The agricultural sector covers 34% of the total employment in Indonesia in 2014, larger than those employed in services, and second only to industry sector. In estimation, this amounts to more than fifty million people - a significant share of the Indonesian workforce. Unfortunately, most of them live below the poverty line or just slightly above it. In rice-producing districts such as Indramayu in West Java, landless farm workers earn only about IDR 300,000 per month and small-scale farmers make less than IDR 600,000 per month from farm work. Limited job opportunities in the villages, poor irrigation systems, and unpredictable weather are among the factors that add to rural predicaments. Consequently, people in the villages choose to migrate into cities, indicated by the decreasing percentage of rural population compared to the total population in the country, from 50% in 2010 to just 46% in 2015.
To address this situation, the government allocates funds that enable farmers to buy seeds, fertilizers, and rice at subsidized prices. However, government agencies acknowledge that this support is ineffective. Despite their hefty annual state budget of IDR 52 trillion, the subsidized products are of low quality and their poor distribution systems leading to black market activities. Only the rich, well-connected farmers take advantage of these subsidies.
As poor farmers and farm workers struggle with their low-income, more targeted support programs such as conditional cash transfers (Program Keluarga Harapan/PKH) and financial assistance for healthcare (Kartu Indonesia Sehat/KIS) and education (Kartu Indonesia Pintar/KIP) are recommended. These programs can be more effective as they directly address recipients with insufficient earnings to cover their healthcare and education expenses. Meanwhile, agricultural insurance programs for rice farmers (Asuransi Usaha Tani Padi/AUTP) can help them by alleviating their income losses due to harvest failures. However, these programs are currently unable to reach their objectives due to budget restraints as their funds are less than half of the farm subsidies.
There are three possible solutions: firstly, the government may reallocate funds, from ineffective and costly farm subsidies to the more targeted and effective PKH, KIS, KIP, and AUTP schemes. These programs have greater impact on people’s livelihood and reducing farmers’ risk of income losses. This approach will require a paradigm shift, in which the government must improve public awareness that the subsidies only benefit the wealthy farmers. Secondly, once the budget of PKH, KIS, KIP, and AUTP increases, their coverage can be expanded along with an improvement of their targeting efforts and the infrastructure of the support systems. Thirdly, the government may develop their insurance policy as a tool to protect the farmers of various food crops against the risk of harvest failures. The insurance benefits must be clearly communicated to the farmers, the processes involved must be simplified, and the coverage to remote areas must be expanded in partnership with private insurance firms that maintain a wide network of branches and agents.