17 Nov 2020
Omnibus Law Plants Seeds of Change in Indonesia’s Agricultural Sector

Greater Role for FDI and Move Away from Food Self-sufficiency Mantra

This is the seventh in our series of ABNR Legal Updates on the Job Creation Law, which entered into force on 2 November 2020. This time we look at the changes the Job Creation Law makes in the agricultural sector.

The Job Creation Law (“JCL”, or Omnibus Law, as it is familiarly known), makes a number of significant changes to the regulatory regime in Indonesia’s agricultural sector, including greater recognition of the role of foreign investment in commercial agriculture, and a shift away from the fixation with food self-sufficiency that has long characterized official policy.

JCL amends a number of statutes related to the agricultural sector, including the following:

• Law No. 13 of 2010 on Horticulture (“Horticulture Law”)[1]
• Law No. 22 of 2019 on Sustainable Agriculture[2]
• Law No. 19 of 2013 on the Protection and Empowerment of Farmers (“Farmers Protection Law”)[3]

As always with JCL, it is important to remember that it only lays the foundations for change, with the actual bricks and mortar to be put in place later by way of implementing / ancillary regulations. Thus, little can be said with certainty as to what will actually transpire until these regulations have been issued and promulgated.

Note: The discussion in this ABNR Legal Update is, for the most part, confined to general agriculture. Plantation agriculture will be addressed in a separate update.

Key Changes

1. Relaxation of Foreign Investment Restrictions in Horticultural Sector

The overall tone of the Horticulture Law is essentially protectionist and anti-foreign direct investment (“FDI”). Indeed, it restricts foreign ownership of ventures or undertakings in the sector to 30%. By contrast, JCL removes this restriction, as well as a number of others, and states that FDI in horticulture should be promoted.

As regards the 30% foreign ownership cap prior to the Horticulture Law’s amendment by JCL, this ties in with what is known as the Negative Investment List (Daftar Negatif Investasi / “DNI”), which has long been a fundamental aspect of Indonesia’s investment regime (both domestic and FDI). From the FDI perspective, the DNI sets out a long list of business lines that are either 100% closed to FDI or open to FDI subject to conditions (most significantly, foreign ownership caps in particular business lines).

The DNI is mandated by Article 12(1) of the 2007 Investment Law, which has now been amended by JCL in such a way that would seem to imply a major relaxation of foreign ownership restrictions. While we cannot be certain as to precisely what will happen until such time as the necessary ancillary regulation has been issued, it is quite conceivable that the horticultural sector will be 100% open to foreign investment in the near future.

2. Move Away from Food Self Sufficiency Policy

Self-sufficiency in basic foodstuffs, particularly rice, has been an obsession of Indonesian governments for as long as anyone can remember, notwithstanding that the efforts to achieve self-sufficiency often impose high economic costs on just about everyone -- from farmers all the way to end consumers. The intention of the Omnibus Law in this regard appears to be to move away from the self-sufficiency mantra towards a general recognition that importing food that is difficult to produce in Indonesia may not, at times, be such a bad thing after all. Thus, the Omnibus repeals the provisions of the Farmers Protection Law that require restrictions on food imports and the prioritization of local production for the fulfillment of domestic demand. Further, basic foodstuffs may now also be imported even where abundant local stocks are available.

ABNR Commentary

As the Omnibus Law provides little more than a snapshot of the government’s current way of thinking on the future of food production in Indonesia, we will have to await the issuance of the necessary ancillary regulations before we know just how far the Jokowi administration intends to go. However, given the sensitivity of agriculture in a country where the sector is the second largest contributor to GDP at 13.45% (behind industry on 19.5%), the government’s decision to simultaneously liberalize foreign investment in commercial agriculture and jettison a slavish devotion to food self-sufficiency may herald big changes ahead.

Contact us

Should you have any queries on the above or require legal advice as to how you can best protect your interests during this time of uncertainty, please contact the persons below, call us on +6221-2505125 or email us at info@abnrlaw.com.

Mr. Emir Nurmansyah (enurmansyah@abnrlaw.com)

Mr. Nafis Adwani (nadwani@abnrlaw.com)

Mr. Agus Ahadi Deradjat (aderadjat@abnrlaw.com)

[1] Undang-Undang Republik Indonesia No. 13 Tahun 2010 Tentang Hortikultura.

[2] Undang-Undang Republik Indonesia No. 22 Tahun 2019 Tentang Sistem Budi Daya Pertanian Berkelanjutan

[3] Undang-Undang Republik Indonesia No. 19 Tahun 2013 Tentang Perlindungan Dan Pemberdayaan Petani

This edition of ABNR News and the contents hereof are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained herein. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.