A farmer works at a paddy field in Tangerang, Banten, on April 23, 2021. (B1 Photo/Ruht Semiono)
Driving Indonesia’s Recovery Calls for a Robust Agri-Food Industry
BY :ADHI SISWAYA LUKMAN
JULY 07, 2021
Jakarta. The Covid-19 pandemic has undeniably become the test of the century for Indonesia. Measures to mitigate the global health crisis saw trade flows and tourism grind to a halt, creating a domino effect on our lives and livelihoods and the wider economy.
More than a year in, we’re beginning to see signs of economic recovery. A recent national survey by the Jakarta-based Mandiri Institute reported that over four-fifths of Indonesian small and medium-sized enterprises (SMEs) have started to operate normal full hours, representing increasing confidence among consumers and businesses.
When it comes to the numerous industries responsible for driving Southeast Asia’s largest economy, the agri-food sector holds a prominent place. The sector is responsible for more than half of the nation’s workforce and drives more than a third of the country’s growth domestic product (GDP).
While the sector remained resilient during the height of the pandemic, seeing a 2 percent growth in GDP contribution in 2020, experts have come out to say that post-Covid-19 recovery may not come easily. According to a recent report by Oxford Economics, Indonesia placed the worst regionally for its Economic Recovery Matrix for having the highest risk recovery. The country showed important vulnerabilities due to its dependence on tourism to revive its food industry.
While we’re seeing a glimmer of progress emerging from this crisis, new challenges will continue to arise, whether it’s a further development of the virus or supply and demand challenges. To truly advance the economy, Indonesia’s leaders must possess an inclusive mindset of one of its most important sectors when strategizing for its post-crisis emergence.
Support a Food Industry in Recovery
Firstly, there is a need for Indonesia to create a conducive trade environment that ensures food supplies remain open, transparent, and predictable. Indonesia has seen a history of protectionist policies, but we have seen progress in liberalization. By creating more conducive trade conditions, we can ensure a reliable food network and secure source of food and ingredients for everyone – both on a consumer and production level.
However, policymakers need to be mindful that as imports increase, this will create greater uncertainty amongst local players regarding the competitive landscape. It is more important than ever that Indonesian policymakers assure the domestic sector, especially agriculture, that the government supports the industry. This includes sustaining or even raising current subsidies for farmers.
This also includes in the long-term using technology and skills development to improve productivity and uplift farmers and the agriculture sector, such as equipping them with the right digital tools and platforms can help from monitoring production to assessing damage from natural disasters, and even implementing early warning early action protocols, among others.
But beyond Indonesia’s strong roots in agriculture, a recovering agri-food sector requires drive growth throughout the entire industry. There are tremendous opportunities for Indonesia’s food and beverage manufacturing sector to tap into given the right tools for innovation. Specifically, the halal industry is significant, with the Muslim population worldwide standing at 1.8 billion, and the halal food industry is expected to hit $2 trillion by 2024, according to the Global Islamic Economy Report.
Indonesia stands to benefit if it makes the right investments and identifies key trends. For example, numerous solutions have been developed to establish halal traceability solutions via blockchain.
Limiting the Industry’s Roadblocks
But providing such support alone is not sufficient. It is also crucial for policymakers to review whether they are unintentionally setting up roadblocks for the industry. For example, measures like excise taxes on sugar and plastic should also be made in careful consideration. In early 2020, we saw similar measures being considered in Indonesia.
While these reforms seek to address ongoing health and environmental problems and generate fiscal revenues, the history of such interventionist fiscal policies is littered with examples that have backfired because they hurt consumers, businesses, and the state treasury without delivering the intended benefits.
To succeed with fiscal measures, governments and policymakers must engage in regular communication with stakeholders to be equipped with sector expertise and support that will enable them to develop effective policies and programs that can better achieve intended outcomes.
Turning Crisis Into Opportunity
Indonesia’s agri-food sector has been resilient, but we will continue to meet with strong headwinds this year. How this affects us will depend largely on policy responses over the short, medium, and long term. Looking ahead, we can emerge stronger from this global crisis if pro-recovery and growth policies are introduced, enhancing the resilience, sustainability, and productivity of the sector, and in turn, the Indonesian economy.
Adhi Siswaya Lukman is the chairman of the Indonesia Food and Beverage Association (Gapmmi)