”1,001” Consequences of the Free Milk Drinking Program

Of course, this will bring "1,001" consequences for Indonesia because the national milk production-consumption balance has always been in deficit. The Central Statistics Agency recorded that the national production of fresh milk in 2023 will be 837,223 tons or about 0.84 million tons.

The production volume has decreased from the average annual production over the last five years, 2017-2021, of 0.9 million tons. The production decline occurred after the outbreak of foot and mouth disease (FMD) re-emerged in 2022. Fresh milk production in 2022 was recorded at 0.82 million tons.

As such, the implementation of the Free Milk Program has created an issue, which is the widening of the milk balance deficit. The average annual milk demand will increase from 4.6 million tons to 8.7 million tons.

With an average annual milk production of only 0.9 million tons, there will be a milk deficit of 7.8 million tons or equivalent to 2 million dairy cows. Without the program, the milk deficit would be 3.9 million tons.

The Free Milk Program has given rise to a new issue, which is the widening deficit of the milk balance. The average annual milk demand will increase from 4.6 million tons to 8.7 million tons.

As a consequence, the government will work harder to close the milk deficit. This hard work is not only related to the procurement of milk, but also to the allocation of financing budgets; opening up investment, partnerships, and incentives; changing regulations; creating cattle clusters; as well as mitigating the spread of foot-and-mouth disease (FMD).

The "1,001" problems, consequences and answers are summarized in the National Cow Milk Production Increase (PPSN) Ministry of Agriculture (Ministry of Agriculture) program. To meet regular needs and the Free Milk Drinking program, for example, Indonesia plans to import dairy cows and develop a hatchery through artificial insemination.

Referring to data from the PPSN program, the number of dairy cows to be imported is 2.15 million. These cows will be imported from Brazil with 1.5 million heads, mostly tropical dairy cows; 500,000 heads from the United States; 100,000 heads from Australia; and 50,000 heads from New Zealand.

Out of that amount, there are 1.1 million imported cows needed for the Free Milk program. The funds required to import these cows are around IDR 90 trillion.

"Tropical dairy cattle are the primary choice because Brazil and Indonesia both have a tropical climate," said Makmun, Secretary of the Directorate General of Animal Husbandry and Health of the Ministry of Agriculture, in a webinar titled "Monitor Milk Production Towards Food and Protein Self-Sufficiency" held by Sinar Tani in Jakarta on Wednesday (April 17, 2024).

Also read: Indonesia Plans to Import 2.15 Million Dairy Cows

Action plan

So, how does Indonesia obtain and cultivate those imported dairy cows? The Ministry of Agriculture has a plan of action ranging from financing, incentives, modeling and business funding for cultivation, to feed availability.

Firstly, in terms of financing the import of dairy cows, the government will not rely solely on the national budget, but also open up investment opportunities. These investments can come from private companies or state-owned enterprises (SOEs).

Makmun explained that the import of dairy cows can be carried out by fresh milk processing industries, dairy product importers, fattening of young cattle, breeding of cows, and state-owned enterprises operating in the livestock sector. They can independently import and breed dairy cows or partner with dairy cooperatives and farming groups.

If the chosen business model involves partnerships, these companies are responsible for entrusting dairy cattle farming to milk cooperatives or groups of farmers. Later, the milk cooperatives or groups of farmers will replace the cost of purchasing dairy cattle by paying in instalments from the production results.

"The government will support these companies by providing import incentives, providing cultivation land, and facilitating import permits," said Makmun.

Also read: Free Milk, Where Does the Milk Come From?

Importing dairy cows can be done by fresh milk processing industries, dairy product importers, young cattle fattening, cattle breeding, and state-owned enterprises engaged in the livestock sector.

Secondly, creating a cluster for dairy cow farming, both in provinces and districts or cities. The goal is to spread milk production throughout Indonesia so that it is not concentrated in Java. The clustering is expected to cover the development of upstream and downstream milk industry to feed.

To support these clusters, the Ministry of Agriculture has created a small and medium-scale dairy cattle farming business model. For a small-scale business model, it can be developed by a farmer group on a 1 hectare land with 5-10 dairy cattle being farmed.

Meanwhile, a medium-scale business model can be developed by a milk cooperative on a 20-hectare land. The minimum number of dairy cows cultivated is 200. Both of these business models are also expected to have a feed source that is integrated with the cultivation land.

Thirdly, the government has prepared incentives for importers and dairy cow breeders. One of them is through Government Regulation (PP) Number 78 of 2019 regarding Income Tax Facilities for Investment in Certain Business Fields and/or in Certain Regions.

Also read: ”School Milk” and Farmer Welfare

Director of Livestock Processing and Marketing at the Ministry of Agriculture, Tri Melasari, stated that through the regulation, importers and breeders of dairy cows can receive a reduction in net income tax of 30 percent for six years. The reduction of tax will be done by 5 percent each year.

"If there are losses, tax collection compensation can be given. This regulation applies to both new and existing investors who are developing their businesses," he said.

In addition to incentives, according to Tri, the government also provides easy access to business capital for small and medium enterprises (SMEs). This is done both through low-interest loans and by facilitating investors or corporate social responsibility (CSR) of private companies.

For SMEs that are unable to access bank loans independently, the Ministry of Agriculture has rolled out the Partnership and Environmental Development Assistance Program (PKBL) in cooperation with the Ministry of State-Owned Enterprises. Through this program, they can obtain low-interest loans from a number of state-owned banks.

"In 2022, the special PKBL loan interest rate is 3 percent. Then, in 2023, the interest rate will increase to 6 percent. However, by 2024, the interest rate will return to 3 percent. After becoming self-sufficient, they can develop their businesses with people's business credit (KUR)," said Tri.

Dairy cattle importers and breeders can get a net income tax reduction of 30 percent for six years.

Be aware of the FMD outbreak

Among the numerous or "1,001" consequences of the Free Milk Program, one of the major consequences that cannot be ignored is the potential outbreak of tuberculosis. In the past 32 years, Indonesia has maintained a status of being free from tuberculosis.

However, since April 28, 2022, PMK has resurged in Indonesia. At that time, 402 slaughtered cows in Gresik Regency, East Java, were reported to have been infected with PMK. The case then spread to several regions in Indonesia.

The government successfully suppressed its spread through vaccinations. However, in February 2024, cases of PMK resurfaced in Pasuruan Regency, East Java. The Pasuruan District Livestock and Health Office noted that within seven days, from February 14 to February 20, 2024, there were 145 cases of PMK. Of that number, 31 cows died.

Therefore, General Chair of the Indonesian Milk Cooperative Association (GKSI) Dedi Setiadi asked the government to remain vigilant about the spread of PMK in Indonesia. Increased supervision of imported cattle from other countries entering Indonesia also needs to be tightened.

Data from GKSI shows that, due to PMK, the population of cattle managed by the people decreased by 12,637 heads to 226,829 heads by the beginning of 2024. The number of small-scale cattle farmers also decreased by 2,231 farmers to 73,563 farmers. Fresh milk production was only 1.39 million tons, or decreased by approximately 30 percent.

Also read: A Year of the FMD Outbreak

Responding to this, Makmun stated that the Ministry of Agriculture not only prepares regulations that facilitate the import of dairy cows from other countries, but also conducts risk analysis on the cows to be imported from other countries, especially Brazil.

The analysis results show that cattle in those countries are free from PMK and are therefore guaranteed safe to enter Indonesia. However, the Ministry of Agriculture will still strengthen the supervision of imported cattle.

"This step will be accompanied by increasing the availability of the FMD virus vaccine and strengthening domestic cattle vaccination," said Makmun.

Will the "1,001" consequences be overcome when the PPSN program and action plans are implemented later? Or will it actually create "1,001" other problems and consequences? Let us wait for the practice in the implementation of that promise later.

Also read: The Thinness of the Protective Shield for Indonesian Dairy Farmers