Focus on Indonesia

by Chris Lyddon
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Indonesia is the world’s fourth most populous country, with one of the biggest agricultural sectors. It is among the most important players in production of two agricultural products — rice and palm oil. The government has ambitious plans to expand production of palm oil in particular, but has come up against objections from environmentalists, keen to insist on the preservation of Indonesia’s forests.

The International Grains Council (IGC) puts Indonesia’s total grain production (not including rice) at 8.4 million tonnes in 2010-11, compared with 8.3 million in 2009-10. All of it is maize (corn).

The IGC predicts total grain imports of 6 million tonnes (mostly wheat), down from 6.5 million. Indonesia is expected to import 500,000 tonnes of maize, down from 1 million.

Indonesia is also expected to import 1.5 million tonnes of soybeans (1.6 million in the previous year) as well as 2.6 million tonnes of soy meal (2.5 million last year.).

It is in rice production and consumption that Indonesia is a major player. According to the IGC, it is second only to India and China in rice output, with a predicted 2010-11 crop of 38.5 million tonnes, up from 37.5 million last year. It is also expected to import 500,000 tonnes of rice, up from 300,000 tonnes.

The official national statistics body, Badan Pusat Statistik (BPS-Statistics Indonesia), puts paddy rice production in 2009 at 64.4 million tonnes on just under 13 million hectares. It puts maize production at 17.6 million tonnes on 4.2 million hectares.

Rice is hugely important to the food supply of the average Indonesian. According to the United Nations Food and Agricul- ture Organization (FAO) in 2004-06 it provided 49.8% of the dietary energy supply of the average Indonesian. That figure, however, had fallen from 53.7% in 1990-92.

Indonesia is also a major producer of palm oil. The FAO estimates its output in 2008 at 16.9 million tonnes.

TOUGH WEATHER FOR RICE GROWERS
Indonesian rice farmers have had some complicated weather to cope with in recent months. “Unusual weather patterns over the past year have impacted Indonesian crops patterns, especially food crops such as rice and corn,” according to one attaché report. In the long term, it predicted a decline in harvested area. “Since at least 2005, land conversion to non-agricultural uses has averaged roughly 100,000 hectares per year, most significantly in the major rice producing areas of Java and Bali – the most populous areas of Indonesia accounting for approximately 60 percent of total population,” it said.

The government has made expanding production outside Java a priority, but the attaché reckoned that the lack of infrastructure in those areas would hold back efforts to expand production capacity.

“To offset the decline in harvested areas, farmers in Java practice multiple cropping,” the report said. “However, this effort may again lead to lower yields, as multiple cropping typically depletes the soil.”

New production areas outside Java will have to deal with lower quality soil.

NINE MILLION TONNES OF FEED
A large proportion of the Indonesian maize crop is used for feed. According to the Indonesian Feed Millers Association, in 2009-10 Indonesian feed production will reach 9.1 million tonnes. Around half is produced from maize. Indonesia also imports maize, usually from Argentina and Thailand.

Canada is a big supplier of wheat. On Oct. 15, the Canadian Wheat Board (CWB) welcomed an announcement by the Canadian government of an agreement with Indonesia on quality and safety standards.

“The agreement gives Canada preferred status in a market worth more than $300 million a year to Prairie wheat farmers, and effectively recognizes the superior quality-control systems for grain exported from Canada,” CWB said. “On average, about 8 percent of all wheat exported each year by the CWB goes to Indonesia, which is typically one of Canada’s top five wheat customers.”

“This agreement builds upon the strong and long-standing relationship between the Canadian Wheat Board and our valued Indonesian customers,” said Ian White, CWB President and CEO.

Indonesia recently imposed stricter phytosanitary controls on plant imports, including grains, to prevent the introduction and spread of pests. However, under the agreement, Canadian wheat exports will not be subject to the new measures, avoiding costly and time-consuming additional testing and controls.

In 2009-10, the CWB exported approximately 845,000 tonnes of wheat to the Asian nation. The previous year, western Canadian wheat exports totaled 934,000 tonnes. Indonesian customers buy Prairie wheat for breads, baking and noodles.

MILLING INDUSTRY
According to a paper presented last year to the Flour Forti- fication Initiative’s East Asian Leaders Meeting in Ho Chi Minh city, Vietnam, by Josafat Siregar of Bogasari Flour Mills, Indonesia’s flour milling industry grew from five mills in 1998 to 10 in 2009.

Bogasari Flour Mills, which is a division of Indofood Sukses Makmur, is the biggest milling company with a capacity of 4.4 million tonnes a year out of an industry total of 9.2 million.

Its nearest rival is Sriboga Raturay with a capacity of 740,000 tonnes.

Bogasari’s has two mills, one in Jakarta covering 33 hectares and one in Surabaya that sits on 13 hectares. Bogasari Jakarta and Surabaya have milling capacities of 10,000 and 5,900 tonnes a day, respectively.

PALM OIL EXPANSION
According to a U.S. Department of Agriculture (USDA) attaché report published earlier this year, the Indonesian government is aiming to almost double production of palm oil to 40 million tonnes by 2020. That would mean an increase in area from current levels of approximately 8 million hectares to approximately 15 million hectares, the report said.

In October, the USDA’s Foreign Agricultural Service produced a report focusing on the palm oil industry in Indonesia which described it as “a pillar of the national economy, currently employing over 3 million people, contributing roughly 4.5 percent of GDP, and generating export earnings totaling $10.4 billion in 2009.”

“Based on recently revised official Indonesian government statistics, it is apparent that the country’s rapid expansion of oil palm acreage is continuing in 2010,” the report said. “This is despite escalating environmental and climate change campaigns focused on halting or slowing conversion of forest lands to plantation agriculture in Indonesia, including the newly announced moratorium agreement between Indonesia and Norway.”

That agreement was signed in May 2010 and commits Indonesia to cut greenhouse gas emissions and reduce deforestation.

“Total area planted to oil palm (immature and mature) in 2010-11 is now estimated at roughly 7.65 million hectares, having increased at an average annual rate of 300,000 hectares over the past 10 years,” the report said. “Whether or not this growth trend is maintained in the future is critically important to the global edible oil market. USDA is currently estimating Indonesian palm oil production in 2010-11 at a record 23 million tonnes, up 2 million, or 10%, from last year.”

The report stressed the importance of the palm oil industry to Indonesia.

“It is a vital agricultural industry which is capable of delivering both substantially higher levels of hard currency earnings and job growth over the next two to three decades on the back of a rising world population and increasing demand for edible oils,” it said. “Palm oil is a highly lucrative agricultural business for both small producers (called smallholders) and commercial growers (companies).”

The report also points out how suited Indonesia is to the palm oil industry.

“Indonesian production costs, inclusive of labor, are very low, averaging $250 to $300 per tonne of crude palm oil,” it says. “Profitability for processors is also quite high, and in the current market amount to between $500 and $600 per tonne.

“The Indonesian government is in the process of evaluating how to best manage the conservation of its national forest resources, reduce greenhouse gas emissions and lower its contribution to global climate change, while also fostering vigorous national economic development,” it said.

According to the attaché report, although Indonesia does have a regulation on biofuels, there is no strong commitment to implement it.

“Biodiesel production has temporarily ceased in Indonesia because it is not currently economical to produce it,” it said.

There’s a debate going on in the government about how much biodiesel would have to be subsidized to make it viable, a process not helped by the volatile nature of palm oil prices.

“Indonesian biodiesel producers are reluctant to contract with Indonesia’s state-owned oil and gas company, Pertamina, because they do not want to be forced into supplying Pertamina with biodiesel at a loss,” it said.

THE ROLE OF BULOG
The government retains some control over the supply of basic foodstuffs through Perum BULOG, a state-owned enterprise which replaced the National Food Logistic Agency (BULOG).

It manages government reserves of rice and distributes rice and other foods under a food security system. For example, according to the attaché, “under the Raskin Program (rice for the poor), Bulog distributed 13 kilograms (kg) to participating families on a monthly basis from January to June 2010.

As of July 2010, Raskin Program participants began receiving 15 kg per month. This is part of a government effort to stabilize rice prices by easing demand.

Chris Lyddon is World Grain’s European editor. He may be contacted at: chris.lyddon@ntlworld.com.
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