Development of Agribusiness Enterprises - Asian Productivity ...

Diversification of production will increase towards higher value products such as
vegetables and fruit and aquaculture, as well as small livestock and livestock products.
However, there will be greater constraints in the future to achieving agricultural growth than
in the past. Availability of agricultural land is shrinking on Java, the most fertile part of
Indonesia, due to population growth, the spread of urban areas and the loss of land to
industrial development and other purposes. A key to continued agricultural growth will be
greater attention to the outer islands through public investment, particularly in infrastructure,
and research and extension work.
The government also has to work out the most effective way of ensuring delivery of
essential inputs for agriculture, such as high-quality seeds, fertilizers, equipment and
machinery. In research, most of the efforts and expertise have been concentrated on rice, but
now research expertise in the horticulture, aquaculture and livestock is also needed.
Indonesian agriculture players comprise large- and medium-sized enterprises and
small-scale farmers. The large- and medium-scale farms are mostly operated in tree crop
estates while the small-scale farms are mostly involved in food crop production. The average
size of the small-scale farms is less than 1 ha.
Agribusiness development consequently involves a large number of farmers who not
only operate their respective farms individually but also cooperate with each other in an
harmonious and orchestrated fashion. In 1996, the total number of Indonesian ventures in
the agricultural business sector was 22.5 million and involved more than 32.18 million
workers, or about 57.84 percent of the national workforce.
The Indonesian food industry actually has a competitive advantage because raw
materials from the agricultural, fisheries and animal husbandry sectors are abundant.
However, the great potential of the domestic market, followed by the increase in the number
of special markets such as supermarkets, fast food outlets and restaurants as well as
government incentives for boosting exports of non-oil/gas commodities, has led to stiffer
competition in obtaining raw materials for the food industry.
Secondary food staples such as maize, cassava and sweet potatoes are grown primarily
by smallholders and, together with soybeans, sugar cane and groundnuts, make up 20 percent
of agricultural production.
DOMESTIC FOOD CONSUMPTION
It is important to note that Indonesia’s financial woes have not had a uniform impact
on the population. Producers of coffee, cocoa, spices, estate crops, and aquacultural and
fisheries commodities, together with other exporters who are paid in foreign currencies, are
reaping rewards from the rupiah’s devaluation. The economic crisis has also had an impact
on Indonesia’s middle class, which has developed a taste for foreign and processed foods.
However, this segment of the population has now become much more price conscious, and
it is turning to local brands.
The country’s upper middle class, comprising about 5 percent of the total population,
has not significantly altered its consumption patterns. Targeting this group provides a niche
marketing opportunity. In addition, the demand for processed foods and beverages has been
growing as consumer tastes change to more refined products.
The fall in the value of the rupiah has made Indonesia a more attractive place to
establish food processing and packaging plants that not only cater to the domestic market, but
also to meet the increasing world demand for processed foods. Manufacturers targeting the
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