INDONESIAS AGRICULTURAL PRODUCTS 1

Indonesias Most Important Agricultural Products

Milla A. Rajasa, B. Des.

I201621261

Huazhong University of Science and Technology

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With its vast and abundant fertile soils Indonesia is a major global key producer of a wide variety of

agricultural tropical products, and although agriculture's share of the country's gross domestic product (GDP) has

declined markedly during the last five decades, it still provides income for the majority of Indonesian households

today. In 2012 this sector employed around 49 million Indonesian individuals, which represents 41 percent of the

total Indonesian Labor force. But although in absolute numbers the agricultural workforce keeps growing, its

relative share of the total Indonesian workforce has declined significantly from 55 percent in the 1980s to 45 percent

in the 1990s and currently to 41 percent. Only during the Asian Financial Crisis in the late 1990s this share grew

significantly because unemployment in both the industry and services sectors was absorbed by the agriculture sector

(mostly informally).

Table 1: Indonesias agricultural growth (The World Bank, 2016)

Indonesia's agriculture sector is forecast to continue growing, albeit at a lower pace compared to the

industry and services sectors. The agricultural sector of Indonesia comprises large plantations (both state-owned and

private) and smallholder production modes. The large plantations tend to focus on commodities which are important

export products (palm oil and rubber), while the small hold farmers focus on rice, soybeans, corn, fruits and

vegetables.

The most important agricultural products of Indonesia are: Palm oil, rubber, cocoa, coffee, tea, cassava,

rice, tropical spices, etc. Thus, in this paper I will shortly explain Indonesias Top 2 Agricultural Products: Palm oil

and Rubber.

Palm Oil

Palm oil is one of the world's most produced and consumed oils. This cheap, production-efficient and

highly stable oil is used in a wide variety of food, cosmetic and hygiene products, and can be used as source for bio-

fuel or biodiesel. Indonesian companies engaged in palm oil are planning large investments to expand palm oil

refining capacity. This is in line with the government's ambition to extract more revenue from Indonesian resources.

The country always mainly focused on the export of raw palm oil (and other raw commodities) but has shifted its

priority to refined products higher up in the value chain. To spur growth in the downstream industry, export tax on
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refined palm oil products have been slashed in recent years. Meanwhile, the export tax for crude palm oil (CPO)

ranches between 0 and 22.5 percent depending on the international palm oil price. Indonesia has an automatic

mechanism that when the government benchmark CPO price (based on international and local CPO prices) drops

below USD $750 per metric ton, the export tax is cut to zero percent. As this benchmark price slipped below USD

$750 per ton in September 2014, Indonesia has seen a zero percent CPO export tax since October 2014.

Table 2: Estimated Palm Oil Production in 2014

Table 3: Indonesian Palm Oil Production and Export Statistics

Rubber

Table 4: Top Five Natural Rubber Producers 2014

As the second-largest rubber producer, Indonesia supplies a substantial amount of rubber to the global

market. Since the 1980s, the Indonesian rubber industry has been experiencing steady production growth.

Government and private estates thus play a minor role in the domestic rubber industry. Around 85 percent of

Indonesia's rubber production is exported. Almost half of export is shipped to other Asian countries, followed by

North America and Europe. The top five Indonesian rubber importing countries are the USA, China, Japan,
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Singapore and Brazil. Domestic rubber consumption is mostly absorbed by Indonesia's manufacturing industries (in

particular the automotive sector).

Table 5: Indonesian Rubber Production & Export

Compared to its rubber producing competitors, Indonesia contains a low level of productivity per hectare.

This is in large part due to the general older age of its rubber trees in combination with low investment capability of

the smallholder farmers, hence reducing yields. Whereas Thailand produces 1,800 kilogram (kg) of rubber per

hectare per year, Indonesia only manages to produce 1,080 kg/ha. Also Vietnam (1,720 kg/ha) and Malaysia (1,510

kg/ha) have higher rubber productivity. (Indonesia Investments, 2017)

Bibliography

The World Bank. (2016, - -). The World Bank. Retrieved 4 8, 2017, from The World

Bank: http://data.worldbank.org

Indonesia Investments. (2017, 4 5). Indonesia-Investments. Retrieved 4 8, 2017, from

Indonesia-Investments: http://www.indonesia-investments.com/culture/economy/general-

economic-outline/agriculture/item378?