An analysis of Indonesia’s shrinking food security policy space under the WTO

Abstract

Achieving food security remains a challenge for many low- and middle-income countries, including Indonesia. The aim of this study was to assess the policy space to implement food security policy in Indonesia under the World Trade Organization (WTO). The policy space for developing countries to implement administered prices for agricultural commodities is significantly circumscribed by the Agreement on Agriculture (AoA) under the WTO regime. In particular, the procurement of foodgrains at administered prices is considered “trade distorting support” and limited under the amber box. This study describes the food security policy context in Indonesia, compares existing food procurement expenditure to Indonesia’s commitments within the AoA, and evaluates the implications of different options proposed regarding public stockholding for food security purposes at the WTO. Administered prices and public procurement form part of Indonesia’s long-term commitment to food security policy, and aim to stabilize food prices for producers and consumers. Indonesia’s procurement of rice has been rising as a percentage of value of production (VoP). It is still under the de minimis limit (10%), but the applicable permissible limit on procurement has declined by nearly half, in terms of volume. This indicates that the policy space for providing product specific support is declining, as inflation is not accounted for under the AoA method of calculation. Of the different options that have been tabled to take into account inflation, using the Wholesale Price Index as a deflator increases the policy space the most. The peace clause deliberations at the WTO are of critical importance to the Government of Indonesia, as their policy space becomes increasingly constrained. In the near future, Indonesia may need to invoke the peace clause to restrain other countries from challenging its food security program.