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The year just past will be remembered as a proud year for Indonesian agriculture. In 2008, the country achieved self-sufficiency in the production of rice and corn. These were long-held goals for Indonesia's leaders and were given extra significance by the turbulence in the world markets for agricultural products over 2008.
Becoming a net exporter of rice, the staple food, is a particularly significant accomplishment that has been achieved only once before in the country's recent history. The heady forecasts of up to 2mn tonnes of rice exports in 2009 have now come down to a more realistic 100,000 tonnes, but another large harvest this year could see that figure increase in 2010.
While the government was glad to crow about the achievement, especially so close to an election, many small farmers found 2008 to be a less happy year. Rice production in Indonesia is still dominated by small-scale farms on tiny plots of land. More than half of Indonesia's farmers own less than 0.5 hectares (ha) of land. Much of the extra revenue from high prices and large crops was eaten up by increased input costs leaving farmers little better off.
Farmers are supposed to have access to subsidised fertiliser from the government. However, the task of getting the reduced-price product to its intended recipient across the vast Indonesian archipelago is often too much. Indonesia's slow-moving and oft corrupt bureaucracy means that some of the fertiliser is never sent out and some disappears along the way. In 2009, things look to be little improved as by the beginning of March only just over half of Indonesia's rice-growing districts had submitted their requests for subsidised fertiliser according to reports in the local press. The requests were supposed to have been submitted by December.
The problem of land fragmentation, poor bureaucracy and infrastructure will continue to dog Indonesia's agricultural sector. Past governments have tried to solve the cramped conditions on the main islands by moving people onto outer islands, but the projects were fraught with problems and have been abandoned.
Agriculture still employs 40% of Indonesia's labour force, and until the economy grows fast enough to draw more people from the fields there is little chance for the development of modern, efficient agriculture on the country's densely populated main island of Java.
One avenue of growth for the sector currently being explored is for large-scale investments on the outer islands. Poor infrastructure has traditionally hampered the exploitation of land outside the main areas of Java, Sumatra and to a lesser extent Sulawesi. However, if large enough projects could be established, this problem could be overcome.
The government is currently touting a 585,000ha area of land in Merauke, West Papua province, for investment. There has been interest from Middle Eastern investors keen to boost food security in the wake of the rapid food price rises of 2008. While the financial crisis has dampened interest for the moment, in the years to come investors are likely to come back. This could see the development of large-scale modern farms aimed at the export market.
While developments such as this could see production rise, we warn that investing in the outer islands will come with its fair share of risk. Apart from the infrastructure problems, Papua has a deep-rooted separatist movement and large investments perceived to be for the benefit of outsiders in Java could well rile the local population. Other islands likely to be considered for large investments, such as Borneo, could also prove hostile to large developments.
Indonesia Agribusiness Report Q3 2009 : http://www.companiesandmarkets.com/r.ashx?id=5T62OXH65155666
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