World Report

Autonomous regions will play a vital role in improving efficiency, productivity and quality across the sector

Key industry: agriculture underpins the economy and is the engine for future growth

griculture is a fundamental part of the Indonesian economy and supports about three quarters of the rural population. Famous for high quality coffee, the country is also the second-largest producer of palm oil after Malaysia, with an output of approximately 9 million tonnes per year. There are high hopes that Indonesia might overtake its Southeast Asian neighbour in the production of palm oil by the end of the decade. Other key crops widely produced include cotton and rice.

After the harsh lessons of the 1997 Asian financial crisis and other uncertainties, the country has recognised that, as well as underpinning the economy, the agricultural industry can also provide an engine for future growth.
The development of agribusiness has made an important impact on GDP in recent years, growing steadily at around 4.5 per cent over the past decade. It now accounts for 34 per cent of all non-oil exports and 20 per cent of total exports.

In addition to palm oil, Indonesia has huge potential in other areas. In a country made up of thousands of islands, it is little wonder that fishing is so important. There is scope for the development of aquaculture and the fish-processing industry. This sector has an annual sustainable yield of approximately 6.7 million tonnes.
However, the rapid advance of foreign franchise restaurants and the expanding hotel sector has fuelled demand for imported foodstuffs. This is not only due to the lack of availability locally but also to certain quality issues.

Agricultural production is still recovering from the inappropriate centralised policies, non market-oriented decision-making and bureaucratic fragmentation of the past that often resulted in low levels of productivity.

Now, the government is especially committed to boosting the production of certain crops, such as potatoes and sugar, where imports have risen, in a bid to counter the demand for foreign produce. Potato seeds and poultry present big opportunities to investors, as do sugar production – over 1 million tonnes is imported each year – and livestock. It does not make economic sense for a country with a population of 240 million to buy in expensive food items indefinitely.

The government wants to boost production and cut imports

The ongoing devolution of power to the regions promises a more efficient method of developing the rural economy. It is hoped that this will strengthen the involvement of farmers in the system. Their involvement is critical if levels of productivity and quality are to be raised. In addition, investment in infrastructure is set to improve transportation, which will in turn boost performance.