Can Indonesia feed the world?
Albertus Weldison Nonto
The Indonesian Chamber of Commerce and Industry (Kadin) has launched a new campaign to increase Indonesia’s agricultural production through technology, innovative financing and a partnership program.
Franky Oesman Widjaja, chairman of SMART and the Sinar Mas Group, has had a very busy year working through food issues, particularly on matters relating to increasing agricultural production, in his capacity as deputy chairman for agribusiness, food, fishery and cattle at the Indonesian Chamber of Commerce and Industry (Kadin).
Recently, after more than 10 meetings and seminars as well as a series of focus group discussions, Kadin organized the successful Food Security Summit 2012. Its aim was to increase agricultural production in Indonesia, especially main food commodities such as rice, crude palm oil (CPO) and cocoa, through the application of new technologies, innovative financing and partnership programs between farmers and large business groups in the sector.
Undoubtedly, there is potential in the archipelago. Rice production, for example, is trying to scale up from an average of only 2.7 tons per hectare to a minimum of 6 tons per hectare. If Indonesia sticks to its plan, Kadin estimates that by 2014, Indonesia will be self-sufficient in its food supply.
The organizers’ ultimate ambition, however, is to make Indonesia the food producer for the world. “It seems a dream that Indonesia can feed the world, but no-one cared about that when we talked about it some years ago,” says Franky, who has long nurtured a passion for the agricultural business.
“Now, extreme climate change has influenced every aspect of our lives, especially at the production level, and the topic has become relevant, with world leaders setting new directions to develop sustainable and green agriculture at various international forums such as the World Economic Forum and G20,” he adds.
Feed the world
Franky says that the summit marks a new beginning for Indonesia – as a main actor on the international stage, especially in determining world food supply. Because of its vast potential, if the sector is managed properly Indonesia will not need to import agricultural products in the future, and can even become a world leader in the sector.
As he sees it, the lack of supportive policies and production processes in the sector has resulted in low production levels in Indonesia. “So we need new directions and new partnership programs between farmers and business organizations to reach the maximum production of food possible,” he observes.
Franky, who spoke at the recent World Economic Forum in Davos, has seen other countries look in a similar direction. “I see a new vision toward sustainable agriculture and developing green growth, in which economic growth has to be in line with the sustainability of natural resources,” he muses.
Finance innovation a key
At the WEF, he saw many governments and representatives from the international business community share their experiences on how business and small farmers can exist and benefit from each other through partnership programs.
“One key factor is innovative financing strategies that can protect smallholders and help them survive even in the face of climate change,” says Franky, adding that the international community is paying close attention to Indonesia’s progress.
The Food Security Summit 2012 continued Indonesia’s pledge to “feed Indonesia, feed the world.” Franky explains: “Our concern is how to increase our productivity level, especially in our high-potential commodities such as rice and corn, food and beverage, CPO, cocoa, cattle and fishery. The campaign is aimed at making Indonesia self-sufficient in its food supply, but also putting it in a position to help other land-scarce countries.
“Kadin estimates that we can create an economic value of $101 billion through this sector by 2014, but all parties have to work together,” he adds.
Kadin chairman Suryo Bambang Sulisto observes that food security issues have become important concerns for every country in the world, regardless of status. There has been an indication that food supply from developing countries has declined in the past five years due to climate change and land shortages. A similar situation faces developed countries.
“A food crisis does not only occur because of climate change, but also because of energy, political and monetary crises, as well as land conversion and other factors,” says Bambang. “Indonesia has to take action to fulfill its food needs for the future.”
The chairman of Bosowa Group, Aksa Mahmud, has developed partnerships with local farmers in South Sulawesi. He agrees that Indonesia can produce about 6 tons of rice per hectare, up from the current 2.7 tons per hectare, if farmers stick to set standards in their production processes.
Franky, too, is optimistic that Indonesia can easily scale up its production levels; in general, average local production still hovers around 50%, especially in rice and corn. “We believe our agricultural production can increase from the current 35 million tons to at least 45 million tons per year,” he says.
Agribusiness commentator and professor at Bogor Agricultural Institute (IPB) Bustanul Arifin says that the projections can only be achieved if Indonesia, especially the business community, takes the agricultural sector to an industrial level. His research shows that the sector grew only 3.7% in the past year, compared to 9% growth in the hotel business and 10% in the telecommunications sector.
Franky and Bambang say that partnership models used in the CPO business can be applied to the agricultural sector, especially in the rice and corn industries. With CPO, nearly 47% of the land belongs to the farmer – this could either be an independent farmer, or part of a partnership program designed by government 30 years ago.
Importantly, Franky says that because all parties involved show discipline, specifically in land clearing, cultivation, seeding and fertilization, the CPO industry is able to achieve economies of scale and elevate itself to a higher level.
“The partnership model from the CPO business can be duplicated in other sectors: cocoa, corn and even the cattle business,” notes Franky, adding that he believes that all stakeholders in the CPO industry are happy as a result of the scheme.
But even if the idea is viable, structural problems such as policy overlapping might hamper its progress. This, says Franky, calls for the implementation of a single policy map in urban and regional planning, as well as the creation of a value chain that can benefit all parties. With respect to financing, agricultural insurance can be a solution for farmers to cover losses from low yields suffered due to climate problems.
While the rice and corn industries still face structural problems, some agricultural commodities have successfully reached ideal production capacity as a result of long-term ventures by several conglomerates. Agriculture has in turn become a major growth engine for many of these groups. The Indofood and Sinar Mas groups, for example, have profited handsomely from their agricultural investments.
The Wings group now controls at least 100,000 hectares of palm plantations under its GAWI Group; cigarette maker Gudang Garam also has significant holdings in the sector under the Makin Group. Medium-scale players such as Tiga Pilar Sejahtera (TPS) have also invested in food estate businesses in Java and Kalimantan. Over the last three years, the group has increased its capacity to strengthen its presence in the sector.
Both Franky and Bambang believe that Indonesia still faces an uphill battle when it comes to rice production, and to stimulate the industry would require effort from different parties. “We need incentives, for example low interest loans, that can motivate all parties to move in the same direction,” says Franky.
But, he adds, with a strong commitment from all quarters, Indonesia can reach its target. Kadin is doing its part, having launched a new Rp150 billion scheme called the Palapa Fund, which allows agribusiness start-ups to get low-interest financing. It is also planning a pilot project requiring small holders to organize themselves into groups, which will make financing, marketing and supervision of production easier to manage.
However, Franky stresses that government participation and dedication is integral for change. “The business community will do its part, but the government must also participate to move things along,” he says, pointing out that even less-developed countries like Tanzania in Africa have put similar programs in place successfully.
“The problem is not in financing or infrastructure, but in garnering strong commitment, especially from governments.” GA
Challenges for rice farming
Many business commentators question the viability of productivity increase programs in this particular industry because the chance of failing in rice farming is much higher than in any other commodity.
The reason is complicated: small holders dominate around 90% of this sector. This is compounded by the fact that each of them holds an average land area of only 0.8 hectares, a lack of technology, little supervision from the government with respect to production processes, problems with seed supplies and fertilizer as well as low access to the market.
In the past, the government introduced the People’s Agriculture Partnership Scheme (Pola Pertanian Rakyat) but this failed due to lack of commitment. If the rice and corn industries are to be industrialized, the program, as well as land ownership rules, needs to be redesigned. Currently, with the exception of newly-developed estates, this is difficult to put into practice in existing areas.
According to Bogor Agricultural Institute’s Bustanul Arifin, in order for the food business to achieve economies of scale, a minimum land size is required for each smallholder. Rice farmers, for example, need at least two hectares of land (see table). But his research shows that the reality is that nearly 90% of farmers in Indonesia farm on land of less than one hectare.
A separate challenge, he says, lies in the acquisition of land from small holdings by big businesses in the private sector, which cannot be controlled by the government.
Another important factor which has been missing from Indonesian farming is the presence of what he calls “service extension representatives”: field officers who guide and advise farmers in technical matters from day one.
In the New Order era, they were called field counseling officers (PPL). Says Bustanul: “They have been a dying breed for the past 15 years, but I heard that the Ministry of Agriculture has appointed 17,000 new agricultural field officers. However, their role is not clear, because many prefer to function as civil servants, rather than guide farmers in the field.”
He adds that another vital aspect is how to close the yield gap between research institutes and the real-life production process of farmers on the ground. While production targets can be theorized at a certain level, farmers are not able to reach these targets due to a range of problems including a lack of discipline and guidance. “This is why field officers are important,” he points out.
Land reform is another crucial issue. “How can you expect farmers to be rich on only 0.5 hectares of land?” Political change is needed not only from the president, but also from lawmakers who will put the policy in motion, he states.
“Land reform is not merely giving and dividing land; it also deals with market access, financing aspects and technology,” he says, citing the Taiwan government’s successful implementation of land reform policies as an example.
Bustanul believes that if Indonesia can stick to its new policies while committing to develop its agricultural potential, its dream to feed the world with its food commodities will become reality.