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JURNAL BISNIS DAN EKONOMI, MARET 1999

STRATEGIES FOR DEVELOPING AGRO-INDUSTRY

by : Djoko Listiono

STIE Stikubank Semarang

ABSTRACT

Indonesia, our beloved country, was trapped into deep economic depression. All sectors, except agricultural sector have no or negative growth. Agricultural sector, including agribusiness and agroindustry, becomes a locomotive to pull other sector to come alive again. The best way to develop agrobusiness is by managing structural transformation careful through intregrated government decision and the changing of global market orientation.

INTRODUCTION

We have seen two interesting fenomenas in our country since July 1997. First, We still remember that during The meeting of Asian Pasific Economic Community member countries (Bogor, 19-25 November 1996), some economists predicted the Indonesian economic growth was 7.00 persen in 1998 and then the growth would increase up to 7.3 persen in 1999. Second, what happened with the PEO (PAsific Economics Outlooking) forcasting?. The reality was beyond the prediction. The rupiah value began to free-fall sharply from Rp 2,500 per US $ 1.00 and later it happened to reach Rp 20.000 per US $ 1.00. The depreciation of the rupiah value against the US dollar which happened since 1997 trapped Indonesia into deep economic depresion. The depreciation of rupiah makes the cost of tradable input sky-rocketing, while the nontradable input, such as, labor, and land for agriculture relatively only has little increase.

Apart from the fact of the severe conditions in economics, the agricultural sector still gains positive growth while other sectors have no or negative growth. As we see in table one the agricultural GDP growth is 0,26 persen in 1998. That is why the government begins to intensify the performance of agricultural sector to compensate other sectors that cannot grow. The government also tries hard to change the orientation of agricultural market, i.e by developing new international market through promotion ; quality improvement and delivery-time assurance.

Table : 1

The Growth of Gross Domestic Bruto

Per Sector

Sector 1997 1998

Agricultur and live-stocks 0,64 0,26

Industry 6,23 -12,0

Trade, Hotel, and restaurant 5,46 -21,4

Service 3,04 -5,71

Source : Centre Bureau of Statistics, 1998

Of all our economic sectors which are sinking deeper and deeper, only agricultural sector that still survives from the disaster. This sector becomes the only hope as an initial base for economic recovery. This fact is supported by the positive growth of agricultural sector during the severe cricis. If we may say that during this hardship situation agriculture sector has the biggest responsibility to become an economic locomotive to pull other sectors, especially industries, to be awake.

There are several advantages in developing agroindustri : first, as the subtitution of impor product, of which during the rupiah depreciation, the price of import goods becomes very expensive. This will encourage the farmer to replace import goods with the goods from domestic market and this will, of course, save the use of foreign exchange. Second, by developing agricultural sector which is considered a mega project, as it involves great numbers of farmers, industrial workers, small scale businessmen, and cooperatives, the program will help equal distribution of national development.

Our serious problems beside the rupiah depreciation against the US dollar, are debt burden, tight money policy and attendant high interest rate that will exarbate the down turn of economic activites and this will, of course, force massive layoffs.

Studies have shown that agro industry has multiplier higher than 1.5, which means that a one percent increase in agroindustrial out put would generate 1.5 growth in other sectors of economy.

INVESTMENT OPPOTUNITY IN AGROBUSINESS

The opportunity of investment in agriculture, especially in agrobusiness and agroindustries, appears to be promising. It can be seen from the increasing figures of agriculatural export, expecially horticulture, plantation, and fisheries products.

The value of plantation export comodities have reached the figure of US $ 2,3 bilion in 1990 and in 1997 the export value of the same comodities was US $ 5,1 bilion. During the period of 1990 until 1997 there was a sharp increase amounting 95 persen. This increase was dominated by palm-oil products, rubber, cacao, coffee and tobbaco. Tuna fish and shrimp are the main fisheries export comodities.

Agricultural export market of Indonesia is concentrated mainly in Japan, America, Singapore, and the EEC countries. Indonesian agricultural main export comodities are bananas, rubber, coffee, cocoa, tea, spices, meat, chickens, fish, fruits and vegetables.

Indonesia is the third biggest supplier for agricultural product in Japan, after USA and China. The biggest Indonesian export commodities to Japan are fisheries product, such as shrimp, lobster, and Tuna, then followed by plantation product, such as CPO (crude palm oil) and wood. Horiticulture product such as bananas and pine-aplles are getting better in Japan.

Indonesian agricultural export commodities in Eroupe are dominated by Crude Oil Palm, rubber, coffee, tea, cocoa, tobacco, and spices. Fisher product and horticulture are also important. The most popular horticulture product in European market are bananas and manggoesteen. The value of agroindustry export comodities in Europe is still relatively small, the figure shows only 1,5 persen of the total market. Considering that the agroindustrial market of strong economic potensial countries like Europe has not been cultivated, so we have a good chance to develop our market of agrobusiness and agroindustrial product there.

Table : 2

Main Indonesian Horticulture Export Commodities

Commodities 1992 1993 1994

Manggoes 857.158 586.123 935.864

Manggoesteen 2.143.969 1.120.433 2.484.246

Bananas 17.554 3.300.686 5.820.934

Durian 190.220 273.700 125.833

Caned Pineapple 47.003.993 49.702.467 46.228.810

Rambutan 414.343 285.196 425.996

Duku 36.748 24.501 33.487

Alpocado 14.334 2.586 1.482

Papaya 8.335 1.629 225

Source : Centre Bureau of Statistics, in Ato Suprapto (1997)

Table : 3

Demand Growth of Horticulture Commodites

(%)

Produk USA CANADA EEC

Manggoes 8 25 104

Melon 70 31 69

Papaya 35 - 100

Bananas 41 19 85

Cashew-nuts 64 18 60

Garlic 15 34 180

Onion 55 49 11

Source : Regional Agribusiness Project in Bisnis

Indonesia 14 November 1995

THE REASONS FOR DEVELOPING AGRO-INDUSTRY

The sharp appreciation of the dollar value aginst rupiah makes the imported food cannot be reached by most consumers. But on the other hand, this situation can be very benecial for agrobusiness and agro-indsutry players to take part in either domestic and international market.

Agro-industry has special characteristic of being resources base industry so it will assure competitive and sustainable trade because the raw materials for the industries are renewable. It will also give high value added products which mean that the raw material can be easily treated into finished goods and it will increase the price of the product.

Agro-industry has backward and forward linkage. it will gain direct impact of all economic sector. The raw material of agro-industry is renewable. This will assure the sustainibility of the industry from agro-home industry until business enterprise scale. Backward linkage means that, agro-industry has a close relationship with on-farm farmers, transportation services and agriculture whole-saler. They supply raw materials, like fruits, vegetables, fish, and meat for the industry. Whereas forward-linkage means that agroindustry has a close relationship with factory-workers, finished-goods whole-salers, and exporters.

The technology of agroindustry is mostly very flexible and absorbs a large number of employees. The technology ranges from very simple technology to sophisticated technology using modern equipments.

In most developed countries, the rate of wage in agriculture sector is very expensive, so many people in these countries will change their business into manufacture industry. Other supporting fact is that there is a tendency of modern people in these countries to consume more food from fruits and vetables for health reason. This will, of course, increase the demand of agrobusiness and agroindustry products.

The promotion of agro-industrial product is getting more and more attractive and intensive. Many agro- industrial countries often conduct trade exhibition including agro-industry which will be able to fasilitate the contact of the prospective producers and the buyers.

THE CONSTRAINS OF DEVELOPING AGRO-INDUSTRY

Tight money policy which still be maintained by the government until now, of course will render the development of agro-industry, such as : The difficulty of creating better farm, provide better trade and processing service and enhance the quality of rural credit.

Over the last five years, we have witnessed the large influx of food import which turning us to a defisit country in term of food crop and live animals. This condition will decrease the demand of domistic agro-industrial product. Agro industry will also loose the opportunity to develop their business activities and learning process of modern technology.

Other constrains are poor infrastructure, in efficient land usage , poor market-research, underdeveloped supporting institutions and poor government bureaucracy in terms of complicated ways of gaining business permit, many kinds of government contribution and retribution and also illegal retribution, protection from importing countries in terms of high tarrif and strict requirement, scarcity of middle level managers, a general lack of policy focus and poor coordination amongst many different agencies and arms of government.

Table 4

Indonesian Fruits Import and Export in 1991 - 1995

(US $ 1000 )

Year Import Export

1991 18,067.6 50,800.8

1992 38,551.4 54,686.3

1993 58,315.7 59,905.2

1994 71.797.8 61.202.4

1995 62,714.3 37.260.6

Source : General Directory of Food cropand Horticulture, 1996

There are many cases of export refusal in Japan, USA, Australia and Canada. Of course it will descourage the agro-industry businessman to develop the market in those countries. This problems can be solved by careful handling of the export-commodities in term of better quality, time assurance and promoting eco-farming and eco-labelling.

THE STRATEGY

We have seen good opportunities to develop our agrobusiness and agroindustry, to boost our export performance as well as to fill the imported goods substitution. The success of agroindustry development will promote our effort for economic recovery to be on the right track. We must strengthen our society economic by turning back our only hope for economic recovery, that is "back to basic" strategy. We must perform the transformation of agricultural and agroindustry sector as soon as possible before our ecomonic sink deeper. Our agricultural strategy, policy and program must be reoriented, such as selecting competitive horticulture, developing new export mearket, etc. Agricultural institutions from on-farm sub-system until the lattest sub-sistem, must be rearranged and carefully managed.

A. Short-terms strategy

To answer the problem of economic crisis through developing agrobusiness in short-term program will help the government to supply basic food, work opportunities and promoting the use of local content products. The constrains can be clasified as the following :

1. Supplying new land for agrobusiness

The government plan of opening new land by distributing 60 persen of government owned plantation through "contract farming program" will motivate the marginal farmers who owned the land less than 0,5 hectare to begin the horticulture investment and cultivation. The result of agroindustry development especially in horticulture, and small scale plantation, of course, will absorb great number of employments and the equal spreading of regional income. It will also decrease the tendency for rural people to leave their villages to big cities to find job.

2. Supplying high quality seed

Farmers are usually very reluctant to develop their food-crop, because they face difficulty in obtaining high quality seed, which will assure high yield of agricultural products. The seed can be produced in many government and private agricultural research center.

Many people say that the rate of return in agro-industry, especially on-farm sector, is very low and it takes long time for agro- industiralists to return their their investment. The nature of agricultural sector is that the gestation period of the crop is very long. We can minimize the problem by improving the quality of the seed, as it will be the followed by good quality of agro- industrial input.

3. Supplying capital for small-scale business

The government plans to help small-scale business by granting low interest-rate credit ( credit for working capital) in rural areas, especially export oriented commodities based on agriculture, is very suitable policy to accomodate the industrial employees who returned to their villages after their factories were shut down. The plan also encourages the farmers to produce high value added of horticulture products, such as exotic fruits, vegetables and flowers. Finally, it is hoped that agroindustrial commodities will gain good competitive advantage in international market through quality improvement, better performance, interesting packaging, safety assurance, eco-farming, etc.

4. Developing The skill of Agroindustry

The government must initiate a program to develop the skill in agricultural sector. This can be done by socilizing agricultural economics, promoting agricultural technology and giving more incentives for agricultural expert, researchers, and businessmen to develop their contribution in agricultural sector.

Now a days, we still find many agricultural graduates who work out-side their field of work, such as becoming bankers, property contractors etc. The government must motivate them to become facilitator, sommunicator and dynamisator for developing agrobusiness and agroindustry, especially in rural areas.

5. Developing Basic Technology

Traditional farmers in rural areas must be socialized with basic technology and agriculture which will enable to increase the agricultural product. Basic technology which can be trained to farmers such as choosing good quality seed, good agricutural practices, good harvesting practices and basic marketing knowledge.

B. Long-term strategy

1. The application of total agrobusiness system approach

Up to now, the agricultural system apporach is carried out separately. For example, in developing certain agricultural commodities, the production system and marketing system are carried out separately. This will, of course, lead to serious problem. Agricultural export performace will not be successfully achieved. Structural improvement is also very urgent. The objective of the improvement must be based on "integrated business structure development" which must be coordinated vertically according to the product line. On farm sector and off-farm sectors must be under the same management decision.

Table 5

Value Added Agricultural products

in Asian countrie s

Country 1997

South Korea 1,0

Singapore 5

Taiwan 1,4

Cina 4,5

Indonesia 2,6

Malaysia 1,4

Thailand 3

Source : Asia Pasific Agribusiness, 1998

The strategy of agro-industry development must be oriented to the ever changing of consumers' preference which tends to require the completeness and the detail of product attributs. The strategy of choosing agro- industry commodities must be suitable with the consumers' preference and promising good yields, especially considering the use of planting materials, latitude per meter square and other in put.

If we want to develop the market oriented agro-industri, it is of great important to pay close attention to the use of marketing strategy. We must be able to change the paradigm of "selling what we can sell" into " selling what the consumers' need." We need good information of the world agricultural market. This strategy will be achieved sucessfully by conducting close coordination with domestic and foreign supermarkets, hotels, and catering industries. We aslo need the help of Indonesian trade attache throughout the Indonesian ambbasies abroad. The complete information of consumers' preference of every country in the world becomes very important to penetrate and develop the international agricultural market.

2. Developing Agroindustrial Centre

To choose the right place for agro-industry is very difficult in Indonesia. This is supported by the fact that not all cities in Indonesia have good master-plans. what We can do at least is cosidering the transportation infra- structure, the security, as far as possible we choose the location near the sentra commodity. Of course, all of the considerations above must be carefully adjusted by the topography condition, which will, of course influence the optimum price of the raw material.

The location of agro-industri must be carefully manage in such away, as the products has the characteristic of bulky, volumious and perishable . The consideration of the nearest distance with the consumers will ,of course, increase the competitiveness of the price. The growth center must also be supported with the availability of agro-industry infra-structure such as transportation, electricity, water supply, seaport and airport for delivering agroindustrial product.

3. Developing of Human resources

Talking about the development of agro- indsutry, human resources will play an important role, as it wil be the key of the success. Human resorces which are invloved in agro-indutry ranging from the experts and profesionals in agro-industry, including universiteis graduates, proffessors and businessman until the buttom level, that is, the on-farm workers or farmers, factory workers etc. Human resorces development can be in the form of modern technology development, such as the use of biotechlogy, eco-farming technology, processing technology, transportation technology and information technology.

4. Developing Agricultural High-tech

Biotechnology is very urgent to creat superior clone and genetic engineering application. As We know that the application of tissue-culture technology will answer the problem of seed supply. Tissue culture technology provides guaranteed and supperrior quality of seed. Applying tissue-culture technology is also very economical and time saving.

CONSLUSION

During the monetary crisis, which was followed by the soaring price of import content based industries, developing agro-industri is the best medicine for economic recovery for the time being. As we have seen that agro-industri has the smallest import content and has proved to be the most powerful resistense from econnomic crisis.

If we can manage our structural transformation carefully through the improvement of agricultural sector and the changing of agricultural market orientation, we hope that a great amount of foreign exchange can be generated to encourage industrial sector to come alive again. If we can not manage the transformation well, we will miss the important opportunity to base our economic recovery and creat longer economic distress.

Agricultural sector, including agro-industry which is based on domestic resources will become the biggest trigger for Indonesian economic recovery. This program will be sucessful if the government also improve public service through simplifying their bureaucracy, eleminating illegal retribution or lessening many kninds of government retribution and contribution man give special facilities to promot agro-industrial export. As we have to generate a large amount of foreign exchange, we will have to export ourself out of the crisis by managing the development of agro-industry more intensively and carefully which would lead agro- industry to be competitive in international market.

Agroindustrial growth could go along the way in alleviating the economic distress upon the poor people and recently impoverished. They cannot wait until the economic becomes worse and worse.

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