According to a recent note published in the World Bank's Economic Premise, agricultural spending in Indonesia should be directed at improving the provision of public services, rather than subsidizing private inputs.

The analysis finds that real public spending on agriculture increased between the years 2001–2009, from 11.0 trillion to 61.5 trillion rupiah (US$ 1.2–6.6 billion), without a corresponding increase in agricultural production. Of this, the majority was spent on subsidizing private goods – that is to say, goods where use by one consumer prevents its use by others, and which can be excluded from other consumers – such as fertilizers, seeds and grants to farmers and farmers' groups.

By contrast, the authors argue that Indonesia's increasing productivity between the 1970s and early 1990s was due to investment in public goods – such as building roads and irrigation systems and investing in agricultural research and development. This is substantiated with econometric analysis, which confirms that spending on public goods, divided into "development spending for agriculture and irrigation", has had a positive correlation with economic growth, whereas spending on fertilizer subsidies has had a negative correlation with economic growth.

A more detailed summary of the econometric analysis is said to be forthcoming. The paper does not discuss the perverse impacts that can be created by the subsidization of irrigation.

The study can be downloaded from the World Bank's website.