(Photo source: Kompas.com)
By Aditi Biswas
The Indonesian agricultural industry contributed around 14.7% to the country’s GDP in 2012. However, the number has significantly declined during the last few years. Nevertheless, it still provides income for the majority of Indonesian households even today.
Two years ago, the sector employed more than 49 million individuals which represented more than 41% of the total labor force or more than 36.5% of the country’s population. Even if the absolute number of the workforce increases significantly, the relative share of the total Indonesian workforce has declined rapidly, from 55% in the 1980s to 45% in 1990s, to the current 41%. Only during the Asian Financial Crisis in the late 1990s did this share increase because unemployment caused by the economic meltdown was rapidly absorbed by the agricultural sector.
Currently, the agricultural sector of Indonesia comprises large plantations, both state-owned and private. These large plantations are usually focused on commodities which are mostly export products like palm oil and rubber while the small-hold farmers mostly focus their production on rice, corn, fruits, vegetables, and soybeans. The factors that influence Indonesia’s agricultural produce include the abundance of fertile soil, which has enabled production of various agricultural products. Between 1960s and 1980s, almost 21% of Indonesia’s total land area was used for agriculture. This number rose to almost 25% in 1980s. With the establishments of large-scale plantations, especially palm oil, the land percentage subsequently reached 30%.
According to the Indonesian agriculture industry, the annual percentage growth of the industry would be about 2.4% in 2014. However, industry experts are skeptical and expect the market to grow at a slower pace when compared to other industry and services sectors.
The 2013 export figures for the palm oil sector would give the country a chance to answer questions about its potential as an agro-based country. Industry mavens indicate that more innovation and private sector development would be needed if self-sufficiency and agro-business are to complement each other.
The palm oil exports are supposed to increase by as much as 9% in 2014 as improving economic conditions encourage greater demand. The inventory levels usually hovered between 3 and 4 million tonnes in 2012 but palm oil production rose to 27 million tonnes in 2013 alone, recording a 7% hike. The sector is all set for improvement especially in the crude palm oil production. Between 2010 and 2014, the crude palm oil alone is expected to inject USD 80.9 million into the national economy.
Besides this, Indonesia also intends to increase rice production from its current average of 2.7 tonnes per hectares to a minimum of 6 tonnes per hectares. To support this growth, the government has allocated USD 1.06 billion in 2013, which was used extensively to support the production of food crops, expand research, and develop the necessary infrastructures.
Regardless of the various government initiatives, the policy makers are concerned about the export taxes and expects to curb import taxes on farm commodities so that investments in the agricultural sector can be spurred. However, despite the challenges, critics think that Indonesia remains a good example of an emerging economy that has developed a successful innovation system for its agricultural sector by linking private and public sectors, a development which will boost the overall production.
The Indonesian agriculture industry is undergoing change and is boosting its production, especially crude palm oil, to fulfill demand from other countries. Furthermore, government and policy makers are extensively improvising themselves to ensure that the sector grows despite the hurdles.
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