Improving Commodity Supply Chains As Response To Food Security Challenge : An Indonesia Perspective Harry Hanawi EUROPEAN UNION INDONESIA BUSINESS DIALOGUE (EIBD) 8-9 November 2012 Nikko Hotel Bali Resort, Nusa Dua, Bali 1
Table of Content 1. Initiatives on Food Security in Indonesia a. The Government Master Plan b. The Chamber of Commerce Program, Feed Indonesia Feed The World c. The WEF Program, NVA PISAgro 2. Success Story and Potentials 3. Challenges 4. Sinar Mas Solutions 5. Illustration and Picture 2
1 Initiatives on Food Security in Indonesia 3
Government Private Sectors Government & Private Sectors 4
3 big initiatives in Indonesia MP3EI (Master Plan) Food Security KADIN Feed Indonesia Feed The World WEF NVA PISAgro 5
1.a The Government Master Plan 6
MP3EI: 22 Main Economic Activities (2011-2025) 1 Palm oil 12 Shipping 2 Cocoa 13 Textiles 3 Livestock 14 Jabodetabek Area 4 Food-beverages 15 Steel 5 Food agriculture 16 Defense Equipment 6 Fishery 17 Tourism 7 Rubber 18 Bauxite 8 ICT 19 Copper 9 Transportation Equipment 20 Nickel 10 Sunda Straits Strategic Area 21 Timber 11 Coal 22 Oil and gas 7
1.b The Chamber of Commerce Program, Feed Indonesia Feed The World 8
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Feed Indonesia, Feed the World A Kadin program initiated to support MP3EI (Master Plan) initiatives in collaboration with the RI government focusing on 6 commodities out of the 22 economic focus Objectives Food self sufficiency for Indonesians Export food to the world Sustainability We aim to achieve this by enhancing sustainable development of smallholders through innovative financing module and expanding successful modules For example: the plasma inti scheme addressing challenges across the integral value chain, including: financing, access to technology and agricultural best practices, as well as fair market price off take agreement 10
1.c The WEF Program, New Vision of Agriculture PISAgro 11
PISAgro : A New Vision for Sustainable Agriculture Food Security Environmental Sustainability Source: World Economic Forum Economic Opportunity 12 5
The 20-20- 20 is a vision as well as a license to operate to transform the agriculture sector Approach Target % 20 Improve yield through pilot projects Establish innova[ve financing schemes Enhance farmers knowledge in best prac[ce management Provide access to technology 20 % CO 2 emission % Yield increase reduction % Poverty reduction Reduce emissions level by Reduce transportation emissions (lower import) Improve land use to reduce deforestation and peatland degradation 20 Reduce poverty levels by targeting local communities Introduce new, more resilient crop types Standardize contracting to ensure offtake and prices Rice Dairy Palm Oil Cocoa Potato Corn Soybean Others sinarmas 13
2 Success Story and Potentials 14
Nucleus Plantation Company Financial Institutions Provides loan with low interest rate Provides guarantee Employment during development stage Implement best agricultural practices Builds processing mill Innovative Financing Model Regulate pricing Favorable fiscal policy Smallholders Sells Fresh Fruit Bunch to Inti Government 15
Expected Benefit from this PIR scheme: Current (Base) 5 t/ha Assumption 6 t/ha Assumption 7 t/ha Assumption Average Price (USD/t) $1,000 Yield (t/ha) 2.0 5.0 6.0 7.0 Cultivated Area (ha) 2,000,000 2,000,000 2,000,000 2,000,000 Expected income per annum Development stage (years) Production Lifecycle (years) Total income for one lifecycle $4,000,000,000 $10,000,000,000 $12,000,000,000 $14,000,000,000 3 22 $88,000,000,000 $220,000,000,000 $264,000,000,000 $308,000,000,000 Total additional income $0 $132,000,000,000 $176,000,000,000 $220,000,000,000 16
Indonesia could achieve unprecedented 7% per annum growth in agriculture and fisheries real revenue Indonesia agricultural and fisheries real revenue 1 ($ billion, 2010 price) Fisheries +7% p.a. Cultivate low-carbon unused land 1 Rounded to the nearest $5 billion. 2 Includes palm oil, fruits, and vegetables. Shift to high-value crops 2 Increase smallholder yield Increase commercial yield Optimisation levers Increase fisheries production Other parts of the value-chain could add additional 200 billion over the coming 20 years SOURCE: Food and Agriculture Organization; International Institute for Applied Systems Analysis; Ministry of Agriculture; Ministry of Marine Affairs and Fisheries; Ministry of Forestry; McKinsey Global Institute analysis Reduce food losses and waste 2030 optimised potential 17
3 Challenges 18
Challenges Access to land Access to financing & stable income Access to Technology & Agriculture Best practices Access to market Conflicting spatial planning Risks involving price volatility, loss income during replanting season and extreme weather Low productivity and unsustainable practices Unfair or volatile prices Solutions Spatial planning Innovative financing modules Aggregation of smallholders (for example plasma inti scheme) Implementing one map policy Replanting scheme credit Insurance and reinsurance Encourage investment Risk management Technology and best practices sharing Off take agreement at fair market price 19
4 Sinar Mas Solutions 20
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5 Illustration and Picture 22
Creates 300,000 jobs 500,000 additional indirect employment
Agribusiness and Food Annual CPO production 2.64 million tons (2011)
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