February 23, 2010

Indonesia encourages foreign investment in local farm sector

Indonesia is keen on foreign and local investors to lease huge swathes of fertile countryside and help make the country a major food producer.

The government has announced plans to accelerate development of vast agricultural estates in remote areas like Papua and Borneo, with the look to become self-sufficient before moving on to exports.

Between now and 2030, Indonesia expects to become one of the world's biggest producers of corn, shrimp, and meats among other farm products, according to senior agriculture ministry official Hilman Manan.

The first area targeted for development is 1.6 million hectares of land in the southeast of the largely undeveloped province of Papua, around the town of Merauke.

Merauke is chosen because it is the ideal place for food crop cultivation, such as corn and soy. Merauke district has 4.5 million hectares of land, of which 2.5 million hectares are ideal for cultivation, said Manan.

Foreigners will be able to control a maximum of 49% of any investing company, and will be offered incentives like tax breaks and reductions in customs and excise duties.

In order to avoid any forms of monopolies or land grabbing, each company will be limited to a maximum of 10,000 hectares of land, Manan said, stressing that the government was selling land use rights, not the land itself.

Japan, South Korea and the Middle East had expressed interest, he said.

But analysts said the project could require up to five billion dollars in infrastructure investments, from a new port to roads and runways. Small-scale farmers are also against the plan, as they fear their traditional livelihoods could be threatened by the large scale commercialisation of agriculture.

The regular farmers' land will be taken by big companies and the farmers will be left with nothing, said Indonesian Farmers Union official Kartini Samon.

Such worries are well known in other countries with similar schemes, such as Brazil and Madagascar, where there is deep suspicion about food and biofuel companies monopolising agricultural land.