Agronomic trade potential
Agronomic trade potential
By Daniel Kingsley
JAKARTA (JP): It is a government priority and focus to develop
small and medium enterprises in Indonesia as a foundation for
bringing the country out of it's present economic slump.
Indonesia has a strong agricultural foundation which,
unfortunately, is stunted by an inefficient distribution system
that was never allowed to develop under the New Order government.
So, how to develop agronomic businesses into consumer product
manufacturing to benefit those small and medium enterprises?
Perhaps by enticing foreign investors into the sector.
And how to produce profitability in the five to 10 year time span
necessary to entice foreign private equity investors, or cross-
border venture capitalists, to invest?
Ideally, for efficiency if nothing else, a hierarchy of cross-
sectoral businesses, which increase added value for a single
agricultural commodity, would be developed under "one roof". A
group of farmers down on the farm, or a cooperative, will take
their single product and make it worth more by processing it and
exporting it, or processing it further into a consumer product
for local consumption.
One of many examples of this is cashew nut; currently,
Indonesian cashews are not processed, but are exported as seeds.
The possibility for added value exists if the farmers kept those
cashew seeds here and processed them before exporting them. The
example doesn't end here; most agricultural products from
Indonesia, spices, cocoa, coffee, fruit, and even leather hides
are not processed in Indonesia.
If the agronomic industry can realize a goal of processing
these agricultural products before exporting them, Indonesian
farmers, the small businesses that handle the processing and
distribution, and the investors who backed this development will
all prosper
According to some, this is the challenge facing the agronomic
industry in the globalization era. And to meet this challenge,
the industry must prepare several strategies, some of which
should include foreign investment incentives. The long-term
scenario for the agronomic industry is to maximize the potential
of all sectors in the hierarchy.
One solution is to map the agricultural commodities of each
province in order to identify priority sectors for potential
investors. However, simply knowing the geographical distribution
of the commodities is not enough. Competitive value and
efficiency are required to realize the kind of revenue needed to
move the agronomic industry forward.
If the industry can accomplish these goals, and become
structurally efficient, agronomic sectors will transform
themselves from comparative superiority to competitive
superiority, both domestically and internationally. Statistics
show a decline in processed, and raw, agriculture product export
in recent years:
Export Growth For Six Commodities In Agro-Industry Sector
1996 1997 1998
No. Commodity Volume Value Volume Value Volume Value
01. Palm Oil 685,594 338,383 1,519,227 747,044 900,220 428,323
02. Coconut Oil 333,450 236,206 547,723 341,553 231,909 123,510
03. Cocoa Powder 48,727 111,035 46,418 124,766 51,293 110,589
04. Animal Feed 1,649,301 217,778 1,566,915 148,200 1,307,828 102,482
05. Margarine 12,807 7,766 145,415 45,205 110,186 54,978
06. Cashew Nuts 27,886 23,751 29,667 19,152 27,076 31,154
Volume: Metric Tons Value: US$000 Source: Ministry of Agriculture
The reasons are not yet clear, but the statistics are an
indicator that efficient management, selective and effective
technology, and investment are needed, because the demand for raw
agricultural production rose during the same period. The
agronomic industry must work with foreign investors in order to
develop.
A few domestic firms have been successful in processing
agricultural products and are now going upstream into consumer
products manufacturing and distribution. They have been very
successful over the past five years; all are poised to become
market leaders when import replacement becomes a priority in a
reform era of government.
With a few strong companies producing quality products, it is
a good bet that Indonesia's agronomic industry will improve
competitively, and develop into a superior industry. These firms
are ready for the globalization era of trade, but they are few.
The multi-level opportunities available to investors in the agri-
business sector, including processing and consumer product
distribution will attract attention.
The writer is the managing director of the Jakarta-based
consultancy firm, Trade Management Indonesia (smedev@cbn.net.id/
www.tmiconsulting.com)