Indonesia has always had an identity crisis when it comes to managing its resources. It is the world’s largest archipelago, with more than 13,000 islands. Straddling the equator, it has lush forests and fertile plains with an abundance of rainfall and fresh water.
But government officials are never sure of the right tack to take when forming policies on how resources should be administered. Although Indonesia is surrounded by ocean, believe or not, the country still imports more than US$100m worth of salt each year. Putting it simply the government has never bothered to fund a modern salt manufacturing plant. This problem also exists in the fishing industry. As such many Indonesian fishermen remain poor and have become a marginalised sector of the society.
This situation also exists in the horticultural sector. Land and fertilizer is so expensive, and water management so poor, the country has not been able to develop fruit and vegetable farming operations on a commercial scale. All fresh produce is sourced from entrepreneur farmers without the type of scale that would enable them to invest in the supply chain. Most of these small entrepreneur farmers run backyard-style operations.
During the President Suharto era, there was a political movement geared towards self-sufficiency. Starting with rice and then moving on to fresh fruit the Indonesian market was closed to imports for more than a decade. During this period imported fruits were smuggled from secondary markets such as Hong Kong and Singapore and often carried by hand. Imported fruits were widely available, mostly in big cities, and very expensive.
After 1985, the Indonesian market reopened to imported fruit. By 2011 imports had grown to a value of US$1.66bn. Fresh fruits imports were valued at US$876.5m and fresh vegetable imports at US$765.1m. While these numbers seem very high, in reality Indonesia has a long way to go.
Fruit consumption in the country is very low - around 35kg per capita. The United Nations Food and Agriculture Organisation recommends minimal consumption of above 75kg per capita. This is the real dilemma. On one hand fruit consumption is very low. If Indonesia is to catch up with neighbouring countries, such as Taiwan, Hong Kong, and Singapore, the importation of fresh fruit can easily double to a value in excess of US$2bn over the next five years. One expert estimates that by 2015 - if the Indonesian government opens its doors, the importation of horticulture could easily exceed US$4bn. Indonesia has 150m middle-class consumers now and an additional 30m consumers in the upper middle-class. These consumers are hungry for a healthy lifestyle.
The Indonesian retail sector is also very ambitious. For example, Mitra Adiperkasa, a large Indonesian retail group, which operates big brand franchises such as Starbucks, has enjoyed 20 per cent annual growth over the last five years and profit growth of 40 per cent. This group also operates the Food Hall supermarket chain. It operates 1,266 outlets in 42 cities. Mitra Adiperkasa is targeting sales of over US$1bn in 2013.
This combination of emerging middle-class consumers, retail expansion, low fruit consumption, and a lack of commercial-scale fruit production to satisfy the needs of the Indonesian market, puts the Indonesian government in a difficult situation.
In the lead up to presidential elections, the concept of ‘wong cilik’, or ‘the common people’, becomes a hot topic. This appears to especially be the case in the coming 2014 election. After the current president has finished his second term, Indonesia does not have a preferred candidate. Every major political party is struggling to find a new candidate. One of the stronger perceived candidates is Prabowo Subianto who is the chairman of the Indonesian Farmers Association. In the 2009 election Prabowo used agriculture as the platform for his election campaign. Although Prabowo lost in 2009, his competitors feel he will return in 2014 with a stronger campaign, and could win. So currying favour with Indonesian farmers and ‘wong cilik’ is a major concern.
In 2011, potato farmers from the Dieng Plateau held a big rally at the Ministry of Trade to protest against Chinese potato imports. The new minister of trade Gita Wiryawan then stated his intention to increase the standards for product imports, including horticulture. This statement was actually targeted at Chinese horticultural imports.
Over the last decade China has become Indonesia’s largest supplier of fresh fruit and vegetables. Chinese fresh fruits and fresh vegetable exports to Indonesia in 2011 hit a record value of US$805.6m - or half the total value of fresh fruit and vegetable imports for that year. Chinese suppliers are very aggressive. They have two common practices that strongly influence the Indonesian market. Firstly, Chinese suppliers will often dump produce on the Indonesian market by sending more produce than ordered. This can create a price war in which Indonesian tropical fruit is usually unable to compete. When the market is oversupplied with Chinese fruit, old and low-quality produce penetrates the smaller urban cities. This makes Indonesian officials very upset.
The second common practice is when Chinese traders send produce to Indonesia and sell it without the aid of an importer. In this instance Chinese traders or exporters send containers of fresh produce to Jakarta. On arrival they park the containers at the wholesale market and open a temporary office in a nearby hotel from where they trade.
This seasonal practice creates major problems as it saturates the market with cheap, low-quality produce. The peak of this problem occurred last year when Chinese exporters sent more than 20 containers of potatoes and sold it in one major wholesale market in Indonesia. This is the incident that caused Indonesian potato farmers to protest last year to the Ministry of Trade.
Anticipating these problems worsening, the Indonesian Ministry of Agriculture and Indonesian Ministry of Trade issued a series of regulations. Firstly they issued a requirement that all Indonesian importers must be registered as a licensed importer of horticultural products. Once registered they must then acquire a special permit from the Ministry of Agriculture, which has to be approved by Ministry of Trade, allowing them to bring fresh produce into the country. These complex procedures are intended to prevent any unauthorised importers from bringing horticulture products into the country.
However, the implementation of the new requirements has causedchaos at Indonesian portsand the price of horticultural products has already begun to escalate. The Indonesian government does not yet realise the scale of the problems that have been brought about by the new regulations. These will be like a domino effect. First you have huge inflation and a scarcity of fresh produce, which in turn will reduce the quality of life in Indonesia. Retailers will have to postpone their expansion programmes and import businesses will have to be closed. Customs will lose revenue and we are facing the prospect of tens of thousands of people losing their jobs.
The whole situation is uncertain and pretty bleak.
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