The booming modern retail sector now accounts for 30 percent of Indonesia's retail food trade, a World Bank report says, although Indonesian growers of fresh fruit and vegetables have yet to fully take advantage of the opportunities this provides.
"While fresh fruit and vegetables account for 8 percent of supermarket sales and up to 15 percent of urban retail sales, a high proportion -- 80 percent of the fruit and 20 percent of the vegetables -- are imported," says the report.
Published Tuesday, the ground-breaking report is titled Horticultural Producers and Supermarket Development in Indonesia.
The high level of imports reflects missed opportunities for local growers of fresh fruit and vegetables at a time when Indonesian consumption of fresh produce is on the rise.
The report said spending by Indonesians on fresh produce amounted to 50 percent of their expenditure on rice in 1994. This figure had risen to 75 percent by 2004. In urban areas, Indonesians now spend the same amount of money on fresh fruit and vegetables as they do on rice.
In addition to the lower prices, and often better quality, of imported fruit and vegetables, inadequate supply chains make it difficult for Indonesian growers to compete.
"Indonesian farmers trying to sell to the supermarkets are really handicapped by extremely poor supply chains," said Shobha Shetty, the report's lead author.
"Moving over poor roads, lacking cold chains and logistics services, while dealing with entrenched bad business practices, Indonesian farmers face formidable odds. Yet, retailers see a big opportunity for local produce in supermarkets if these supply chain problems can be resolved."
At present, the percentage of local horticultural produce being supplied to the supermarket sector stands at around 15 percent, with the rest going to the country's traditional markets.
The report offers three main recommendations to government, central and local, to help farmers improve their competitiveness and compete head-on with imported fresh produce.
First, the government can provide management, technological and factor-input assistance to farmers, and promote research so as to help farmers keep in touch with the needs of the market.
Second, in order to reduce the current high cost of transportation, it is essential for the government to provide good roads and telecommunications.
Last, but not the least, farmers' access to financial services need to be improved, the report said.
Since supermarkets normally buy on 40 days' credit terms, cash flow problems can affect suppliers, farmers and wholesalers.
To alleviate these problems, the government could facilitate agreements with the association of modern retailers (Aprindo) and the banks to help farmers access commercial loans secured by the sales they have already made to supermarkets.
For traditional retail markets, the report highlights the need for improved hygiene, sanitary standards and infrastructure -- such as pavements, roads, buildings and stalls -- so that they can compete with the supermarkets.
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