October 4, 2012

 

Brazil's agriculture practices may benefit Indonesia

 

 

Indonesia can look to Brazil for best practices in order to release its agricultural potential, according to Rabobank International.

 

Indonesia had many similarities with Brazil, including suitable topography to plant agricultural crops and a large domestic market, which should provide enough incentives for both the government and business stakeholders to develop agribusiness in the country, said Carlos Ortiz, the head of the rural and retail division of the Brazilian branch of Rabobank International.

 

"Agriculture is certainly a sector that will grow tremendously [in Indonesia], because there is a lot of potential," Ortiz said during the Rabobank Indonesia annual conference in Jakarta.

 

Indonesia could learn from the success story of Brazil, the world's second-largest agricultural goods exporter after the US, as an example of how to boost the productivity of its agriculture sector, he added.

 

South America's largest economy is currently the world's top exporter of sugar, coffee, frozen concentrated orange juice (FCOJ) and poultry, with total agriculture exports valued at US$8.8 billion in August alone. Agricultural products accounted for around 40% of its total exports for the month, according to data from Brazil's Ministry of Agriculture.

 

Indonesia could apply Brazil's system of integrating key agricultural value chains — meaning encouraging companies and providing them with incentives to do all the farming, processing and trading of agricultural goods under one incorporated system - to reduce their production costs and maximise economies of scale, said Ortiz.

 

He also called for an improvement in infrastructure, which could reduce logistics costs and improve the country's development in agribusiness.

 

The suggestion by the Dutch-based Rabobank, the world's market leader for agribusiness financing, was in line with advice recently presented by global consulting firm McKinsey & Company, which suggested the Indonesian government focus on boosting the productivity of the agriculture and fisheries sector to sustain its robust economic growth.

 

The growing number of the Indonesian middle class meant more mouths to feed, concluded McKinsey's report entitled "The Archipelago Economy: Unleashing Indonesia's Potential", which was released in September. The prominent consulting firm predicted that business opportunities in the agriculture and fisheries sector in the country would top US$450 billion by 2030.

 

Indonesia is currently the world's largest exporter of palm oil and is among the biggest exporters of rubber, cocoa and coffee.

 

Indonesia had the potential to develop its agricultural sector through its lucrative palm oil industry, said Pawan Kumar, associate director of food and agribusiness research at Rabobank International.

 

He argued that the world would soon rely on Indonesia to meet the growing demand for palm oil, which in the future could become a "very crucial commodity" to fuel the country's economy. Malaysia, the world's second-biggest palm oil producer, is predicted to face limitations in expanding its palm oil business as it will run out of land in two to three years, according to Rabobank International's research.

 

"Indonesia will become the centre of attention," Kumar said. "Demand for palm oil will continue to grow - more demand from the Asian market, emerging economies and the European market. All of them will want palm oil for their industries' products."