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Agribusiness Opportunities in Kalimantan and Sulawesi

by Cisca Spencer, Asia Research Centre and David Quane

Rural Industries Research and Development Corporation Global Competitiveness Research and Development RIRDC Publication No. 99/42 RIRDC Project No. UMU-20A

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© 1999 Rural Industries Research and Development Corporation. All rights reserved. ISBN 0 642 57841 9 ISSN 1440-6845 Agribusiness Opportunities in Kalimantan and Sulawesi Publication No. 99/42 Project No. UMU-20A The views expressed and the conclusions reached in this publication are those of the author and not necessarily those of persons consulted. RIRDC shall not be responsible in any way whatsoever to any person who relies in whole or in part on the contents of this report. This publication is copyright. However, RIRDC encourages wide dissemination of its research, providing the Corporation is clearly acknowledged. For any other enquiries concerning reproduction, contact the Publications Manager on phone 02 6272 3186.

Researcher Contact Details Name: Cisca Spencer Address: Asia Research Centre Murdoch University Murdoch WA 6150 Phone: 08 9360 6005 Fax: 08 9310 4944 Email: [email protected] Website: http://wwwarc.murdoch.edu.au

RIRDC Contact Details Rural Industries Research and Development Corporation Level 1, AMA House 42 Macquarie Street BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604 Phone: 02 6272 4539 Fax: 02 6272 5877 Email: [email protected] Website: http://www.rirdc.gov.au

Published in March, 1999 Printed on environmentally friendly paper by the AFFA Copy Centre

mailto:[email protected]

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Foreword This research surveys the agribusiness opportunities for Australian companies in selected regions of Indonesia. Recognising that Indonesia is a very large and diverse country, not a single market, the study concentrates on the eight provinces of Kalimantan and Sulawesi. It is a companion volume to an earlier study by the Asia Research Centre, published as RIRDC Research Paper 96/6, which covered Sumatra and East Java.

The study was jointly funded by the Department of Agriculture, Fisheries and Forests (DAFFA), RIRDC and AusAID.

The choice to commission a study of Kalimantan and Sulawesi in part reflects the Australian Government’s desire to increase the knowledge of the Australian private sector about the opportunities there, and in this way contribute to the impetus of the Australia Indonesia Development Area (AIDA) initiative. Additionally, knowledge about the agribusiness potential of Kalimantan and Sumatra is more limited than that of Java, which remains the agribusiness hub of the archipelago.

While this research has been written at a time when Indonesia faces a very uncertain future, a key point is that it will come back as a market for Australian agribusiness products and expertise: in the meantime, companies need to maintain their links in Indonesia and be ready to develop the potential that is undoubtedly there.

This report, a new addition to RIRDC’s diverse range of over 250 research publications, forms part of our Global Competitiveness program which aims to identify important impediments to the development of a globally competitive Australian agricultural sector and support research that will lead to options and strategies to remove these impediments. This report, and others, can be viewed or purchased online at www.rirdc.gov.au/pub/cat/contents.html

Peter Core Managing Director Rural Industries Research and Development Corporation

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List of acronyms

AIDA Australia Indonesia Development Area BAI Business Advisory Indonesia, one of many private sector groups

interacting with the government on policy issues BAPPEDA Badan Perencanaan Pembangunan, or Development Planning Board BIMP-EAGA Brunei Indonesia Malaysia Philippines-East Asian Growth Area BKPM Badan Koordinasi Penanaman Modal, or Investment Coordinating

Board, which vets foreign and domestic investment applications BKPMD Badan Koordinasi Penanaman Modal Daerah, provincial offices of

BKPM BPS Biro Pusat Statistik, or Central Bureau of Statistics BULOG Badan Urusan Logistik, or National Logistics Board (established to stabilise prices for staple foods, especially rice) CIF Cost Insurance Freight EFIC Export Finance and Insurance Corporation GMP Good Manufacturing Practice HACCP Hazard Action Critical Control Points (process used to monitor safety

procedures) ISO International Standards Organisation PMA Penanaman Modal Asing, or Foreign Investment Company PMDN Penanaman Modal Dalam Negeri, or Domestic Investment Company

Glossary of Indonesian terms

bakso meatballs usually made of chicken or beef, often served in soup dalam anka each province produces a standardised annual volume of statistics, e.g.

Sulawesi Selatan Dalam Anka, South Sulawesi in figures fiskal departure tax levied on Indonesians travelling abroad by air or sea (with

some limited exceptions, e.g. departures from Kalimantan to other parts of Borneo Island)

halal method of slaughtering and preparing food according to Islamic law kecap sauce, which can be spicy or sweet, used for meat and vegetable dishes khaki-lima mobile food vendors krupuk crisp dry deep-fried cracker, often flavoured with prawn or fish, served

as an accompaniment to a meal ramadan fasting month in the Muslim calendar, during which observers do not

eat between sunrise and sunset. It is followed by a week of feasting and family celebration

tahu precipitated soybean cake tempe fermented soybean paste, often served fried or boiled as a snack, or as

part of a meal

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Contents

Foreword iii Contents v Tables viii Figures viii Maps viii List of acronyms iv Glossary of Indonesian terms iv

1. Executive Summary IX

1.1 The Impact of the Economic Crisis ix 1.2 Kalimantan and Sulawesi x

1.2.1 Major findings: production and processing x 1.2.2 Major findings: retailing xi

1.3 Recommendations xii 1.3.1 Retailing xii 1.3.2 Production and processing xii

2. General Points 1

2.1 The Indonesian consumer 1 2.2 Doing business in Indonesia: some basic issues 3

2.2.1 Terms of payment 3 2.2.2 Investment licences 3 2.2.3 Customs 4 2.2.4 Accurate information 5 2.2.5 Food safety issues 5 2.2.6 Halal 6 2.2.7 Health foods 6

2.3 The experience of some Australian companies 7

3. Agribusiness Opportunities in Kalimantan and Sulawesi 9

3. 1 Business opportunities in Kalimantan and Sulawesi relative to other parts of Indonesia 9 3.2 Exports of Australian products 10 3.3 Technical and managerial skills 11 3.4 Export of food and packaging equipment 11 3.5 Distribution systems 12

3.5.1 Distribution in Kalimantan and Sulawesi 12 3.5.2 Investment in retail and distribution 15

3.6 BIMP-EAGA 16 3.7 AIDA 16 3.8 Problems of centralisation 17 3.9 Transport 18 3.10 Speed of development 18 3.11 Retailing: partnerships with supermarkets 19 3.12 Catering to the mining industry 21 3.13 Agribusiness opportunities in Kalimantan 21 3.14 Agribusiness opportunities in Sulawesi 22

3.14.1 South Sulawesi 22 3.14.2 Central Sulawesi 24 3.14.3 North Sulawesi 25 3.14.4 South-east Sulawesi 26

3.15 Special investment for Eastern Indonesia 27

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Annex 1: Kalimantan 29

1.1 Introduction 29

1. West Kalimantan 29

1.1 Introduction 29 1.2 Infrastructure 29 1.3 Agricultural Production 30 1.4 Current and potential agribusiness development 34 1.5 Agroindustry - processing 34 1.6 Agricultural imports 35 1.7 Agribusiness exports 35

2. East Kalimantan 35

2.1 Introduction 35 2.2 Infrastructure 35 2.3 Agricultural production 36 2.4 Current and potential agribusiness development 40 2.5 Agroindustry - processing 40 2.6 Agricultural imports 41 2.7 Agribusiness exports 41

3. South Kalimantan 41


4. Central Kalimantan 47


5. Sulawesi 54

5.1 Introduction 54

6. South Sulawesi 55

6.1 Introduction 55 6.2 Infrastructure 55 6.3 Agricultural production 56 6.4 Current agribusiness development 59 6.5 Agroindustry - processing 60 6.6 Major agricultural imports 60 6.7 Major agribusiness exports 60

7. Central Sulawesi 61


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8. North Sulawesi 67

8.1 Introduction 67 8.2 Infrastructure 67 8.3 Agricultural production 68 8.4 Current and potential agribusiness development 71 8.5 Agroindustry - processing 71 8.6 Major agricultural imports 72 8.7 Major agribusiness exports 72

9. South-east Sulawesi 72


Annex 2: List of persons interviewed during field trips (August/September 1997, February 1998) 78

Annex 3: Selected References 85

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Tables Table 1 Percentage of average monthly per capita expenditure in urban and rural areas by commodity group and monthly per capita expenditure group class, 1996 1 Table 2 Trends in consumer spending by sector 2 Table 3 Analysis of consumer expenditure by object 2 Table 4 Social indicators (1) 2 Table 5 Social indicators (2) 3 Table 6 Cumulative approved foreign and domestic investment by region, (1968 - June 1998) 9 Table 7 Cumulative approved domestic investment by sector, (1968 - June 1998) 9 Table 8 Cumulative approved foreign direct investment by sector, (1968 - June 1998) 10 Table 9 Gross regional domestic product by province 10

Figures Figure 1 Sole distribution 14 Figure 2 Semi-direct distribution 14 Figure 3 Multi-distributor system 14

Maps Map 1 Sketch map of agricultural trade flows 8 Map 2 Kalimantan 28 Map 3 Sulawesi 53

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1. Executive Summary 1.1 The Impact of the Economic Crisis Economic crisis, drought and (in parts of Kalimantan and Sulawesi) forest fires have greatly diminished prospects for new agribusiness. Kalimantan is physically not suited to large-scale food production, and agribusiness is limited to plantation crops. Sulawesi is more diverse and has more agribusiness potential. The shake-up in Indonesian agribusiness – from production to retailing – is severe, but it will also bring new growth and new opportunities. This will be caused by several factors: • many private sector producers and processors are squeezed by debt and by shrinking

markets, especially in the more up-market sectors such as production under license of foreign brands of dairy products, fruit juice, biscuits etc.;

• new investment in food crops, horticulture and livestock will be interrupted; • the IMF-induced end of certain monopoly practices will bring new players onto the

market and change the way in which business is done; • in retailing and distribution, hitherto closed to foreign equity investment, there will be

many changes brought about by the combination of foreign competition and the need to hold on to a shrinking market.

The situation over 1997 and early ’98, when information for this study was gathered, has been volatile and fast moving. Companies interested in export and other agribusiness opportunities in Indonesia will need to monitor the situation constantly. However, the Indonesian market will come back, and its size and proximity mean that it is not an option for Australian business simply to pull out of Indonesia now, and then to expect to take up where they left off once the situation improves. Price constraints will make it harder to hold on to existing markets, whether bulk commodities such as wheat, or processed foods. Other producers of wheat, such as the USA, may provide incentives to capture more of the Indonesian market. Exports of Australian products in the high-value areas such as horticulture, meat and dairy products have been very badly hit. While these products constitute a small proportion of the total food products sold to Indonesia, the loss of business and of confidence in the future is still significant. When the market returns, Australian exporters will find new players and ways of doing business (e.g. more or different importers). Either they will need to start all over again, only to find that competitors will have been working the ground before them; or they can use the ‘dead period’ to monitor developments closely and establish new contacts, while maintaining old ones, so as to be ready to do business when times improve. The economic crisis will hasten a trend that has existed for some time. Namely, the future for Australian agribusiness companies lies not in exporting products to Indonesia, but in participating in the food industry in Indonesia: some years ago, supermarkets had imported biscuits, confectionery and dairy products. Now many foreign brands are made under license in Indonesia, at a much cheaper price than a fully imported product. Similarly, the need to provide large cities with fresh foods will put traditional farming under pressure to

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modernise and industrialise production, providing opportunities for Australian companies to participate in that process. Retailing and distribution of food will also change. Some major changes were due there anyway, since the growth of retailers catering to the upper income market had already outstripped the growth of those income groups before the crisis. This point was made as early as the 1996 report for RIRDC, Agribusiness Opportunities in Sumatra and East Java. Now, to compete for a shrunken market and against incoming foreign companies, Indonesian retailers and distributors will need to become more efficient and cost-effective. There will be opportunities in the hitherto closed distribution sector, and to provide such things as refrigerated transport and storage, packaging and labelling, all with the aim of getting a fresher product at a higher value, but cost-effectively, to a price-conscious consumer. However, that also is a longer-term opportunity, as distributors now, like the retailers, are switching from imports to local products, trying to improve their credit terms, and also squeezing their suppliers. The new terms on which foreign distributors can participate in Indonesia are yet to be clarified. The opportunities now in Indonesia are for Australian companies to buy into Indonesian agribusiness. Equity and the control it can bring have never been cheaper, and there are a number of otherwise good companies which have cash problems. This is of course not without risk, as nobody knows how long it will be before business will pick up. It can be hard to know whether a local company will be able to survive in a new political-business environment, but a number of the least debt-burdened companies will certainly survive. Australian companies should weigh the possible long-term gains of buying into basically strong companies against risks in the current uncertain climate.

1.2 Kalimantan and Sulawesi 1.2.1 Major findings: production and processing Over the next 5–15 years, Indonesian agriculture will modernise, under pressure from liberalisation of trade in agricultural goods and from the need to feed a very large population without excessive recourse to imports. The rising cost of land on Java will force much low-value agriculture to move more production onto other islands. However, there was little evidence before the economic crisis of new investment in agriculture in Kalimantan and Sulawesi, apart from plantation crops such as palm oil. New investment in food crops, livestock and horticulture will be delayed further by the economic crisis. The long-term commercial opportunities for Australian agribusiness in Sulawesi and Kalimantan, as elsewhere in Indonesia, lie in participating in the modernisation of Indonesian agriculture: through partnership with the larger and more forward-looking local firms, through investment, and through the provision of food services and technology, whether this is refrigerated transport and storage, packaging and labelling technology, integrated pest management systems or quality assurance systems, to name but a few. However, as noted, this is a long-term prospect that will slowly radiate from Java to the outer islands. Business and government in Kalimantan and Sulawesi are all aware of the AIDA initiative, and are hopeful that it will indeed lead to more private sector-led economic development of their provinces. However, it would have to be said that business, in particular, is frustrated

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by the overwhelming influence of Jakarta in their local business environment, and therefore believes that, in the current situation especially, there is little capacity or will to address some of the structural and other problems of business development in Kalimantan and Sulawesi. Kalimantan has land available, but little of it is suitable for intensive food or livestock production: it is either uplands still largely forested and difficult of access, or peaty lowland swamps not suitable (except at very high cost) for food crops or horticulture. The climate and the poor nutritional value of tropical grasses make Kalimantan unsuitable for cattle raising. Kalimantan is a food deficit island and only limited areas of it are suited to food production: the major primary products are timber, oil palm and rubber. Its small, scattered population does not constitute a major market for traded foodstuffs. There is a local poultry industry, which has however been severely hit by rising feed prices. Some chicken, and most beef, are traditionally imported from Java and Sulawesi, as are fruit and vegetables. Over the long term, there may be opportunities for Australian agribusiness to become involved in the poultry and poultry stockfeed industry in Kalimantan and Sulawesi. Sulawesi’s major advantages include more land available, and at lower prices, than in Java. These advantages will only increase as land prices in Java come under pressure from urbanisation and industrialisation. Sulawesi has seen rapid improvements in infrastructure; and it has a range of climatic and soil conditions, which makes it suitable for various agricultural and agro-processing activities. As with Kalimantan, the focus is on plantation crops, including cocoa, coffee, palm oil, rubber, coconuts, and spices such as cloves, nutmeg/mace and vanilla. The overwhelming bulk of these products are exported raw, or processed on Java. There are few exceptions to this picture, but those exceptions are commercially successful. Agro-processing is strongest in South Sulawesi, the most dynamic of Sulawesi’s provinces, and the best connected to markets in Java. On both islands the major problems remain: cost of getting products to major domestic or export markets, and of bringing in capital goods; limited population, with attendant limits on technical and managerial skills; limited purchasing power in the local markets; and higher returns on investment elsewhere in Indonesia, making both islands relatively less attractive as an investment destination for local and foreign investors. The current dire economic conditions only exacerbate the problems. 1.2.2 Major findings: retailing Food retailing, and the supporting environment of shopping centres and malls, is more developed in Sulawesi than in Kalimantan, except for Balikpapan. Ujung Pandang and Manado, the provincial capitals of South and North Sulawesi, both have new air-conditioned shopping malls, and outlets of the major Java-based supermarkets, such as Matahari, Gelael and Hero. All of these have opened since 1995. The Gelael store in Ujung Pandang is the largest and best stocked supermarket outside Jakarta seen by the authors of this report anywhere in Sumatra, East Java and Sulawesi. Hero has one store in Balikpapan (in a large new mall) and one in Banjarmasin. Smaller locally owned supermarkets also exist in all provincial capitals. In Manado (North Sulawesi), Ujung Pandang (South Sulawesi), and Pontianak (West Kalimantan), they carry an extensive range of imported foods. Palu (Central Sulawesi), Kendari (South-east

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Sulawesi), and Palangka Raya (Central Kalimantan) do not have Java-based supermarkets, and their local supermarkets are not well stocked with imports. Distribution usually is by a combination of local distributors/agents, and by Jakarta headquarters in the case of chains. Distribution systems, traditionally Chinese-owned, have been hard hit in the current crisis. The food retail sector was hard hit by social unrest in the period leading up to President Suharto’s resignation. This is because some large chains had connections to the then ‘first family’, or because small supermarkets are dominated by Chinese. Some eleven of Hero supermarkets are reputed to have been torched during the worst of the crisis. Players on the food retail scene can be expected to change significantly over the next few years. For example, one of the largest food retailers, Golden Truly, closed in 1998, while Hero is now 30% foreign owned.

1.3 Recommendations 1.3.1 Retailing Export of Australian processed and high-value foodstuffs direct to Sulawesi and Kalimantan is not a practical option, since decisions are made in Jakarta. The economic crisis has also cut off imports of all but the most price-competitive foodstuffs. However, Australian suppliers should use this period of downturn to develop their relationships with distributors (including the new ones that will enter the game) to ensure that their products will be well placed once the situation improves. Australian distributors will find opportunities in the food distribution business itself, since rules against foreign participation are being relaxed. Successful distribution by foreign companies will require a very detailed knowledge of the complexities of networks in each province, and is more likely to be successful if developed in partnership with local companies. Indonesian distribution in outer areas such as Kalimantan and Sulawesi can be rough, but it is surprisingly efficient and relies as much on informal networks as on commercially developed distribution chains. A new opportunity that may arise from this crisis lies in forming commercial alliances to assist Indonesian supermarkets to be more competitive, as consumers become less free-spending. The explosion of supermarket outlets that has happened in the last 5 years has not been matched by a corresponding explosion in high-income consumers: thus competition between supermarkets for the consumer is inevitable, and will be intensified by the currency crisis. This could provide opportunities for Australian companies to provide expertise in inventory management, supermarket planning and layout, staff training, warehousing and distribution, perishables management, and so on. However, this opportunity is not a short-term one. Most chains are now exclusively focused on survival through cost cutting, rather than investing in becoming more cost efficient. 1.3.2 Production and processing Maize is grown in much of Eastern Indonesia, for human consumption and as stockfeed. Up to 1 million tonnes of maize are imported per annum, mainly for stockfeed, and there may be opportunities to grow maize in Sulawesi to meet this demand. However, there are no storage facilities or feedmills in Sulawesi or Kalimantan, so corn is sold at low prices to traders in Surabaya in high season and re-imported from Java at high prices during low

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season: there would be scope for both corn storage operations and feedmill operations in Sulawesi, and to a lesser extent in Kalimantan. If this were integrated with battery chicken operations, there would be further commercial opportunities. There are no commercial beef cattle feedlots anywhere in Sulawesi, although a number of Australian companies are understood to have assessed the potential. There is land available, especially in South and South-east Sulawesi, and the dry climate is more suitable than Java or Lampung (where the current commercial feedlots are located). However, the relatively greater distance from the major market of Jakarta makes the issue of transport costs to and from Sulawesi a major hurdle, especially as there are no abattoirs in Sulawesi and cattle would have to be transported live both ways. Raising cattle in Sulawesi would have to be considered a long-term proposition, and only if rising land prices in Java offset the added freight costs. Some efforts have been made to raise Australian-bred cattle commercially in Kalimantan, but the climate has defeated these efforts. Local government officials continue to believe that the potential is there. There is some scope for horticultural operations in the Palu Valley (Central Sulawesi), where suitable land is available, and irrigation is well established, using water from the surrounding mountains. There is one large diversified agribusiness company operating in this region, which already has one joint venture in cut flowers with an Australian firm, and is interested in further developing its alliances with foreign firms. Horticultural opportunities are also available in the Malino area (South Sulawesi) to supply the Ujung Pandang market and possibly Kalimantan, and in the Gorontalo and Minahasa/Lake Tondano areas of North Sulawesi. There are more generic opportunities to provide services and technology in the plantation sector, for instance integrated pest management, but it should be noted that smallholders do not generally have the capital to improve the productivity of their plantation crops. Once the large palm oil plantations, mainly in Kalimantan, regain their capacity to invest, there will be scope to supply fertilisers, irrigation/sprinkling equipment etc. Suppliers need to travel extensively to plantations, since many plantation managers are not aware of the products that can be supplied by Australian companies. Plantation managers tend to look in the handbooks produced by the associations of American equipment suppliers, in which Australian firms can also register their details, and this can be one way of publicising Australian firms’ equipment.

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2. General Points Table 1 Percentage of average monthly per capita expenditure in urban and

rural areas by commodity group and monthly per capita expenditure group class 1996

Monthly per capita expenditure class (rp) Commodity group

Less than 15 000

15 000 - 19 999

20 000 - 29 999

30 000 - 39 999

40 000 - 59 999

60 000 - 79 999

80 000 - 99 999

100 000 - 149 999

150 000 - 199 999

200 000 - 299 999

300 000 and over

Rata per capita average

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Food Cereals 36,75 35,09 29,84 24,54 18,80 13,64 10,48 7,70 5,43 3,87 1,92 12,78 Tubers 6,37 3,67 1,83 1,19 0,84 0,66 0,55 0,46 0,39 0,31 0,19 0,67 Fish 3,47 4,54 4,99 5,45 5,73 5,64 5,22 4,65 3,84 3,18 1,97 4,78 Meat 1,17 0,50 1,00 1,50 2,42 3,32 3,88 4,49 4,65 4,14 2,83 3,23 Eggs and milk 0,50 1,07 1,62 2,18 2,75 3,25 3,42 3,63 3,50 3,10 1,95 2,95 Vegetables 6,46 7,07 6,73 6,66 6,24 5,65 5,11 4,39 3,64 2,87 1,60 4,95 Legumes 1,79 2,15 2,60 2,74 2,51 2,21 1,99 1,69 1,37 1,00 0,60 1,94 Fruits 1,10 1,65 1,85 2,16 2,57 2,96 3,21 3,44 3,57 3,33 2,37 2,88 Oil and fats 4,40 3,91 3,82 3,59 3,17 2,67 2,31 1,92 1,57 1,24 0,74 2,40 Beverages 4,15 4,58 4,60 4,39 3,89 3,35 2,91 2,48 2,03 1,64 0,88 2,99 Spices 1,86 1,92 1,96 1,92 1,78 1,57 1,42 1,26 1,02 0,81 0,47 1,41 Misc.food items

0,52 0,43 0,76 0,93 1,16 1,38 1,51 1,64 1,58 1,31 0,84 1,29

Prepared food and beverages

1,84 2,76 4,65 6,37 8,22 9,54 9,97 9,84 9,31 8,51 6,26 8,48

Alcoholic beverages

0,02 0,08 0,07 0,07 0,07 0,06 0,07 0,09 0,09 0,12 0,06 0,08

Tobacco and betel

4,58 4,21 4,68 5,40 5,89 5,52 5,04 3,98 2,98 2,18 1,10 4,44

Total of food 74,97 73,64 71,02 69,10 66,06 61,42 57,10 51,66 44,98 37,61 23,78 55,27

Total of non-food

25,03 26,36 28,98 30,90 33,94 38,58 42,90 48,34 55,02 62,39 76,22 44,73

Total 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00 100,00

Source: Statistik Indonesia 1997, BPS, Jakarta, 1998, p. 520–521

2.1 The Indonesian consumer Much prominence has been given to the emerging upper- and middle-income groups that comprise approximately 10% of the population, or 20 million people. However, disposable income has been seriously eroded in dollar terms by the fall of the rupiah since mid-1997, by high inflation and by the rapid rise of unemployment. It should be noted that, despite the severe downturn, the population, and especially the middle class, has become more cosmopolitan. This process is assisted with about 15,000 students annually returning from studies overseas. International TV channels are easily accessed with the ubiquitous parabola. Modern malls as well as international hotel chains and restaurants can be found in cities throughout the country. These changes in the society have affected the basic lifestyle, particularly urban lifestyles, and spending patterns. Evidence of this may be easily seen in any large city in Indonesia, with the proliferation of foreign franchised food outlets alongside traditional food stalls and in the high quality food courts that can be found in all the malls and attached to the supermarkets. The Indonesian consumer is very price and quality conscious. Only the highest 5% of income earners are more quality than price conscious. Table 1 indicates that the lower income groups still spend the largest proportion of their disposable income on fresh food,

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but that all consumer groups spend similar percentages of their disposable income on packaged or processed food. Broad comparison with another ASEAN country, and Australia, is provided in Tables 2 and 3.

Table 2 Trends in consumer spending by sector Consumer Expenditure on Food 1985, 1990 and 1996, million units of national currency

1985 1990

1996

Indonesia 28,965 39,314 77,584 Malaysia n.a. 21,711 31,726 Australia 22,740 33,233 51,826

Source: International Marketing Data and Statistics, 1998, p. 330

Table 3 Analysis of consumer expenditure by object Consumer Expenditure by Object 1996 (% analysis)

% of total Food/ drink/ tobacco

Clothing/ footwear

Housing Fuels Household goods & service

Health Transport & comms.

Leisure & education

Others Total

Indonesia

38.8

3.3

11.9

2.7

8.7

n.a.

3.2

1.1

30.3

100.00

Malaysia

31.7

7.0

7.5

4.4

13.3

2.5

15.2

6.7

11.7

100.00

Australia

22.7

4.9

16.9

2.1

6.2

8.1

14.1

10.7

14.4

100.00

Source: International Marketing Data and Statistics, 1998, p. 329 These figures, from 1996, do not reflect the severe recent decline in purchasing power in Indonesia.

Table 4 Social indicators (1)

Availability of safe drinking water 1993 (%)

Availability of sanitation services 1993 (%)

Indonesia 65 55

Malaysia 90 94

Australia 95 n.a.

Source: International Marketing Data and Statistics, 1998, p. 312

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Table 5 Social indicators (2)

Nutrition: Calories and protein consumed per day per capita

Government expenditure on health (% of central government expenditure) 1994

% of population with access to health services, 1995

% of population with access to polio vaccination 1995

Hospital beds per ‘000 inhabitants

Calories (no.) (average 1992-94)

Protein (grams) (average 1992-94)

Indonesia 3.3 80.0 91 0.7 (1990) 2,609 60

Malaysia 5.5 88.0 90 1.7 (1992) 2,782 64

Australia 13.4 98.6 72 5.5 (1990) 3,080 102

Source: International Marketing Data and Statistics, 1998, p. 417, 399, 402, 414.

2.2 Doing business in Indonesia: some basic issues 2.2.1 Terms of payment A major component of Indonesia’s current economic crisis is the liquidity squeeze affecting banks and businesses. Letters of credit and other normal mechanisms of international trade have been virtually paralysed. At the time of writing, there is little value in discussing terms of payment, since so few Indonesian companies have access to dollars in quantities sufficient to maintain any semblance of normal trade. 2.2.2 Investment licences Licences for agribusiness are issued by central and provincial government authorities, depending upon the size and type of investment being made. At central level the Investment Coordinating Board Badan Koordinasi Penanaman Modal (BKPM) gives the final approval for all foreign and domestic investment proposals. However, the Coordinating Board must consult the provincial authorities and its own provincial office (BKPMD) before final approval can be given. There are no clear guidelines on the importance or the weight of the consultations, or recommendations from provincial level. In 1990 the private sector group Business Advisory Indonesia (BAI) surveyed the business community to determine the major costs and constraints on doing business. The overriding conclusion from BAI’s report was that obtaining inputs and raw material was the most important constraint on agribusiness in Indonesia, not the cost or the complication of obtaining a licence. Linked with the problem of obtaining sufficient raw materials were two associated constraints: i. non-uniform or non-standard quality of key inputs, ii. discontinuity of supply of raw materials. The BAI report concluded that the cost of obtaining licences, permits, land and capital was by comparison not as critical to the operation of agribusiness in Indonesia. The agribusiness managers that participated in the survey ranked the cost of licences as the least important for their business in Indonesia.

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Although the BAI report is old, the authors of this report found during fieldwork in 1997 and 1998 that inadequate raw materials was still the major factor in agro-processing ventures, which had either failed or were operating below optimum capacity. This applied to fruit canning, fish canning and freezing, cocoa bean processing, cashew opening/roasting, coconut oil and other coconut processing plants, in both Kalimantan and Sulawesi. The same problem was encountered in 1995 and 1996 in Sumatra in fieldwork for the RIRDC report Agribusiness Opportunities in Sumatra and East Java. Tariffs on processed foods are much higher than on commodities and unprocessed foodstuffs. There are few constraints other than tariffs for imported prepared food products that are ready for direct distribution. However, all such products must be registered through the Ministry of Health (Directorate General for the Inspection of Food and Medicines) to obtain what is referred to as a ML number. For mixed container loads, the importer generally does not register the products. However, Australian exporters who are serious and want to enter the market in Indonesia for the long term should ensure that their products are registered. The procedures are somewhat lengthy. Any Indonesian licensed importer can import any product with the exception of meat, poultry and alcohol products. For such items a special import licence must be obtained. For those interested in exporting alcoholic beverages there are only two licensed importers; these products are subject to very high tariffs (as high as 300%), as well as quotas. Importers are based in either Jakarta or Surabaya, and are (on the whole) Chinese. They may source some of their Australian imports from suppliers in Singapore rather than direct from Australia. Their products are distributed into Sulawesi and Kalimantan through (mainly Chinese) wholesalers. These networks can get imports to consumers at prices that would defeat competitors operating according to the letter of the law. 2.2.3 Customs In 1985 the Indonesian Government decreed that all imports with a value of more than $US5,000 must bear verification reports from the Swiss inspection firm Société Générale de Surveillance (SGS) and indicate the type of goods, quality and quantity and applied cost. The inspections were carried out at the port of exit and the duties were calculated on the CIF value at prevailing prices at the port of exit. In 1991 the Indonesian Government and SGS formed a joint venture, PT Surveyor Indonesia, to take over the inspection role of SGS. SGS still holds an interest in the PT and provides personnel and service to the company In 1995 the government decreed that air shipments entering the country would be subject to local customs service inspections and would no longer need to go through the PT Surveyor Indonesia inspection system. The $US5,000 level for reporting goods is still in place and is reported to be being used to advantage by some firms that tranship their goods through Singapore and Hong Kong. Some warehouses in Singapore are set up to fill mixed containers of food products so that the reported value is less than $US5,000. If such a practice were used, it would strengthen the competitiveness of Australian products in the market, provided the cost of transhipping and repacking the containers was less than the import duties to be paid. From an Indonesian perspective, buying such container loads from companies in Singapore is also very attractive, because of the short shipping time and the ability to get small

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quantities. These benefits are to some extent countered by the high freight costs between Singapore and Indonesian ports. Food products with expiry dates on their labels must arrive in Indonesia well before the expiry date. This ranges from one year before expiry date (for products with a shelf life of two years or more), to two months before expiry date (for products with a shelf life of three months). 2.2.4 Accurate information Obtaining accurate information and statistics from Sulawesi and Kalimantan is very difficult given the long lines of communication and many isolated areas. The Central Bureau of Statistics (BPS) provides detailed information on a standardised province-by-province basis, but the capacity of the less developed provinces to provide accurate information about their own more remote areas is very limited, as can be seen by even a quick glance at the dalam anka, or provincial statistical yearbooks. The statistics obtained from government and official sources sometimes seem contradictory, often because these statistics have been collected by different agencies over different time periods. For example some agencies may have collected the data over a financial year and others over the calendar year. Often clerical errors creep into the statistics and it is not uncommon to find the kilogram production of some crop misquoted as tonnes in the official statistics, or even for rupiah and dollar values to be confused. Export statistics for a province may be misleading, because they are recorded by port of departure rather than by provenance. This situation is also true of many other agricultural products recorded in official statistics.

Any investor from Australia should always crosscheck the information and data with as many sources as possible to verify accuracy and consistency. There is really no substitute for visiting the area to assess personally the potential of any proposed activity, while treating the official data as an indicative guide only.

In addition, the radical changes in the Indonesian economy since 1997 mean that even recent figures on consumer behaviour or purchasing power are unlikely to reflect accurately the rapidly changing circumstances. Cuts in government expenditure mean that BPS offices are unlikely to be able to work at even basic levels, especially in the remote provinces. 2.2.5 Food safety issues The food and beverage sector in Indonesia has developed considerably over the past five years. Many factories have obtained ISO certification and have Hazard Action Critical Control Points (HACCP) programs operating in their facilities. This is to satisfy demands by Indonesia’s export markets, especially the USA in respect of seafood. Good Manufacturing Practice (GMP) is a program being promoted by all government departments involved in the food and beverage sector. However, there remains a perception in Indonesia that imported foods have a higher nutritional value, have been produced with a higher degree of hygiene and are safer than local foods. The way in which the American franchised food chains operate reinforces this perception.

Australian-made products could be labelled and promoted for the Indonesian market to highlight the high standards of safety and hygiene applying in Australia.

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Food safety issues that are important for the Indonesian consumer can be highlighted as a selling point for Australian products in Indonesia. These very same issues would not perhaps be so important in Australia, as the consumer would assume a certain level of GMP and safety simply by virtue of a product being on the supermarket shelf. For instance, one Indonesian made brand of corned beef promotes that it is made under Australian government approved standards. 2.2.6 Halal Indonesia is the largest Muslim country in the world. All food consumed by Muslims must follow the Islamic law and rules for preparation. Food that is so prepared is termed halal. Halal meat products can be so described only if slaughtering procedures conform to Islamic rules. The average Australian slaughterhouse and slaughtering procedures would not conform to the Islamic requirements, although there are of course halal butcheries in Australia to meet both domestic and export requirements. Indonesian consumers distrust labels with a halal sticker on them. There has been much debate in the Indonesian press and Department of Trade and Industry over the use of halal stickers. Indonesian regulations stipulate that a sticker indicating the product as halal may not be placed on any processed food. The halal certification must be an integral part of the labelling and can be used only after the necessary requirements for the production of that food, including inspection, have been met. Halal certification is very important in certain types of food, particularly any meat product. Australian manufacturers should take particular care in indicating on the label that inspection and certification of the procedures for the preparation of the food have been conducted by the Islamic religious authorities. As the Indonesian consumer is inherently distrustful of the halal labels of food coming from non-Islamic countries, it may be worthwhile to invite Indonesian importers and distributors of Australian-made halal products to visit halal facilities in Australia. Alternatively and depending on the product, it may be cost-effective in the long term to establish a plant in Indonesia. This is particularly so in the light of pressure on imported foodstuffs arising from the sharp depreciation of the rupiah since August 1997. 2.2.7 Health foods Health concerns relating to salt, sugar, fat and fibre content do not figure with the vast majority of Indonesian consumers. However, a striking new development, observed in supermarket research since 1995 in Indonesia, is the appearance of health foods: these include low-joule sweet foods – both local and imported – and low-fat dairy and other products, and some weight reduction products and high-energy sports drinks. Energy supplements (building on the market for baby food and nursing mother formulae) have been on supermarket shelves for some years, but products marketed as ‘health foods’ are new. They are still a minority product, for the highest-income groups, and stocks had all but disappeared during 1998. Pre-crisis, Australian health products such as vitamins and other dietary supplements already occupied a strong position in the Indonesian market accounting for 26.6% of the import market, behind the USA with 42% in 1995. China, in third position, accounted for only 8.3% of imports. There are long-term opportunities for Australian suppliers to capitalise on the consumer’s identification with imports as being more healthily grown and

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more hygienically processed to promote products both for the general and the health food market. Such products might include: • high-fibre products (the Indonesian diet is very low in fibre and promotion would need

to have a strong education component); • seeds and nuts, which would also fit into the Indonesian snack-food tradition; • sports drinks, which would also capitalise on the strong pre-crisis growth in sales of

beverages; • dried fruit and snacks such as fruit leather and so on: Indonesians already eat a good

deal of locally produced dried fruit, but the only imports seen on supermarket shelves are Californian raisins and prunes. Australian dried fruits have never been seen. There would be a market for dried apricots and other stone fruits, as well as dried apples and pears, but they would need to be either very competitively priced, or packaged and promoted specifically for the gift market or for the high-income consumer. Dates, for the idul fitri holiday season, could also be successful.

The slashing of imports means that the development of health foods in Indonesia is likely to be put on hold for some years. The local brands, which were beginning to emerge (e.g. Nutrifoods) may therefore have gained a good foothold by the time the consumers are ready to buy imports again. For Australian suppliers to this new market sector, the best tactic is likely to be the development of relationships with local producers of health foods.

2.3 The experience of some Australian companies Different Australian companies established for some time in Indonesia have reacted differently to the problems and opportunities thrown up by the economic crisis. Goodman Fielder has fully written off the $A9 million book value of its joint venture with the Sinar Mas Group (producing margarine and cooking oil). Arnott’s biscuits, which moved from exporting biscuits from Australia to manufacturing under license in Indonesia, bought out its joint venture partner in 1998 for $A14 million: on investment in 1995, Arnott’s valued the share in its books at $A24 million. Heytesbury Beef, a major live cattle exporter to Indonesia up to 1997, no longer sells cattle, and is looking to re-enter Indonesia once the economy re-emerges, both for live cattle feedlotting and value-added downstream opportunities. These examples indicate the range of risks incurred and options available for Australian companies. It is certainly the case, for companies determined to develop the long-term opportunities in Indonesia, that equity participation in Indonesian companies has never been cheaper. The openings now available in retail and distribution make this section more attractive, although this is offset in the short-to-medium term by the slump in purchasing power. The risks of buying into an Indonesian company revolve around two issues: its debt levels may not be fully apparent from the information provided during due diligence work; and the political connections that may have been an essential factor in its profitability before the change of regime may be severed, or indeed, be a liability in the new business climate.

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Map 1 Sketch map of agricultural trade flows (not available electronically – contact RIRDC to obtain a copy)

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3. Agribusiness Opportunities in Kalimantan and Sulawesi

3.1 Business opportunities in Kalimantan and Sulawesi relative to other parts of Indonesia Improvements in transport and communications are indeed reducing barriers to business in the outer islands and (as noted elsewhere) land costs on Java will drive some production and processing off Java. The Government is making efforts to encourage investment in the outer islands, which over time will bear fruit. However, in terms of the relative attractiveness of business prospects in Kalimantan and Sulawesi (as opposed to Java) the following tables provide an indication of the dominance of Java in domestic and foreign investment. They also indicate the relative lack of focus of nation-wide investment in agriculture, as opposed to other sectors.

Table 6 Cumulative approved foreign and domestic investment by region, 1968 – June 1998

Foreign investment Domestic investment $US million Percent Billion rupiah Percent

Sulawesi 8,972 4.2 23,874 3.8 Kalimantan 11,157 5.2 65,002 10.4 Java 136,919 64.2 366,595 58.6

Total Indonesia 213,204 100.00 625,896 100.00 Source: Indonesian Financial Statistics, Bank Indonesia, September 1998, p. 141–147

Table 7 Cumulative approved domestic investment by sector, 1968 – June 1998 Agricul-

ture (incl. food processing

Forestry Fisheries Mining Industry Construc- tion & services

Total

Billion rupiah

120,014 6,564 9,044 5,626 355,748 102,166 625,896

Percent 19.1 1.0 1.4 0.9 56.8 16.3 100.00 Source: Indonesian Financial Statistics, Bank Indonesia, Jakarta, September 1998, p. 141–147

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Table 8 Cumulative approved foreign direct investment by sector, 1968 – June 1998 Agriculture

(incl. food processing)

Forestry Fisheries Mining Industry Construc- tion & Services

Total

Million $US

11,313 703 639 9,532 131,448 59,572 213,204

Percent 5.3 0.3 0.3 4.5 61.7 28.0 100.00 Source: Indonesian Financial Statistics, Bank Indonesia, Jakarta, September 1998, p. 141–147 The pattern of investment reflects not only the economic dominance of Java, but also the fact that, with 67% of the total population, the major markets are in Java. Added to this is the cultural and historical predominance of Javanese in Indonesia’s political system. In the case of agriculture, the rich volcanic soils of Java are more productive than almost any other region of the archipelago. The result is that Java still is a net exporter (by value) to the other islands. This will not be sustainable over the long term, given the price and population pressures on land in Java which have been noted elsewhere in this report. In the meantime, the following table indicates the disparities between Java and the outer islands.

Table 9 Gross regional domestic product by province

Billion rupiah at current market price 1996 1996

(without oil and gas)West Kalimantan 8,446 8,446 Central Kalimantan 5,273 5,273 South Kalimantan 7,170 7,164 East Kalimantan 25,344 12,683 North Sulawesi 4,818 4,818 Central Sulawesi 3,024 3,024 South Sulawesi 11,822 11,822 South-east Sulawesi

2,102 2,102

Total Kalimantan 46,233 33,565 Total Sulawesi 21,765 21,756 Total Java 315,045 300,982 Total Indonesia 532,631 490,317 Source: Statistik Indonesia 1997 BPS, p. 557–558

3.2 Exports of Australian products Given the current economic situation, the expansion of Australian food exports to Kalimantan and Sulawesi is not a realistic option. Even when the situation stabilises, the purchasing power in these islands is limited, with the exception of towns like Ujung Pandang, Manado and Balikpapan. The market for fresh fruit and vegetables will recover

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once the rupiah strengthens, but the recovery in consumption of imported meat, dairy products and processed foods will in all probability be slower. Since the collapse of the currency, there have been no new statistics that might give a realistic picture of the purchasing power of consumers in Kalimantan and Sulawesi. 1996 dalam ankas showing per capita incomes are irrelevant in the current situation.

3.3 Technical and managerial skills One constraint for Australian companies contemplating agribusiness in Kalimantan and Sulawesi is the lack of indigenous technical and managerial skills. There are some good universities and training institutes in the eastern islands, but the employment opportunities for ambitious young graduates and business people are better in Java. This said, it is quite common to meet managers or senior officials in Kalimantan and Sulawesi who have been trained in Australia or whose children are being educated there. Such people, aside from being familiar with western ways of doing business, are usually well disposed to Australia and constitute a potentially valuable resource for Australian businesses wanting to set up in these provinces. For instance, a Pontianak food retailer who owns two supermarkets in that town sent his son to be educated in Australia; the son runs one of the supermarkets and is anxious to use Australian expertise to upgrade the supermarket management (once they have survived the current critical downturn). The professor of Veterinary Science at Hasanuddin University, educated in Australia, routinely uses Australian technology and equipment in his private practice. A former senior official in West Kalimantan, now managing director of an oil palm plantation, is having his son educated in Australia and is anxious to use Australian irrigation equipment for his palm oil nurseries. By contrast, a North Sulawesi family-owned food processing company is managed by a son educated in Singapore and the USA, who was unfamiliar with the expertise available in Australia since he automatically turned to contacts from the USA and Singapore.

Companies setting out to establish themselves in Kalimantan and Sulawesi may do well to recruit Australian-educated graduates, who are likely to come from well-connected families and to be valuable sources of information about these provinces, as well as good bridges between Australian and Indonesian ways of operating.

The dearth of technical and managerial skills in eastern Indonesia has been recognised as a constraint to private sector led growth in the AIDA region, and is a priority area for cooperation between the two Governments. There may be scope for Australian companies wanting to cement their business relationships by providing training for their Indonesian staff to access training opportunities through the AIDA programs facilitated by AusAID.

3.4 Export of food and packaging equipment Noodles and bakery goods are among the processed foods produced widely in Kalimantan and Sulawesi. They are overwhelmingly produced by cottage industry-style factories (although large companies such as Indofoods (noodles) and ABC (biscuits) are also present). It has been estimated by the US Embassy’s commercial section in a report dated July 1997 that home industries and cooperatives nationwide produced ten times more bakery products than large factories, and 2 ½ times more noodles than the large plants.

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Indonesian production of food processing and packaging equipment is still small. Sales of local equipment reached a value of $US15.5 million in 1995 and was estimated at $US26.4 million in 1996. This contrasts with sales of imported equipment with $US210 million in 1995, and $US 278 million (estimated) in 1996. Most equipment is sourced from Taiwan, China and Korea, not from the major manufacturers in the US, Europe and Japan. This is because the preponderance of small-scale food processing plants in Indonesia means that most equipment is small and inexpensive, ranging in price from $US1,000–5,000. Australian suppliers of food processing and packaging equipment would not find a large market in Kalimantan or Sulawesi, except as a result of decisions made in Jakarta by large food processing companies in respect of their provincial plants.

3.5 Distribution systems Distribution of foodstuffs throughout Indonesia involves a dual system: a localised, traditional one involving many small distributors for goods traded on a local market (fresh fruit and vegetables, snack foods, meat, and the dry goods sold in small stalls); and a more modern, sometimes national, network for widely-used, low-cost products sold in all types of food retail outlets (cooking oil, kecap, instant noodles). In addition, the major supermarket chains (e.g. Hero Group) and major processed food producers (e.g. PT Indofoods), also act as distributors of their own products, sometimes through a distribution company that forms part of the conglomerate. Distribution has been hard hit by social unrest during 1998. This is because it is largely owned and controlled by Chinese. Information is patchy, but the smaller distributors in provincial towns appear to be more vulnerable to looting and trashing of warehouses than the bigger operators. 3.5.1 Distribution in Kalimantan and Sulawesi Distribution in rural areas is mostly performed by wholesalers based in nearby small cities. Wholesalers and sub-agents are often closely linked through ethnic and family ties, and through common business interests. They frequently operate collectively within an informal network that makes movement of goods surprisingly fast, despite an inherently fractured and conservative distribution system. Sub-agents have usually been doing business in their respective areas for a long time, and their intimate knowledge of it often compensates for their lack of modern stock management. It is common for sub-agents to be slow payers, and creditors have to be prepared to exert pressure to get paid. Sub-agents account for about 80% of volume of goods distributed in Kalimantan and Sulawesi. The remoter areas of Kalimantan and Sulawesi pose some problems for distribution. However, as the populations are small and purchasing power very limited, these problems would not affect Australian exporters in any practical sense. Companies catering to the mining and associated construction industries arrange their own distribution to sites. As quantities are small, this may be by van or speedboat, and refrigeration of perishables can be by very simple expedients such as eskies. There are few large-scale distributors who aim for national coverage, and many of those are distributor/manufacturers (e.g. Indofoods with its subsidiary distributorship PT Indo Marco) or distributor/retailers (e.g. Matahari), or a combination of all three (e.g. Hero). While

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distribution and other activities may be handled by separate companies within or associated with the conglomerate, own products will take precedence over products from outside. However, where there is no competition these distributors will handle outside products. One distributor told us that imports are worth only some 10% of the goods distributed by manufacturers/distributors. It is therefore well worthwhile to check if one of these mixed-business distributors is interested in handling a particular Australian product. As part of the IMF package signed in January 1998, the Indonesian retail and distribution sector, hitherto closed to foreign equity investment, is to be opened up to foreign participation. Over the long-term this will speed up the process of modernising Indonesia’s distribution sector. However, during the current crisis, distributors and their customers will be primarily focused on cutting their costs rather than investing in their long-term viability. The following are the major independent foodstuff distributors with a national network: Tigaraksa (food and toiletries) Enseval (pharmaceuticals and food) Wicaksana (food and general goods) Intermas Tata Trading (Smart Corporation) (90% food, 10% general goods) Each of these has different strengths, and suppliers themselves have different needs. It is particularly important for Australian companies to check that large national distributors do not lose focus on their particular product(s) as a result of carrying too many brands. Australian companies interested in ensuring that their products are sold outside Java should also check that a potential distributor is not over-centralised, but allows its regional branch managers the autonomy to market their products energetically. Finding the right match will be a matter of investigation for the Australian supplier. The checklist to look for in an ideal distributor could include the following: • good reputation, supported by a successful track record, • extensive trade network, • efficient sales organisation, • ability to focus on your particular product, • efficient infrastructure, • efficient market information system, • long-term commitment to building the market for your product, • sound financial backup, • not also acting for your direct competitors. In addition, depending on the type of product, the logistics of cold chains are important: there are very few cold stores or refrigerated trucks in use in Kalimantan and Sulawesi and they are in any case mainly used for fish and shrimp exports. Some Chinese-owned supermarkets in Balikpapan and Pontianak also own cold stores in which they are sometimes willing to rent space. While distribution systems vary, Figures 1 to 3 show typical set-ups.

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Figure 1 Sole distribution

Manufacturer

Sole distributor Subdistributor

Wholesaler Supermarket

Retailers

Figure 2 Semi-direct distribution

Manufacturer Sales department

Direct (Java) Subdistributor (outer Java)

Figure 3 Multi-distributor system

Manufacturer Local distributor-region A Local distributor-region B E.T.C.

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3.5.2 Investment in retail and distribution Until 1997 foreign companies were not allowed to invest in retail and distribution through direct equity investment. However, investment through technical service agreements, licensing and franchising arrangements was allowed, and in this way major foreign retailers have long been present in Indonesia. In November 1997, the Indonesian government announced that, as part of quid pro quo for the IMF rescue package, it would loosen the restrictions on foreign operators in the retail and distribution sector. This will include allowing foreign companies to oversee their own sales network, which may ease a major problem for suppliers of consumer goods to Indonesia. By 2003, foreign investors will be allowed to sell their products to end-users throughout the country. Before then, they should also be able to control wholesale distribution through setting up their own local distribution networks, or by establishing branches of their home-based distribution systems in Indonesia. While at the time of writing the details of how exactly the Indonesian Government would liberalise foreign participation in the retail and distribution sectors were not clear, what is clear is that the restrictions will gradually ease and that this sector will provide opportunities for Australian retailers and distributors. One firm which has not been slow to realise this opportunity has been Cold Storage, the Singapore subsidiary of the Hong Kong based Dairy Farms company, which has acquired a 30% stake in the supermarket group Hero. Its stake includes management rights. A BKPM Regulation, released on 13 May 1998, allows: • foreign firms to establish joint ventures in the retailing/wholesale/distribution sectors

with up to 51% equity; • fully foreign-owned export companies to operate wholesale/distribution or retail

businesses as long as this does not affect their main business of exporting. All foreign joint venture companies in wholesale and retail will also have to demonstrate that they are large-scale. To do this, both wholesalers and retailers must have sufficient warehouse space and modern management. Additionally, retailers must have non-property capital of at least $US100,000 and use modern service marketing technology. Wholesalers/distributors must have adequate transport facilities. Any involvement in these sectors by foreign firms would also be subject to an Indonesian Government decree, issued in October last year, which requires large retailers, operating outside provincial cities, to act in partnership with traditional markets and local cooperatives. Sectoral liberalisation will provide opportunities for Australian firms that have specific expertise in distribution systems. In addition, there are a number of significant advantages for Australian firms manufacturing in Indonesia to become involved in the distribution sector: • manufacturers would have more effective control over promotion of their products; • it may allow companies to operate more efficiently, ultimately lowering the price of

goods; and

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• the level of damage to goods, quality of service could be controlled more effectively. 1

3.6 BIMP-EAGA The Brunei-Indonesia-Malaysia-Philippines East Asian Growth Area (BIMP-EAGA) officially covers all eight of the Indonesian provinces in Sulawesi and Kalimantan. (Initially it covered only East and West Kalimantan and North Sulawesi.) In practice, the awareness of BIMP-EAGA is very limited, except among a few officials. There appears to be no private sector impetus to develop business links with BIMP-EAGA neighbours except where this is developing organically. The abolition of the hefty fiskal, or departure tax, for Indonesians travelling from Kalimantan to other parts of Borneo has boosted travel between major cities in Kalimantan and Kuching and Brunei, both of which can be conveniently used to reach other international destinations. This has in turn boosted trade between, in particular, Pontianak and Kuching, aided by the existence of a good sealed road and cheap, frequent, good quality bus services between the two cities. Trade in agricultural products includes frozen fish and some horticulture from West Kalimantan. Over the long term, there may be opportunities to develop horticultural exports to East Malaysia from West Kalimantan. However, the province is still a net importer of horticultural products, despite the availability of suitable land. Horticulture is largely an activity of recent Madurese transmigrants, rather than a traditional smallholder activity. (The same is true of Balinese and Javanese transmigrants in South and Central Kalimantan.) In North Sulawesi there is some awareness of BIMP-EAGA, but more in terms of a business threat from the southern Philippines, perceived as a competitor in the tourism sector and a more competitive producer of coconuts and their by-products than North Sulawesi. There are also complaints that Filipino fishermen are poaching in North Sulawesi waters. (The greater devaluation of the rupiah in relation to the peso may make the Indonesian products more competitive in export markets.) There have been other reductions in the costs of doing business between BIMP-EAGA countries, such as reduced telecommunications costs, reduction in charges for Indonesian vessels entering ports in the Philippines and some deregulation in the fisheries sector. However, the economies of the BIMP-EAGA region are competitive in major commodities (coconuts, oil palm, rubber); in the case of the oil and mineral wealth of East Kalimantan, and the spices of North Sulawesi, the market is global; and in the case of small business such as food processing and light manufacturing, they are also competitive rather than complementary.

3.7 AIDA There appears to be more awareness of AIDA and its aims than of BIMP-EAGA, not only among officials but also among local chambers of commerce and business people. While AIDA aims squarely at developing the private sector as an engine of economic growth in Eastern Indonesia, it has the advantage of realism in recognising that Australian aid programs will also be necessary to provide impetus to the process. This is a plus that

1 Information from Department of Foreign Affairs and Trade Asialine, June 1998.

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BIMP-EAGA does not have. The aid component will be crucial in the period until the Indonesian economy revives. Australian agribusiness companies assessing the opportunities in Kalimantan and Sulawesi would be well advised to contact the Agriculture, Forestry and Fisheries Sub-committee (currently chaired by Mr Patrick Markwick Smith, Department of Asian Relations and Trade and Industry of the Northern Territory), as there is a range of programs for the agribusiness sector that may be accessed to facilitate private sector involvement in eastern Indonesia, including Kalimantan and Sulawesi.

3.8 Problems of centralisation Like most of Indonesia, the development of agribusiness in Kalimantan and Sulawesi is hampered by a high degree of centralisation: at the government level, planning and infrastructure investment decisions are made in Jakarta (with local input). There has been some loosening up to provide more autonomy for provincial development (e.g. the decentralisation of some decision making to port authorities within the BIMP-EAGA framework), but this is very limited still. In business, local bank branches are not able to approve loans above approx. $US100,000 (pre-crisis exchange rates), which means that access to capital for business development involves frequent and expensive trips to Jakarta bank head offices. Major investment applications are approved by the BKPM in Jakarta, and the local offices (the BKPMDs) frequently seem to be unaware of what investment proposals are being considered for their province. In agribusiness, smallholders dominate the production of commodities, but the marketing, processing and exporting of these commodities are carried out by large firms in Jakarta and Surabaya. As a result, most of the coffee produced in Toraja (South Sulawesi) is roasted and ground in Java, the cashews grown in Sulawesi are opened and roasted in Java, the maize grown in South Sulawesi is sold in high season for low prices to traders in Surabaya and re-imported for stockfeed in low season at high prices by Sulawesi poultry farmers. Cocoa grown in Sulawesi and elsewhere is exported unprocessed to Singapore traders or to Java. However, there are two successful examples of foreign investment in Ujung Pandang (Effem Foods, a subsidiary of Mars Foods, and Kong Guan, a Singapore biscuit maker) which process cocoa to powder and butter. Copra from Sulawesi is only to a limited extent processed to cooking oil in Sulawesi (indeed a number of mills have closed and the PT Bimoli mills in Manado are running at well below optimal capacity). Most copra is sent to Surabaya for processing. Agricultural inputs such as stockfeed and fertiliser are produced in Java, although some of the raw materials such as maize or fishmeal could be sourced from Kalimantan and Sulawesi. In some cases, agricultural commodities were subject to a marketing monopoly that effectively channelled profits away from producers in Kalimantan and Sulawesi into the pockets of politically well-connected companies in Jakarta. Cloves are perhaps the best known example of this practice, but it has also applied to the Pontianak citrus industry, the rotan industry in Sulawesi, and the plywood industry in Kalimantan. With the change in regime and nationwide demands for reform, including in business practices, there may be some thorough changes in these practices. However, the economic dominance by Java over the other islands, and its appropriation of their raw materials, is a long-standing tension-ridden issue that is not going to be resolved quickly. Regional inequalities are likely to persist for a long time. In fairness to the Suharto regime, some

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efforts were made through the special policies adopted to promote economic development of the eastern islands. President Habibie may well be more conscious of the needs of the outer islands, being himself a native of South Sulawesi and the person overseeing the eastern Indonesia development program under his predecessor.

3.9 Transport While transport infrastructure has improved significantly in the outer areas of Indonesia, companies should allow for delays when visiting these regions. Flights are often delayed and can be cancelled without warning. Without alternative transport, it is possible to be stuck for 48 hours until a flight is available. Commercial flights to the more remote parts of Sulawesi, such as Kendari, can be difficult to obtain (there is one flight daily, via Ujung Pandang in an F-28, which takes only 50 passengers, and even ticketed passengers are liable to find themselves unable to board). Air transport between cities in Kalimantan may involve travelling via Jakarta, which can be very time-consuming. Business travellers should allow extra time when planning travel to the region, as they will find it hard to maintain a tight schedule. One positive side of the transport problems arising in the more remote locations is that appointments are relatively easy to make even at short notice, and high level access is also not so difficult as in some other provinces. In September 1997 the Australian manager of Ellem foods in Ujung Pandang commented that he had found it easier than would have been the case in Java to solve problems such as access to water and power, the recruitment of labour etc, because of ready access to local senior officials. If exporting foodstuffs to the outer islands, Australian suppliers should take care to check that their agent or distributor can ensure that their product can be properly handled in the event that shipping or airfreight is subject to delays. One supermarket manager in Manado complained that imports were not very fresh by the time they got to the Manado store, and this may be a problem arising from transport time between Jakarta/Surabaya and the outer islands. Cool storage and refrigerated transport is generally not available in Sulawesi or Kalimantan, except for seafood. Some importers and supermarkets rent refrigerated containers to store perishables, but the cost is high, and there may be some attempt to cut costs in refrigerating perishables.

3.10 Speed of development While the level of economic activity in Sulawesi and Kalimantan is far from as high as in Java, a key point to emphasise is the pace of change. South Sulawesi, Ujung Pandang in particular, has grown very fast. There is a new industrial park (KIMA) outside Ujung Pandang, where Sulawesi’s highest level of light industry (including some agribusiness) is concentrated; the airport will be upgraded with French aid money; a toll road is being built around the city; new hotels and a new port have appeared; new shopping malls and supermarket outlets have been built. This has all happened since the mid-1990’s. Hasanuddin University, the largest university in Eastern Indonesia, has a new campus just outside Ujung Pandang. Small business and construction have mushroomed all over the city, especially in the outskirts. Tourism, destined for the Tana Toraja region and the diving sites not far from Ujung Pandang, is supporting a number of new 4-star hotels in the waterfront area of the city. Ujung Pandang is the gateway between Java and Eastern Indonesia, and its strategic location will grow in importance once Eastern Indonesia regains impetus.

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Manado, in North Sulawesi, is also developing, but not as fast as Ujung Pandang. A new international airport is under construction there, and new hotels and shopping outlets are also appearing. Tourism, in particular diving and other marine activities, is developing, although it is not mass tourism by any means. The port of Bitung, 45-minutes drive from Manado on the southern side of the Minahasa Peninsula, is being developed as the premier port for Eastern Indonesia. The Trans-Sulawesi highway from Ujung Pandang to Manado is now complete. However, North Sulawesi being a very spread out province, road connections off the Trans-Sulawesi highway are slow. The pace of change is much slower in Central and South-east Sulawesi, but there is new building going on in their respective capitals, Palu and Kendari. There is a new port just north of Palu, and new government buildings in both towns. The investment in both towns appears to be dominated by government, rather than the private sector. There are no shopping malls yet, and purchasing power is clearly not as strong as in South and North Sulawesi. With small populations and more isolated locations, Central and South-east Sulawesi can be expected to lag behind the other provinces for some time. In Kalimantan, Balikpapan is the most dynamic city (supported by East Kalimantan’s huge oil, gas and mineral resources), followed by Pontianak, capital of West Kalimantan. Pontianak has a large Chinese community with its own business networks across South-east Asia, and it is oriented more to trading with eastern Malaysia than with other parts of Kalimantan. In February 1998, there was a large well-stocked Hero outlet in a new mall in Balikpapan and three Chinese owned local supermarkets also stocking imports. Pontianak has local Chinese-owned supermarkets, but no Java-based outlets, and no malls although a site in Central Pontianak had been cleared for construction of a mall. Matahari was rumoured to be opening there. Banjarmasin, capital of South Kalimantan, is a timber town and river trading port, with strong connections to Java. Hero has a store in Banjarmasin (recently reopened after it was burned out in riots in May 1997), and a local Chinese family owns two supermarkets in the city. They all stock imports, including some fresh fruit. In February 1998, Hero carried a range of well-trimmed lean beef, including imported and locally fattened Australian beef. Palangka Raya, in Central Kalimantan, is a pleasant but sleepy government town, well laid out and attractive, but with very small and locally owned food outlets, with imports limited to a few dry goods.

3.11 Retailing: partnerships with supermarkets As noted in the section on distribution, the retail sector may change quite fast following the announcement in November 1997 of liberalisation of foreign participation in this sector. While the opportunities to export Australian foodstuffs to the Indonesian market have shrunk severely as a result of the collapse of the rupiah, the long-term opportunities are likely to be in providing the technology and services, and the managerial skills that are needed to upgrade supermarket management in Indonesia. This was a point made in an earlier report (Agribusiness Opportunities in Sumatra and East Java, RIRDC, 1996), and which holds true even more after the 1997/98 currency crisis.

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While there has indeed been a rapid growth in Indonesian consumer expenditure over the past ten years, the growth in food outlets to serve those middle-to-high income groups has been even faster. The market has been able to absorb this explosion of retail outlets simply because the base from which it has grown has been so low. However, those supermarkets which survive the crisis will have to compete among themselves for the consumer dollar, particularly in Jakarta and other major cities. The currency crisis and the economic downturn will hasten the development of such competition, as will the possible arrival of foreign retailers, who may have more control in their Indonesian operations than they have been able to have under the earlier more restrictive rules for participation in the retail sector. Indonesian supermarkets, particularly the smaller non-national chains, are not all run according to the most modern principles. Their handling of perishables leaves something to be desired, cleanliness can be approximate, the layout and lighting are often unattractive, the queues at checkouts are long, the staff are willing but untrained, and the inventory management is not always computerised. There will be opportunities for Australian companies to provide training and other services that will make supermarkets more efficient and competitive.

At present, these should be seen as long-term opportunities, as supermarkets are struggling to survive and do so by cutting costs and squeezing suppliers. They are not in a position to invest for the future to be more cost-effective or to provide a better service.

Of the two largest national chains, Hero and Matahari, the former has no presence in Sulawesi, although Hero was understood to be coming into Ujung Pandang in 1998. Hero has one store each in Balikpapan and Banjarmasin in Kalimantan. Matahari is expanding very aggressively throughout the country, with three stores having opened in eastern Indonesia since 1995 (Ujung Pandang, Manado, Ambon). Openings were planned in Kalimantan for 1998. Matahari is teaching English to its Manado staff, to cater to the tourist market, is looking to upgrade its staff skills, and will have the financial capacity to do so. As well as its new relationship with Cold Storage mentioned earlier, Hero also has a link-up with the Australian company Davids Holdings, which is providing warehousing and distribution services. Davids is also providing supermarket training to companies outside the Hero stable, and could well be a vehicle through which Australian companies and TAFEs could provide training. The Singapore based Cold Storage group, which bought 30% of the Hero supermarket chain, may be one entrée to provide such services. Another supermarket manager (GORO, in Ujung Pandang) was about to undertake training in retail management in Singapore: this type of training can be provided by Australian companies, particularly if training is done in-country to limit the foreign currency cost of training. GORO has experience with Australian executives in their fresh foods division in Jakarta, and the company could well be amenable to approaches by Australian companies to provide the training and other services that will help this relative newcomer to the food retail scene to compete.

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3.12 Catering to the mining industry Most caterers to the mining and associated construction industry are based in Balikpapan, East Kalimantan. The minesite workforce in Kalimantan in February 1998 was 12,000, half of which is supplied by one caterer (PT Prasmanindo Boga Utama). The workforce they supply is roughly 96% local and the rest are expatriates. The mining and construction workforce in Sulawesi is smaller, estimated at some 7000 by one caterer, and involves mainly nickel and gold mining in North and South Sulawesi. A very large gold mine, which will employ 10,000 people in the construction phase, is also being developed in Sumbawa Island (outside the scope of this study). Caterers provide all the food and cooking staff, as well as arranging for food to get to the sites. Transport systems vary, depending on the size and location of the site; in Kalimantan and Sulawesi, there are a few large sites, but most are small and are supplied by river or road. (The huge Freeport mine in Irian Jaya has elaborate long-term catering arrangements, but is outside the scope of this study). No catering company has been allowed to have its own import license, and caterers must therefore buy from importers via wholesalers or from large distributors. Suppliers from Australia wanting to supply the catering companies thus cannot deal directly with the caterers. The importers are mostly Chinese and operate through their own channels, which allows customs duty to have less impact on the end prices that caterers pay. Some of the large caterers have their own cold store in Balikpapan. Given the limited number of expatriates on minesites, and the increasingly good quality of Indonesian dry goods, caterers have for some years been using more locally produced foods. For instance, 85% of the beef used by the caterers in the early 1990s when it was competitively priced was Australian. Now Australian beef costs two to three times more than Indonesian beef and caterers in Balikpapan use frozen Toraja beef flown in from Ujung Pandang. The scope for Australian suppliers to target the minesite catering market is very limited, given that caterers do not have direct dealings with foreign suppliers and that local foodstuffs predominate.

3.13 Agribusiness opportunities in Kalimantan There are very few immediate opportunities for Australian agribusiness in Kalimantan. The main constraints to the development of agribusinesses in the area are: - • virtually no excess produce from the area other than for estate or plantation crops; • very small local market and small population centres; • very long distances to other markets, with river/sea transportation as the major means of

transport; and • difficult peat soils with the associated acid sulphate problems or relatively infertile

podsolic soils. Nevertheless, there are opportunities for agribusiness development in the long term, particularly for those prepared to invest in perennial crops suited to the area. Areas for mangosteens, bananas and, rambutans have been identified for potential investors. Investors are also being actively sought for the development of 300,000 hectares set aside for rice cultivation in West Kalimantan.

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There is also the potential for equipment manufacturers to enter Kalimantan, particularly those able to supply nursery equipment, misters and spray irrigation for new palm oil plantations. Plantation operators would prefer to source out of Australia rather than Singapore because of Australian after-sales and support services. However, plantation managers know little about Australian products and need both information and personal contacts. One way for Australian companies to get information to managers is to register their details in the handbooks produced by American equipment suppliers. As mentioned in more detail in the section relating to Sulawesi, there is the potential to produce coir fibre, activated charcoal and desiccated coconut from the coconut production in the province. The provincial poultry industry has been decimated with the currency devaluation and the resulting high cost of imported feed. The potential remains for investment in establishing a local feed mill using Indonesian-produced raw material supplemented by imported soy products to service the broiler industry in the area. Some corn is grown locally and, as palm oil production increases, oil seed cake could also be used. Fish meal could also be produced locally, although given small boats and erratic catches, consistent supplies of raw material would be a problem. There are also a number of potential commercial options in the timber-processing sector in Kalimantan. Many hundreds of thousands of cubic metres of wood waste is produced annually from saw milling operations in the area and could be used for dowelling, mouldings and similar small-diameter products. Similarly, hundreds of thousands of old rubber trees are cut down and replaced every year. Furniture from these trees is sought after in Japan because of its very light colour and fine texture, and furniture-making is a very large industry in Malaysia. Some 5,000 hectares have been reserved for a pineapple plantation near Palangka Raya in Central Kalimantan for investors wanting to establish the crop and an associated processing facility. Similarly, land has been reserved for investors wanting to establish tapioca and banana plantations near Palangka Raya. Some 430,000 hectares have been set aside for palm oil, cocoa and pepper estates. With the current buoyant world prices for cocoa and pepper, these could present some opportunities, despite transport difficulties.

3.14 Agribusiness opportunities in Sulawesi While Kalimantan has been treated as a single unit in the preceding section, Sulawesi is more diverse as far as agribusiness potential is concerned. Each of its four provinces has therefore been treated separately. 3.14.1 South Sulawesi Undulating foothills and relatively good soils make the province ideal for horticultural production. Access to the markets in Kalimantan, especially the oil, mining and logging supply city of Balikpapan, as well as to other areas in Sulawesi itself, make the location attractive. Local investors are already establishing areas for supplying these markets. Dehydrated vegetables are a major component in the ubiquitous instant noodles, but manufacturers of noodles have difficulty in securing consistent, reliable supplies of dehydrated vegetables. An agribusiness based upon onion and garlic could be established in the area and supply the ever-growing world demand for such products.

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Mango, guava and custard apple grown in the Jeneponto area are of very good quality and could be processed for juice and supplement the established passionfruit industry in the province. There are a number of factories in Ujung Pandang producing passionfruit juice. There is a very large passionfruit factory some 90 kilometres west of Ujung Pandang at Malino. The plant is very modern and uses aseptic packing methods, but has never operated at installed capacity due to raw material supply problems (a very common problem throughout Indonesia). Small-scale operators using low-cost simple extraction technology continue to expand their production. The majority of the fruit is sold as single-strength juice with the preservative Sodium Benzoate added. As of September 1997, frozen passionfruit pulp was being exported to Australia from Ujung Pandang. Many operators are anxious to make contact with Australian companies with expertise in passionfruit production, processing, and marketing to form joint ventures. High-quality Arabica Coffee is an important domestic and international industry in the area. Already a number of Japanese companies have established plantations and processing and roasting facilities. Domestic companies are increasingly sophisticated in developing distinctive regional branding and attractive packaging of their coffee for the export and tourist markets. There is potential for Australian companies to enter this area of agribusiness. Cashew nuts are becoming a very important industry in the area. Nuts are brought from the other provinces for simple processing. (Any processing beyond roasting and opening is done outside Sulawesi.) There are currently four factories in the area. These factories are not working at capacity so there is little potential for Australian enterprises to enter the market at the present time. Candle nut is a crop that is not very well known or used outside Indonesia, but no Indonesian kitchen would be without it. Nationally, approximately 170,000 tonnes of the nut is used annually as a condiment. There is a possibility to introduce candle nuts for Australia and other parts of the western world where there is a market for Asian foods. The potential to establish a feed milling operation for the livestock industry remains very good. At the present time corn is sent to the Surabaya feed mills on Java only to be returned to Ujung Pandang as a component of a composite feed. A number of companies are involved in the feed milling operations in the country but none in Sulawesi; nevertheless the potential remains for expansion into Ujung Pandang and other part of Sulawesi. Cattle and goat numbers in the province are large and will increase over the next few years as the government development programs target the area. Ranching cattle has been tried for many years in the area but has failed due to a combination of poor feed, inadequate management and problems with land titling. Nevertheless, with the large amounts of corn grown in the area, and the by-products from the local wheat milling operation, there is long-term potential for establishing a feed lotting operation with Australian know-how to supply

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beef once the middle class market returns, not only in the province, but to Jakarta and nearby Kalimantan markets.

3.14.2 Central Sulawesi There are very few immediate opportunities for Australian agribusiness in the province. The main constraints to the development of agribusiness are: • very small quantities of excess produce from the area; • very small local market and low purchasing power; • long distances to other markets; and • limited tourism and mining activity, therefore no demand for western style

supermarkets or products. The sea fishing industry probably holds the greatest underdeveloped potential for the area. Central Sulawesi is the largest province in Sulawesi and has three ‘arms’ entering the Gulf of Tolmini, the Gulf of Bone, and the Makassar Strait. However, it is unlikely that a fish canning industry can be developed, given the competition from the more developed port of Bitung in North Sulawesi and the investment already made there in the canning industry, much of which remains idle. The frozen fish industry, for both the domestic and Japanese markets remains attractive but the initial investment and access to these markets remain difficult. Shrimp farming remains a very attractive commercial proposition. There are numerous good locations for constructing ponds in the area. However, the operation would have to establish its own breeding and stocking system to be commercially viable. Both large-scale and smallholder shrimp farming suffer from uncontrolled disease and pollution, as well as poaching, which pose management problems for this otherwise potentially attractive industry. The foothills in Central Sulawesi and the relatively good soils make the province ideal for horticultural production. Access to the markets in Kalimantan, especially the oil and mining supply city of Balikpapan, make the location attractive. There is regular shipping from Palu to Balikpapan. Already local investors are establishing areas to supply Balikpapan with vegetables. Although very demanding, the Japanese and US markets for brined cucumbers and gherkins remain insatiable. The Palu valley is well suited to producing these crops. Mango, guava and custard apple grown in the Palu valley are of very good quality and could be processed for juice. Similarly, passionfruit is well suited to the foothills in the province: production for export or to supplement the South Sulawesi industry that exports to Australia could warrant further investigation. New varieties of lowland grapes are available in the area. Sun-dried raisins and sultanas could be the basis of a new industry. However, the grape growers have recently experienced difficulty with a rust problem and as a result the price of locally produced grapes was higher than imported ones (September 1997).

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There is also the potential to develop coconut products from the area. Copra is still the largest agricultural product exported from Central Sulawesi, mainly from the port of Donggala. Small quantities of coconut oil are still produced locally, but some facilities have closed, due to erratic raw materials supplies, and pressure on prices from competition from palm oil. The potential for establishing an industry based on the use of coir and the coir dust is enticing, as the collection of the raw material from the Palu valley would be relatively easy. Similarly the production of activated charcoal from the shell of the coconuts is under-utilised and could be the basis of an industry for the area. There is the potential to produce desiccated coconut for both the baking and confectionery industry. As many of the coconut palms are very old and losing productivity, there is also potential for furniture making from the wood, which is an attractive hardwood. High quality arabica coffee and green tea have the potential to become an important domestic and international industry in the area. The diversified agribusiness company Hasfarm has already established plantations and processing facilities for these two commodities, and is promoting it as a regional speciality, rather than as generic coffee and tea. Similarly cashew nut, although a relatively new crop in the area, has the potential to become of substantial economic importance. It is likely the unopened nuts will be shipped for the foreseeable future direct to Java or to South Sulawesi for opening. As for South Sulawesi, livestock numbers in the area, especially cattle and goats, are large and will increase over the next few years as government development programs target the area. With large amounts of corn growing in the area, there is the potential for establishing a feed lotting operation with Australian know-how to supply the demand from Kalimantan and other areas of Indonesia. However, the major market will remain Jakarta, and the freight costs for live cattle between Central Sulawesi and Jakarta remain a disincentive. 3.14.3 North Sulawesi The fish canning industry at the port of Bitung appears to hold huge potential. Four factories have been established, but only two of these are now operating, at well below installed capacity. Obtaining a regular supply of good quality fish is the major constraint and it is unlikely that any Australian company could successfully enter this market at the present time. However, the situation may warrant close watching by any company involved in the fishing industry, as deregulation and the development of better facilities continues. The frozen fish industry, especially for the Japanese market, is very active and still holds some potential for investors or joint partnerships. The economic crisis means that equity in local fishing companies could be obtained at unprecedentedly low prices, although the viability of local businesses, and their debt levels, would be a concern no matter what the price. The mountainous topography and the fertile soils make the province ideal for horticultural production. However, commercially viable large plots of land in the production centres are not available, and the distance to both the domestic and international markets make investment in horticultural production unattractive. With the exception of copra, maize and chillies, the quantities of agricultural products grown in the area are very small and are insufficient to promote or establish new agribusinesses.

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There is the potential to develop coconut products from the area. Copra is the largest product exported from the area. Coconut oil is still produced locally in the area by the Bimoli company, although two local companies have closed their oil milling operations. There is potential for establishing an industry based on the use of coir and coir dust, activated charcoal and desiccated coconut. Coconut by-products potential is currently attracting interest from a number of local businessmen. There were rumours in September 1997 that a Swiss-Italian group was planning a large investment in by-products from coconuts. As in other provinces of Sulawesi, livestock numbers may increase over the next few years with the government development programs targeting the area. With large amounts of corn growing in the area, the potential remains for a feedlotting operation with Australian expertise. However, the constraints of distant markets and the need to ship live cattle still remain. 3.14.4 South-east Sulawesi South-east Sulawesi shares the same limitations as Central Sulawesi, viz. very small population with low purchasing power, limited tourism and mining, and limited local production. Transport of produce from South-east Sulawesi is more difficult than from Central Sulawesi, as all produce must go by at least two ferries to reach Java, and there is no transport to other islands apart from very small ferry services to islands further east. Over the long term, there may be opportunities in cattle raising. Balinese cattle are being bred and fattened for the local market by smallholders and the government is promoting investment in the south-western part of the province (near Kolaka, which has a direct ferry to South Sulawesi). Cashew nuts, as in the rest of the island, are a new industry and may present some opportunity, given the very suitable climate. Marine fishing and aquaculture present large opportunities, but will require huge investments. The seas around South-east Sulawesi are under-exploited and there is scope for further development of the potential, but this would need additional investment in infrastructure, such as port facilities and processing plants. At present there is one large Jakarta-based group undertaking marine fishing, which has ice-making and some simple processing facilities in a part of Kendari’s port. There is no major investment in shrimp- or fish-farming. Cocoa has become an important export income for the province, but the beans are sent to Ujung Pandang and on to Java for processing, as there are no facilities in South-east Sulawesi. Hasfarm, the Jakarta-based agribusiness company, is planting cocoa in the province, but plans no value-adding investment.

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3.15 Special investment for Eastern Indonesia The Indonesian Government has set in place measures to encourage investment in Eastern Indonesia (including Kalimantan and Sulawesi). Presidential decree no. 89\1996 provides for: • imports of capital goods and other equipment needed for production are free of value-

added tax and luxury sales tax; • taxable items may be transferred for further processing into an integrated Economic

Development Zone from outside, free of value-added tax and luxury sales tax; • taxable items may be transferred for further processing between companies located

within the same or different Integrated Economic Development Zones free of value-added tax and luxury sales tax;

• taxable items may be transferred for further processing between companies located within an Integrated Economic Development Zone and companies in a Bonded Zone free of value-added tax and luxury sales tax; or may be transferred for further processing between companies located in an Integrated Economic Development Zone and companies in different Customs Office District, free of value-added tax or luxury sales tax, if the items thus processed return to the integrated Economic Development Zone;

• imports of capital goods and other equipment directly connected with production are free of Article 22 income tax;

• accelerated depreciation and amortisation for income tax purposes; • losses can be carried forward up to 10 years; • reduction of Article 26 income tax on dividends of 50% of the amount assessed.

Payment in kind to employees is acknowledged as a production expense rather than as employee income. The costs incurred in developing the vicinity for public good are also acknowledged as a production expense;

• licensing facilities. There are no IEDl’s or Bonded Zones in Sulawesi or Kalimantan. Businesses to whom the authors spoke did not feel that they had benefited from any of these special incentives, although the broad benefits of intensified expenditure on infrastructure were seen as a very important plus. Centralisation of both business activity and political power in Java (referred to elsewhere in this report) means that investment incentives can do little to address the deep regional imbalances that exist in Indonesia.

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Map 2 Kalimantan (not available electronically – contact RIRDC to obtain a copy)

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Annex 1: Kalimantan Introduction Borneo is the third largest island in the world after Greenland and New Guinea. The Indonesian part of Borneo is known as Kalimantan and covers 539,460 square kilometres, or roughly two thirds the size of New South Wales. Kalimantan has the last large remaining area of tropical rain forest in Indonesia. The island is traversed by several massive river systems, including the Mahakam, which flows to the east, the Kapuas, which flows to the west, and the Barito flowing to the south. Despite making up 30% of the total landmass of Indonesia, Kalimantan is home to only 5% of its population, or around 9 million. There are four provinces: East, South, Central and West Kalimantan. The indigenous people of Kalimantan are known as Dayaks and were once famed for their long houses and head hunting activities. They still maintain many of their cultural activities and a distinctive dress, tattooing and extending the ear lobes of the women. The elegant spidery decoration on house roofs and clothing is very distinctive to the Dayak people.

1. West Kalimantan 1.1 Introduction West Kalimantan is one of the largest provinces in Indonesia with an area of 146,807 square kilometres. Most of the 5 million inhabitants are settled in and around the Kapuas river basin, which comprises the greater part of the province. The capital city of Pontianak was of strategic importance during the Dutch time. In the 19thcentury, the city was reinforced and supplied by the Dutch to prevent any English expansion. At the beginning of the 18th century, gold was discovered, which brought thousands of Hakka Chinese to the area. The Chinese also established tin mining on the island of Bangka but when the tin was exhausted they moved to Pontianak. The city has the highest concentration of ethnic Chinese in all of Indonesia, making up 10–15% of the population. As a result, the province’s business links and access to capital across South East Asia are stronger than those of the other three provinces of Kalimantan. 1.2 Infrastructure The province’s thousands of rivers are still used as the main method of communication and transportation. River transport can be problematic during the dry season. There are all-weather roads throughout the province but maintenance and expansion of the network is difficult because of the terrain and climate. A Trans Kalimantan road link is under construction. There is a good road to Kuching, the capital city of Malaysian province of Sarawak, and numerous buses and trucks make the 6-hour journey daily. Trade between West Kalimantan and Sarawak has expanded considerably since the road was built.

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The province has 6 ports. Only three (Ketapang, Teluk Air and Pontianak) are classified as ocean harbours. The other three harbours are classified as domestic harbours and are at Sambas, Sintete and Singkawang. There is direct shipping to Kuching and Singapore, as well as other Indonesian ports. The main port of Pontianak is 2–3 kilometres from the sea on the Kapuas River. While it is the busiest port, it is thought that it will soon no longer serve the needs of the province and a new sea port at Teluk Air is being developed, less than one hour’s drive south of Pontianak. The airport of Supadio at Pontianak has international status, with daily flights to Singapore, but cargo space is limited and is used mainly for seafood exports. The airport can accommodate Boeing 737 aircraft. There are no cool storage facilities at the port or airport; however, private companies maintain their own cool room facilities. Continuous electrical power is a major concern for development of industry in West Kalimantan.

TRANSPORT TIMES Pontianak to Jakarta

By air 1 hour 20 minutes

Pontianak to Singapore

By air 50 minutes

Pontianak to Kuching

By road Executive 20-seat buses cost $10 for the 7-hour trip

Pontianak to Banjarmasin By air 1 hour 15 minutes

Pontianak to Jakarta By sea 30 hours

1.3 Agricultural Production Agriculture (both for plantation and food crops) does not have a dominant role in the provincial economy compared to the mining and timber industries. The main food crops grown in the area are rice, corn, cassava, peanuts, soybeans, and cowpeas. The main plantation crops are rubber, coconuts, palm oil and pepper. West Kalimantan’s horticultural products are almost entirely grown for the local market. The main fruit grown in the area are bananas, rambutan, durian, avocado and particularly mandarins. Pontianak mandarins were famous throughout the country, but production has declined by 75% since the mid-1980’s, due to disease and cartel marketing that disadvantaged growers. Poultry feed costs are high because all stockfeed has to be brought into the province. The broiler industry has virtually ceased to operate due to the currency crisis and the cost of imported stockfeeds, which have gone from 900 rp/kg to more than 2,700 rp/kg (February1998). There are no feedmills anywhere in Kalimantan, and feed is brought from Java.

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MAJOR AGRICULTURAL CROPS Crop

Area ( ha) Production (tonnes)

Rice

341,104 838,863

Maize

25,003 37,307

Cassava

21,064 198,369

Soya Beans

6,906 7,115

Mungbeans

877 563

Peanuts

2,472 2,235

Source: West Kalimantan in figures 1996

MAJOR VEGETABLE CROPS Crop Area (ha) Production

(Tonnes) Sweet potatoes

2,268

16,907

Cucumber

3,282

12,401

Long beans

3,053

12,839

Water spinach

1,575

6,554

Tomato

245

780

Eggplant

1,318

3,659

Chilli

1,790

3,946

Spinach

2,409

5,517


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MAJOR FRUIT CROPS Crop

Number of trees/plants

Production (tonnes)

Comments

Pineapple

1,342,502 3,189

Mango 22,684 506

Duku/Langsat 170,343 7,786

Durian 230,392 13,131

Mandarin 3,916,635 133,577 Only some 5,000 ha remain from a previous total of more than 20,000 ha planted

Papaya 152,157 2,108

Salak 118,381 1,349

Banana 970,867 15,139

Rambutan 186,545 5,003

Nangka 103,571 3,989

Sapodilla 704

Guava 1,57


MAJOR PLANTATION CROPS

Crop

Number of trees/plants

Production (tonnes)

Comments

Rubber

443,408 179,677

Coconuts 91,271 41,526

Palm oil 204,218 282,469 Most foreign investment in agribusiness has been in palm oil

Coffee 9,990 3,902

Cocoa 2,486 0 Immature plantings

Pepper 5,865 2,203 Buoyant world prices during 1998 are a bright spot in the current difficult situation.


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LIVESTOCK Animal

Animal numbers

Production slaughtered

(tonnes)

Comments

Milk cows 55

Cattle 154,130 32,230 14,000 head are imported annually from East Java for slaughter

Buffalo 7,315 n.a.

Horses -

Goats 105,477 42,190

Sheep 70 0

Pigs 616,921 94,022 Previous year 130,000 head slaughtered. The high proportion of Chinese in Pontianak means that pig production is important. Production has declined due to disease problems.

Village chickens 4,672,500 7,010,780

Layers 1,782,000 n.a. Slaughtered birds included in broiler numbers.

Broilers 12,623,100 11,991,900 Numbers are expected to decline due to high feed prices.

Ducks 368,600 195,370


FISHERIES SUB-SECTOR Type of fishery

Tonnes

Marine fisheries 64,901

Open water 21,988

Brackish water n.a.

Freshwater ponds 1,411

Cages n.a.

Paddy field fish n.a.


34

1.4 Current and potential agribusiness development While investment capital is generally a severe constraint for business development in Sulawesi and Kalimantan, the strong Chinese community in Pontianak is able to use its networks throughout the region to gain access to investment capital. The growth in links between West Kalimantan and Kuching (and, down the track, Brunei) may mean that there is long-term potential for West Kalimantan to supply fresh goods to East Malaysia and Brunei. Dried and frozen fish are already being exported to Kuching. There are only 158 registered food processors operating in the province. – A state owned PTP company operates rubber plantations in the province, with some

smallholders also using the processing facilities. – There have been pineapple and fish canning operations in the province but these

closed down ten years ago due to the lack of raw materials. – A high tech day-old-chick broiler operation has been established with investment

from Thailand (Charoen Pokphand Group) and produces 200,000 day-old-chicks per month for the provincial market. However, this operation is also under threat given the price rises for feed.

– Investment from Malaysia in the oil palm industry is continuing. Some 50,000 hectares have been planted and 480,000 hectares have been reserved for additional oil palm plantings.

– Investment is being made in industrial tree plantations for paper and pulp. – Some effort is being made to revive the mandarin industry. Formerly there were

20,000 hectares under cultivation but due to disease and the introduction of a controlled marketing board only 5,000 hectares remain. Provincial officials and businessmen appear unaware of developments in the world citrus industry and cultivation technology.

– A Korean-owned plant is producing activated charcoal from coconut husks. – A recent investment has been made to produce Aloe Vera as a drink. 1.5 Agroindustry - processing Rice milling and polishing Rice flour production Rice wheat egg noodles Tapioca products Soybean products, soy sauce, tahu, tempe Snack food production from corn, cassava Prawn/fish crackers Coconut oil extraction Coffee processing (Robusta) Rubber Pepper Soft drinks Freshwater fish/shrimp ponds

35

1.6 Agricultural imports Fresh fruit and vegetables All forms of food products Poultry feed All packaging material 1.7 Agribusiness exports Plywood Wood mouldings Crumb and RSS rubber Frozen shrimp Frozen fish Pepper (white and black) Copra Crude palm oil (CPO)

2. East Kalimantan 2.1 Introduction East Kalimantan covers an area of 211,440 square kilometres. Approximately 80% of the province are still covered by tropical rain forest. The province is one of the most sparsely populated of the country, with a total population of just over 2 million. The province has very large oil and natural gas reserves and gold, coal and iron mines. Sand, kaolin, quartz and phosphate are also mined. East Kalimantan is arguably the richest province in Indonesia. The capital of the province is the river town of Samarinda, is situated on the massive Mahakam River, where the river is more than half a kilometre wide and some 100 metres deep. Samarinda is some 45 kilometres from the sea and difficult to reach. It is very much smaller than the centre of commerce for the province, Balikpapan. Balikpapan is a very busy oil town with a population of approximately 500,000. The newly constructed airport is of international size and standard and has a dazzling array of jets and helicopters continuously landing and taking off. The airport is some 7 kilometres from the main city of Balikpapan and is connected by a very good all-weather sealed road. Balikpapan has a number of 5 star hotels and a foreign population said to be more than 1,500. Balikpapan is also the service centre for the oil and mining industry throughout Kalimantan. Caterers to Indonesian mining and associated construction industry tend to be based in Balikpapan, from where they service sites all over the country. 2.2 Infrastructure There are many rivers in the area. This dissected topography makes inland travel difficult and thus access to markets and the movement of produce from the outlying areas exceedingly difficult, especially in the dry season. There is a good coastal road system but it does not extend the length of the province.

36

The ports of Balikpapan and Samarinda are the most important harbours for the province. Balikpapan has container facilities and is the main supply point for foreign companies working in the mining and oil and gas sector. A new international airport at Balikpapan has been recently constructed and currently there are daily flights to Singapore and Brunei, as well as good connections to Jakarta and other domestic airports. Cargo space is limited and is used mainly for seafood exports. There are no cool-storage facilities at the port or airport of Balikpapan. Some supermarkets and caterers to the mining industry have their own cool-storage facilities. The caterers arrange their own distribution to mine sites.

TRANSPORT TIMES Balikpapan to Jakarta


Balikpapan to Banjarmasin

By air 45 minutes

Balikpapan to Pontianak


Balikpapan to Banjarmasin

By road 10 hours

Balikpapan to Samarinda

By road 4 hours

2.3 Agricultural production The province has large tracts of peat soils, and tidal swamp areas that may be cultivated in the future. There are areas of cleared land, undulating on the eastern side of the mountains that could be brought under cultivation. The main food crops grown in the area are rice, peanuts, soybeans and corn. Very few vegetables are grown and most are imported from Java. The main fruit grown in the area are bananas, rambutan, durian and oranges. Most fruit is imported from other islands. The main plantation crops are coffee, sugar, rubber, pepper, cocoa and palm oil. Some canning plants have been tried and have failed, due to the lack of a consistent and continuous supply of raw materials. The local broiler industry has virtually ceased to operate, due to the currency crisis and the tripling of feed costs. The province is not self sufficient in food production, as the following table indicates.

37

Commodity

Provincial deficit (tonnes)

Mandarin

2,733

Rambutan

46,960

Papaya

12,501

Banana

119,845

Beans

44,869

Leafy vegetables

40,020

Water spinach

32,233

Beef

13,393

Chicken meat

33,679

Eggs

94,758 **

Fish

6,154

Coffee

7,436

(Note**The figure for eggs above is quoted as tonnes but seems very high and may be the number of eggs rather than a tonnage figure. The figure has come direct from the source.) Source: Plan for the Development of Agribusiness, from a base line study and SWOT analysis from the City of Balikpapan, 1996.

MAJOR AGRICULTURAL CROPS Crop


Rice

159,461 413,124

Maize

6,434 20,474

Cassava

9,305 119,088

Soybeans

4,046 4,357

Peanuts

3,351 3,161

Source: East Kalimantan in figures 1996

38

MAJOR VEGETABLE CROPS

Crop Area (ha) Production (tonnes)

Sweet potatoes

3,456 29,604

Cucumber

1,387 14,149

Beans

1,128 12,528

Water spinach

1,271 8,009

Tomato

818 5,505

Eggplant

1,187 6,882

Chilli

1,594 7,504



Area (ha) Production (tonnes)

Avocado

n.a. 139

Mango n.a. 639

Duku/Langsat n.a. 2,029

Durian n.a. 7,541

Mandarin n.a. 11,853

Papaya n.a. 5,250

Salak n.a. 206

Pineapple n.a. 1,255

Rambutan n.a. 6,130

Banana n.a. 26,427

Sapodilla n.a. 1,289

Rose apple n.a. 1,674


39

MAJOR PLANTATION CROPS Crop


Comments

Rubber

48,664 76,106

Coconuts 65,864 48,335

Palm oil 58,444 --- New plantations not yet producing

Coffee 15,491 2,752

Cocoa 36,194 125

Clove 486 20

Pepper 12,507 3,847

Source: East Kalimantan in figures1996

LIVESTOCK Animal

Animal number


(tonnes)

Comments

Milk cows 0 n.a.

Cattle 82,558 25,481 24,891 head imported for slaughter

Buffalo 23,349 840 882 head imported for slaughter

Horses 2,251 n.a.

Goats 82,052 212 14,137 imported for slaughter

Sheep 2,657 n.a.

Pigs 114,335 2,190

Village chickens 4,139,400 n.a.

Layers 646,400 n.a.

Broilers 19,726,200 n.a. 1,353,000 imported for slaughter

Ducks 318,2000 n.a.


40


Production (tonnes)


Open water 35,238

Brackish water 7,241

Freshwater ponds 147

Cages 3,587

Paddy field fish 50


2.4 Current and potential agribusiness development There are approximately 54,000 registered small food and beverage processors operating in the province. – Agribusiness growth has been around 2 % per annum for the last 5 years. – Investment in rubber plantations in the area has been linked with smallholders

preparing Ribbed Smoked Sheet (RSS). Production is exported to Surabaya. – Large blocks of land (anything up to 1,000 ha) are unavailable for horticultural

production. The land ownership system and traditional land use systems are complex. Available land is either flooded during the wet season or is of very poor quality. – Investment in the cocoa industry has proved very profitable and is expanding. – Further investment is being considered for cane sugar and tapioca processing. – Old investments in coconut oil processing are now under threat with the expansion of

more competitive oil palm industry in the province. – A planned cattle feed lot facility using imported Australian cattle was suspended in late

1997, due to the rupiah currency crisis. – New investment in the oil palm industry has been expanding over the past few years. 2.5 Agroindustry - processing Rice milling and polishing Rice flour production Rice wheat egg noodles Tapioca products Soybean products, soy sauce, tahu, tempe Snack food production from corn, cassava Prawn/fish crackers Crumb and rubber sheet Coconut oil extraction/refinery Coffee processing (high quality Robusta) Cocoa Palm oil (CPO) Candle nut processing Sugar refining Cigarettes

41

Freshwater fish/shrimp ponds 2.6 Agricultural imports Stockfeed: there are no feed mills in the province Maize, for the poultry industry Day-old-chicks from other provinces Fresh fruit and vegetables, mostly from Java Preserved/canned foods All packaging material Cattle for local slaughtering 2.7 Agribusiness exports Rice Wood Plywood Rattan and rattan furniture Crumb rubber Coconut cake (Bungkill) Copra CPO for further refining (to Malaysia and Europe) Frozen prawns/shrimp Salted and sundried anchovies

3. South Kalimantan 3.1 Introduction South Kalimantan is located on the south-east tip of Kalimantan and is the smallest of all the provinces in Kalimantan, being only 37,000 square kilometres in area. Nevertheless, the province has the highest population with 2.7 million people, who live mostly on the narrow strip of alluvial land between the mountains and the swamps. Over 85% of the population of the province are Banjarese and are thought to have originated from South India when Muslim Sultanates were established. The Dutch abolished the Muslim Sultanates and established direct rule in the 1860s. Of the total area in the province 5% is designated as tidal swamp, 16% monotone swamp, 5% alluvial plain, 16% grassland and 58% forest. 3.2 Infrastructure Roads connect the main towns in the province and there is an all-weather highway connecting Banjarmasin, the capital of the province, with the bustling oil town of Balikpapan in East Kalimantan. Banjarmasin is the centre for sawmill and plywood factories, as it is on the Barito river which connects many parts of both South and Central Kalimantan. Banjarmasin is connected by road to Palangka Raya, capital of Central Kalimantan. Banjarmasin is the commercial centre for both South and Central Kalimantan. The road uses a new bridge over the Barito river, but a ferry is still necessary across the Kapuas river, and much of the road is still dirt. The very large swamp and tidal swamp areas in the province make developing and maintaining the road system difficult. The rivers have traditionally been used for moving produce throughout the province.

42

The port of Banjarmasin is on the river and rather small but has cranes that can handle containers. A new port on the eastern island of Pulau Laut is nearing completion. However it takes 7 hours by road to travel to the new port from Banjarmasin. There are daily flights to Jakarta and other provinces of Kalimantan but no direct international flights. Companies have established their own cool-storage facilities for export, mainly shrimp and certain high-value fish products.

TRANSPORT TIMES Banjarmasin to Jakarta

By air 50 minutes

Banjarmasin to Balikpapan

By air 45 minutes

Banjarmasin to Palangka Raya

By air 35 minutes

Banjarmasin to Surabaya

By sea 12 hours

Banjarmasin to Jakarta

By sea 1.5 days


By river 4 hours


By road 5 hours

3.3 Agricultural production The province has large tracts of acid peat soils and tidal swamp areas, and ambitious projects to drain and cultivate these areas are unlikely to go ahead. The topsoil is very shallow and many areas cannot be ploughed. The province also has areas of cleared land that could be brought under cultivation. These areas have been identified for transmigration settlement. Javanese and Balinese transmigrants are very evident on the road to Palangka Raya, and grow most of the province’s limited horticultural products. The average land holding per farmer is small, being approximately 0.5 ha. The main food crops grown in the area are rice, peanuts, soybeans and corn. Very few vegetables are grown and most are imported from Java. The main fruit grown in the area are bananas, rambutan, durian and mandarins. The main plantation crops are coffee, sugar, rubber and palm oil. There is a fragmented marketing system in the area, which makes consistent supply of produce very difficult. Some canning/processing facilities have been tried and have failed, due to the lack of a consistent and continuous supply of raw materials. The broiler industry has virtually ceased to operate recently, due to the currency crisis and the cost of imported feed.

43

MAJOR FOOD CROPS Crop


Rice

457.337 1,233,168

Maize

22,370 28,833

Cassava

13,419 182,794

Soybeans

9,212 11,895

Mungbeans

1,932 1,552

Peanuts

19,966 22,000

Source: Statistical Year Book of Indonesia 1996

MAJOR VEGETABLE CROPS Crop Area (ha) Production (tonnes)

Sweet potatoes 2,561 23,031

Cucumber 2,282 5,093

Cabbage 7 93

Mustard greens 308 1,330

Tomato 328 914

Eggplant 1,144 3,056

Chilli 1,046 2,574

Shallots 6,443 32,248




Avocado

-- 24

Mango 1,066 4,369

Duku/Langsat 405 2,003

Durian 1,470 14,253

44

Mandarin 3,368 41,228

Papaya 149 7,510

Salak 37 206

Pineapple 42 1,255

Rambutan 5,112 25,734

Banana 6,214 17,036

Sapodilla 671 2,576

Rose apple 355 2,861



Crop


Comments

Rubber

69,608 76,106

Coconuts 42,724 48,335

Palm oil 300 - Actual area believed to be around 20,000 ha, mainly new plantings not yet producing.

Coffee 6,287 2,752

Cocoa 514 125

Clove 3,288 239

Sugar cane 6,810 239

45

Sago 1,484 12,097

Pepper 1,413 871


LIVESTOCK Animal

Animal number


(tonnes)

Comments

Milk cows 0 n.a.

Cattle 166,743 n.a.

Buffalo 47,636 n.a.

Horses 2,251 n.a.

Goats 71,882 n.a.

Sheep 4,345 n.a.

Pigs 11,075 n.a.


Layers 661,700 n.a.

Broilers 6,020,000 n.a.

Ducks 3,116,300 n.a. Ducks and duck eggs are a major village industry in the province


FISHERIES SUB-SECTOR Type of Fishery

Production (tonnes)


Open water 65, 997



46

Cages 490

Paddy field fish 50


3.4 Current and potential agribusiness development There are approximately 1,240 registered small food and beverage processors operating in the province. – Agribusiness growth has been around 2% annually for the last 5 years. – State-owned plantations operate the rubber plantations in the area with some

smallholders also sending their materials to the crumb rubber factory. Ribbed Smoked Sheet (RSS) is also made and exported to Surabaya.

– Large blocks of land (anything up to 500 ha) are unavailable for horticultural production. The land ownership system and land use systems are complex. Smaller areas of land are available, but many are either flooded during the wet season or have very poor soils.

– Some investment is being made in cane sugar and tapioca processing. – Old investments in coconut oil processing are under threat with the expansion of the oil

palm industry in the province. Investment in the oil palm industry is expanding. 3.5 Agroindustry - processing Rice milling and polishing Rice flour production Rice wheat egg noodles Tapioca products Soybean products: soy sauce, tahu, tempe Snack food production from corn, cassava Prawn/fish crackers Crumb and rubber sheet Coconut oil extraction/refinery Coffee processing (high quality Robusta) Candle nut processing Sugar refining Cigarettes Freshwater fish/shrimp ponds Rattan mats and furniture 3.6 Agricultural imports Stockfeed: there are no feed mills in the province Maize, for the poultry industry Day-old-chicks from other provinces All packaging material Many fruits and vegetables from Java Cattle for local slaughtering 3.7 Agribusiness exports Rice Wood Plywood Rattan and Rattan furniture

47

Crumb rubber Coconut cake (Bungkill) Copra CPO for further refining to Malaysia and Europe Frozen prawns/shrimp Salted and sundried anchovies

4. Central Kalimantan 4.1 Introduction Central Kalimantan is a huge province covering 153,800 square kilometres, of which 126,200 square kilometres are still forested. The province has a population of less than 2 million. The forestry and mining sectors dominate the province’s economic activity. Resources include diamonds, manganese, bentonite, phosphate, sulphur, iron, asbestos as well as oil and natural gas. 4.2 Infrastructure The province is improving its infrastructure, but remains very difficult to travel around. Rivers provide the main transport. The provincial capital Palangka Raya was until quite recently only accessible by air or by river. During the 1997 fires, air access to the province was suspended for many weeks due to smoke haze. The main road from Palangka Raya to Banjarmasin is still under construction. Access to markets and the movement of produce from the outlying areas are exceedingly difficult. The province has three export/import ports – Pulang Pisau, Sampit and Kumai – and six river inter-island ports. Generally passenger ferries from Java terminate at Sampit and Kumai. There are no cool-storage facilities at any of the ports. The capital Palangka Raya can be reached by air from Jakarta, Banjarmasin, Pontianak and Balikpapan. There are no direct international connections. The largest plane the airport of Tjilik Riwut can accommodate is the Fokker 100. The province has 39 diesel power stations but they are operating at capacity and new stations will have to be brought on stream if the economy is to expand. An industrial zone of Kakab/Kahayan-Kapuas-Barito has been established and a rail link to a port with direct access to the sea is under consideration. There are also industrial zones at Sampit and Kumai but these are very small and there is little activity there.

48

TRANSPORT TIMES Palangka Raya to Jakarta


Palangka Raya to Banjarmasin

By air 35 minutes

Palangka Raya to Banjarmasin By river 4 hours

Palangka Raya to Banjarmasin By road 5 hours

4.3 Agricultural production There is an environmentally and economically controversial project to convert one million hectares of peat swamp for rice and sugar cultivation. Trials have proved disappointing, due to fertility problems and the high cost of flushing out the acid sulphates occurring when the peat soils dry out. The project, which began with the digging of drainage canals, will almost certainly peter out as a result of the economic crisis. The fact that the project was known to have strong support from former President Suharto, as well as its controversial nature, make it very unlikely that it will receive support from the new government. Agriculture is a minor activity in the province, the main food crops being rice and cassava, and some corn, soybeans and sweet potato. The province is far from self-sufficient in food. The main fruit grown in the area are bananas, rambutan, durian and orange, and some pineapple in acid soils. The main plantation crops are rubber, coconuts, cloves, coffee and palm oil. Some 46 companies are actively involved in the plantation industry and have planted some 390,000 ha.

MAJOR AGRICULTURAL CROPS Crop Area ( ha) Production

(tonnes)

Rice

179,448 395,896

Maize

6,685 10,127

Cassava

4,983 56,025

Soybeans

7,053 6,824

49

Mungbeans

243 176

Peanuts

1,371 1,238

Source: Central Kalimantan in figures, 1996


Crop Area (ha) Production (tonnes)

Sweet potatoes

1,069

6,932

Water spinach

n.a.

3,879

Cabbage

2,387

38,974

Mustard greens

2,265

20,200

Tomato

8,180

4,019

Eggplant

7,971

5,016

Chilli

16,473

5,711

Cucumber

n.a.

5,744

Source: Central Kalimantan in figures 1996


Number of trees/plant

Production (tonnes)

Avocado

n.a. 92

Mango n.a. 1,633

Duku/Langsat n.a. 4,423

Durian n.a. 22,860

Mandarin n.a. 2,843

Papaya n.a. 902

Pineapple n.a. 6,484

Cempedak n.a. 3,394

50

Rambutan n.a. 9,315

Banana n.a. 14,046

Sapodilla n.a. 902

Guava n.a. 1,388



Area ( ha) Production (tonnes) Comments

Rubber

272,373 120,979

Coconuts 48,586 35,489

Palm oil 89,910 29,790 Many new plantations yet to produce

Coffee 4,750 639

Cocoa 6,894 1,265

Pepper 2,770 359


LIVESTOCK Animal

Animal number


(tonnes) Milk cows 0

Cattle 49,146 9,697

Buffalo 9,734

346

Horses -

Goats 21,685 4,017

Sheep 2,002 74

Pigs 115,816 12,255


51

Layers 51,100 n.a.

Broilers 1,780,000 n.a.

Ducks 280,212 n.a.



Production (tonnes)


Open water 42,265

Brackish water ----


Cages 818

Paddy field fish ---

Source: Central Kalimantan in figures,1996

4.4 Current and potential agribusiness development The province provides no statistics for the number of food processors operating there. The number of processors is estimated to be fewer than 200. – Rubber plantations in the area are state owned. – There was some pineapple canning in the province, but these have closed down due to

the lack of raw materials. Local varieties of pineapple are virtually tasteless. – Investment from Malaysia in the oil palm industry is continuing. – Livestock production has been tried under Asian Development Bank loans using

Australian cattle but these proved to be unprofitable. Very few cattle remain of the many thousands introduced into the area under ADB auspices.

– Timber, oil palm and mining dominate commercial activities in the province. – Domestic investment in the rattan industry continues and approximately 7,000 tonnes

are worked per month. 4.5 Agroindustry - processing Rice milling and polishing Rice flour production Rice noodles Tapioca products Soybean products: soy sauce, tahu, tempe Snack food production from corn, cassava Prawn/fish crackers Coconut oil extraction

52

Coffee processing (Robusta) Freshwater fish/shrimp ponds 4.6 Agricultural imports Fresh fruit and vegetables Fresh and processed food products Cigarettes Stock feed: there are no feed mills in the province All packaging material 4.7 Agribusiness exports Plywood Wood mouldings Crumb and RSS rubber Frozen shrimp Frozen fish Pepper (white and black) Rattan Copra Crude palm oil

53

Map 3 Sulawesi (not available electronically – contact RIRDC to obtain a copy)

54

5. Sulawesi 5.1 Introduction The island of Sulawesi, sometimes called the Celebes, or the Spice Islands in English literature, is known for its very diverse agricultural topography. With its tremendously long coastline, no point on the island is more than 90 kilometres away from the sea. The seafaring people from Sulawesi established extensive trading networks from India to China and the Middle East many hundreds of years ago. Makassars from South Sulawesi are known to have traded with Aboriginals in northern Australia long before European settlement. The total landmass of Sulawesi is approximately 189,000 square kilometres, or slightly smaller than Victoria. However, the number of narrow peninsulas and the mountainous topography makes road travel between Sulawesi’s four provinces, and even within them, unusually difficult. Most of the island lies above 500 metres and 25% of the island is 1000 metres or more above sea level. Sulawesi has 11 active volcanoes, compared to 17 on Java and 10 on Sumatra. The climate is monsoonal. During September the north-westerly winds come across the South China Sea to Sulawesi and by November, most of the island is experiencing very heavy rain on the west coast. However, Central Sulawesi does not experience these rains, as Kalimantan shelters it. The Palu Valley is the driest region in Indonesia, with an annual rainfall of about 500mm. By April the south-easterly winds have started to blow and this brings rain to the east coast of the island, the wettest month being May. This has very important implications for horticulture and agriculture on the island. Sulawesi is known for its ethnic diversity. There are more than 35 distinct ethnic groups and languages on the island. Over half the 13 million inhabitants of the island live on the fertile coastal plains. Although the majority of the population is Muslim, there is a substantial Christian population in the north. The number of churches of different denominations in the capital of North Sulawesi, Manado, is striking. The agricultural base of most of the island is estate crops: cocoa, coconuts, cashews, coffee, tea and spices. With a few exceptions, all these are grown by smallholders. Rice is a major crop, especially in South Sulawesi. Horticulture is limited, and is largely grown for the local market and other parts of Eastern Indonesia. Some livestock (poultry and cattle) is raised also for the local market, and for export to Kalimantan.

55

6. South Sulawesi 6.1 Introduction South Sulawesi is known for its very rich lowland rice-producing areas as well as its mountains and a very dry southern area. This is the only province in the country that uses horses for ploughing wet rice or paddy fields. There are four major ethnic groups. Probably the best known of these are the mountain ‘Toraja’ people with their distinctive houses and culture. More than three million Bugis live along the coastal areas and fertile plains. Approximately one million Mandarese live along the north-west coast of the province, and approximately two million Makassarese in the southern part and around Ujung Pandang. Ujung Pandang is the capital city of South Sulawesi, and the largest city in the eastern area of Indonesia. It is the centre of trade, commerce and communications not only for the province, but for the rest of Sulawesi and the islands further east to Irian Jaya. The provincial economy has been growing at more than 8% per annum for the past 10 years. Before the economic crisis hit in August 1997, there was a very aggressive trend to attract foreign investment and joint partners and to further develop the province. South Sulawesi is by far the most economically dynamic and diversified of Sulawesi’s four provinces. South Sulawesi is the biggest cocoa-producing province in Indonesia, and buoyant world prices for cocoa have to some extent insulated the province from the economic troubles Indonesia is now facing. 6.2 Infrastructure There is an extensive system of all-weather roads. Ujung Pandang is the southern start to the Trans-Sulawesi highway, which connects it with the most northern city, Manado, in North Sulawesi. There is a very good sealed road linking Ujung Pandang with Tanah Toraja, a major tourist centre and highland horticultural producing area for the province. There are 8 airports, the most important being the international airport of Hasanuddin, some 30 kilometres from the centre of Ujung Pandang. Hasanuddin is the major transit point for all flights from the western part to the eastern part of Indonesia. There are 17 seaports in the province, with the main port (Makassar) in Ujung Pandang. This port has recently had a multi million-dollar upgrade. It was modernised to handle all types of cargo including container cargo and refrigerated containers. There are more than 20 star-rated hotels in the city. Telecommunications are excellent.

56

TRANSPORT TIMES

Ujung Pandang-Jakarta

By air

2 hours 10 minutes

Ujung Pandang-Jakarta

By sea

2 days

Ujung Pandang-Manado- Davao (Philippines)

By air

2.5 hours

Ujung Pandang-Singapore

By air

2 hours

6.3 Agricultural production South Sulawesi has diverse agricultural land, ranging from the rich paddy fields in the Centre and South to hilly land suitable for horticultural production (Malino and Toraja regions). Cocoa is grown by smallholders throughout the province, and plantings have expanded significantly, due to high world prices. South Sulawesi is now the biggest cocoa producing province in Indonesia. Coffee and tea are grown in the Toraja highlands and marketed as a regional speciality, rather than as generic coffee and tea. Some efforts have been made to establish cattle ranching operations in South Sulawesi, because it has suitable climate and available land. Some Australian companies have been interested in the potential, but no project has yet come to fruition.

MAJOR AGRICULTURAL CROPS

Crop

Area (ha)

Production (tonnes)

Comments

Rice

857,988

4,055,399

includes both wet and dry land paddy

Maize

344,602

811,800

Cassava

53,808

714,462

Soybeans

61,266

100,771

Peanuts

77,742

110,501

Mungbeans

70,942

82,189

Source: South Sulawesi in Figures 1995

57


Crop

Area (ha)

Production (tonnes)

Sweet potatoes 10,106 77,198

Potatoes 3,126 26,951

Cabbage 2,387 38,974

Mustard greens 2,265 20,200

Tomatoes 8,180 30,912

Eggplant 7,971 23,970

Chilli 16,473 48,347

Shallots 6,443 32,248


MAJOR FRUIT CROPS

Crop

Number of trees /plants

Production

(tonnes) Banana

6,564,711

358,580

Papaya

449,232

21,749

Mango

1383,207

116,594

Passionfruit

2,247,255

38,824

Jack fruit

339,857

26,871

Durian

316,566

23,907

Watermelon

1,971

23,253

Grapes

234,147

6,092


58


Crop

Area (ha)

Production

(tonnes)

Comments

Coconut

167,767

137,208

Clove

52,401

10,791

Coffee

71,295

26,500

Production includes 9,000 tonnes high quality Arabica coffee for export

Cashew nut

65,246

19,396

Production figures in unopened nuts

Candle nut

43,931

18,941

Cocoa

131,194

95,857

Cocoa planting has increased sharply in recent years due to buoyant world prices. South Sulawesi is the largest cocoa-producing province in Indonesia


LIVESTOCK

Animal

Animal number

Production / slaughtered

(tonnes)

Comments

Cattle

795,571

8,094

Buffalo

324,640

4,579

Horses

168,365

251

Sheep/Goats

459,927

85

Pigs

556,940

1,815

90 % in the Tanah Toraja district

Chickens

18,835,250

9,568

Ducks

2,277,025

1,009


59

FISHERIES SUB-SECTOR

Production (tonnes)

Comments

Marine fisheries

246,800

Brackish water

81,000

Freshwater ponds

1,130

Paddy field fish

19,396


6.4 Current agribusiness development – There are more than 71,000 small-scale industries and some 200 medium to large-scale

industries in the province. – Some international companies are establishing processing facilities in the Ujung

Pandang industrial park; instant noodles, biscuits, fish canning and freezing, cashew roasting etc.

– Cocoa production in the province has attracted the Mars group (Effem Foods) to establish a cocoa butter and powder grinding facility in the province. A Singapore biscuit company (Kong Guan) is also processing beans to butter and powder.

– A number of modern Java-based supermarkets and retail outlets have recently been established in the province.

– Japanese investment is very active in the coffee industry in the Tanah Toraja area. There are now several well-known brand names exporting from the area.

– Shrimp ponds have attracted both international and domestic investment but disease problems and overstocking have led to a decline in production with some ponds being converted to seaweed production.

– Several local companies have invested in mango production in the drier southern area of the province.

– Several local companies have invested in the broiler industry in outlying districts of the province.

– Singapore companies have invested in biscuit manufacture. – Indofoods has established a factory producing instant noodles and other wheat

products. The wheat is imported from Australia and milled in Ujung Pandang. – Both domestic and international investors have entered the seaweed market. The USA

interests are linked with the pet food industries that need the seaweed as a thickening agent for their products.

– A number of commercial attempts have been made at ranching cattle in the undulating plains and foot-hill areas of the province. None of the enterprises has been able to stay in business for very long.

– There have been investments in the pearl shell industry by Japanese interests. – The stock feed company Cargills has a warehouse in the Ujung Pandang Industrial Park

(KIMA).

60

6.5 Agroindustry - processing Rice milling Wheat flour milling Rice flour milling Rice and wheat noodles Biscuit factories Feed mills Tapioca products Soysauce, soybean, tahu, tempe Snack food production from corn, potato, cassava Prawn/fish crackers Passion fruit bottling/juice pulp Chilli sauce Vegetable drying (small scale) Coconut oil extraction/refinery Coffee processing (Arabica and Robusta) Cocoa butter and powder production Vanilla curing Cloves Nutmeg processing Candle nut processing Cashew nut processing Sugar refining Cigarettes Stock feed Agar-Agar powder processing Local cakes Ice cream Freshwater fish/shrimp ponds Tea Rosella Cotton Kapok 6.6 Major agricultural imports Wheat from Australia All packaging and packing materials Day-old-chicks (from Java) Fresh fruit: apples, pears, oranges Live cattle (most from Java, some direct from Australia, although imports have stopped since the economic crisis) Poultry feed, from Java 6.7 Major agribusiness exports Wheat germ Vegetables (to Kalimantan/ Singapore) Fresh shrimp/prawns Fresh/frozen fish Live crabs Rattan Sawn timber

61

Passionfruit (to Australia) Cocoa to the USA (largest supplier to the USA) Coffee (especially to Japan and USA) Cashew nuts Pepper Rubber Coconut cake Copra Rice

7. Central Sulawesi 7.1 Introduction Central Sulawesi is a very mountainous province. Forest covers 64% of the land area. A very large proportion of the province's income is derived from the export of timber, ebony being one of the best-known timbers from the area. The province has a very high daily rainfall pattern. However and seemingly contradictorily, the driest region in Indonesia, the Palu valley, is also to be found in the province. The Palu valley consists of approximately 1.6 million hectares and has a rainfall of approximately 500mm a year. Many seeing the area for the first time are surprised to see that prickly pear is a serious problem in some areas. The rainfall for the Palu valley is unpredictable, depending upon whether the rainfall is from north-east or south-west monsoon winds. However, there is continuous rainfall on the hills that surround the valley. As result of this high rainfall, irrigation is available on the fertile valley floor, with the result that the Palu is the most agriculturally productive region in Central Sulawesi. The town of Palu has expanded only since World War II when the Japanese occupying forces used the river flats for rice production to supply their troops. As the population has moved south along the valley, the foothills have been cleared and planted with annual crops, or used for livestock grazing. This has led to serious erosion in many areas and there is now a government policy to stabilise the foothills of the valley and resettle the small farmers who have moved into the foothills. 7.2 Infrastructure An all-weather road connects Palu to the Trans-Sulawesi Highway, which joins Ujung Pandang in the south with Manado in the north. There is a comprehensive system of other roads that service all areas of the province. However, while the East Coast’s road system is an all-weather road, the West Coast road to Toli Toli is in very poor condition in some sections. Roads in the Palu valley are good. The port of Donggala at the end of the Palu Bay has operated for hundreds of years. There are no container facilities either at the newer port of Palu or Donggala Palu has no international air links, but there are daily flights to Ujung Pandang and connections to Jakarta, Kalimantan and Manado.

62

Palu is the commercial and trading centre for the province. However, the eastern ‘finger’ (the Luwuk peninsula) of the province is extremely isolated.

TRANSPORT TIMES

Palu to Ujung Pandang

by air

1 ½ hours

Palu to Jakarta

by sea

2 days

Palu to Balikpapan

by air

1 hour

Palu to Balikpapan

by sea

12 hours

Palu to Luwuk

by road 388 km

2 days

Palu to Ujung Pandang

by road

2-3 days

Palu to Manado

by road

2-3 days

7.3 Agricultural production – There are large areas of unused land in the area but much of this land is inside

designated forest areas. – Irrigated rice is grown on the Palu valley floor. The rainfall in the surrounding

mountains flows naturally through some complex river systems to the Palu valley, where there are extensive irrigation systems.

– Maize is grown extensively in the middle to upper regions of the Palu valley. White maize is preferred for human consumption, while red maize is used for animal feed.

– Shallots are grown throughout the area and are said to be superior to any other grown in Indonesia. The onions are fried crisp and packed in plastic boxes for export. This is the region’s processed food speciality.

– Pulses, cassava, soybean, mungbean, peanuts and chillies are all grown. – There are small areas of fruit production in the Palu Valley and foothills: grapes, guava,

mango as well as custard apple. – There are very large ageing stands of coconuts throughout the wetter southern areas of

the Palu Valley. – Small areas of high-quality coffee and green tea are grown in the South Palu area and in

Napu, some 3 hours by road from Palu. – Tamarind is a tree that can withstand the very dry conditions of the Palu North area.

The products of the tree are in demand throughout the country. – Cashew nut is another crop that is being planted throughout the drier parts of the

province. – Kapok grows well in the area and has been a traditional crop. Prices for this commodity

have been stable over the past few years. – Cocoa planting is expanding, due to strong world prices. – Livestock cattle in the areas are a major industry but overstocking has led to serious

land degradation in the area.

63


Crop

Area (ha)

Production

(tonnes) Rice

158,874

513,006

Maize

19,029

25,925

Soybeans

6,866

8,744

Peanuts

7,210

6,307

Cassava

8,680

79,599

Mungbeans

1,085

817

Source: Central Sulawesi in Figures 1995


Crop

Area (ha)

Production

(tonnes) Chilli

1,029

3,961

Shallots

771

1,886

Mustard green

370

2,062

Sweet potato

4,187

27,729

Tomato

1,128

4,031

Cucumber

931

6,963

Eggplant

610

5,709

Shallots

1,000

2,650


MAJOR FRUIT CROPS

Crop

Area (ha)

Production

(tonnes) Orange

1,554

5,818

Banana

6,456

35,354

64

Pineapple

1,023

4,400

Papaya

5,555

24,846

Durian

839

5,387

Mango

1,127

4,351

Grapes

271

618

Jackfruit

1,029

5,818



Area (ha)

Production

(tonnes)

Comments

Coconut

169,212

159,296

Cocoa

39,376

16,487

All grown by smallholders

Coffee

18,896

4,267

Cashew nut

9,504

724

Clove

51,327

5,894

Drought has damaged much of the clove production

Palm oil

14, 115

9,724

Rubber

3,746

1,711


65

LIVESTOCK

Animal

Animal number

Annual heads slaughtered

Comments

Cattle

273,440

21,437

Buffalo

13,576

100

Horses

5,431

0

Goats

206,524

12,239

Sheep

11,154

805

Pigs

147,573

10,543

Chickens

3,734,737

5,425,937

Virtually all village chickens

Ducks

185,392

111,232



Production (tonnes)

Marine fisheries

72,550

Brackish water

1,957

Freshwater ponds

1,085

Paddy field fish

5


7.4 Current agribusiness development There are some 1,600 small-scale food and beverage processors and 170 medium to large manufactures in the province. – There is interest by local investors in investing in vegetable production, for supplying

the Kalimantan market. – The Jakarta-based diversified agribusiness company Hasfarm has established arabica

coffee and a green tea plantation in the area, along with processing facilities, and also has horticulture interests in the Palu valley.

– Hasfarm has also invested in a gherkin/cucumber production unit for the Japanese market.

– Some small investment in plants processing coconut oil has been made to supply the local market but in general copra is shipped to the other centres for processing.

66

– Local investors established a fried onion industry but have found difficulty in obtaining continuous supply of onions for processing.

– There is little investment in the marine fishing industry in the area or in the processing of fish. Fleets based in Bitung find it easier to land in Bitung Port (North Sulawesi) what they have caught in Central Sulawesi waters. In some cases, the catch is landed directly in the Philippines to avoid local imposts.

– Smallholder investment in cocoa production has increased markedly over the past few years, due to strong world prices.

– Oil palm is now being planted in the province. 7.5 Agroindustry - processing Rice milling and polishing Rice flour production Noodle production Tapioca products Fried onions Soybean products, soy sauce, tahu, tempe Snack food production from corn, potato and cassava Frozen shrimp Prawn/fish crackers Coconut oil extraction Coffee processing (high quality Arabica and Robusta) Tea (green, semi-fermented) Kapok 7.6 Major agricultural imports Apples and oranges via Singapore/Ujung Pandang Animal feed Fertiliser 7.7 Major agribusiness exports Ebony Rattan Cocoa beans Live/salted fish Frozen shrimp Sea cucumber Coconut oil Copra Coconut cake Activated charcoal Gherkins Fried onions Cattle (to Kalimantan) Vegetables (to Kalimantan) Coffee Tea

67

8. North Sulawesi 8.1 Introduction The province covers an area of 27,475 square kilometres and contains some of the most fertile volcanic soils in Indonesia outside Java. The rain is abundant and falls throughout the year, with the highest falls in November and December. Coconuts, nutmeg and, until quite recently, cloves, were the basis of wealth in the area. North Sulawesi is among the 10 richest provinces in Indonesia. The Dutch had established posts in the Minahasa area as early as the 1600s. However, it was not until the early 1800s that the Dutch administration accompanied by missionaries moved inland. The people of North Sulawesi quickly adopted Christianity and the area is very strongly Christian, with many churches of different denominations co-existing with Muslim communities. The Christian influence promoted the spread of education, particularly in the Minahasa area, which for many years before independence had the highest literacy rate in the country. The educational levels are still very high by national standards. The provincial population has doubled in recent times. The increase in population has led to pressure on the available agricultural land and, as a result, more upland areas have been placed under cultivation. This has led to significant increases in soil erosion. The erosion is readily observed in the Gorontolo area, where Lake Limboto is rapidly silting up. As in Central Sulawesi, the question of land ownership and use is very complex. Agribusiness projects involving production, as opposed to processing, will need very careful analysis and planning to ensure that the land can actually be used for the purposes proposed. 8.2 Infrastructure The expansion and maintenance of all-weather roads throughout the province are difficult because of mountainous terrain. There are many small rivers in the steep ravines in the area. This dissected topography makes travel difficult. Access to markets and the movement of produce from the outlying areas are exceedingly difficult. The port of Bitung, 45 minutes drive south of the capital Manado, is one of the best natural harbours in eastern Indonesia. It has new container-handling facilities. A new international airport at Manado is under construction. There are daily connections to Singapore and Davao in the southern Philippines, as well as to domestic destinations (via Ujung Pandang). All fish processing factories have their own freezing facilities. There are cold- storage facilities at the fishing dock at Bitung, together with an ice making and flaking facility.

68

TRANSPORT TIMES

Manado to Ujung Pandang

by air

1.5 hours

Manado to Jakarta

by air (via Ujung Pandang)

4 hours

Manado to Jakarta

by sea

3 days

Manado to Ujung Pandang

by road

5 days

Manado to Palu

by air

1.5 hours

Manado to Davao (Philippines)

by air

1 hour

8.3 Agricultural production – Land prices have risen sharply in the Manado area but are still cheap compared to land

prices on Java. The province has virtually no flat land that is not already under cultivation. Some land on the slopes is available for cultivation but these slopes are rapidly eroding. The average land holding per farmers is small, approximately 0.5 ha.

– Large blocks of land are not available for horticultural production. The land titling system makes ownership of land by investors, or use for a certain period, difficult to obtain. The only available land is often on steep slopes and would be very expensive to develop and work profitably.

– The main food crops grown in the area are rice, peanuts, soybeans, corn, and a variety of vegetables including, onion, carrots, cauliflower, cabbage, asparagus, broccoli, potatoes and tomatoes.

– The main fruit grown in the area are bananas, rambutan, durian, oranges, avocado and passionfruit.

– The main plantation crops are vanilla, cloves, nutmeg and coffee. For hundreds of years the islands off Sulawesi were the only source of cloves, but cloves are now grown on Sulawesi as well, including North Sulawesi. The province is one of the largest vanilla and nutmeg producers in the world. The fragmented marketing systems in the area make the consistent supply of reliable quantity of produce for processing very difficult.

– Some fish canning processing facilities in Bitung have failed, due to the lack of a consistent and continuous supply of raw materials. Two facilities are still operating but well below the installed capacity of the factories. A large Jakarta-based fishery company (Djayanti Group) has a major facility at Bitung, including its own boats, ice plant and fish processing plant.

– Coconuts are a major commodity in North Sulawesi, all grown by smallholders. However, coconut oil processing facilities at Bitung and Manado have declined, due to problems with raw material supplies.

69


Crop

Area (ha)

Production

(tonnes) Rice

109,042

414,414

Maize

79,745

164,431

Soybeans

30,745

37,643

Peanuts

8,045

8,004

Cassava

4,745

50,375

Mungbeans

2,337

2,150

Sweet potatoes

3,123

23,216

Source: North Sulawesi in Figures 1995


Crop

Area (ha)

Production (tonnes)

Comments

Not specified

36,569

231,072

No specific crop data are available for the province, only the total as shown.


MAJOR FRUIT CROPS

Crop

No of trees

Production

(tonnes)

Comments

Not specified

3,016,908

406,391

As above

Source: North Sulawesi in figures 1995

70


Crop

Area (ha)

Production

(tonnes)

Comments

Coconut

284,805

290,294

Clove

43,485

10,990

Nutmeg

15,836

7,390

Coffee

7,746

4,200

Cocoa

8,747

1,405

Vanilla

5,254

6,599

production estimated from export values


LIVESTOCK

Animal

Animal number

Annual heads slaughtered

Cattle

266,865

n.a.

Buffalo

4,918

n.a.

Horses

36,529

n.a.

Goat

100,655

n.a.

Pigs

555,641

n.a.

Chickens

4,347,235

n.a.

Ducks

393,791

n.a.



Production (tonnes)

Comments

Marine fisheries

111,260

Thought to be underestimated as much of the catch is landed offshore in the Philippines and Thailand

71

Brackish water

3,406

Freshwater ponds

1,340

Seaweed

7,546

Source: Bappeda North Sulawesi –1995

8.4 Current and potential agribusiness development There are approximately 22,000 registered small food and beverage processors operating in the province. There are some 36 medium- and large-scale food processors. – There has been investment in desiccated coconut production recently, mainly for the

European markets. – There has been considerable investment in the tuna canning industry around the port of

Bitung. – There is investment in the collection and curing of vanilla. – Local companies are active in the collection and export of nutmeg. – The province, and particularly the towns of Manado and Bitung, are well placed to take

advantage of the sub-regional growth triangle (BIMP-EAGA) operating between Brunei, parts of Sulawesi, and Kalimantan, eastern Malaysia and southern Philippines. However, each area produces similar products and is essentially competitive, rather than complementary, with the rest of BIMP-EAGA. Hence there are limited opportunities in the agribusiness sector within BIMP-EAGA at present.

– Because tourism and, to a lesser extent, mining, bring substantial numbers of expatriates to North Sulawesi, there are some opportunities to supply imports to the supermarkets of the province through a strong Jakarta-based distributor. The presence of non-Indonesian consumers means that the rupiah devaluation is a less serious problem for importers than would otherwise be the case.

8.5 Agroindustry - processing Fish canning Rice milling and polishing Rice flour production Biscuit factories Tapioca products Soybean products, soy sauce, tahu, tempe Snack food production from corn, potato, cassava Prawn/fish cracker Coconut oil extraction/refinery Coffee processing (high quality Arabica and Robusta) Vanilla Nutmeg oil process Stock feed Seaweed drying Agar-Agar powder processing Local cakes

72

Leather tanning Freshwater fish/shrimp ponds Tea (fermented, semi-fermented, green) 8.6 Major agricultural imports Sugar Fertiliser Day-old-chicks from other provinces All packaging material Tin-plate (for fish canning) 8.7 Major agribusiness exports Copra Coconut oil Coconut cake Activated charcoal Sawn wood Desiccated coconut Nutmeg Mace Vanilla Cloves Frozen and canned fish Frozen shrimp Seaweed

9. South-east Sulawesi 9.1 Introduction A small province of some 148,140 kilometres, South-east Sulawesi is hilly rather than mountainous. 85 percent of the land mass falls into this category and only 15% of the land area is regarded as lowland plains suitable for agricultural development. The province has abundant rainfall of more than 2,000mm on average a year. Most of the rain falls between the months of November and March, with light rains between March and June, after which a very pronounced dry season is experienced. This very pronounced dry season makes the area suitable for cashew nut production. 9.2 Infrastructure Transport to and from the province remains difficult. There is only one flight a day via Ujung Pandang into the airport of Walter Monginsidi in the capital Kendari. Getting seats can be very difficult. There are no international flights and no direct flights to Jakarta. The Trans-Sulawesi highway to connect Kendari is still being completed; for all practical purposes South East Sulawesi is not connected by road to the other provinces. There is a comprehensive system of roads servicing all areas within the province. However, many roads are not sealed and travel in the wet season is difficult. The electrical power supply is just sufficient to supply the current needs of the province.

73

There are five ports in the province. The main port of Kendari is quite large but rather shallow and the approach channels very narrow so that large ships have difficulty in accessing the docks. There are cold-storage facilities at the port of Semudra (part of the port of Kendari) but these are only for shrimp and seafood. There are no container facilities at any port in the province and ships must be equipped to unload containers. Ujung Pandang may be reached by ferry from Kendari, which first goes to Bau Bau on Muna Island. The journey takes a day. A ferry travels from Kolaka to Watampone (Bone) in South Sulawesi several times a day. The road journey from Kendari to Kolaka takes some 3–4 hours in dry weather. The ferry trip takes about 8 hours.

TRANSPORT TIMES

Kendari to Ujung Pandang

by air

1 hour

Kendari to Jakarta

by air

4 hours (via Ujung Pandang)

Kendari to Ujung Pandang

by sea direct

1 day

Kendari to Kolaka

by road

3–5 hours

9.3 Agricultural production There are large tracts of unused land and cleared forest land in the area but the soils are not very fertile and gaining title to the land is very difficult. The rampant spread of blade grass (Alang Alang) is a major problem for all agricultural production in the province. The soils are essentially podsolic and in general rather poor. – Mainly transmigrants grow irrigated rice on the flat and fertile areas. Maize and cassava

are grown extensively in all areas of the province, as are pulses, soybean, mungbean, peanuts and chillies.

– There are very small areas of fruit production, mango, durian and banana being the principal fruit grown. The area has the potential for pineapple production but this is yet to be realised.

– Cocoa is a major agricultural earner for the province with approximately 40,000 tonnes being produced annually.

– Cashew nut is a major crop in the area but recent unseasonal rains at the time of flowering have disrupted production.

– Coconuts are still an important crop, with some 35,000 tonnes of copra being produced annually.

– Cattle are a major industry in the area, especially in the south-western part of the province. The cattle are smallholder-owned Balinese cattle.

– Poultry production is a purely village-based industry. – The marine fish industry is large, with 130,000 tonnes being caught annually. This is

thought to be well below the sustainable catch levels.

74


Crop

Area (ha)

Production (tonnes)

Rice 90,800 287,355

Maize 39,344 79,858

Soybeans 7,207 8,744

Peanuts 5,843 3,927

Cassava 15,429 177,828

Mungbeans 1,573 1,175

Source: South-east Sulawesi in Figures 1995


Crop

Area (ha)

Production

(tonnes) Chilli

n.a.

1,047

Spring onion

n.a.

0.5

Mustard green

n.a.

4

Sweet potato

n.a.

12,947

Tomato

n.a.

1,711

Cucumber

n.a.

1,288

Eggplant

n.a.

2,078


MAJOR FRUIT CROPS

Crop

Area (ha)

Production

(tonnes)

Comments

Orange

1,554

4,603

Banana

6,456

22,800

Pineapple

1,023

n.a.

Home garden production

75

Papaya

5,555

2,733

Durian

839

n.a.

Mango

1,127

4,612

Grapes

271

n.a.

Jackfruit

1,029

n.a.



Crop

Area (ha)

Production (tonnes)

Comments

Coconut

n.a.

32,567

Cocoa

n.a.

41,134

Transported to Ujung Pandang for export

Coffee

n.a.

2,837

Cashew nut

n.a.

18,253

32,000 tonnes annual averaged over past five years

Clove

n.a.

2,998


LIVESTOCK Animal

Animal number

Annual heads slaughter

Comments

Cattle

265,136

16,942

Buffalo

11,639

1,114

Horses

5,865

n.a.

Goats

99,671

36,204

Sheep

257

n.a.

Pigs

14,021

6,778

Chickens

5,719,726

7,465,547

95% village chickens

Ducks

230,928

130,807


76


Production (tonnes)




Paddy field fish n.a.


9.4 Current agribusiness development There are some 1,300 small-scale agricultural and food processing facilities in the province. − The Djayanti group has invested in marine fishing and has established its own fleet

and cold-storage facilities. − There is little interest in investing in low-value vegetable production, because the

returns are better in plantation crops, and because the local market is very small. Freight to bigger, but distant, markets is expensive.

− There were some investments in cashew nut processing. However, these factories closed in 1994.

− Local investors are establishing mango, sugar cane and oil palm plantations. A Jakarta-based company was building a sugar mill, as at September 1997, but it is not known whether this has been completed. Investors have been targeting the province for sugar cane production and some initial planting has taken place.

− There is insufficient excess of any agricultural product to establish profitable processing industries within the province, given the transport costs and difficult access to markets.

− Japanese investors have established two cultured pearl operations. − The Jakarta-based agribusiness firm Hasfarm is planting cocoa on 6000 ha; as at

September 1997, it was considering raising livestock and developing horticulture on other land the company owns, but these plans may have been suspended by the liquidity and credit problems now faced by most Indonesian businesses.

9.5 Agroindustry - processing Rice milling and polishing Rice flour production Rice - egg noodles Tapioca products Soybean products, soy sauce, tahu, tempe Snack food production from corn, potato, cassava Prawn/fish crackers Coconut oil extraction (local small-scale) Freshwater fish/shrimp ponds Kapok

77

9.6 Major agricultural imports Animal feed from other provinces Fertiliser 9.7 Major agribusiness exports Frozen fish (many species) Frozen shrimp Cultured pearls Sawn timber Rattan Cocoa beans Live/salted fish Copra

78

Annex 2: List of persons interviewed during field trips (August/ September 1997, February 1998)

CENTRAL SULAWESI H. Moch. Amin Badawi Managing Director Saridewi Group Jl. Kunduri no. 9 Palu 94223 Central Sulawesi Ph: 62-451-27274 – 52663 – 24822 Fax: 62-451-24822 Ruddy Chandra Director Central Sulawesi Chamber of Commerce and Industry Jl. Sulawesi no. 39 Palu Central Sulawesi Ph: 62-541-2724, 22971 Fax: 62-541-23373 Ruben Kadang Secretary Indonesian Supplier & Distributor Association Jl. Setia Budi No. 38 Palu 94111 Central Sulawesi Ph: 62-451-54540, 22326 Fax: 62-451-23540 Yonathan Masiki Commissioner PT. Gimpu Jaya Coklat Perkebunan Cocoa Plantations Jl. Tanjung Lombongan No. 2 Lolu – Palu 94112 Central Sulawesi Ph: 62-451-21886 Zakir Muhammad, SE Head of Finance and Banking Department Central Sulawesi Chamber of Commerce and Industry Jl. Sulawesi no. 39 Palu Central Sulawesi Ph: 62-451-219 Arthur Pangemanan Head of the Division of Agriculture Agribusiness and Transmigration

Jl. Tg. Pesik no. 38 Palu Central Sulawesi Ph: 62-451-27688-22971 H. Syamsuddin M. Said Executive Secretary Central Sulawesi Chamber of Commerce and Industry Jl. Sulawesi No 39 Palu Central Sulawesi Ph: 62-451-22971-21929 Fax: 62-451-23373 Ir. Abd. Rauf Toramai Head of Economic Division of Regional Development Planning Board (BAPPEDA) Jl Prof. Moh.Yamin Palu 94112 Central Sulawesi Ph: 62-451-55431 NORTH S NORTH SULAWESI John Honandar BSc. Director P.T. Multi Food (biscuits, crackers, spices) Jl. Pingkan Matindas No.57 Manado 95127 North Sulawesi Ph: 62-431-64053, 64341 Fax: 62-431-63450 Drs. E. Ch. Kalesaran Department of Industry and Trade for North Sulawesi Jl. Tololiu Supit 25 Manado 95119 North Sulawesi Ph: 62-431-851 756, 862 289 Fax: 62-431-851 423 Idrus Mamonto Department of Industry and Trade, Regional Office North Sulawesi Jl. Tololiu Supit 25 Manado 95119 North Sulawesi Ph 62-431-862 289, 851 756

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Stevanus Prasethio PT Bimoli (coconut oil processing) Jl. A. Yani no. 9 Manado 95114 North Sulawesi Ph: 62-431-866 202 Fax: 62-431-868 064 Aldie Senduk, SS Supervisor P.T. Matahari Putra Prima (supermarket and department store) MDS Boulevard Centre Jl. Sam Ratulangi no. 22A Manado 95111 North Sulawesi Ph: 62-431-868 510, 868 512 Fax: 62-431-868 511 SOUTH SU Dr. Djafar Baco Director/Entomologist Research Institute for Maize and Other Cereals Jln. Ratulangi Maros 90514 P.O Box 1173 Ujung Pandang South Sulawesi Ph: 62-411-371 016, 371 529 Fax: 62-411-318 148 H. Abd. Muis Bakkidu President Director Makassar Industrial Estate (PT KIMA) Jl. Perintis Kemerdekaan Km.15 Daya Ujung Pandang South Sulawesi Ph: 62-411-510 086, 510 158 Fax: 62-411-510 098 Ir. Hamzah Barlian, MS Vice-Manager ACRI-Askindo CPB Extantion Project ASKINDO – Association of Indonesia Cocoa Producers Jln. Rusa 45 B Ujung Pandang South Sulawesi Ph: 62-411-873 644 Fax: 62-411-856 230 Prof. Drs. H. Burhamzah, MBA Professor of Economics at Hasanuddin University and Managing Director PT. Sarana Sulsel Ventura Jl. Panakkukang Boulevard no. 12A-B Ujung Pandang 90222 South Sulawesi Ph: 62-411-447 989 Fax: 62-411-447 990

Danny Danuarsyah Branch Manager PT. Indofood Sukses Makmur Jl. Kima X Kav. A-3 Biringkanaya Ujung Pandang South Sulawesi Ph: 62-411-510 206-7, 510 876 Fax: 62-411-510 027 Dra. Jawahir Djalani CV. Laketek, Construction Contractor and Supplier Jl. Sultan Dg. Raja no. 47 Ujung Pandang 90152 South Sulawesi Ph: 62-411-452 455 Fax: 62-411-451 335 Dr. Ir. Djamaluddin. MS, APU Agronomist Research Institute for Maize and Other Cereals Jl. Dr. Ratulangi Maros 90514 Ujung Pandang South Sulawesi Ph: 62-411-371 529/ 371 016 Fax: 62-411-371 961 H.M. Syarifuddin Husain Vice-President Director Bosowa Group Jl. Urip Sumoharjo no. 188 Ujung Pandang 90232 South Sulawesi Ph: 62-411-444 444 Fax: 62-411 447-744 Husain Ibrahim Executive Secretary South Sulawesi Chamber of Commerce Jl. Jend. A. Yani no. 23 Ujung Pandang South Sulawesi Ph: 62-411-321 704 Fax: 62-411-326 553 Noel Janetski President Director PT. Effem Indonesia (subsidiary of Mars Foods) Jl. Kima 10 KAV. A6 Daya Ujung Pandang South Sulawesi Ph: 62-411-515 702 Fax: 62-411-515 704

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Drs. Hamka B. Kady MS Village Cooperative Leader Jl. Kakatua no. 51 Ujung Pandang South Sulawesi Ph: 62-411-873 657, 850 498 Fax: 62-411-850 602 Matsui Kazuhisa Japan International Co-operation Agency JICA-Bappenas Project on Policy and Implementation Support for the Development of East Indonesia C/- BAPPEDA Jl. Urip Sumoharjo no. 269 Ujung Pandang 90231 South Sulawesi Ph/Fax: 62-411-452 816 H. Muchtar Nurlim, Se.Msi Head Planning and Promotions Section Investment Coordinating Board Jl. Ribura’ne no. 15 Ujung Pandang 90174 South Sulawesi Ph: 62-411-316 042, 320 371 Fax: 62-411-320 371 Cornelis P. Patty PT. Aneka Bumi Kencana (cocoa trader), subsidiary of Prasidha Group Jl. Prof. Dr Ir. Sutami no. 28 Ujung Pandang South Sulawesi Ph: 62-411-514 618 Fax: 62-411-512 878 Prasetyo Store General Manager Goro (multigrocer and supermarket) Jl. Panakkukang 111 Blok E 19/1 Ujung Pandang South Sulawesi Ph: 62-411-867 670, 861 839 Fax: 62-411-861 838 Syamsul Rijal Finance Manager PT. Duta Sulawesi Agro (palm oil) Jl. Hos. Cokroaminoto 27 Ujung Pandang 90174 South Sulawesi Ph: 62-411-311 111 Fax: 62-411-311 112 Dr. S. Ruslan Vice-Chairman Regional Development Planning Board (BAPPEDA) Jl. Urip Sumoharjo no. 269

Ujung Pandang South Sulawesi Ph: 62-411-453 486 Fax: 62-411-452 816 H. Baharuddin Sellang Commercial Director PT. Industri Kapal Indonesia (ship building) Jl. Galangan Kapal Ujung Pandang 90211 South Sulawesi Ph: 62-411-448 653, 448 654 Fax: 62-411-448 658 Ir. H. Tommy Y. Simanungkalit General Manager PT. Citra Sekarwangi Agro Persada (cashew processing) Jl. Kima 7 Kav R-2A KIMA Industrial Estate Ujung Pandang 90241 South Sulawesi Ph: 62-411-510 864, 511 874 Fax: 62-411-510 865 HM. Rudhy Syahruddin, MBA Director Kalla Shipping Lines Jl. Nusantara no. 444 Ujung Pandang South Sulawesi Ph: 62-411-320 464, 320 465 Fax: 62-411-320 465 Ir. Muchtar Tanong Corporate Representative Widya Corporation, General Contracting Jl. Lasinrang no. 61 Ujung Pandang 90113 South Sulawesi Ph: 62-411-852 938, 852 939 Fax: 62-411-871 507 Christian Tansil Managing Director P.T. South Suco, Frozen Fish and Prawns Jl. Kima VI KAP G4 B KIMA Industrial Estate Ujung Pandang South Sulawesi Ph: 62-411-510 201, 510 215 Fax: 62-411-510 049

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Arifuddin Temmi Managing Director PT. Dataran Bosowa, Frozen Shrimp Industries BSW Group Jl. Urip Sumoharjo no. 188 Ujung Pandang South Sulawesi Ph: 62-411-444 444 Fax: 62-411-447 744 H.M. Thaif M Director PT. Bosowa Cocoa Industries BSW Group Jl. Urip Sumoharjo no. 188 Ujung Pandang South Sulawesi Ph: 62-411-444 444 Fax: 62-411-447 744 SSULAWESI SOUTH-EAST SULAWESI Drs. Ibrahim Pallatje Chairman Regional Investment Coordinating Board of South-east Sulawesi Jl. Pembangunan no. 40 Kendari 93124 South-east Sulawesi Ph: 62-401-23269 Fax: 62-401-23267 Drs Laode Abdul Rajab Office of South-east Sulawesi BKPMD (Regional Investment Coordinating Board) Jl. Pembangunan no 40 Kendari South-east Sulawesi Ph: 62-401-23268 Fax: 62-401-23267 Prof. Dr. H. La Ode Abdul Rauf, M.Sc Head Regional Development Planning Board (BAPPEDA) Jl.Taman Surapati no. 2 Kendari South-east Sulawesi Ph: 62-401-21843 H. Surunuddin BE President South East Sulawesi Chamber of Commerce and Industry Jl. Y. Wayong No 4 Kendari South-east Sulawesi Ph: 62-401-22620 Fax: 62-401-23167

Ir. Yusuf Yakub, M. Ed Head Provincial Office of Department of Agriculture Jalan Balai Kota No. 6 Kendari 9311 South-east Sulawesi Ph: 62-401-21365, 22733 CENTRAL KALIMANTAN Drs. Radiansyah Djanit Executive Secretary Central Kalimantan Chamber of Commerce and Industry Batang Garing Business Centre Jl. Letjen D.I. Panjaitan 1 Palangka Raya 73111 Central Kalimantan Ph: 62-536-25308 H.M. Hartani Mukti Private citizen with business interests in Central Kalimantan Jl. Dempo I No. 36 Kebayoran Baru Jakarta 12120 Ph: 62-21-771 664, 711 668 Fax: 62-21-720 1635 EAST KALIMANTAN Pascal C. Arnaud Catering and Associated Services Pt. Prasmanindo Boga Utama Jl. Jenderal Sudirman 45A Balikpapan 76114 East Kalimantan Ph: 62-542-66044, 61058 Fax: 62-542-66422 Drs. H. Abd. Rachim Asmaran Head of Agency BAPPEDA (Board of Regional Development Planning) Jl. Jend. Sudirman 01 Balikpapan East Kalimantan Ph: 62-542-22515, 21142 Fax: 62-542-21142 Tony J. Cooper Area Manager Pt. AlatieF Jasakarya Corporation (Catering Services) Jl. Jend. Sudirman No 806 Balikpapan East Kalimantan Ph: 62-542-62816, 63474, 63463 Fax: 62-542-63169

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Garry Kielenstyn Area Manager Petrosea Engineering, Construction and Mining Jl. Jend Sudirman no. 561 Balikpapan 76114 East Kalimantan Ph: 62-542-61055 Fax: 62-542-63951 SOUTH KALIMANTAN Drs. Ec. H. Gusti Mahfudz Assistant Head Economics Faculty University Lambung Mangkurat Jl. Brigjen H. Hasan Basry Banjarmasin South Sulawesi Ph/Fax: 62-511-52116 Rawintan E. Binti Economics Faculty Universitas Lambung Mangkurat Jl. Brig. Jend. Hasan Basry Kayu Tangi Banjarmasin 70123 South Kalimantan Ph/Fax: 62-511-52116 H. Syamsuri Darham Chairman Indonesian Suppliers and Distributors Association “Djok Mentaya” PWI Bldg, 4th Floor No. 1, Syari’ie Musaffa, SH Street Banjarmasin South Kalimantan Ph: 62-511-360 990 Fax: 62-511-58104 Ir. Muchlis Luthfi Managing Director Pt. Asri Lestari, Furniture Industries Jl.P. Suriansyah No 20, Banjarbaru South Kalimantan Ph: 62-511-92359, 93247 Fax: 62-511-92359 Drs. Suryani MA Economics Faculty Universitas Lambung Mangkurat Jl. Brigjen H. Hasan Basry Banjarmasin 70123 South Kalimantan Ph/Fax: 62-511-52116 Syarifuddin Head, Administration South Kalimantan Chamber of Commerce and Industry 17-25 Jl. Brig. Jend. Katamso

Banjarmasin South Sulawesi Ph: 62-511-52075, 55404 Fax: 62-511-55404 H.Yusufhasan E. Tayibnapis Secretary South Kalimantan Chamber of Commerce and Industry Jl. Katamso. 17-25, 2nd Floor Banjarmasin 70111 South Kalimantan Ph: 62-511-52075, 55404 Jimmy Y Plant Manager Pt. Ebi Mas, Dried Marine Products Tembus Mantuil no. 28 Banjarmasin 70246 South Kalimantan Ph: 62-511-51016 Fax: 62-511-363 618 WEST KALIMANTAN WEST KALIMANTAN Satoko Emoto Agriculture and Agroindustry Expert BAPPENAS-JICA Development Study on Comprehensive Regional Development for Western Kalimantan Jl. Selayar No 45 Pontianak 78121 West Kalimantan Ph/Fax: 62-561-44881 Ir. H. Zeinudin Gairach Department Head Department of Livestock Jl. Adisucipto no. 48 Pontianak 78121 West Kalimantan Ph: 62-561-36144 Fax: 62-561-36144 Imbran Susanto Director Alas Kusuma Group (oil palm plantations) Jl. Adisucipto KM.5, 3 Sei Raya Pontianak West Kalimantan Ph: 62-561-21866 Fax: 62-561-21583

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Pramono Hadhie Indonesian Agribusiness Association, West Kalimantan Branch Jl. Ketapang 152 Pontianak 78122 West Kalimantan Ph: 62-561-37357 Fax: 62-561-42628 Darius Na Vice-General Manager Benua Indah Group (Plantation Division) Jl. Teuku Umar 19, 1st Floor Pontianak West Kalimantan Ph: 62-561-38550 (Hunting) Fax: 62-561-38656 Affan Nasution President, West Kalimantan Chamber of Commerce President Director Pt. Tri Haafco Pratama, General Contracting MPI Building Jl. Zainudin 17 Pontianak West Kalimantan Ph: 62-561-36212, 32159 Fax: 62-561-33159 Ir. H. Pedi Natasuwarna MSc. Managing Director Mega Tania Group (oil palm plantations) Jl. Gajah Mada No 96 Pontianak West Kalimantan Ph: 62-561-40142, 40148 Fax: 62-561-41766 Drs.Tribowo. K. Soebiandono, MBA Managing Director Pt. Mitra Palma Kalbar (oil palm plantations) Jl. Tanjung Pura, Komplek Tanjung Pura Indah Blok C No. 9 – 10 Pontianak 78117 West Kalimantan Ph: 62-561-32910, 37291, Fax: 62-561-33683 Ir. Toyib Sutopo Production Supervisor, Breeding Farm Pr. Cipta Khatulistiwa Mandiri Farm (Charoen Pokphand Group) Ds. Ambalau Kel. Anjungan Melancar Km. 62 Kec. Sei Pinyuh West Kalimantan Ph: 62-561-92777

Effendy Syahrir Pt. Esra Ariyasa Utama Jl. A. Yani no 22 Pontianak West Kalimantan Ph: 62-561-32143 Fax: 62-561-44264 Rudy Syamsuddin Manager PT. Ligo Mitra Supermarket & Department Store Jln. Gajah Mada No 77 Pontianak West Kalimantan Ph: 62-561-37382, 38474 Fax: 62-561-36253 JAKARTA Ir. M. Asy’ari Akbar Director PT. Panguji Luhur Utama Jl. Spg VII No. 12 Lubang Buaya Jakarta 13810 Indonesia Ph: 62-21-841 3768 Fax: 62-21-841 3768 Ir. Sapto Hadi General Manager Pt. Griya Senturi Asri Jl Sultan Hasanuddin No. 6 Jakarta 12160 Ph: 62-21-720 3484, 725 2325 Fax: 62-21-720 3487 Jimmy Handoko Director Pt Dharmala Agrifood Tbk Wisma Dharmala Sakti, 20th Fl. Jl. Jenderal Sudirman 32 Jakarta 10220 Ph: 62-21-251 0688-89 Fax: 62-21-251 0685 Achmad Kuntjoro Corporate Director – Finance Kalimanis Group (pulp, plywood, palm oil plantation) 6th Fl, Wisma Kalimanis Jl. Let. Jen. Haryono MT. Kav 33 Jakarta 12770 Ph: 62-21-798 5929 Fax: 62-21-798 5894

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Teddy Suratmadji Production & Environment Director (pulp and plywood) Kiani Kertas, of Kalimanis Group Wisma Kalimanis 4th Floor Jl. M.T. Haryono Kav. 33 Jakarta 12770 Ph: 62-21-798 6065, 66 Fax: 62-21-798 6036 Mr. Mike McEvoy Senior consultant, Livestock Directorate, Department of Agriculture C/- ANZDEC (NZ) Bank Panin Pusat, 2nd Floor Jl. Jend. Sudirman 1 Senayan Jakarta 10270 Ph: 62-21-765 2537 Fax: 62-21-720 1970 Peni Sari Palupi Editorial Staff Trubus Agricultural Magazine Jl. Gunung Sahari III/7 Jakarta 10610 Ph: 62-21-421 4884 Fax: 62-21-421 4884 F. Rahardi Vice-Managing Director Vice-Editor In Chief Trubus Agricultural Magazine Jl. Gunung Sahari III/7 Jakarta 10610 Ph: 62-21-421 4884 Fax: 62-21-421 4884 Onny Untung Agriculture Consultant Trubus Agricultural Magazine Jl. Gunung Sahari III/7 Jakarta 10610 Ph: 62-21-421 4884 Fax: 62-21-421 4884

Ir. Emil Harda, MM Operations Manager Hasfarm International Corporation Jl. Cipaku I No. 13 Kebayoran Baru Jakarta South 12170 Ph: 62-21-722 1974, 725 7578 Fax: 62-21-722 1977 Ir. Syech A. Moolfar Managing Director Hasfarm Plantations Jl. Cipaku I No. 13 Kebayoran Baru Jakarta South 12170 Ph: 62-21-722 1974, 725 7578 Fax: 62-21-720 1977 Em. Haryadi Director, Development Management and Training Specialist Bina Swadaya Community Self Reliance Development Agency Jl. Gunung Sahari III/7 Jakarta Pusat 10610 Ph: 62-21-420 4402, 425 6535 Fax: 62-21-420 8412 SINGAPORE Karine Lainé Cocoa Research Manager Nestlé Nestlé R&D Centre 29 Quality Road Singapore 618802 Ph: 65-268-6505 Fax: 65-265-5633

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Biro Pusat Statistik. 1997. Statistik Kesejahteraan Rakyat (Welfare Statistics) 1996. Jakarta: Biro Pusat Statistik. Biro Pusat Statistik. 1997. Monthly Statistical Bulletin: Economic Indicators July 1997. Jakarta: Biro Pusat Statistik. BKPM. 1996. ‘Trends of Domestic Investment Approvals by Sector 1992 – February 15, 1996.’ BKPM Monthly Report Feb: A012–A015. Bolt, C. 1997. ‘Hard Fight Ahead with US Meat Exporters.’ Australian Financial Review. Aug. 15: 11. Bolt, C. 1997. ‘Beef Market is Looking Up Says Council.’ Australian Financial Review. Jul. 14: 3. Central Kalimantan Regional Development Planning Agency. Business and Investment Opportunities in Central Kalimantan Province. Chandra, S. 1997. Restrictions on Retail Chains (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Jun. 11). Chandra, S. 1996. Health Foods (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Aug. 1). DC/ICN. 1996. ‘Government Intensifies Development of Sugar-Production Centres in Areas Outside of Java.’ DC/ICN. Aug. 26 (No. 202): 50–52. DC/ICN. 1996. ‘In Food Sector, Indonesia Finds it Difficult to Keep up with Trade Globalisation.’ DC/ICN. Mar. 11 (No. 191): 3–6. Department Pertanian Propinsi Kalimantan Timur. 1996. Perencanaan Pengembangan Agribisnis Melalui Baseline Study Dan Swot Di Kotamadya Dati II Balikpapan. Department of Agriculture, The North Sulawesi Provincial Office, Manado. 1997. Investment Handbook on Agroindustry in the North Sulawesi Province. Department of Foreign Affairs and Trade. Asialine. Various issues. Department of Industry and Trade, North Sulawesi Provincial Office. 1997. North Sulawesi Exporters Directory. Department of Industry and Trade, North Sulawesi Provincial Office. 1997. List of Various Industrial Companies in North Sulawesi. Earl, G. 1998. ‘Doubts Linger Despite Free-Trade Statement.’ Australian Financial Review. 5 March. Earl, G. 1997. ‘Indonesia Defends Salim Plan.’ Australian Financial Review. Aug. 1: 31.

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Earl, G. 1997. ‘Salim Group Turns to Singapore.’ Australian Financial Review. Jul. 17: 10. Eastern Indonesia Development Council. 1997. The Opportunity of Investment in Eastern Indonesia. Eaton. 1996. Surabaya Economic Profile (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Jul. 5). Eaton. 1995. Indonesia: Eastern Indonesia Economic Profile (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Apr. 13). Economic & Business Review Indonesia. 1996. ‘Flour Milling Unit Key to Indofood’s Future Earnings.’ Economic & Business Review Indonesia. Jul. 24 (No. 223): 14. Fane, G. 1995. Economic Reform and Deregulation in Australia. Canberra: Centre of Economic Policy Research, Australian National University Felton-Taylor, L., S. Doyle & T. Scanlan. 1995. ‘The Changing Nature of Australia’s Agrifood and Fibre Exports to ASEAN.’ Outlook 1995: 43–59. Government of Central Kalimantan Province. Investment Opportunities in the Province of Central Kalimantan. Government of West Kalimantan Province. Potency and Opportunities Prospect in West Kalimantan. Governor of South Sulawesi. Agricultural Product Promotional and Selling Policy to Assist Agrobusiness and Agroindustry in South Sulawesi. Gray, S. 1996. ‘Distribution of Mandarins in Indonesia.’ Australasian Agribusiness Review. 4(2): 45–59. Hartono, H. S. 1996. Market Development Report (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (ID9624V). Hilfe Country Report. 1997. Indonesia: January 1996 (Country Profile). Quest Economics Database (Jan.). Jakarta Post. 1996. ‘RI Feared to Become Asia’s Largest Importer of Foodstuffs.’ Jakarta Post. Aug. 15: 1. Jakarta Post. 1996. ‘New Paradigm Needed to Face Globalisation: Economists.’ Jakarta Post. Aug. 14: 1. Jakarta Post. 1996. ‘Pesticide Content in Fruit to be Regulated.’ Jakarta Post. Aug. 14: 10. Jakarta Post. 1996. ‘Poor Management May Stall Agricultural Development.’ Jakarta Post Aug. 9: 12. JICA. 1997. Provincial Profiles of Eastern Indonesia: South Sulawesi.

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Kantor Statistik Dengan Bappeda Propinsi Sulawesi Tengah. 1995. Regional Income of Central Sulawesi. Kantor Statistik Dengan Bappeda Propinsi Sulawesi Tengah. 1995. Central Sulawesi in Figures. Kantor Statistik Prop. 1996. South Kalimantan in Figure. Kantor Statistik Prop. 1996. East Kalimantan in Figures. Kantor Statistik Prop. Kalimantan Barat. 1996. Central Kalimantan in Figures. Kantor Statistik Prop. Kalimantan Barat. 1996. West Kalimantan in Figures. Kantor Statistik Propinsi Sulawesi Tenggara. 1995. Sulawesi Tenggara Dalam Angka 1995. Kompas Online. 1996. ‘Perlu, Reorientasi Paradigma Pangan Nasional.’ Kompas Online. URL: http://www.kompas.com/9609/14/DAERAH/perlu.htm Sep. 14. Kompas Online. 1996. ‘RUU Pangan Masih dalam Pembahasan DPR.’ Kompas Online. URL: http://www.kompas.com/9609/7/DAERAH/ruup.htm Sep. 7. Kumalasari, M. 1997. Import of Beef (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Jan. 6). Kumalasari, M. 1996. Shipping Consumer-Ready Food Products (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Oct. 15). Kumalasari, M. 1996. Rice Field Irrigation Construction Project (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Apr. 16). McBeth, J. 1995. ‘Swamp for Sale: Indonesia Woos Private Sector for Huge Rice Scheme.’ Far Eastern Economic Review. Sep. 7: 58–59. Ministry of Investment. 1996. Indonesia: Investment Statistics. Jakarta: Ministry of Investment. Nirang, Sylvia Gratia M. 1998. ‘Country’s Poultry Farmers on the Verge of Bankruptcy.’ Jakarta Post. 8 Feb.: 2. Plansearch & Associates 1996. Retail/Wholesale Distribution Channels (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Aug. 1). Prapti Widinugraheni. 1996. ‘Borrowed System May Not Make Land Project a Success.’ Jakarta Post. Aug. 8: 8.

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Provincial Government of South-east Sulawesi Regional Investment Coordinating Board. 1996. Commodity Profile: South-east Sulawesi. Provincial Investment of Coordinative Board West Kalimantan. 1996. Profile Investment of West Kalimantan. Riang, K. 1997. Indonesia’s Imports of Sugar Up (Series: International Market Insights). Jakarta (US Embassy): National Trade Data Bank: Market Reports (Apr. 15). Regional Investment Coordinating Board of West Kalimantan. 1997. Investment Opportunities West Kalimantan. Regional Investment Coordinating Board North Sulawesi. 1995. Investment Opportunity: North Sulawesi Manado. Reuters. 1997. ‘Jakarta Cuts Tariffs on 1,600 Items.’ Australian Financial Review 9 July: 8. Rutherford, A. 1995. ‘Australian Beef Exports: Dead or Alive.’ Review of Marketing and Agricultural Economics. 63(2): 340– 48. Rural Industries Research and Development Corporation. 1997. Strategic Plan: 1997 to 2002. URL: http://www.dpie.gov.au/rirdc/pub/strat1.html (Jun. 1997). Rural Industries Research and Development Corporation. 1997. . Strategic Plan: 1997 to 2002: Investment Objectives by Sub-Program. URL: http://www.dpie.gov.au/rirdc/pub/strat4.html (Jun. 1997). Samuel, S. N., B. Anderson & G. Riggs. 1996. ‘Research Funding for Australian Agribusiness: Some Empirical Evidence.’ Australasian Agribusiness Review. 4(2): 63–82. Sjarifudin Baharsjah 1995. Keynote Speech: The Minister of Agriculture. 22nd IABC-AIBC Annual Joint Conference, Semarang (May 2). Statistical Office of North Sulawesi. 1995. North Sulawesi in Figures 1995. Statistical Office of South Sulawesi. 1995. South Sulawesi in Figures 1995. Thornton, E. 1995. ‘Cheaper by the Dozen: Matahari Stores Transform Indonesia’s Retail Sector.’ Far Eastern Economic Review Jul. 20: 73. Treadgold, A. 1995. Food Retailing in South East Asia: Exploiting the Opportunities. Canberra: Rural Industries Research and Development Corporation. Trewin, R. 1996. ‘Linkages Among Indonesian Grains, Livestock and Value Adding Sectors: Implications for Australian Agribusiness.’ Australasian Agribusiness Review 4(1): 23–45. Union Bank of Switzerland. 1997. Indonesia (Country Profile). Quest Economics Database (Apr.).

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INSTRUCTIONS FOR PRINTER Pub no 99/42 BACK COVER BLURB: This report surveys the agribusiness opportunities for Australian companies in selected regions of Indonesia. Recognising that Indonesia is a very large and diverse country, not a single market, the study concentrates on the eight provinces of Kalimantan and Sulawesi. It is a companion volume to an earlier study by the Asia Research Centre, published as RIRDC Research Paper 96/6, which covered Sumatra and East Java. This publication, one of over 300 RIRDC research reports, can be veiwed and purchased online at www.rirdc.gov.au/pub/cat/contents.html SPINE TEXT Agribusiness Opportunities in Kalimantan & Sulawesi RIRDC Publication No. 99/42

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