Mid-Test FLSP 2
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The Agribusiness Industry
The agribusiness industry is a complex but highly relevant sector in the Indonesian economy. This
important role is reflected in the sector’s substantial contribution to the economy in terms of
employment and Gross Domestic Product (GDP), which stands at 13.7% in 2020. This places agribusiness
as the second biggest contributor to GDP after the manufacturing industry.
The agribusiness sector also remains one of the main industrial development priorities set by the
Indonesian government, as well as an important sector for both foreign and domestic investments. In
2016, imports and exports of agribusiness products amounted to USD 15.84 billion and USD 26.73 billion
respectively. From 2016 to 2017, the EU export value to Indonesia reached USD 773 million, a 4.6%
growth rate.
Indonesia mainly produces corn and soya beans. Despite local production, Indonesia still requires
significant imports of these commodities in order to meet local demand. The growth in local
consumption of packaged food is mainly driven by the increase in urbanization, growing health
awareness, and changing lifestyles.
One of the biggest challenges facing agriculture in Indonesia is the irrigation system, which needs to be
improved urgently. The other challenges are the mechanization and utilization of agricultural machinery,
and chemically irrigated farming land. Poor infrastructure remains a key challenge in Indonesian
agriculture.
In Indonesia, dairy and beef cattle are mostly owned by small-scale farmers, who only raise livestock as a
form of investment or savings. The Indonesian cattle population is mostly hand-fed with a mixture of
grass, agricultural by-products, and added vitamins. Feedlots that allow cattle to freely feed on specified
grass fields is limited, scattered, and exists only in certain areas. Indonesia imports breeding cattle,
feeder cattle, live cattle, as well as frozen meat to fulfill its demand for beef. Poultry is still the most
consumed meat in Indonesia and has the biggest market share for livestock. Day Old Chicks (DOC) and
feed are two products that are mostly produced locally by major companies such as Japfa and Charoen
Phokphand.
Future prospects and trends regarding the agriculture sector remain broadly positive for a number of
reasons. Upward demand, coupled with a young, growing Indonesian population, is resulting in positive
growth. In addition, increased urbanization is also likely to support industry growth. Due to a rise in
demands within the tourism and leisure sector, the consumption of food and beverages is expected to
grow which will have a positive impact on agribusiness growth.
Challenges remain when conducting business in Indonesia. Firstly, it is important to take into
consideration that cold storage facilities are not yet fully developed. Secondly, due to a dynamic
regulatory environment, Indonesian provisions, laws and regulations related to agricultural trade and
related sectors tend to change frequently, even those that have been recently issued. Regulations that
are particularly prone to frequent changes are regulations which are released by the National Agency of
Food and Drug Control (BPOM), such as those related to Halal food.
In conclusion, the dynamic agribusiness sector in Indonesia remains promising and is driven by overall
national growth, as well as changes in demographics and consumption patterns. However, challenges
and weaknesses still remain in the industry.
CHALLENGES
Although Indonesia shows good future prospects for the agribusiness market, there are challenges to
doing business in Indonesia.
As stated in the Trade Ministry Regulation No. 72/2015, SNI are the standards regulated by the National
Standardization Agency (BSN) and are applicable nationally. While not all products are obligated to pass
an SNI, each product subjected to SNI is required to carry a Registration Item Number (NPB) when being
traded. The list of products subjected to SNI is available on the BSN website and is updated regularly.
Although the registration process to obtain NPB in the latest regulation is simpler than the 2014
regulation, the penalties for non-compliant products are tougher. SNI listed products not carrying NPB
will be temporarily withdrawn from the market.
Foreign companies must also bear in mind that infrastructure related to food transport and food
preservation are under-developed, particularly outside Java. Indonesia ranks 51st out of 167 countries in
the 2018 Logistic Performance Index of the World Bank. This ranking is an improvement from 2014,
when Indonesia ranked 53rd.
Frozen and chilled products face significant challenges due to a lack of access to refrigeration facilities in
Indonesian households, but most importantly within the entire food supply chain. Remote areas in
Indonesia do not always have access to electricity, which creates significant obstacles to cold chain
development. Closing the gaps within the cold chain is a tremendous challenge for a huge archipelagic
country like Indonesia. Therefore, investment in transport infrastructure (not only related to food
preservation) between the thousands of Indonesian islands is in high demand (roads, ports, railroads,
and shipping) and makes it challenging to provide easy and fast access for food products.
The current government is focusing on the development of more sophisticated and robust maritime
connections within the archipelago, in order to lower the transportation costs between the western and
eastern parts of the country. Additionally, the government is investing in the development of the trans-
Sumatra and trans-Sulawesi highways to connect those consumer markets.
Lastly, corruption and bureaucracy remain the biggest burden for those working in the Indonesian
market. These issues not only affect the agribusiness sector, but also all other sectors of the Indonesian
economy. Therefore, companies must be aware of the risks and difficulties they face when investing or
conducting business in Indonesia.
WORKSHEET
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NIM :
Class :
Answer these following questions!
1. What you can conclude from the article above? (Min. 2 paragraf) Point 30
2. Explain your opinion about the condition of Agribusiness Industry nowadays! (Min. 1
paragraf) Point 35
3. Explain your opinion about how to face the Challenge doing business in Indonesia!
(Min. 1 paragraf) Point 30
