Indonesia

Indonesia: COVID-19: Economic and Food Security Implications

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Key Messages & Recommendations

Key Messages

● In the first quarter of 2020, the Indonesian GDP grew by 2.97% year-on-year (YoY), the lowest increase since 2001.

● The economic sectors expected to be highly- to moderately-affected by the COVID-19 pandemic contributed 71% to the national GDP in 2019. The five highly impacted sectors (manufacturing, wholesale and retail trade, repairs, transportation and storage, accommodation and services), made up 41% of the Indonesian economy in 2019, employing 45% of the country’s total workforce.

● Estimated 2.9 million to 5.2 million workers could lose their jobs during the pandemic and an additional 1 million formal workers had been told to stay at home, either unpaid or half-paid. The jobs of around 316,000 informal workers have been affected by the social distancing measures.

● Informal workers are among the economically most vulnerable groups who are often not covered by formal employment social security schemes and do not always have access to health insurance. This has likely pushed those in urban locations to return to their hometowns, increasing the risk of spreading the infection to rural areas. Upon return to the cities, they may spark a second wave of infection and further economic downturn.

● Rising unemployment among formal and informal workers is leading to declining purchasing power, subsequently increasing the risk of food insecurity and malnutrition in the medium- to long-term. The majority of the “bottom 40% population”[i] are employed in the informal sector and in sectors estimated to be highly- to moderately-impacted by the pandemic.

● There has been an indication of households reducing consumption due to COVID-19 social distancing measures, including restrictions on movements and business operations, which began in certain areas as early as mid-March 2020.

● In response to the pandemic, the Government of Indonesia (GoI) has expanded the coverage of existing social protection programmes as well as deployed new schemes specific to COVID-19: over IDR 405 trillion have been allocated for COVID-19 response measures, including IDR 110 trillion for social protection of the most vulnerable.

● Government financial and social assistance to those most vulnerable has been crucial to help mitigate the impact of the pandemic on the poor.
Nonetheless, challenges have been reported in ensuring that the assistance reaches the most needy, which should include the “bottom 40% of the population” and those working in the informal sectors.

● Although at this point Indonesia’s national food balance remains safe for most major commodities, it may undergo changes due to import dependency for certain commodities (wheat, sugar, garlic, beef, and soybean). Difficulties in securing beef imports increase the likelihood of beef prices rising as the Eid ‘al Fitr holidays approach, however the lower than usual demand may help to dampen price spikes. In addition, the limited availability of red onions that is expected to continue in the coming months may require further attention.

● According to the Government, as of end April 2020, several provinces were estimated to have a deficit of food commodities, including rice, maize, sugar, chili, garlic, red onion (shallots), and eggs, as they are not (major) producers of these commodities. No cooking oil deficits have been reported at the provincial level.

● Rice production, overall on a downward trend, in the first half of 2020 is estimated to be 13% lower than in the same period last year, but would still be sufficient to maintain a 6.4 million tons surplus by end of June 2020.

● Prices for most major food commodities remained stable as of end of Apr 2020, thanks to increasing supplies from seasonal harvests and a possible reduction in demand due to social distancing measures, limited movements, and reduced purchasing power or cautious spending. Red onion prices, however, continued to escalate by the end of Apr 2020 due to a combination of factors, including delayed harvest, crop losses, and problems in distribution. Sugar and garlic prices have begun to stabilize due to imported stocks entering the domestic market, although sugar prices still remain high. Food prices overall remain highest in Maluku and Papua.

● Low farmgate prices for selected domestically produced food commodities may have mixed impact on farmers who may experience challenges to gain sufficient income from their produce and hence may not be able to obtain inputs needed for the next cultivation season.

● Social distancing and challenges in transportation have led to bottlenecks in the timely marketing of highly perishable commodities, i.e. fruits, vegetables, eggs, dairy products and fish.

Recommendations

● Rising unemployment is likely to result in a reduction of purchasing power, which in turn will put pressure on household food consumption quality and quantity. Therefore, providing access to unemployment benefits and social protection to those affected will be critical to cushion the impact of the pandemic on vulnerable groups, enhance purchasing capacities, and may significantly reduce the risk of food insecurity and malnutrition in the mid- to long-term.

● In addition to these immediate steps, in order to successfully address the pandemic (and perhaps future crises), the Government and other stakeholders may take advantage of the momentum to make progress towards a collectively financed, inclusive and comprehensive social protection system that is effective in targeting, and responsive and adaptive to future shocks.

● As an important step, timely delivery of commodities which the country imports from abroad and ensuring smooth distribution of domestically produced food from producing regions to consumer areas would help prevent local deficits and reduce regional variations in the development of food commodity prices.

● Special attention will need to be given to ensure that sufficient food commodities, especially rice stocks, are available towards the end of the year and in early next year to meet domestic demand - particularly due to the expected pronounced (drier) dry season in some parts of Indonesia in 2020.

● An appropriate redistribution of food items from surplus to deficit provinces is paramount to ensure stable and sufficient stocks across the country, and avoid price increases, which otherwise would further limit purchasing power and could lead to social unrest.

● Due to low farmgate prices for selected perishable food items produced domestically, as a result of social distancing measures, travel restrictions and reduced demand, targeted measures would be needed to support farmers in selling their produce in a timely manner, improving distributions of their products and securing inputs for on-farm production ahead of the upcoming cultivation season.

● Findings from the analysis make it apparent that as an important step, policymakers must be able to identify the most vulnerable populations and those most at risk of becoming vulnerable, and make decisions that aim to decrease the risk of economic harm of the COVID-19 pandemic period on them.
Furthermore, sound policies on economic and social sectors and on food security are vital for the country to reduce the impacts of the pandemic in the mid- to long-term, and to be prepared for possible future pandemics to come.