■ Pricing Policy and Sustainability in Indonesia

This chapter discusses the effects of some of the government of Indonesia’s agricultural policies on environmental sustainability and environmental degradation. The case of Indonesia clearly illustrates that governments can dramatically influence incentives for sustainable agricultural development. Policies on commodity prices, farmer incentives and input subsidies all have significant implications for erosion, pollution and the use of scarce resources. Agricultural markets in Indonesia are complex and, though government management is pervasive, the level of intervention varies significantly from market to market for the various crops cultivated. The recent and rapid rise of cassava prices is worrying, as some upland farmers are switching back from more protective farming systems, based on livestock rearing, agroforestry and multi-cropping, to growing cassava alone on highly erosive soils. In Indonesia, input subsidies totalled about US $725 million in 1985. The current effective subsidy for fertilizers to farmers is about 38 per cent of the farmgate price.