Opinion

APEC’s supply chain connectivity
and its benefit to agro-industry

This year, Indonesia will host the Asia-Pacific Economic Cooperation (APEC) Conference in October 2013, and will hold four Senior Officials Meetings (SOMs), 12 Sector Ministerial Meetings, an APEC CEO Summit and the Economic Leaders Meeting. From Jan. 24 to Feb. 8, APEC, SOM I and related meetings are taking place in Jakarta.

APEC is an intergovernmental forum dedicated to promoting free trade, investment and economic cooperation throughout the Asia-Pacific region.

As stated earlier this month by Foreign Minister Marty Natalegawa, Indonesia will include its own national interest issues on the agenda such as economic resilience, improvement of small- and medium-scale business competitiveness, sustainable growth and food security.

One of the key issues in connection with food security is the sustainability of the supply chain in agricultural production.

The agro-industry — broadly described as the post-harvest activities involved in the transformation, preservation and preparation of agricultural products for intermediary or final consumption — occupies a dominant position in manufacturing as developing countries step up their growth.

In Indonesia, the agro-industry has become more important recently as data from the Central Statistic Bureau showed that in 2012, economic growth was spurred by the processing industry, many being agro-industries, responsible for 23.5 percent of Indonesian Gross Domestic Product (GDP).

The agro-industry processes the country’s top commodities, including oil palm, rubber, cocoa, fish, wood and paper.

In world’s food market, there is a growing trend of a global supply chain that involves the agro-industry and agriculture in developing countries.

Data reveals that since 2001 sales of global food processing has increased from US$250 billion in 2001 to more than $300 billion in 2008 (Mulle & Rauppener, 2010; 16).

As evidence indicates tariffs for agricultural goods and food-processing goods in the region have mostly been zero, in the future, the regional food supply chain will be a source of food security in Indonesia.

To be able to channel Indonesian products efficiently, rather than relying on supply from other countries, Indonesia should create an enabling environment and develop the capacity of small-hold farmers.

To create a favorable environment to boost the performance of the agro-industry, international cooperation is needed.

APEC has discussed a supply chain connectivity framework since 2010 and Indonesia is party to the negotiations.

The aim of APEC’s Supply Chain Connectivity Framework is to provide an enabling environment — logistics, transportation, cross-border transit, infrastructure — to APEC economies by developing partnerships among economies.

Out of eight points in the APEC Supply Chain Connectivity Framework, Indonesia has only participated in three: Action plan to improve transport infrastructure, action plan to improve local/regional logistics sub providers and action plan to enhance security and quality of cross-border communications. Indonesia led the analytical work for the logistics infrastructure sub-action plan.

To improve competitiveness in the agro-industry, Christy et.al (2009; 150), prescribes three kinds of enablers, which are essential (trade policy, infrastructure and land tenure), important (financial services, research and development, standard and regulation) and useful enablers (business linkages and business development services).

Referring to this scheme, the Indonesian government needs to improve international diplomacy in the food supply chain in order to increase competitiveness in the regional and world market.

Regarding prerequisites to survive the global food supply chain, developing the capacity of small-hold farmers also needs to be translated in policy language.

Besides the conventional “hardware” tools of the supply chain, such as infrastructure, service sector and trade policies, Indonesia also needs the “software” tool — research and development.

This discussion has been left out of the APEC Supply Chain Connectivity Framework, although under APEC Policy Partnership on Science, Technology and Innovation (PPSTI) the research and development area has been explored.

In some cases, trade among Asia Pacific economies can trigger the development of the agro-industry sector.

Vietnam, for example, has succeeded in developing an agricultural mechanization for rice
processing after the country imported machines from developed countries, thus, improving the quality and value of processing agricultural goods. Vietnam now is the second top rice exporter in the world market.

Why is Asia Pacific important for the Indonesian food supply chain? Economically, China, Japan, Singapore and America are the four principal export destinations for Indonesia.

Australia, an Asia Pacific economy, is also important for Indonesian export and import activities.

While Indonesia provides raw materials other APEC economies such as Australia, Japan, the US and Canada are advanced in service sectors that can bring positive contribution to our supply chain capacities.

Latin American countries, such as Chile, Peru, and Mexico, could be new channels for trade as Trade Minister Gita Wirjawan said that trade between Indonesia and Latin American economies was increasing by 10-20 percent after the ASEAN Latin Business Forum in 2012.

Another reason why Asia Pacific could be important for Indonesian agri-business is that politically Asia Pacific is the nearest extended network of ASEAN Economic Integration as well as ASEAN Integration.

APEC dialogue and agenda will benefit the transformation of the Indonesian economy from agriculture based to agro-industry based. Closer economic cooperation will enable the free movement of machinery and logistic services, which Indonesia needs.

Regional policy dialogue and communication will lead the Asia Pacific economies, including Indonesia, to harmonize sustainable standards of production regionally.

Thus, Indonesia as a chair of APEC Conference in 2013 should be able to pursue the important agenda of the food supply chain as part of national economic competitiveness as well as regional food security.

The writer is a researcher for the trade knowledge network program at the International Institute for
Sustainable Development (IISD). The opinions expressed are personal.

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