Livestock

The purpose of the following report is to present an overview of the agriculture industry in Indonesia and to highlight potential opportunities for businesses. Agriculture business (in this article referred to generically as agribusiness) is defined as collective business activities that cover the supply of agricultural inputs, the production and transformation of agricultural products and their distribution to the end consumer.  

The agribusiness industry is a complex but highly relevant sector in the Indonesian economy. This important role is reflected in the agriculture sector’s substantial contribution to the economy in terms of its share in the country’s Gross Domestic Product (GDP), which stands at 12.4% in 2022. This places agriculture as the third largest contributor to GDP after trade (12.85%) and manufacturing (18.34%). By that same token, these three main contributing sectors to GDP are intricately linked within agribusiness, which makes this industry highly prospective for investors. 

The agribusiness sector is also one of several industrial development priorities set by the Indonesian government, as well as an important sector for both foreign and domestic investments. As of November 2022, exports and imports of agribusiness products, both fresh and processed, was estimated to amount to US$40.95 billion and $23.64 billion respectively. This is already a visible increase compared to just three years ago of roughly $27 billion in exports and $18 billion in imports for the whole of 2019.  

In terms of food crops, Indonesia mainly produces rice, corn, and a variety of beans, particularly soybeans and mung beans. Despite local production, Indonesia still requires significant imports of these commodities in order to meet local demand. Indeed, there has been continuous growth in the local consumption of these commodities due to the country’s increase in urbanization, growing health awareness, and changing lifestyles.  

One of the biggest challenges facing agriculture in Indonesia is the irrigation system, which still needs to be improved. The other challenges are the mechanization and utilization of agricultural machinery, and chemically irrigated farming land. In general, infrastructure remains a key challenge in Indonesian agriculture.  

In terms of livestock, 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 are limited, scattered, and exist 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. 

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, ensures 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 also grow.  

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.  

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, the SNI is the standard 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 46 out of 167 countries in the 2018 Logistic Performance Index of the World Bank. While this is an improvement from previous years, Indonesia is still below its regional peers, with Singapore, Thailand, Vietnam and Malaysia ranking 7th , 32nd, 39th, and 41st, respectively.  

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 deftly moving forward 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.  

Agribusiness is a top contributor to GDP, which continues to grow due to significant demand, particularly in relation to the food and beverage industry and domestic consumption. Agriculture, forestry, and fisheries also remain as important employers for Indonesians, with almost 30% of the working age population employed in these industries. The government’s ultimate goal is to achieve self-sufficiency, which is a long-term vision to produce agriculture products at home.  

With a population of over 270 million as of 2022, a growing middle class, increasing tourism, and a growing economy, Indonesia is an important market to consider, with the Indonesian food and beverage sector being among its fastest growing sectors. In the horticulture and food crops sub-sector, most consumable products are being produced locally by both foreign and local companies. The seedling sector is dominated by foreign companies that have been operating in Indonesia for a long time, such as DuPont, Cargill, Monsanto, and East West Seed. Meanwhile, the fertilizer market is dominated by State-Owned Enterprises, Pupuk Indonesia. Technology, as well as research and development to effectively increase production are greatly required. 

The majority of dairy supplies are for industry, with almost five times greater value than that of direct consumption. Approximately 20% of the national demand for dairy is satisfied by imports. Packaged dairy products are gaining popularity due to increasing health awareness. To close the deficit of beef stock, Indonesia imports both breeding cattle and beef. Regulations of beef imports to Indonesia often change according to the demand and stock in order to stabilize the price and to generate demand.  

One rapidly growing sub-sector in the agribusiness industry is agriculture technology or Agritech. Many of the challenges mentioned above, from production to distribution, are being alleviated by young entrepreneurs who are streamlining much of the agricultural process using digital means such as precision farming and remote-monitoring using drones, while other startups focus on connecting farmers directly to consumers to reduce market complexity. In 2022 alone, at least half a billion dollars were raised by just nine Indonesian agritech startups according to DealStreetAsia, a Singapore-based media company that focuses on the private capital industry. 

In conclusion, the agribusiness sector provides promising potential. Challenges in the Indonesian agribusiness sector should be seen as opportunities instead of barriers in order to create new businesses that offer innovative solutions for improving the agribusiness sector. 

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