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New era of trade with Indonesian president-elect JokowiThursday, July 24, 2014 > 09:35:32
(Australia Broadcast Corporation)
Indonesia's president-elect is under World Bank pressure to develop manufacturing and trade to keep the country growing. But Jokowi will also have to balance domestic pressure to protect agricultural production, including rice, corn, beef, sugar and soybeans. Joko Widodo, Jakarta's quiet talking governor, was declared winner of the election last night, with 53 per cent of the vote.
Indonesia is Australia’s third largest agriculture market, with exports worth $2.3 billion in 2012. It also ranks 12th as a two-way trade partner with Australia. Australia’s main agricultural exports to Indonesia are wheat, cotton, live animals, meat, horticultural products and sugar. The leading commodity is wheat. Australia exported $1.3 billion worth of wheat in 2012. Other commodities exported are aluminium, copper, crude petroleum and gold.
Self-sufficiency and nationalism
Dr Jeffrey Neilson, Indonesian co-ordinator of the South East Asian Centre at the University of Sydney, says trade into Indonesia may become more difficult, at least in the early stages of Jokowi's rule.
"Prabowo was able to get 47 per cent of the vote, mainly on his stance of being highly nationalist. That seemed to be a weak point in Jokowi's campaign," says Dr Neilson, Indonesian co-ordinator of the South East Asian Centre at the University of Sydney.
"I can foresee a situation where Jokowi is forced to respond and will find it necessary to project a more nationalistic image in Indonesia.
"That will take the form of protectionism for certain sectors of the economy; for sugar producers or beef."
Indonesia is Australia's largest agricultural aid recipient, mostly through the Australian Centre for International Agricultural Research (ACIAR).
Dr Neilson has a project to look at alleviating rural poverty, among coffee and cocoa bean growers. After a 12-month delay, Indonesia has signed off on the aid project, which can now start to focus on value-adding cocoa into cocoa butter and cocoa powder, which have a higher export value than beans. Associate Politics Professor Greg Fealy, from the Australian National University, a specialist in Indonesian politics, says independent observers are not convinced of irregularities in the poll alleged by the other presidential candidate, the former army general Subianto Prabowo.
"It looks very much like it's a fit of pique on (Prabowo's) behalf and the significant thing is that quite a number of the major members of his coalition have not supported him." On foreign affairs, Professor Fealy says Jokowi is likely to be very measured and pragmatic. "He may take a harder line on foreign investment, because he's of the view that Indonesia has not been getting a good deal in engagements with trade; that too much value is leaving and not enough of that value of the exports and resources is being extracted within Indonesia."
Associate Professor Fealy says Jokowi's pragmatism has been influenced by his background in the manufacture and export of furniture. But he says Jokowi needs the economic growth to continue at 5 to 6 per cent, so he can't be slowing foreign investment. Australia has programs to improve animal husbandry to improve Indonesia's cattle industry, as well as exporting live cattle and packaged beef. "So I would expect Jokowi would want to encourage those programs that for the longer term are building up industries in Indonesia," Professor Fealy said.
He says Indonesia's wealth has been built on growing consumer demand within Indonesia. But the World Bank and merchant banks say Indonesia will only grow if the government opens up trade, and is more export focused. "So I think we could see Jokowi could be very practical on this and very willing to deal with Australians in the agricultural sector and for bilateral trade relations."
Live exporters welcome new Indonesian president: a man of business
The Australian Livestock Exporters' Council says the live cattle trade is expecting no surprises from the new president. CEO Alison Penfold is hopeful Jokowi's background in business, and as the governor of Jakarta, will be a benefit for the trade with Indonesia going forward. "Certainly I would imagine on the Indonesian side [of the live cattle trade] there would be relationships with him or people close to him, so I'm sure [he has] some knowledge of the trade," she said. "But obviously we won't take anything for granted and we'll do what we need to do to secure and build on that strong relationship with Indonesia that already exists.
"I note there was clearly a nationalistic tone that ran through the presidential campaign on both sides and that is not new to Indonesian politics. "We hope the trade will stand on its merits and it's a trade that generates economic activity in Indonesia right across the Archipelago. "We believe there's more opportunity, not only in terms of the traditional exporting of young cattle into Indonesia feedlots, but also for skills and technology transfer to help improve Indonesia's own desire for self-sufficiency."
Selling fruit to Indonesia is painful
Selling fruit in Indonesia is hard, and Australian horticultural exporters says there is very little chance that the result of the presidential election will change the situation. Exporting fruit and vegetables to Indonesia is a lengthy, convoluted process involving quotas, approvals and lots of paperwork. The significant time investment required to trade with Australia’s closest neighbour is singled out by many as the most significant barrier to further trade opening up between the two countries.
Despite these barriers, exports of fresh fruit to Indonesia actually grew in 2012/13 by almost 40 per cent. Indonesians bought around 24,400 tons of fruit, worth a total of $46 million.
The chief executive officer of Melbourne-based BGP International, Neil Barker, has been exporting fruit to Indonesia for the past 20 years. His company ships citrus and table grapes from Australia, Pakistan, Egypt and the United States into Indonesia, a country that accounts for a significant part of his business.
“[Doing business in Indonesia] is not easy, but once you understand what regulations they have in place, and come to grips with the system that’s in place, then it becomes a little easier.”
For fresh produce to enter Indonesia, importers have to apply for a quota from the government, 80 per cent of which must be filled to avoid any penalties. Importers must reapply for these quotas each year.
“Getting your head around their procedures in terms of getting a quota, establishing a verification order, the possibility that you haven’t got all your documents in a row and correctly filled out, as well as organising inspections – these are all ongoing issues that need to be addressed each time you make a shipment.”
It’s a problem that the executive director of the Australian Horticultural Exporters Association, Michelle Christoe, says needs to be addressed so that Australian producers can make better use of the huge market potential in Indonesia.
“It’s quite painful to do business in Indonesia," she said.
“An exporter needs to get a verification order, have an inspection by an Indonesian official and also have someone supervising the loading of the shipment. “It’s a real exercise in co-ordination.”
Ms Christoe and Mr Barker don’t see any immediate change on the horizon, nor the political will in Indonesia to make it easier for Australians to do business.
Indonesia’s economy is growing rapidly, with a report by the Boston Consulting Group published last year estimating Indonesia’s middle class at around 74 million people, and expected to almost double by 2020 to 141 million.
In other lucrative export markets, like China, Australian produce sells at a premium because of its 'clean, green' image. But in Indonesia, Australian fruit is valued because of its status as an imported item. Mr Barker says the main driver behind sales of Australian fruit in Indonesia is how rich the consumer is. “In China, there is a situation where food safety and the flavour profile of the fruit is the main driver of sales. “In Indonesia, they like the quality of the fruit compared to what else is on offer, and if they’ve got the money to pay for it, they’ll buy it.”