Economic developments in the agrifood sectors of Indonesia, Malaysia and South Korea: Background Working Papers

Transcription

1 Economic developments in the agrifood sectors of Indonesia, Malaysia and South Korea: Background Working Papers RIRDC Pub. No. 99/157 Project No. STA-1A i

2 1999 Rural Industries Research and Development Corporation. All rights reserved. ISBN ISSN Economic developments in the agrifood sectors of Indonesia, Malaysia and South Korea: Background Working Papers. Publication no 99/157 Project no.sta-1a The views expressed and the conclusions reached in this publication are those of the author and not necessarily those of persons consulted. RIRDC shall not be responsible in any way whatsoever to any person who relies in whole or in part on the contents of this report. This publication is copyright. However, RIRDC encourages wide dissemination of its research, providing the Corporation is clearly acknowledged. For any other enquiries concerning reproduction, contact the Communications Manager on phone Researcher Contact Details Name Address Dr Ray Trewin C/O AJRC, Building 13, ANU, ACT 0200 Phone: Fax: Website: ray.trewin@anu.edu.au RIRDC Contact Details Rural Industries Research and Development Corporation Level 1, AMA House 42 Macquarie Street BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604 Phone: Fax: rirdc@netinfo.com.au Website: ii

3 Foreword The Asian agrifood markets have been of growing importance to the Australian agrifood industry. In the last financial year Australia exported A$10.4 billion of food to Asia. Japan, Indonesia, Malaysia and the Republic of Korea were the major markets, in that order. The last three markets have been adversely affected by the Asian economic crisis. Australian industry and policymakers need to understand the changes in trends occurring in these markets and the possible impacts these may have on Australian industry. In response to these needs, Supermarket to Asia Ltd initiated a review of economic developments in the agrifood sectors of Indonesia, Malaysia and South Korea. The research was funded by the Rural Industries Research and Development Corporation (RIRDC), with supplementary funding provided by Supermarket to Asia Ltd and the Department of Industry, Science and Tourism (DIST). The research was contracted to the Australian National University (ANU) and the Meyers Strategy Group. In conjunction with researchers based in the three countries, the ANU and Meyers Strategy Group produced background papers on each economy, and across economies, that are incorporated into this publication and were drawn on in the main reports. The publication is structured into two volumes and four parts. The first three parts cover the individual country papers for Indonesia (volume one), Malaysia and South Korea respectively, and the fourth part contains across-country reports. Within the country parts, there are reports written by the local research groups, in conjunction with the ANU, on economic developments in the agrifood sectors up to the crisis and then following the onset of the crisis, and by the Meyers Strategy Group on the food retailing and services markets. The across-country section contains a paper comparing and reviewing the literature on economic developments in the Indonesian and Malaysian agrifood sectors, plus an overview paper of the three country reports. A bibliography of references drawn on in the background papers completes the publication. Peter Core Managing Director Rural Industries Research and Development Corporation iii

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5 FOREWORD LIST OF AUTHORS EXECUTIVE SUMMARY III XIV CHAPTER 1 KEY AGRICULTURAL AND AGRIBUSINESS POLICY ISSUES IN INDONESIA Introduction The share of agriculture in GDP Production Food crops Horticultural crops Estate crops Livestock and fisheries Consumption Food crops Horticultural and estate crops Livestock and fisheries Trade The importance of international trade for Indonesian agriculture Agricultural trade performance Direction of agricultural trade Indonesia s agribusiness: the concept and practise The concept The policies Investment in agriculture The structure of Indonesian agroindustry Assessment of the current crisis Economic crisis: the wind of change Crisis impact assessment: the issues The new vision and mission Agricultural development on Java Agricultural development Off Java Conclusion References 40 Appendix 1.1: Agribusiness investment policies pre-reform 42 XV v

6 CHAPTER 2 INDONESIA S PRE-CRISIS AGRICULTURE PROFILE: RECENT POLICY CHANGES AND INVESTMENT OPPORTUNITIES Introduction A brief background to the crisis Implication of the crisis for the agricultural sector and rural economy The crisis and Indonesia s agricultural policies Pre-crisis policies Crisis-induced policies Production and consumption Production Consumption Exports and Imports Cereals, roots, tubers and pulses Vegetables Fruit Tree Crops Livestock commodities Fishery commodities Investment opportunities for agribusiness Prospective commodities for agribusiness Resource potential Suggested investments References 111 CHAPTER 3 INDONESIA: RETAIL AND FOOD SERVICE MARKETS Structure and developments in the retail sector Overview Market structure Consumer and retail trends Impact of the crisis Competitor responses Implications for Australian trade Products Structure and developments in the food service sector Overview Market structure Consumer and food service trends Impact of the crisis 137 vi

7 3.2.5 Competitor responses Implications for Australian exports Company profiles 139 PT Matahari Putra Prima 139 Pt Hero Supermarket Tbk 139 Ramayana Department Store PT Ramayana Lestari Sentosa Tbk 140 PT Gelael Supermarket 140 Golden Truly Supermarket PT Golden Truly 140 Makro 140 Goro 140 Circle K Convenience Store - Circle K Indonesia Waserda 141 Fresh Mart Convenience Store - The Fresh Mart 141 AM/PM Indonesia Convenience Store - PT Sinar Sahabat 141 KFC/PT Fast Food Indonesia Tbk 141 McDonald s/pt Ramako Gerbangmas 141 Texas Fried Chicken/PT Cipta Selera Murni 142 California Fried Chicken (CFC)/PT Putra Sejahtera Pioneerindo Tbk (PSP) 142 PT Wendy s Citrarassa 142 A & W Family Restaurant/PT Biru Fast Food Husantara 142 Other Fast-Food Outlets References 144 VOLUME TWO 1 CHAPTER 4 THE IMPACT OF TRADE LIBERALISATION IN ASEAN/APEC ON AGRICULTURAL TRADE AND INVESTMENT IN MALAYSIA. PHASE I Introduction Trade impact studies: the conceptual framework Survey of literature Recent economic performance Trade Performance Trade Policy The place of agriculture in an industrialised economy Incentive policies in the agricultural sector Export agriculture Domestic Agriculture Production Sector Current Issues and Concerns References 42 vii

8 CHAPTER 5 RECENT ECONOMIC AND AGRIFOOD POLICY DEVELOPMENTS IN MALAYSIA Current status of and prospects for the economy Before the crisis Current economic situation and macro policy changes Medium-term outlook Macro factors affecting agrifood policy Structure of the agrifood sector (structure conduct performance since 1990) Production and consumption structures (including key products) Trade and competitiveness Australia s market share Business structures Organisational issues Policy overview After the Uruguay Round until the crisis Current situation and outlook References 65 CHAPTER 6 MALAYSIA: RETAIL AND FOOD SERVICE MARKETS Structure and developments in the retail sector Overview Market structure Consumer and retail trends Impact of the crisis Competitor responses Implications for Australian exports Structure and developments in the food service sector Overview Market structure Consumer and food service trends Impact of the crisis Competitor responses Implications for Australian exports Company profiles 81 Dairy Farm International/Wellsave/Cold Storage/Guardian 81 Jaya Jusco Stores Bhd 81 Metrojaya Berhad/Metrojaya Department Stores 81 Giant Cash and Carry 82 viii

9 Aktif Lifestyles Stores Sdn Bhd ( formerly Yaohan) 82 MAKRO Cash and Carry Distribution 82 Royal Ahold/TOPS 82 The Lion Group/Parkson Corporation Sdn Bhd 83 Antah Holdings Berhad/7-Eleven 83 KFC Holdings (Malaysia) Bhd 83 McDonald s 84 Berjaya Land Bhd ( formerly Berjaya Leisure Bhd) 84 Shakey International (Shakey Restaurants) 85 Tricon Restaurants International (TRI) 85 Genting Bhd/Resort World Bhd References 87 CHAPTER 7 ECONOMIC AND POLICY DEVELOPMENTS IN THE KOREAN AGRIFOOD SECTOR Introduction Economic developments in Agriculture Agriculture in the national economy Consumption development Socio-economic factors contributing to agricultural protectionism Income disparity between urban and rural areas Food security Changing socio-economic conditions Changing pattern of agricultural policies Rice Beef Other grains Effects of the policy Effects of protection: some empirical evidence The Uruguay Round and the agricultural policy reforms in Korea The Uruguay Round of GATT New agricultural policy reforms in Korea Subsidy issues Conclusion References 108 ix

10 CHAPTER 8 CURRENT ECONOMIC DEVELOPMENT AND OUTLOOK FOR THE KOREAN AGRIFOOD SECTOR: IMPLICATIONS FOR AUSTRALIA Introduction Korea s economic developments and outlook Korea s macroeconomic outlook Production and consumption outlook Korea s trade and investment outlook Outlook for the world economy Developments in Korea s agrifood sector Outlook for major agrifood products Food processing structures Agrifood policies Trade and investment policies Production and processing policies Trade and investment opportunities in Korea Trade opportunities in the Korean agrifood market Investment and business opportunities Implications for Australia Opportunities and challenges Specific strategies Bibliography 137 CHAPTER 9 SOUTH KOREA: RETAIL AND FOOD SERVICE MARKETS Structure and developments in the retail sector Overview Market structure Consumer trends Retail trends New retail strategies Liberalisation of the market Impact of the crisis Competitor responses Implications for Australian exports Structure and developments in the food service sector Overview Market structure Consumer and food service trends Impact of the crisis 158 x

11 9.2.5 Competitor responses Implications for Australian exports Company profiles 163 Lotte Corporation 163 Shinsegae 164 Haitai 164 LG Mart Co. Ltd 164 Tong Yang Group 164 Woosung 165 Hyundai Department Store 165 Walmart/Makro 165 Carrefour Korea Ltd 165 Hanwha Store Co Ltd 165 Bokwang Family Mart Co Ltd 165 New Core 165 Hangyang 166 Taegu Department Store 166 Dong-A Department Store 166 Food service 166 Dongwha 166 Dongwha Liquor 166 Korean Tourist Hotel Supply Centre 166 Asian Star (TGIF) 166 McDonald s 166 Imasco/Hardee s 166 Doosan Foods 167 KFC 167 Pepsi Co Inc (Pizza Hutt) 167 Burger King 167 Midopa References 168 xi

12 CHAPTER 10 ECONOMIC DEVELOPMENTS IN THE INDONESIAN AND MALAYSIAN AGRIFOOD SECTORS A LITERATURE REVIEW Introduction Current status and prospects of the economies Macro factors affecting agrifood policy Indonesia before the crisis The current Indonesian economic situation and macro policy changes The medium-term outlook for Indonesia Malaysia before the crisis The current Malaysian economic situation and macro policy changes The medium-term outlook for Malaysia Structure conduct performance of the Indonesian and Malaysian agrifood sectors since Indonesian production, business and consumption structures Indonesian organisational conduct Indonesian trade and competitiveness performance Malaysian production, business and consumption structures Malaysian organisational conduct Malaysian trade and competitiveness performance Policy overview Overall and sectoral Indonesian policies until the crisis The Indonesian current policy situation and outlook Overall and sectoral Malaysian policies until the crisis The Malaysian current policy situation and outlook Conclusion Bibliography 183 xii

13 CHAPTER 11 AGRIFOOD DEVELOPMENTS IN INDONESIA, MALAYSIA AND SOUTH KOREA IN RESPONSE TO CHANGING ECONOMIC CIRCUMSTANCES Introduction Australia s food exports to Asia Indonesia Malaysia South Korea Key findings across all countries Economic developments and outlook post-crisis Indonesia Malaysia South Korea Key findings across all countries Developments in the agrifood sectors Indonesia Malaysia South Korea Key findings across all countries Policies affecting agrifood developments Indonesia Malaysia South Korea Key findings across all countries Opportunities, challenges and strategies for Australian food companies Opportunities and challenges Specific strategies Conclusion References 207 xiii

14 List of authors Executive Summary Ray Trewin Australian National University Chapter 1: Key agricultural and agribusiness policy issues in Indonesia. Achmad Suryana, Sjaiful Bahri, Wahida and Ray Trewin Center for Agro-Socioeconomic Research (CASER) and Australian National University Chapter 2: Indonesia s pre-crisis agriculture profile: recent policy changes and investment opportunities. Prajogo U. Hadi, Achmad Suryana, Sjaiful Bahri and Adang Agustian Center for Agro-Socioeconomic Research (CASER) Chapter 3: Indonesia: retail and food service markets. Meyers Strategy Group Chapter 4: The impact of trade liberalisation in ASEAN/APEC on agricultural trade and investment in Malaysia. Phase I. Tan Siew Hoey Chapter 5: Recent economic and agrifood policy developments in Malaysia. Tan Siew Hoey Chapter 6: Malaysia: retail and food service markets. Meyers Strategy Group Chapter 7: Economic and policy developments in the Korean agrifood sector. Jong-Soon Kang and Yeon Kim Australian National University Chapter 8: Current economic development and outlook for the Korean agrifood sector: implications for Australia. Jong-Soon Kang, Yeon Kim and Myung-Hwan Kim Australian National University and Korea Rural Economic Institute Chapter 9: South Korea: retail and food service markets. Meyers Strategy Group Chapter 10: Economic developments in the Indonesian and Malaysian Agrifood sectors a literature review. Ray Trewin Australian National University Chapter 11: Agrifood developments in Indonesia, Malaysia and South Korea in response to changing economic circumstances. Ray Trewin and Brian Johnston Australian National University and Department of Agriculture, Forestry and Fisheries, Australia xiv

15 Executive summary Asian agrifood markets have been of growing importance to the Australian agrifood industry. For example, in around 60 per cent of Australia s food exports worth A$10.4 billion went to Asia. Japan, Indonesia, Malaysia and the Republic of Korea were the major Asian markets in that order. However, all these markets have been adversely affected by the Asian economic crisis, particularly the last three. For example, Indonesia s food imports from Australia fell by 23 per cent to $844mn in after growing strongly for many years. Australian industry and policymakers need to understand the changes in trends that are occurring in these markets, what is driving these, and the possible impacts they may have on Australian industry. More specifically in relation to the crisis, there needs to be an assessment of how the economies are coping, the likely speed of recovery, the changes occurring, especially as they affect demand for food products from Australia, and the strategies to adopt. In response to these needs, Supermarket to Asia Ltd initiated a review of economic developments in the agrifood sectors of the main crisis-hit countries of Indonesia, Malaysia and South Korea. The research was funded by the Rural Industries Research and Development Corporation (RIRDC) with supplementary funding provided by Supermarket to Asia Ltd and the Department of Industry, Science and Tourism (DIST). The research was contracted to the Australian National University (ANU) and Meyers Strategy Group. The ANU, in conjunction with research groups based in the countries, and Meyers Strategy Group produced a number of background papers on each economy and across economies that are incorporated into this research report and that were drawn on heavily in the main reports. The main reports are summarised in Short Report Number 49. Some of these background papers refer to related research, such as that undertaken in an Australian Centre for International Agricultural Research (ACIAR)/Australian Agency for International Development (AusAID) project on key APEC agribusiness policy issues. Others reflect the outcomes of specific research, including country visits. A number of qualifications need to be made concerning the background papers. Because of the diverse sources of the papers, for example some were written by in-country research groups and others by Australian researchers, there may be occasions where different perspectives are presented on the one issue such as food self-sufficiency. These differences have been addressed in the final reports. It should be noted that information referred to in the papers was up to the July August 1998 period. Events have continued to move rapidly in each country and could have changed the assessments in the papers. For example, recovery appears to have been quicker than anticipated in South Korea and slower than initially anticipated in Malaysia. Finally, as they were written as stand-alone pieces at various points in the project as the Asian economic crisis evolved, there is a degree of overlap between some of the papers. The publication, containing 11 chapters, is structured into four parts in two volumes. The first part and volume covers the specific Indonesia papers. Chapter 1, titled Key agricultural and agribusiness policy issues in Indonesia, is by the Center for Agro- Socioeconomic Research in conjunction with the ANU on economic developments in the agrifood sector up until the crisis. Key aspects discussed in the paper are Indonesia s strong self-sufficiency goals for rice, soybeans and corn, and the heavy involvement of the national logistics agency, BULOG, in achieving these goals. This paper also illustrates how before the crisis Indonesia s consumption patterns were changing away from staple foods because of rising incomes. xv

16 Chapter 2, by the Center for Agro-Socioeconomic Research, outlines economic developments in the agrifood sectors following the onset of the crisis. Titled Indonesia s pre-crisis agriculture profile: recent policy changes and investment opportunities, it sets out how badly Indonesia was hit by the crisis. Indonesia was thrown into recession with a massive decline in its exchange rate, income growth and employment, and rising inflation. Consumers have been forced to revert to more basic food items such as rice. The paper highlights the changes in agricultural and food policies that have resulted from the crisis and the higher priority the Indonesian Government has put on the sector because of its ability to withstand the crisis and provide employment and food. The sector is viewed as a prime means of helping the economy recover. The final paper in part one is by Meyers Strategy Group on economic developments in the food retailing and food service markets in Indonesia. These sectors were growing rapidly before the crisis, with wet markets being replaced by more modern supermarkets and retailing operations, and fast-food outlets developing. The crisis has hit these sectors hard, and most developments have now been curtailed. In the second volume, parts two and three include the individual country papers for Malaysia and South Korea respectively, and part four reports across-country research. In Chapter 4 ( The impact of trade liberalisation in ASEAN/APEC on agricultural trade and investment in Malaysia ) Tan Siew Hoey looks at economic developments in the agrifood sectors up to the crisis, particularly at Malaysian policies and the impact of liberalisation on agricultural trade and investment. Malaysia is put forward as a successful case study of agribusiness development and the (diminishing) role of government in this. Food production is dominated by estate crops where Malaysia has a comparative advantage, with smallholder policies aimed at maintaining farm incomes rather than selfsufficiency goals. The movement away from traditional rice-based diets towards more Western-style foods as incomes have grown is also described. Chapter 5, also written by Tan Siew Hoey, is on economic developments following the onset of the crisis, and is titled Recent economic and agrifood policy developments in Malaysia. Consumers have switched to cheaper sources of food, including local foods which has been encouraged by the government, and have eaten out less as a result of higher import prices and falling incomes. The Meyers Strategy Group reports on economic developments in the Malaysian food retailing and services markets in Chapter 6. The boom in food retailing and service sectors prior to the crisis is highlighted, along with the taking over of many local operations by mainly European and United States operators following the crisis. Written by the ANU, Chapter 7 in the South Korean section is on economic developments in the agrifood sector up to the crisis, titled Economic and policy developments in the Korean agrifood sector. It shows how rapid industrialisation and rising incomes have led to changes in diets and eating habits, with South Koreans becoming increasingly dependent on food imports. Chapter 8 is by the ANU and the Korea Rural Economic Institute on economic developments following the onset of the crisis, titled Current economic development and outlook for the Korean agrifood sector: implications for Australia. Key points are that the South Korean economy is in recession and had been to some degree prior to the crisis. There have been some changes in agricultural and food policies but many aspects of food importing remain subject to government intervention and there are areas where the market works against Australian products, causing them to be less well known and accessible. The Meyers Strategy Group contributed the final chapter in this section on developments in the South Korean food retailing and food service sectors. The rapid growth in food xvi

17 retailing and services in response to demand for better quality and more diverse foods prior to the crisis is highlighted in this chapter. In the across-country part of volume two, Chapter 10 is by the ANU coordinator of this project and compares and reviews the literature on economic developments in the Indonesian and Malaysian agrifood sectors. The chapter is titled Economic developments in the Indonesian and Malaysian agrifood sectors a literature review. Although the focus of the paper is on comparisons of economic development in light of the crisis, relevant past research, such as on different self-sufficiency approaches, is heavily drawn on. The chapter provides a current status of these economies and prospects for the future, describes the structure, conduct and performance of the agribusiness sectors, as well as the opportunities and threats that evolve from the changes. Chapter 11, by the ANU coordinator of this project and the Supermarket to Asia coordinator, is an overview of all three country reports. It was presented at the 43rd Annual Conference of the Australian Agricultural and Resources Economics Society, in Christchurch, New Zealand, on January It draws lessons from comparisons of the countries affected by the crisis and looks at their different responses, for example compares market-based policies with those that inhibit adjustment. The paper also highlights the strategies Australia will need to adopt in order to position itself to meet the opportunities and challenges from changing institutions and policies, and to maintain or increase food exports and agrifood investment to Asia as it recovers from the economic crisis. Australia needs to: keep markets open, for example through close relationships; position Australian products; reduce costs through the supply chain; establish joint ventures and in-country investments in a more attractive situation of lower currency, a more open investment environment and greater demand for new technologies, with the opportunity of gaining market share and better control of product distribution; and understand the markets and competitors. References, drawn on in the background papers but more comprehensive than these references, are incorporated in the report. xvii

18 Chapter 1 Key agricultural and agribusiness policy issues in Indonesia. 1.1 Introduction Since the 1980s Indonesia s Ministry of Agriculture has shifted its agricultural policy in response to changes in strategic economic environments. Formerly, the main aim of agricultural development was to increase production at a faster rate in order to increase the availability of food and of raw materials for agro-industries. Many assistance schemes such as input subsidies and import barriers were designed to provide cheaper inputs and to protect domestic markets. In 1993, when Indonesia entered its second long-term development plan, agricultural policy changed its orientation, with the main aim to increase the income and welfare of farmers. Product development became oriented towards or based on competitiveness in the domestic as well as the international market. Gradually, subsidies and protection schemes have been revised and removed, in line with WTO/GATT and AFTA agreements. The long drought and economic crisis in hit Indonesian agriculture very hard. Food crop production fell at a considerable rate, so that in 1998 Indonesia is predicted to import more than 3 million tonnes of rice. The poultry industry collapsed because 70 per cent of its feed was imported and the increase in the exchange rate by more than 500 per cent increased the price of feed to an unbearable level. This nightmare will sharpen the shift in orientation. The main objective of this paper is to identify key issues for agriculture and agribusiness in Indonesia related to recent economic and social changes. The policies and performance of agricultural production and trade are also explained in order that the dynamics of agricultural and agribusiness development can be understood. 1.2 The share of agriculture in GDP Indonesia s GDP increased almost six times (at current value) over the period 1985 to The share of agriculture in GDP steadily decreased with the growth of the industrial and services sectors, falling from 23.2 per cent in 1985 to only 16.3 per cent in 1996 (Table 1.1). Agriculture s share of labour absorption did not decrease proportionally, and disguised unemployment in rural areas has grown because of the unbalanced structural transformation. As shown in Table 1.2, although in 1994 agriculture absorbed 46.2 per cent of labour, which was down from 54.7 per cent in 1985, the absolute number of jobs increased by around 3.7 million over the period. The decrease in the share of labour absorbed was especially seen from 1992 to 1994, when employment decreased from million to million. One possible reason for the decrease was increasing urbanisation, which may have led to increasing wages in agriculture as the labour supply fell. This phenomenon indicated that the per capita income of agricultural workers was lower than (or may have even decreased relative to) that of other industries, illustrating that the challenge for Indonesia in the future will be to generate more productive rural employment. One possible solution is to develop rural-based agribusiness by using appropriate capital-intensive and locally specific technology. 1

19 Table 1.1: Indonesia s GDP by sector, 1985 to 1996 (per cent) Sector Agriculture Food crops Estate crops Livestock and products Forestry Fishery Non Agriculture Mining and Quarrying Manufacturing industry Electricity, gas and water Construction Trade, hotel, restaurant Transport and communication Finance, leasing, business Services Total GDP (Rp billion) 96, , , ,956 Source: Erwidodo, 1998 Table 1.2: Labour absorption by sector, 1985 to 1994 Labour absorption (000 people) Annual Growth (%) Agriculture 34,141 35,450 42,153 37, (54.7) (49.3) (53.7) (46.2) 2. Industry 5,796 8,221 8,255 10, (9.3) (11.4) (10.5) (13.2) 3. Trade 9,345 10,593 11,747 13, (15) (14.7) (15) (17) 4. Others 13,175 17,720 16,363 19, (21.1) (24.6) (20.8) (23.6) Total 62,457 (100) 71,984 (100) 78,518 (100) 82,038 (100) Note: Figures in brackets are the percentage of total employment Source: Kasryno, 1997 Most agricultural labour was absorbed by the food crops and horticultural crops sector. Although its share has continually decreased, in 1994 it absorbed 60.9 per cent of agricultural labour, compared with estate crops share of 21.9 per cent and the livestock and fisheries sector with a share of 14.6 per cent. Labour absorption growth rates differed across the sectors, especially from 1992 to Labour absorption in the food and horticultural crops sector fell by 12.3 per cent during this period, while estate crops, livestock and fisheries showed increased growth. Labour absorption in the estate crops sector increased, but the trend was decreasing, i.e. from 10.5 per cent between 1985 and 1990 to 7.7 per cent between 1992 and Meanwhile, labour absorption in the livestock and fisheries sector steadily increased with a rate of 3.4 per cent from 1985 to 1990 and 16.5 per cent from 1992 to 1994 (Table 1.3). 2

20 Table 1.3: Agricultural labour absorption by sub-sector, 1985 to 1994 Labour absorption (000 people) Annual Growth (%) Food and horticultural crops 27,705 (81.2) 26,446 (74.6) 29,963 (71.1) 23,062 (60.9) Estate crops 3,106 5,105 7,132 8, (9.1) (14.4) (16.4) (21.9) 3. Livestock and 2,307 2,730 4,065 5, fisheries (6.8) (7.7) (9.6) (14.6) Total 34,141 (100) 35,450 (100) 42,153 (100) 37,857 (100) Note: Figures in brackets are the percentage of total employment Source: Kasryno, Production Agricultural land, excluding the large estates, has been decreasing. From 1983 to 1993, total agricultural land fell from 16.7 million hectares to 15.6 million hectares, of which 92 per cent of this fall occurred on Java (Kasryno 1997). This will affect the ability to produce agricultural products especially on Java, which has more fertile land than Off Java and is the main food crops area, particularly for rice. It is not easy to prevent the decline of land because of the stronger pressure on land from population growth and industry development. The role of Java as the centre of food production, industry and settlement, makes the problems of land more complex than Off Java Food crops Indonesia s four main food crops are rice, soybean, corn and cassava. Java still supplies the majority of food crops, due to its land fertility and to the implementation of new technology such as high yielding varieties, fertilisers, pesticides, although its share has steadily declined. The harvested area of paddy and secondary crops both on Java and Off Java grew at a significant rate. Although Java was still the dominant rice producing region, the area harvested on Java relative to the national level decreased while the area harvested Off Java increased. From 1982 to 1995, the area harvested on Java relative to the total decreased by around 6 percentage points, from 54.7 per cent to 49.2 per cent. This was because of, among other reasons, a decrease in the planted area (with the conversion of agricultural land to non-agricultural purposes), pest and disease attacks, and natural disaster (flood and drought). Java is still expected to be the dominant region in 2005, at a predicted 54.8 per cent of the total area harvested. Sumatra and Sulawesi were the two other main rice regions, and their share of the harvested area has continually increased; for example from 23.8 per cent to 26.6 per cent for Sumatra from 1982 to Their share in 2005 is predicted to be 25 and 10.9 per cent respectively. Java s share of total production decreased by around 6 percentage points from 1982 to 1995, from 64.3 per cent to 58.2 per cent. National production of rice in 2000, 2003 and 2005 is predicted to be 60.2 million tonnes, 67.5 million tonnes and 72.9 tonnes respectively (Table 1.4). Soybean is mainly produced in Java, Sumatra and Sulawesi (Table 1.5). Soybean is more important in Sumatra than rice. In 1995, the area harvested in Sumatra was lower than that in Java, but after 2000 Sumatra should become the largest soybean production area, with a predicted share of 49.3 per cent in 2005, with Java and Bali making up only 30.3 per cent of total harvested area. The share of Sulawesi has been steadily increasing, but it is predicted to still be less than 10 per cent of the total area in

21 Table 1.4: Harvested area and production of rice by region (%) * 2003* 2005* Harvested area Java, Bali Sumatra NTT, NTB, E. Timor Kalimantan Sulawesi Maluku Irian Jaya Indonesia (000 ha) (8,988) (10,501) (11,479) Production Java, Bali Sumatra NTT,NTB, E. Timor Kalimantan Sulawesi Maluku Irian Jaya Indonesia (000 tonnes) Note: * Projection. Source: Sudaryanto et al., (33,584) 100 (45,179) 100 (49,860) 100 (60,247) 100 (67,548) Table 1.5: Harvested area and production of soybean by region (%) * 2003 * 2005 * Harvested area Java, Bali Sumatra NTT,NTB, E. Timor Kalimantan Sulawesi Maluku Irian Jaya Indonesia (000 ha) (607) (1,338) (1,477) Production Java, Bali Sumatra NTT,NTB, E. Timor Kalimantan Sulawesi Maluku Irian Jaya Indonesia 100 (000 tonnes) Note: * Projection. Source: Sudaryanto et al., , , , , , (72,925) Three regions dominate corn production. Java and Bali are the largest production areas and although their share has tended to decrease, by 2005 they are still expected to make up 46.8 per cent of the total area harvested. Sumatra s share, which in 1982 was 5.7 per cent, steadily increased to 17.9 per cent in 1995, and it is expected to contribute around 37.1 per cent of national production in Sulawesi s production of corn has showed a decreasing trend. Its share was 15.2 per cent in 1982 and has steadily decreased to 12.2 per cent in It is expected to have an 8.7 per cent share in 2005 (Table 1.6). 4

22 Table 1.6: Harvested area and production of corn by region (%) * 2003 * 2005 * Harvested area Java, Bali Sumatra NTT,NTB, E. Timor Kalimantan Sulawesi Maluku Irian Jaya Indonesia (000 ha) (2,061) (3,158) (3,652) Production Java, Bali Sumatra NTT, NTB, E. Timor Kalimantan Sulawesi Maluku Irian Jaya Indonesia (000 tonnes) Note: * Projection. Source: Sudaryanto et al., (3,234) 100 (6,734) 100 (8,245) 100 (11,364) 100 (14,098) 100 (16,456) Table 1.7 shows that Java and Bali and Sumatra dominate cassava farming. Production on Java and Bali is predicted to decrease from 72.3 per cent of the total in 1982 to 45.6 per cent in By contrast, Sumatra s share has continually increased from 11.7 per cent in 1982 to 22.5 per cent in 1995, and it is expected to have a share of 35.5 per cent in Sulawesi s role in cassava production was not as important as its role in the other three food crops and it is predicted to be surpassed by Maluku in 2005: its share, which was 6.4 per cent of total production in 1982, will decrease to 5.6 per cent in 2005, while Maluku s share will rise from 1 per cent in 1982 to 7.1 per cent in Several points can be drawn from the above discussion. First, although it will take time to replace Java as the main source of food crops, Java can no longer be relied on to supply the majority of the country s needs. The decline of agricultural land can not be prevented. Second, as mentioned in Sudaryanto et al. (1998), rice farming in Java (and to some extent in Sumatra and Sulawesi) has been conducted in a very intensive way, resulting in stagnant productivity. Consequently, the food crop production development program should be reorientated to encourage farming in other areas such as uplands and swampy areas. In addition, the rehabilitation and maintenance of existing irrigation should be given priority. 5

23 Table 1.7. Harvested area and production of cassava by region (%) * 2003 * 2005 * Harvested area Java, Bali Sumatra NTT, NTB, E. Timor Kalimantan Sulawesi Maluku Irian Jaya Indonesia (000 ha) (1,322) (1,386) (1,324) Production Java, Bali Sumatra NTT,NTB, E. Timor Kalimantan Sulawesi Maluku Irian Jaya Indonesia (000 tonnes) Note: * Projection. Source: Sudaryanto et al., Horticultural crops 100 (12,988) 100 (15,830) 100 (15,442) 100 (17,725) 100 (19,671) 100 (21,328) Java has a larger number of high altitude areas than the other islands do and dominates vegetable production (Table 1.8). Potatoes and cabbages can only grow well in high altitudes, while chillies and red onions can grow in low altitudes. Off Java dominated only in tomato production, with a share of 59.5 per cent in Java is also dominant in fruit production, even though it is cultivated in a traditional way. East Java accounted for around 35 per cent of mango production in 1993, while West Java s dominance was in bananas, with the share of around 30 per cent of national production. Table 1.9 shows that from 1993 to 2005 chilli and red onion production is expected to increase by more than 200 per cent, tomato, cabbage and mango production is predicted to increase by more than 100 per cent, and potato and banana production is expected to rise by more than 50 per cent. Orange production is predicted to decrease by 80 per cent over the same period. 6

24 Table 1.8: Harvested area and production of selected horticultural commodities by region (%) Java Off Java Indonesia Vegetables Harvested Area* Potatoes (35) (54) Tomatoes (52) (49) Chillies (288) (157) Red Onions (65) (74) Cabbages (42) (60) Production Potatoes (372) 100 (810) Tomatoes (138) 100 (226) Chillies (314) 100 (315) Red Onions (294) 100 (577) Cabbages (584) 100 (1,266) Fruit Harvested Area* Bananas (164) (227) Mangoes (100) (83) Oranges (78) (30) Production Bananas (2,193) (2,644) Mangoes (516) (460) Oranges (557) (260) Notes: * Data for 1986 is the average of 1984 to 1988 (Sudaryanto, 1988) Figures in brackets are 000 tonnes or 000 ha Source: Kasryno, 1997 Table 1.9: Projected production of selected horticultural commodities (000 tonnes) Growth (%) Vegetables Potatoes 1, , , Tomatoes Chillies 1,100 1, Red Onions , , Cabbages 2,050 2, , Fruit Bananas 3,662 4, , Mangoes , Oranges Source: Sudaryanto et al., Estate crops Most estate crops are farmed by smallholders and there has been relatively low productivity as a result of a lack of technology, capital and infrastructure, and because of the low selling price which has reduces incentives. Productivity has not significantly increased. The increase of production was largely due to an increase in the area farmed. 7

25 Off Java contains the potential areas for estate crop production. From the seven major estate commodities, only in tea and sugar cane production does Java have a dominant share (Table 1.10). In 1984, Java produced 79.8 per cent of the country s tea, and this increased to 81.5 per cent in Tea is mainly produced in West Java. Java produced 89.7 per cent of the nation s sugar cane in 1984 but this declined to 78.7 per cent in Sugar cane is mainly produced in East Java. Java produced less than 20 per cent of the other commodities (rubber, palm oil, coffee, cacao and coconut) in 1984 and by 1994 its share was less than 15 per cent (except for coconut). Table 1.10: Planted acreage and production of selected estate crops, by region (%) Java Off Java Indonesia Area Harvested Rubber (2,711) 100 (3,472) Palm oil (512) 100 (1,804) Tea (118) 100 (146) Coffee (894) 100 (1,073) Cacao (79) 100 (597) Coconut (3,002) 100 (3,544) Sugar cane (286) 100 (425) Production Rubber (1,033) 100 (1,499) Palm oil (1,147) 100 (4,008) Tea (126) 100 (139) Coffee (316) 100 (421) Cacao (27) 100 (270) Coconut (1,751) 100 (2,587) Sugar cane (1,707) 100 (2.531) Note: Figures in brackets are 000 tonnes or 000 ha Source: Kasryno, 1997 As Table 1.11 shows, cacao production is expected to increase substantially. Along with palm oil and rubber, this commodity is expected to be one of the main earners of foreign exchange, which is needed to help the country out of its current economic crisis. Table 1.11: Projection of selected estate crops production, (000 tonnes) Growth (%) Rubber 1, , , Palm oil 8, , , Tea Coffee Cacao 1, , , ,380 Coconut 3, , , Sugar Source: Sudaryanto et al., Livestock and fisheries Java dominates meat production, except for buffalo, native chicken and duck (Table 1.12). The share of Java in the production of beef, goat, sheep, hens and broilers in 1994 was 71.9 per cent, 57.9 per cent, 87.5 per cent, 67.6 per cent, 65 per cent, respectively. In 2005, Indonesia is predicted to produce 1.09 million tonnes of beef, 1.49 million tonnes of native chicken meat and 1.69 million tonnes of broiler meat (Table 1.13). 8

26 Java is dominant in the production of hens eggs, its share of national production rose from 61.8 per cent in 1984 to 67.6 per cent in The Off Java islands are dominant in the production of native chicken and duck eggs, producing 56.2 per cent and 70.3 per cent of the national total in 1994, respectively. In 2005 the production of hens eggs is predicted to be 448,600 tonnes, compared with 122,200 tonnes of native chicken eggs and 63,200 tonnes of duck eggs. Java is the main region for milk production; its share rose from 95.2 per cent in 1984 to 96.9 per cent in In 2005, milk production is predicted to be around a half a million tonnes. Table 1.12: Production of selected livestock commodities, by region Java Off Java Indonesia Meat (%) Beef (216) 100 (358) buffalo (48) 100 (54) Goat (48) 100 (72) Sheep (29) 100 (41) Native chicken (179) 100 (250) Hens (12) 100 (23) Broiler (79) 100 (474) Duck (10) 100 (11) Eggs (%) Native chicken (66) 100 (97) Hens (207) 100 (356) Duck (82) 100 (128) C. Milk (%) (179) 100 (389) Note: Figures in brackets are volume in 000 tonnes Source: Kasryno, 1997 Table 1.13: Projection of selected livestock products, (000 tonnes) Growth (%) Meat Beef , Buffalo Goat Sheep Native chicken , , Broiler , , Hens Duck Eggs Native chicken Hens Duck Milk Source: Sudaryanto et al., 1998 Fish production in Java is less than in Off Java. Although brackish water ponds in Java are increasing in absolute terms, it share is decreasing due to a large number of ponds being established Off Java. Java dominates the production of white prawns and milkfish, with shares of 71.9 per cent for white prawns and 59.9 per cent for milkfish in 1994 (Table 1.14). 9

27 Table 1.14: Production of selected fish, by region 1984 and 1994 (%) Java Off Java Indonesia Windu prawn (7) 100 (87) White prawn (10) 100 (29) Milkfish (46) 100 (165) Tuna (18) 100 (77) Skipjack (43) 100 (147) Tonnegkol (67) 100 (161) Note: Figures in brackets are volume in 000 tonnes Source: Kasryno, 1997 Prospects for fish production, especially marine fisheries, are good. Around 70 per cent of Indonesia s territory is marine. In addition, as mentioned by the Directorate General of Fishery in 1996, of 17 fishing areas in the world, only three are considered good areas for fishing, the other 14 being over-fished. One of these areas is in Indonesian territory. From 1994 to 2005, prawn, tuna and skipjack production is expected to increase by 138 per cent, 106 per cent and 89 per cent, respectively. Table 1.15: Projection of selected fish production, (000 tonnes) Growth (%) Prawn Tuna Skipjack Source: Sudaryanto et al., Consumption As drawn from Sudaryanto et al. (1998), the consumption of agricultural products consists of direct consumption and indirect consumption by food processing industries. Data for per capita consumption of rice, soybean, corn and cassava is drawn from the CBS Food Balance Sheet (FBS) and industry consumption is calculated using Input/Output tables. It is important to note, however, that total direct consumption is the multiplication of per capita consumption and total population. Data for the per capita consumption of other food commodities is gathered by the Central Bureau of Statistic in the National Socio-Economic Survey (SUSENAS). As the data does not include processed food, it tends to be consistently lower than data from the FBS, however the FBS only covers a limited number of food items Food crops While per capita consumption of rice, corn and cassava tended to decrease in the early 1990s, per capita consumption of soybean has increased in line with the common trend that as income increases carbohydrate consumption tends to decrease while protein consumption tends to increase (Table 1.16). 10