Although rice and sugarcane outputs dropped 4.2 percent YoY and 2.9 percent YoY in 1H19 as a direct result of drought that persisted until August, agricultural production overall grew marginally at 0.4 percent YoY, helping bolster farm income to grow 1.1 percent YoY during 1H19.
As part of the efforts to lift farm income, the government has a policy of guaranteeing income for farmers growing important crops: i.e., rice, rubber, oil palm, sugarcane, cassava and maize, during 4Q19. The Cabinet, August 27, 2019, approved the income guarantee program for rice farmers for the first round of 2019/2020 planting season and the income guarantee program for oil palm farmers for the 2019/2020 planting season. In addition, the Ministry of Agriculture and Cooperatives is scheduled to propose the income guarantee program for rubber farmers to the Cabinet for approval soon while such a scheme for other famers will be introduced later on.
It is expected that rice, rubber and oil palm outputs will improve during 2H19 along with other crops, such as cassava and maize. As a result, agricultural production may increase slightly to 0.2 percent YoY in 2019. As the income guarantee program for rice, rubber and oil palm farmers will begin to yield results during 4Q19, farm income overall will likely accelerate in 2019.
We at KResearch project that farm income will grow to 3.5-3.8 percent YoY in 2019, against the 1.8-2.2 percent YoY growth in the case that there is not any income guarantee program. However, close attention must be paid to floods in the northeastern region because farm income may grow below our lower projection band if they persist and damage more farmlands there.