Wednesday, December 28, 2011

Right diagnosis, wrong prescription

From Kompas today (28/12) we read that Minister of Agriculture, Suswono, has a solution to Indonesia's low competitiveness in agriculture products. Rightly, he points out that the reason for the low competitiveness is high transportation costs due to poor infrastructure. So, again rightly, the country needs to improve the road infrastructure.

But, now comes the tricky part, he also says that the government is preparing "cheap car for farmers" program. It will sell a 700 cc energy efficient car at the price of Rp 60 million per unit. He believes this will help reduce the costs faced by the farmers - and hence logistics costs will go down, then competitiveness will improve.

Good intention, however, usually comes with unintended consequences. Imagine you're an average farmer. What would you do with such car? I would use it for many activities outside farming. Or I will resell it with some extra margin. Or I will just rent it out in daily basis. So, rather than increasing the productivity of agriculture sector, the car might be good for other things, which leads to lower-than-expected impact on the competitiveness of ag products.

The news also reports that the government is ready for the first 1000 units. Presumably, there will be follow up batches. I wonder if the money can be of better use should it be directed towards improving the road condition, or building railway access to the bulky ag products rather than "cheap car program". We, by the way, experienced a program like this before. It was called "people's car". And it was a major failure.

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