In 1982 the first part of a joint-venture aluminum smelter for the industrial complex at Asahan in North Sumatra Province was to be completed, and by 1984 this facility was to have a capacity of 225,000 tons of aluminum ingots. The alumina to feed this plant, a Japanese joint venture, was initially to be imported. In 1982 the government signed a contract to build an alumina plant on Bintan Island so that the nation could utilize its own bauxite resources. The plant would have an annual capacity of 600,000 tons, 450,000 of which would be sold to the Asahan smelter. The Asahan project, together with its large complex of power-generating dams, was one of the most important in Indonesia. It was unknown how long the reserves of bauxite in the Bintan area would hold out; some estimates claimed that its 9 million tons of reserves would be depleted in the early 1980s. The government's move to construct an alumina plant, however, suggested that the actual reserves were probably much higher. Another 810 million tons of bauxite were located along the Kapuas River, in Kalimantan, but were too expensive to exploit at the prevailing international prices for aluminum. Copper was mined only by a foreign joint venture in the high Ertzberg ranges in Irian Jaya, but the first mines at this site were expected to be depleted in the early 1980s. In 1979 the company expanded further into the mountainous region, utilizing subterranean, block-caving methods rather than the open-pit methods of the initial sites, whose resources were expected to be depleted by late 1983. The government mining company, Aneka Tambang, has conducted numerous exploratory surveys, either alone or with foreign partners, on Java, Sulawesi, and Kalimantan. There were reserves of approximately 45 million tons averaging 2.8 percent ore content in the upper reaches of the Ertzberg ranges mine, but the nation's total reserves were unknown. Iron sands were also mined in large quantities, although exports to Japan have tapered off because of a dispute over prices. Sands produced from a mine at Cilacap in southern Java and from other sites on the southern Java coast totaled about 75,000 tons in 1980, down from a high of 365,000 tons six years earlier. Most production was sold to the expanding domestic cement industry.