Despite government initiatives to increase investments, many Indonesian agricultural sectors under-perform compared to both global and regional peers, according to a new report entitled Indonesia Agribusiness Report Q4 2010 from Companies and Markets. Much of the inefficiency comes from the poor infrastructure, which will remain a challenge given the geographic nature of the country. We expect production across all sectors to increase over the forecast period due to increased domestic demand, government goals of self-sufficiency and export opportunities. However, disease concerns in the livestock sector and the greater scarcity of arable land remain salient risks.

Key predictions

Rice production growth to 2013/14 is expected to be 11.6 per cent. Government initiatives to replace ageing trees will see an increase in yields as well as planted area, allowing Indonesia to compete with Ghana, the world's second largest producer.

Poultry consumption growth to 2014 is predicted to increase 36.1 per cent. This will come from a combination of increased domestic demand and government initiatives aimed at not only making the country self-sufficient, but also allowing it to become a major regional exporter.

Sugar production growth of 39.3 per cent is estimated by 2013/14. This expansion will come mainly through improved yields and sucrose content in cane. Despite the production improvement, the country will likely remain, along with India and the EU, one of the world's largest sugar importers.

2010 real GDP growth is 5.2 per cent – up from 4.5 per cent in 2009. The predicted average from now until 2014 is 5.7 per cent.

The report predicts consumer price inflation of 5.0 per cent year-on-year in June 2010 – down from 3.6 per cent year-on-year in June 2009.

Key industry developments

According to Indonesia Agribusiness Report Q4 2010, a further expansion of agriculture in Indonesia's outer islands is necessary if the country is to meet the food needs of its massive population. The report expects this project to face many difficulties before it becomes a reality. This will be difficult given the pervasive infrastructure deficiencies in most of the country outside of Java. There will be considerable opposition from environmental groups both at home and abroad, as has already happened with the palm oil sector.

The report's authors have revised down the forecast for sugar production in 2009/10 as dry weather followed by unusually heavy rains in Java are expected to delay the start of the cane harvest and see sugar content fall. They now forecast Indonesia to produce 2.77 million tonnes of sugar, down from a previous forecast of 2.92 million tonnes. This leaves the country a long way from meeting domestic demand, which is forecast to rise to 4.48 million tonnes in 2009/10. The government is implementing trials of tropical sugar beet production as part of its plan to reach self-sufficiency in sugar, although self-sufficiency will still be many years away.

In an attempt to bolster the domestic grinding industry, the government placed a tax on cocoa bean exports in April 2010. Groups representing cocoa growers believe the new tariff will see a large loss of income for farmers. Although we expect high cocoa prices and government investment to help increase output over the forecast period, the continuation of the tax could see production growth ultimately stall. This is due to diminished incentives to expand domestic output given that domestic processing is inefficient and costly, and the export tax reduces profit margins.

Further Reading

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You can view the full report (fee payable) by clicking here.