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Indonesia Agribusiness Report Q2 2010
Market |
Agriculture, Farming & Raw Materials |
Report Type |
Market Research |
Country |
Indonesia |
Published |
20 January 2010 |
Number of Pages |
73 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
At the beginning of 2010, Indonesia was still feeling the effects of the El Niño phenomenon in the Pacific. Rainfall was below average in many parts of the island chain through the final quarter of 2009 and is expected to remain low in the first quarter of this year. The dry weather delayed the planting of rice by up to a month in many regions. Despite this, the dry weather has not been as bad as many had initially feared. We do not expect the effect on rice yields to be too drastic, though we expect production in 2010 to come in below the government's forecast.
Farmers troubled by the dry weather have been given reason to cheer by the rise in world prices through the end of 2009. The price rises were driven by a shortage of supply on the world market, primarily due to the disastrous Indian rice crop following the poor monsoon in 2009. In Indonesia the price for medium grade rice rose by around 15% from November to the beginning of January. The government's State Logistics Agency (Bulog) has also raised the price it will pay farmers for rice by 10%. For the moment this means the price offered by Bulog is still below the market price, but the increase will be reassuring for farmers if prices fall later in the year.
The combination of rising prices and the threat of El Niño have put an end to Indonesia's rice exporting aims for the moment. In December 2009, the government said that owing to the expected high world price for rice, the government will cease all exports to ensure adequate supplies on the domestic market and prevent any future need for high-priced imports. Now that Indonesia has, for the moment at least, achieved self-sufficiency in rice, its major staple, the government's agricultural planners are turning their attention to other foodstuffs. In the livestock sector, the government has budgeted more than US$15mn to subsidise soft loans to cattle farmers in an effort to reduce the country's reliance on imports of live cattle and beef. The government is aiming to boost cattle production by 200,000 head per year. The loans will fund imports of new breeding stock. The government is also hoping to strengthen the domestic beef production sector so it is able to compete with imports from Australia and New Zealand when tariffs are removed in 2020 under the terms of a free trade agreement between the two antipodean nations and the ASEAN trade block of which Indonesia is a member. We warn, however, that the traditional nature of much cattle farming in Indonesia will work against large improvements in efficiency.
The government has also launched ambitious plans to boost domestic sugar production to meet the needs of both household and industrial users. The government is aiming to double the land under cane production and build more than 10 new mills to achieve its aim. The project will be run by state companies with funding of more than US$1bn reportedly being put up by state banks. Indonesia's ageing sugar mills are badly in need of modernising and the new investment is to be welcomed, even if we do not see production meeting domestic demand any time soon.
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