Indonesia Implements New Fertilizer Subsidy Scheme to Boost Efficiency

Significant Changes in Subsidy Mechanism

The Indonesian government is set to implement a new fertilizer subsidy scheme starting in 2026, as announced by Vice Minister of Agriculture Sudaryono. The current system, where the government reimburses state-owned Pupuk Indonesia after fertilizer distribution to farmers, will be modified to include partial upfront payment for raw material procurement.

Potential Savings and Price Reduction

This change is expected to generate significant efficiency gains, potentially saving Rp4.1 trillion. The reduced financial burden on Pupuk Indonesia, resulting from lower working capital financing costs, will be redirected to benefit farmers through a projected 20% reduction in subsidized fertilizer prices. According to Sudaryono, this decision follows directives from the President and Minister of Agriculture to pass the benefits to the people.

Impact on State-Owned Fertilizer Company

The current system requires Pupuk Indonesia to bear the initial costs of raw material procurement, often through loans that incur interest. By providing partial subsidies upfront, the company will no longer need to finance these costs entirely through debt, thus reducing their financial expenses significantly. This change is seen as a strategic move to optimize state budget allocation and support agricultural productivity.