Subsidized fertilizer management in the rice production centers of South Sulawesi, Indonesia: Bridging the gap between policy and practice

2.1 Study locations and research samples

This study was conducted in Sidrap (Sidenreng Rappang) and Wajo Regencies, two major rice-producing areas in South Sulawesi Province. According to the Director General of PSP, Ministry of Agriculture, Republic of Indonesia, 2023, these two districts use subsidized fertilizers at a relatively high national rate. In this study, both primary and secondary data were utilized. The Ministry of Agriculture, District Office, Sub-District Level Agriculture Extension Office, fertilizer distributors, fertilizer retailers/kiosks, farmer groups, and farmers were the key informants who provided the primary data through in-depth interviews. Secondary data, meanwhile, were gathered through reports from the Central Statistics Agency, the South Sulawesi Provincial Agriculture Service, the Sidrap and Wajo District Statistic Centers, and the Ministry of Agriculture (Directorate General of Agricultural Infrastructure and Facilities), PT Pupuk Indonesia Holding Company (PT PIHC) and Government official websites.

2.2 General conditions of the research sites

2.3 Analysis method

The analytical method used is descriptive qualitative analysis with a case study approach. Data collection was done through observation, interviews, documentation, and audiovisual information. The data obtained consisted of primary data and secondary data (Figure 1). Primary data were obtained from interviews with several stakeholders directly with respondents in the field or at the research location, while secondary data were obtained from various literature studies and other sources from related institutions/agencies as supporting data to complement the primary data.

Figure 1

Research methodology framework.

Initially, the analysis was conducted inductively by categorizing the existing data based on the type of ideas and trends. After a complete pattern was found, the analysis continued with the deductive method to refine the data and ideas. Data analysis is strengthened by using Michell Foucault’s perspective on power. Government policy is part of policy practice to build a system of control and monitoring [34,35,36] to achieve a national development goal in agriculture, such as national food security and farmers’ welfare through descriptive data presentation.

3.1 Insufficient allocation of subsidized fertilizers

The entire amount of fertilizer required by farmers, according to the RDKK, is between 22.57 and 26.18 million tons, or roughly IDR 63–65 trillion annually, according to data from the Ministry of Agriculture of the Republic of Indonesia. If the government wishes to promote food security with the most significant possible effort and best possible outcomes, then the budget must be met. However, in practice, the demand for fertilizer cannot be fully satisfied, according to data from the Directorate General of Agricultural Infrastructure and Facility, Ministry of Agriculture of the Republic of Indonesia that was submitted at a Meeting with Commission IV of House Representatives. Only IDR 25.27 trillion, or 9 million tons of fertilizer, can be purchased with the government’s available fertilizer subsidy budget. Simply put, 37% of the total fertilizer needs can be supplied, meaning that farmers have to spend more money to fill the gap in fertilizer needs that cannot be met by subsidized fertilizers.

Farmers directly experience the effects of the lack of allocated subsidies for fertilizer. For instance, farmers will receive 250 kg of urea and 117 kg of NPK every planting season (PS) of subsidized fertilizer in Keera District, Wajo Regency, South Sulawesi. In contrast, urea is 250 kg per PS, and NPK is 100 kg per ha per PS in the Pitumpanua sub-district. Farmers claim that this amount, particularly NPK, is insufficient because their land ideally needs 300 kg of NPK fertilizer per PS and 250 kg of urea fertilizer per ha. The Extension Officer claims that the allocation is significantly less than what was given in 2021. Only 250 kg of urea per ha, 150 kg of NPK, 100 kg of ZA, and 25 kg of SP36 per PS are now allocated as subsidized fertilizer. The allotment for urea is just 233 kg per ha and is only 129 kg per ha for NPK fertilizer in Sidrap Regency, but the needs, according to the RDKK, are urea 275 and NPK 250.

Farmers also have problems in removing SP36 and ZA fertilizers from the list of fertilizers that are eligible for subsidies. For instance, farmers in Pattirlokka Village, Wajo Regency, claim that SP36 and ZA fertilizers are unavailable, even though they require them because their rice fields are rain-fed. The field’s extension worker who was on duty in the Keera sub-district made the following statement:

Farmers request the reintroduction of the SP36 subsidy, and they demand assurance at every meeting so that they may express this to policymakers. (Keera sub-district extension worker, author’s personal communication, February 10, 2023)

According to Field Extension Officers in the Keera sub-district, farmers in the area recommend the following fertilizer allocation: 200 kg of urea, 250 kg of NPK, 50 kg of ZA, and 100 kg of SP36 per ha per PS, particularly for places with rain-soil. According to farmers’ experience, using complete fertilizer increases output to 70–80 sacks, or around 7–8 tons per ha, whereas improvised fertilizer results in a harvest of about 4–5 tons. Therefore, there is a difference in applying the recommended dosage of 3 tons of rice per acre, both fully and partially. Accordingly, farmers lose about IDR 12 million per ha when using improvised fertilizer. A further three sacks of NPK can be purchased for the price of an additional NPK, which works out to IDR 375,000. Farmers aware of this loss are looking for other ways to acquire fertilizers, such as non-subsidized costs, on credit, or by paying after harvest. Farmers have little choice but to purchase non-subsidized fertilizers, even if they are more expensive when subsidies cannot cover their fertilizer demands.

The inadequacy of subsidized fertilizer allocations can also be observed in Sub-Saharan African countries that implement the same policy [6,37,38], although in this case, the distribution mechanism is different from Indonesia. This problem stems from a decrease in the budget for subsidized fertilizers due to the financial burden on the state. The limited availability of subsidized fertilizers in the field leads to competition for them and opportunities for misappropriation by certain individuals [39,40,41,42,43].

3.2 Centralized and the distribution frequently tardy

The ineffectiveness of subsidized fertilizer distribution has been a challenge for countries adopting this policy, although with various mechanisms; the main problem has always been related to distribution effectiveness. For example, in Nigeria, delays in fertilizer distribution are a major issue whose root cause lies in issues of corruption, mismanagement, and delayed payments [44,45]. In India, on the other hand, a decentralized distribution system has led to inefficiencies, with subsidized fertilizers often not reaching the intended smallholder farmers on time [46]. In Pakistan, where the policy and implementation of subsidized fertilizer policy are similar to Indonesia, adhering to a centralized distribution system delays in fertilizer distribution are still found. However, in this case, delays are not the main problem but price disparities and inaccurate targeting of subsidized fertilizers; therefore, there is a discourse from the government to change the distribution mechanism of subsidy from indirect subsidy to direct subsidy to farmers/farmer groups [47,48].

In Indonesia, the government creates a distribution system for subsidized fertilizer governance to be precise in its application. The state budget provides funding for subsidized fertilizer, but only for particular categories of farmers who meet the requirements outlined in Minister of Agriculture No. 10 of 2022. Prior to the appointment of the new Minister of Agriculture, fertilizer subsidies were available for 69 different types of agricultural commodities. They are only available for nine essential and strategic food products: rice, corn, soybeans, chilies, onions, garlic, sugarcane, coffee, and cocoa. According to the policy, only farmers who oversee land at most 2 ha are eligible for subsidies. The government uses a single, centralized bureaucratic organization to govern subsidized fertilizer. The Ministry of Agriculture and its workers gather information on farmers, land, and the Group Needs Definitive Plan (GNDP), among other agencies. The Ministry of Finance is in charge of awarding funds, the Ministry of Trade recommends private sector entities to distribute subsidized fertilizers, and the Ministry of State-owned Enterprise and its personnel are in charge of purchasing and distributing subsidized fertilizers. Then, the Police, Prosecutors’ Office, and other agencies involved in oversight are given to the Fertilizer and Pesticide Supervisory Commission. Coordination of the distribution tasks in each region is the responsibility of the Regional Government.

The government creates a hierarchy for the distribution process, starting with Line I and moving down through Lines II, III, and IV to Farmers. Distribution of the fertilizer in Line I is primarily the responsibility of the government-appointed PT PIHC. PIHC chose distributor Line II. Then, in Line III are the retailers that PIHC has designated as locations where farmer groups can purchase fertilizers, and in Line IV are the farmers who purchase and receive the fertilizers of their portion. The outcomes have differed from anticipated, notwithstanding the extensive involvement of all bureaucratic tools in this case. The most challenging issue is overcoming the market’s pricing duality and preventing subsidized fertilizer from being sold at non-subsidized prices.

The delay in distribution is due to the following difficulties. This centralized model makes accumulation very likely, which often occurs in Line I and Line II warehouses. Then, there is the problem of what farmers refer to as fertilizer scarcity. Retailers’ information indicates that distribution issues are typically blamed for these delays. Fertilizer transportation and the small workforce at supplier and distributor warehouses are to blame for the problem, which makes it challenging to meet several requests simultaneously and in significant numbers. Even if they have already paid the wholesalers, this makes merchants frequently wait a long time in uncertainty. One shop faced something similar in the 2022 growing season. Each day, the retailer serves 345 farmers from 14 farmer groups. Fertilizer always appears after it has been ordered and paid for, even though the distributor where the order was placed is just 10 km from the retail warehouse and only covers two sub-districts. The items still need to be delivered.

When there are delays like these, some retailers may pick themselves up from the distributor’s warehouse under the pretext of hastening the arrival of the fertilizer at their warehouse by paying back the IDR 800,000 per truck in distribution transportation costs, and distributors allow retailers to pick up their orders. Retailers only engage in it out of necessity, even though it is legal since they stand to lose money if they do not. It is acknowledged that the retailer’s profit margin is only IDR 75 per kg or IDR 7,500 per quintal, despite the possibility of increasing labor and transportation costs. A retailer in Pitumpanua, Wajo Regency, described his experience:

I once made up for it; numerous issues were conveyed. The profit is lost if you drive your own vehicle because the cost of the subsidized transportation is just IDR. 800,000, while the profit is only IDR. 75 per kg, or IDR. 7,500 per quintal. Therefore, if you take it for yourself, you will lose, particularly the workers under the most pressure. Because the salaries for workers who lift them from the warehouse can only be IDR. 500, if we look for workers outside, no one will take IDR. 500, renting a car outside will almost certainly result in higher prices. (Siwa Retailer, author’s personal communication, February 10, 2023)

Retailers regularly take advantage of this condition, as some Kiosks in Sidrap have done. They acknowledge that they frequently pick up the fertilizer in their vehicle, and when they do, the distributor transfers their transportation chargeback. In order to avoid losses, the retailer must work to reduce expenses by having the product delivered directly to the farmer or farmer group from the distributor’s warehouse. He said it was best to pick it up yourself because you could take it straight to the farmers. The farmers add IDR 750 per sack to the labor charges if they are delivered. Therefore, a customer would pay IDR 3,500 per sack, IDR 112,500 for HRP, and IDR 115,000 for NPK + labor charges. Because farmer associations typically coordinate farmers’ expenditures, this method of operation is simpler for retailers and farmers. As a result, farmers who come immediately to the kiosk are not crowded; at most, there are 1–2 individuals per group, and even then, it is only because they have an urgent need. Additionally, if they travel straight to the store, the farmers receive HRP prices at no additional expense.

Because people plant during the seasons of April–September and October–March, the opportunity to redeem discounted fertilizer rates is from April to December. The highest distribution was seen in November to December. In the first month, 100 tons of fertilizer should be delivered and present in the retailer’s warehouse. There would be issues if, in the first month, only 20 tons arrived. Therefore, the Line II warehouse must contain all the PS 1 fertilizers between January and February. PIHC can map the PS for each location of Line IV so that redemption can be planned and lines do not build up at the warehouse. Farmers have to wait to join the line in nearby sub-districts like Keera, as in the Pitumpanua sub-district, where PS runs from January to February. The fact that this can be conditioned on its own is a result of the fact that areas that have yet to start the fertilization season often have yet to fill up.

Farmers wait in line to purchase a fertilizer that is being subsidized, so even if just 10 tons arrive at the retailer’s warehouse, it runs out in a day. It frequently requires regulation to ensure that other farmers who need the quotas wait to buy them. The future will bring more fertilizer, and retailers attempt to convey it. With a total of 20 tons for each transaction, the merchant should ideally transact with the distributor five times a month. As long as the money does not stay with the distributor, capital turnover at the retail level hovers around IDR 100 million. As long as the arrival of fertilizer can be guaranteed, farmer organizations are willing to maintain this trend by providing capital. Retailers have sometimes received money from distributors for up to a year, but the products have yet to arrive. For instance, a shop in the Lompoloang village, Pitumpanua sub-district, where the distributor left with roughly IDR 40 million in cash. The distributor has since relocated but has yet to repay the money. The fact that the money has already been deposited into PIHC makes it more difficult to return it. Last year’s difficulty was the lack of labor, as fertilizers frequently arrived yet were tough for workers and vehicles to handle. Due to these delays, purchases are made at stores more frequently.

3.3 Breaking the HRP rule

The dualistic state of fertilizer prices impacts the challenge of maintaining prices by the HRP. Each participant in this system looks for advantages for themselves. Everywhere there is a black market (mafia) for subsidized fertilizers. Purchasing subsidized fertilizer illegally marketed is known as “Pupuk Gentayangan” in Wajo and Sidrap Regency, South Sulawesi. Many claim that the fertilizer came from their surrounding; for instance, it is believed that the Sidrap fertilizers came from Enrekang, Pinrang, and Mamuju Regencies. In Wajo, however, they originate from Sidrap and Luwu’s eastern regions. Others believe they originated in their neighborhood but from a separate sub-district. The origin of the “Pupuk Gentayangan” fertilizer is unknown, according to everyone. If it is true that the fertilizer came from a nearby area, they assume that even though the rice fields there were rain-fed, the farmers there still received a fertilizer allotment even if they did not plant.

The HRP of this illegally subsidized fertilizer at kiosks is not much different from the price of subsidized fertilizer sold officially at authorized kiosks and in accordance with government regulations. For example, the price of NPK can reach IDR 150,000–180,000 per sack, and some suppliers are willing to accept payment after harvest. Meanwhile, the official HRP per sack is Rp. 112,500, making the price of “illegal” fertilizer more expensive. However, as long as subsidized fertilizer is still available in the market, farmers are always willing to spend more money to meet their fertilizer needs, which cannot be covered by subsidized fertilizer. Furthermore, the price of illegal subsidized fertilizer is much more affordable than non-subsidized fertilizer, which can cost up to IDR 475,000 per bag. This is consistent with the statement of the leader of one farmer group who said that:

Very surprised, because if you want to redeem the fertilizer there isn’t any, but we are looking for fertilizer despite the fact that it is always there, it’s just that the price is already expensive, around IDR 150,000. (Head of Farmer Group Sidrap, author’s personal communication, February 10, 2023)

Comparatively, it has been discovered that illegal fertilizer sales take place in numerous locations. For instance, in Pamekasan Regency, East Java, several irresponsible individuals were found who were still selling subsidized fertilizers illegally to non-official kiosks [36]. The same was also found in Solok District, West Sumatera [49]. Furthermore, it was also found that the selling price of subsidized fertilizers was above the HRP in Batang Regency, Central Java [36]. Sales above the HRP can be found in various regions in Indonesia that receive subsidized fertilizers [18,50–52]. In some cases, the existence of distribution institutions does not follow the regulations made by the government, which is considered a common secret. Without a fertilizer black market, farmers who do not join farmer groups will have difficulty obtaining fertilizer, and this will have an impact on the economy and welfare of rural communities [53]. This finding is in line with a study by Upadhyay et al. [54] that suggests illegal trade from India’s open borders and the sale of subsidized fertilizer by unauthorized agricultural traders are other problems of the subsidized fertilizer policy in Nepal. In Zambia, some parties who do not meet the criteria for receiving subsidized fertilizer obtain subsidized fertilizer illegally, buying at prices lower than commercial fertilizer prices [43].

Due to the price dualism policy, where there are constant attempts to sell subsidized fertilizers at non-subsidized prices, it is challenging to implement the HRP. As long as the cause of the issue is not addressed, it will be difficult to remove entirely. Because fertilizer is so essential for the farmers, it has led to various parties urging it to be brought back into the free market system. Price dualism will exist as long as such practices exist, and as long as such practices continue, there will also be HRP violations and fertilizer scarcity.

3.4 Adoptive “Foster Father” mechanism in fertilizer purchase

Although the government has mandated that all farmers purchase fertilizer directly from retailers, due to the poor economic situation of farmers in terms of capital, producers must seek loans to make redemption. Similarly, if the allocation of subsidized fertilizers received is insufficient, farmers will be forced to purchase non-subsidized fertilizers, whether they like it or not. Under these circumstances, many farmers look for alternative methods, such as asking for assistance from local investors to help pay for subsidized or non-subsidized fertilizers. They call this arrangement, in which farmers receive fertilizer loans from those with capital and are reimbursed after the harvest, the “Foster Father” system. For each sack, which costs between IDR 112,500 and IDR 165,000–170,000 and has a loan term of 3–4 months, the adoptive father makes a profit of IDR 50,000. The investors helped the farmers by solving their problems because they also stood to gain financially from the process.

According to the Head of Sidrap Farmers Group, there are 38 members, and they often pay with cash or post-harvest. Most farmers who receive assistance from the leaders of farmer organizations typically end up adopting fathers, helping to offset the discounted fertilizer costs provided to farmers. Only a few were picked up at the farmer group warehouse; they cost IDR 130,000 each.

There are two payment systems, paying after harvest, and also paying cash after the goods are delivered to his house. About 28 people pay after harvest, the remaining 10 people pay cash. About 15 thousand profits per sack, for the current 3 months. (Head of Farmers Group in Sidrap, author’s personal communication, February 10, 2023)

Similarly, most of the farmers in Pitumpanua sub-district and Wajo Regency follow the adoptive father model because they do not have any savings left after the harvest. Farmers frequently borrow fertilizer even if they have the money because they spend their cash on higher priority demands. Due to their inadequate yields, many farmers need more money to purchase fertilizer, despite subsidizing it. In order to purchase fertilizer, they must borrow money. One alternative is to find a foster father who may assist in purchasing subsidized fertilizer from retailers. This fertilizer costs IDR 170,000 per sack of 50 kg, compared to IDR 120,000, meaning that there is a difference of IDR 50,000 per sack of 50 kg per 4 months. The private sector acknowledges that the profits made are high compared to the risks faced. According to farmer groups with experience serving as adoptive dads, if one sack is not paid, all other perks are forfeited, which is highly likely to occur. It is necessary to raise the price of fertilizer for this reason.

Even though the danger of default is relatively substantial, several towns have started using village-owned enterprises (VOE) funds. A Pitumpanua District community that used VOE’s budget reported experiencing this. Individuals know that the money comes from the government, and many farmers choose not to pay. Even those who were supposed to pay did not, which caused a bottleneck in the VOE’s cash flow. The traditional justification for non-payment is that no more crops or numerous higher priority responsibilities must be satisfied. Since it is thought that more than 50% of farmers borrow fertilizer, this presents commercial potential for investors. Even farmers who have money still utilize credit to purchase fertilizer because it has been ingrained in their behavior. To solve this issue, a Sidrap agricultural extension officer advised that the given Farmer Cards be utilized as credit cards. Given the market size, if there are 4 million credit cards, the banking industry will deal with quite a few of them.