It is feared the price hike will reduce the people's purchasing power and have an impact on the inflation rate
Jakarta (ANTARA News) - The government has decided to suspend import duties on food-related items until December 31, 2011, the latest in a series of efforts to address the impact of food price hike on the inflation rate.

Under Regulation of the Finance Minister No. 13/PMK.011/2011, the government will exempt food products and materials, raw materials used to produce animal feed and fertilizers, from import duties.

The regulation effective January 24, 2011 is the fifth round of amendment to Regulation of the Finance Minister No. 110/PMK.010/2006 on the system of classifying goods and charging duties on imported goods.

"This is to follow up the president`s instruction at a working meeting on the implementation of development in 2011 as well as to address the impact of global food and energy price hikes," Head of the Fiscal Policy Board at the Finance Ministry Bambang Permadi Soemantri Brodjonegoro said last Friday.

The change in the tariffs of import duties will apply to 57 types of food-related items. The decision to change the tariffs of import duties was reached at a meeting of relevant technical agencies, including the Coordinating Ministry for Economic Affairs, the Industry Ministry, the Trade Ministry, the Maritime Affairs and Fisheries Ministry and the Finance Ministry.

The reduction of import duty on wheat kernel is designed to contain the impact of global wheat kernel price on domestic wheat consumption.

The Finance Ministry said the current 5 percent import duty on wheat kernel is expected to raise the prices of wheat flour and its derivative products.

"It is feared the price hike will reduce the people's purchasing power and have an impact on the inflation rate," Bambang said.

Duty on imported soy bean is reduced due to the fact that domestic production falls short of rising needs. As a matter of fact, soybean is raw material for the production of tempeh and tofu which mostly involves small industry.

The reduction of import duty on raw materials to produce animal feed is meanwhile designed to improve the cost efficiency of cattle production, particularly poultry.

The cattle production cost is mostly made up of animal feed and therefore, the reduction of the import duty is expected to increase the cost efficiency of cattle production which will in the end increase domestic cattle production, he said.

"This effort is also expected to raise per capita poultry meat consumption which currently stands at 4.8 kg per year, or far lower than that of Malaysia which reaches 38 kg," he said.

Meanwhile, import duty on fertilizer is reduced as fertilizer is one of the essential components in food production. The country has so far imported kalium and phosphate. Therefore, the reduction of import duty on fertilizer will hopefully encourage the production of food stuffs.

Yet the decision to exempt food-related items from import duties has sparked criticism with lawmaker Habib Nabiel Al Musawa of the House of Representatives Commission IV saying the policy particularly related to rice imports will harm farmers` interests.

He argued the policy to exempt rice from import duties from December 22, 2010 to March 31, 2011 will lower the prices of domestic rice when the grand harvest time comes because local farmers can not afford to compete with imported rice.

The lawmaker of the Justice and Prosperity Party faction doubted last Friday the policy will be able to protect local farmers against the onslaught of imported rice. "The policy is tantamount to subsidizing foreign farmers at the expense of local farmers," he said.

Even such developed nations as the United States, Germany, Japan and France have so far protected their farmers against foreign products. "Why does the Indonesian government which is supposed to take side with local farmers ignore the protection?" he asked.

He said the policy to suspend import duties on food-related items proves that the government has no a clear blue print for the building of national food stocks in the long run.

The import duty suspension will be able to overcome the high food commodity prices but it will be temporary in nature, he said.

"To contain the inflation rate the government should think of how to increase domestic production, improve the people's purchasing power, and intervene in the market when prices go beyond control," he said.

The board of governors of Bank Indonesia (the central bank/BI) said early January the 2010 high inflationary pressure was very much caused by an increase in the prices of volatile foods.

Consumer Price Index (IHK) inflation in December 2010 came in at 0.92 percent month-to-month, bringing the year-on-year inflation to 6.96 percent, well above the government-target of 5 plus and minus 1 percent.

The higher-than-expected inflation rate was mainly fueled by the high inflation of volatile foods which reached 17.74 percent year-on-year due to weather anomaly-induced production and distribution disturbances.(*)

Reporter: Suharto
Editor: Aditia Maruli Radja
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