Indonesian farmers are some of many at risk of subsidies' cuts, says report © Algi Febri Sugita/SOPA Images/LightRocket via Getty Images
Indonesian farmers are some of many at risk of subsidies' cuts, says report © Algi Febri Sugita/SOPA Images/LightRocket via Getty Images

How Covid could disrupt food supplies in South East Asia

7 April 2021

Cuts to agriculture subsidies in South East Asian countries in the wake of Covid-19 stimulus packages could disrupt regional food supplies, a new report has found.

The paper, by Food Industry Asia (FIA) and Oxford Economics, said short-term challenges from the Covid-19 pandemic and longer term structural problems could create risks, including raising agricultural commodity prices and input costs, for food manufacturers and retailers.

“The impetus to reduce public expenditure and raise tax revenues poses a risk to the recovery of South East Asia’s agri-food sector,” said the report.

“For those countries with relatively generous agricultural subsidies, or relatively low excise and value-added taxes on food products, the agri-food industry is potentially vulnerable to post-Covid-19 fiscal adjustment strategies.”

As the fortunes of the agri-food sector are intertwined with those of the wider economy, effects on the sector could have wider reverberations on employment, tax revenues, and overall economic performance, it added.

The analysis indicated that poor sovereign credit ratings in Vietnam, Indonesia and the Philippines would intensify pressure to balance books quickly.

“In the Philippines and Indonesia, high prevailing agricultural subsidies raise the prospect of a cut in funding for the agri-food sector,” the report said.

Abrupt reductions in subsidies could harm agricultural producers and see cascading effects up the supply chain, it added. 

According to the report's Economic Recovery Matrix, Indonesia faces the greatest risks as it seeks to boost its economy following the pandemic. The Philippines and Thailand are also vulnerable due to their dependence on tourism, while Vietnam faced the lowest level of recovery risk.

However, all four of these countries faced more serious risks than China, India or the richer Asian economies.

In 2019, the agri-food sector contributed $717bn to GDP across Indonesia, Thailand, the Philippines, and Vietnam – up 30% from 2015. The sector accounts for almost half (48%) of the region’s entire workforce, around 127m jobs, and $95.6bn in tax revenues.

Matt Kovac, FIA executive director, said South East Asian governments should bear in mind that reducing public expenditure or raising tax revenues could pose a risk to the recovery of the region’s agri-food sector.

James Lambert, director of economic consulting Asia, for Oxford Economics urged policymakers to provide the most conducive conditions for the agri-food industry to successfully rebuild itself.

“Whilst the food supply chain remained relatively robust during 2020, new and unforeseen variants of the coronavirus could have different impacts on logistics and prices in the months ahead,” said the report.

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