July 26, 2012

 

Indonesia farmers' switching to corn results in soy price surge

 

 

Due to farmers' switching to corn, which is considered to be more promising because of higher price, Indonesia's soy prices surged, Agriculture Minister Suswono said.

 

"Corns and soy are planted at the same time. These days farmers tend to prefer corn. With soy priced at IDR5,000 (US$0.53), it's hard for soy farmers," Suswono said at his office in Jakarta on Tuesday (July 24).

 

Last January soy retailed at only IDR5,500-5,600 (US$0.58-0.59) per kilogramme. Now the price has reached IDR8,000 (US$0.84) per kilogramme.

 

The price increase has also been triggered by declining production in the US. The US is actually the world's largest producer of soy and where Indonesia imports most of its soy from. Another reason, says Suswono, is that China is beginning to buy soy on a large scale, causing supply in the world market to decline.

 

Soaring soy prices have seen tempeh and tofu makers consider striking. "This is the problem when soy prices are high, tempeh and tofu producers are the ones screaming. Because we still import 60% and only 40% is local," said Suswono.

In the ministry's work plan to achieve self-sufficiency in soy by 2014, production must reach 2.7 million tonnes. However, efforts to attain self-sufficiency are still constrained by land issues. "Self-sufficiency in soy requires a minimum additional 500,000 hectares of land," he said.

 

The ministry is currently seeking to add land from the National Land Agency's inventory. The Ministry of Agriculture and the BPN have agreed on fees for the use of government land for agricultural needs.

 

In the coming month, they will review which land can be distributed to farmers. However, if this plan does not materialise, a nucleus-plasma scheme will be implemented. Suswono also has other plans. To boost soy production, an intercropping system will be applied. The planting potential under this system may be the equivalent of 200,000 hectares of land expansion. The dry season is considered the best time to start planting soy.

 

To reduce reliance of additional land allocation, the ministry will seek an increase in productivity of 1.3 tonnes per hectare to 1.54 tonnes per hectare. It will then provide assistance in quality seeds and fertilisers.

 

"Self-sufficiency is still possible in two years," he said.

 

Indonesia's Trade Minister Gita Wiryawan on Tuesday (July 24) said that domestic consumption of soy has touched 2.6 million tonnes per year, although national production of the commodity is just 6,000 tonnes a year.

 

This spectacular surge in domestic consumption has forced the government to import soy from outside. Imports, on the other hand, have started affecting the price of local soy given the increase in global soy prices and limited supplies from the US.

 

Since the past few weeks, the Indonesian market has witnessed a substantial growth in soy prices, from IDR6,800 (US$0.72) per kilogramme to IDR7,500 (US$0.79) per kilogramme.

 

Deputy Agriculture Minister Rusman Heriawan on Tuesday (July 24) said that the government is not likely to subsidise soy prices despite witnessing a price increase over the recent weeks.

 

The subsidy would not be of benefit to the nation, he said, adding that the government had subsidised IDR1,000 (US$0.11) to per kilogramme of soy four years ago during a price surge, but the move did not prove beneficial.

 

At present, Indonesia meets 70% of its domestic soy needs through imports, while the remaining 30% comes from local production.

 

Indonesia is to reduce soy import tax from 5% to zero this month as an effort to overcome lacking of supply in domestic market, a minister said here on Wednesday (July 25).

 

Coordinating Minister for Economy Hatta Rajasa said that a ministerial meeting would be conducted to prepare for the planned policy.

 

"There will be a meeting Wednesday (July 25) and tomorrow to prepare the rule. So it can take effect no later than August first," he said at the Attorney General Office.

 

Higher global demand has the prices of the commodity raised and the supply for the domestic decreased that triggers complaint among the domestic buyers.