The profitable landscape

Agriculture is one of the key sectors within the Indonesian economy

By Kushmita Bose

Published: Tue 17 Aug 2021, 12:00 AM

Agriculture is a significant contributor to the Indonesian economy. Twenty-nine per cent of the Indonesian workforce is employed in agriculture and livestock, which accounts for nearly 13 per cent of the country's GDP. According to Statistics Indonesia (BPS), it is the third-largest contributor to the economy after manufacturing and trade. Located in the tropical area, the country receives a lot of rain and sunshine most of the time, which is essential for agricultural crops to grow. The nation has large and plentiful arable agricultural soils.

Indonesia's agricultural industry includes huge plantations as well as smallholder production modes. There are three main types of farming namely small holder farming, smallholder cash cropping, and roughly 1,800 big foreign-owned or privately held estates. The major plantations tend to concentrate on commodities that are key export items (palm oil and rubber), whereas smallholder farmers concentrate on corn, rice, fruits, and vegetables.

Rice — Rice, which meets almost half of Indonesians' daily calorie demands, is by far the most significant staple crop in the country. In 2017, the typical Indonesian consumed 114.6 kg of rice, with total consumption exceeding 33.5 million tonnes. The Indonesian government has put a high value on specific agricultural goods in order to achieve self-sufficiency. Furthermore, Indonesia has the greatest per capita rice consumption in the world, with the majority of the population still relying on imports.

Palm Oil — Palm oil cultivation is dominated by Indonesia and Malaysia. They account for 85-90 per cent of worldwide palm oil output, and the demand is still rising due to greater global consumption and improved yields.

The Indonesian government has made significant efforts to integrate the Indonesian economy with the global economy. The trend began in the mid-1980s and intensified in the 1990s, when the government significantly lowered trade barriers and opened up economy to foreign investments. The significant decline in oil prices provided momentum for Indonesia's market opening initiatives. The goal was to reorganise the economy by broadening the trade sector and weaning it off its reliance on oil.

Indonesia's agricultural policy objectives have altered in reaction to the changing economy. These goals are now considerably more difficult than they were 25 years ago. Some of Indonesia's most prominent objectives include:

• Diversification, a long-standing aim of agricultural policy, has taken on a broader connotation to encompass boosting the types of job opportunities available in rural regions.

• Improving Indonesia's industrial competitiveness and moving up the value-added processing chain is a trade policy objective. This is especially true for natural resource-based industries like agriculture, where exports are still heavily concentrated on raw items.

• Indonesia, like other nations that have seen fast economic expansion, are now placing a greater emphasis on safeguarding farm incomes. Low food prices for consumers were a significant objective of the government 25 years ago. Some still believe high prices for producers are equally important.

The bright side:

• President Joko Widodo's government has made strides in recent years by introducing business-friendly policies to attract both foreign investments and domestic capital.

• Investments are being made to enhance the use of mechanised and automatic agricultural technologies, expand overall farming areas, and improve infrastructure. As a result, agricultural machinery, mechanisation, and technology present significant potential for Indonesian enterprises.

• Indonesia spent about $2.175 billion for agricultural development in the year 2018.

• The initiative intends to assist in bridging structural gaps in order to fulfill local food demand as well as export to other nations. Indonesia imports food from other countries almost worth $3.849 billion every year.

Future scope:

• McKinsey & Company recently conducted a study of 200 Indonesian farmers in six provinces uncovering some potentially strong solutions. The agriculture technology has the potential to add $500 billion to global GDP by 2030 that will help enhance food security and increase productivity.

• Using drones or hydrogen balloons might reduce dependency on manual labor and application time, while smart irrigation systems could reduce expenses while precision farming can help increase yields saving cost.

• The development of export-oriented horticulture is another initiative in order to increase the earnings of the farmers’.

• Other digital platforms can help by offering early-warning weather information. Mobile phones may be used to offer personalized on-demand advice services. For example, Pantau Harga provides farmers with precise agricultural- commodity price information, enabling for more transparent transactions.

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