However, following a large inflow of foreign investment, especially from Malaysia, the government backtracked on its initiative to open up estate crops to foreign companies. Moreover, limited reforms were taken in agriculture because of political interests (Kuncoro and Resosudarmo, 2006).2 In fact, state monopolies in rice, wheat, soybean, sugar, cloves and spices were strengthened. Farmers benefited little from these distortions: wheat is not grown in Indonesia, sugar cane had to be delivered to a particular mill so growers faced a monopsonist, and high soybean prices lowered the profitability of intensive livestock production (Anderson and Strutt, 1995). Making matters worse, the financial crisis coincided with one of the worst droughts in 50 years, which caused a significant fall in rice production.