Global Business Guide Indonesia

Agriculture in Indonesia Agriculture in Indonesia Agriculture in Indonesia Agriculture in Indonesia Agriculture in Indonesia
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Agriculture | Opportunities in the Rubber Sector

The introduction of higher export tariffs on the export of raw materials such as CPO and cocoa since 2010 has signalled a shift in the Indonesian government strategy towards the agricultural sector. Long reliant on exports of raw materials that have placed the country as the world’s largest CPO exporter as well as third largest cocoa and coffee exporter; now the priority is on developing the downstream sector to stimulate value added exports and avoid Indonesia losing out on the manufacturing process.

Changes to the Negative Investment List for 2010 have opened up parts of the agricultural sector that were previously closed to foreign investment. For example, investors can now own up to 49% in staple crop plantations over 25 hectares such as soybeans, sweet potato, rice and cassava which was previously closed to foreign investment (see Agricultural Land – Right to Cultivate). Rubber plantations and the crumb rubber industry were previously off limits to foreign investors but the Negative Investment List for 2010 has changed this opening up the industry at a strategic time.

Rubber

A good example of this trend can be seen in the rubber industry. Natural rubber is experiencing a rebound on the global markets; having hit historic lows of $1.2 USD per kg at the end of 2008. The weak pricing led to many small hold farmers shifting to palm oil, however this trend is reversing. Rubber gained 50% in value over 2010 and gains are expected to continue as demand is predicted to reach 16.2 million MET by 2020 up from 11.2 million MET for 2011 (International Rubber Study Group). The growing demand for rubber from Indonesia’s domestic market is another attractive aspect in the future of the rubber industry, as consumption of national production is currently only at 15%.

Rubber has been a focus crop of the Ministry of Agriculture’s revitalisation program that began in 2007 as despite having the largest area under cultivation, productivity remains low. Opening up the sector to foreign investment on the downstream side is a further effort on behalf of the government to lure investors that can bring in technology to raise productivity and output quality. As per the Negative Investment List 2010, investors may own up to 95% of a 25 hectare or more plot of land for cultivation and integrated downstream facility; subject to a recommendation from the Ministry of Agriculture and the Director General for Plantations. This includes sheet rubber, thick latex and the crumb rubber industry, the latter previously being off limits to foreigners.

Ministry of Agriculture Regulation No 12/2007 provides technical assistance for investors in the plantation industry through the countries numerous rubber research centres such as that of Bogor, Medan and Palembang. The use of high quality clones in order to produce rubber of international standards and boosting productivity is the key competitive advantage in the country. Infrastructure for transport close to the plantations and facilities is also a vital consideration for any investor as the remote location of much of the suitable land can add significant costs to production. Under the economic corridor program, Sumatra has been designated as the main site for rubber plantations and downstream production, specifically in Medan, Pekanbaru, Jambi and Palembang.

Share of National Rubber Production

Share of National Rubber Production

Source: Ministry of Agriculture, 2011

Extract of Negative Investment List 2010

Extract of Negative Investment List 2010

Laws to Consider

  • Negative Investment List Presidential Decree No.36/2010 permits foreign ownership of up to 95% in plantations for agricultural crops of over 25 hectares. For processing units, an additional permit is required from the Ministry of Agriculture and the Directorate of Plantations.
  • Ministry of Finance Regulation No. 67/2010 on export duties subject to export duties and tariffs.
  • Government Regulation Number 62/2008 on income tax facilities for investors.
  • Regulation of the Minister of Agriculture No.38 Year 2008 of Guidelines for Materials Processing and Marketing Sports Rubber.
  • Ministry of Trade Regulation No. 53/2009 concerning the Control of Export Commodity Quality Sports Materials in traded Indonesian rubber.

Global Business Guide Indonesia - 2012

icone share

Indonesia Agriculture Snapshot

Contribution to GDP: 13.70% (2016 including Fisheries & Livestock)
Number Employed in the Sector: 46 million (2016)
Main Products: Palm Oil, Palm Kernel, Rubber, Cocoa, Coffee, Tea, Tobacco, Rice, Sugarcane, Maize, Cassava, Tropical Fruits, Spices, Poultry, Fisheries.
Main Export Markets: China, USA, Japan, India, Singapore, Malaysia, Pakistan, South Korea, Italy, Netherlands, Bangladesh, Egypt.
Relevant Law: Presidential Regulation No. 39 of 2014 on the Negative Investment List imposes varying degrees of foreign ownership limitations in plantations depending on the crop type, and Government Regulation No. 98 of 2013 limits private plantations to 100,000 hectares.