Indonesia is the fourth largest country in the world after China, India and the US. The International Monetary Fund (IMF) has estimated that the population of Indonesia will reach 255 million in 2015, around 3.5 percent of the world'€™s total population.

The figure represents an almost twofold increase from 1980 when Indonesia'€™s population stood at 150 million. By 2030, the National Development Planning Board (Bappenas) predicts that the Indonesian population will reach 296 million. The IMF estimated that the population growth rate in Indonesia in 2014 was greater than that in 2000.

Indonesia'€™s population growth rate in 2014 reached 1.43 percent, higher than 1.16 percent in 2000. This figure is also higher than China (0.5 percent), India (1.3 percent) and the US (0.6 percent). It is even higher than the world'€™s population growth rate as a whole (1.16 percent) as well as above the rate for emerging markets (EM) and developing countries (1.28 percent).

With such a big population and growth rate, the Indonesian government needs to be ready to provide adequate food in terms of both quantity and quality. If these requirements for food are not met, this will cause several social problems like poverty, hunger and a decline in human resources quality in the long term. Food is a basic necessity for every human being in order to survive. The availability of healthy food together with appropriate nutrition will ultimately determine the quality of a country'€™s human resources.

To support food security, it is crucial that good infrastructure extends to all corners of the country so that food produce can be distributed evenly and accurately. Geographically, the fact that Indonesia is an archipelagic country presents serious challenges for the government. Another challenge to building national food security arises from the uneven nature of the population distribution among Indonesia'€™s islands. Since Indonesia has a huge number of islands, infrastructure and logistics systems need to be considered in order to facilitate the public obtaining essential sources of food.

Based on a World Bank survey, the 2014 Logistics Performance Index (LPI), Indonesia ranked 53rd out of the 160 countries observed. This ranking was worse than some ASEAN member countries, such as Singapore (5), Malaysia (25), Thailand (35) and Vietnam (48). However, Indonesia'€™s ranking did represent an improvement from the 2012 survey, in which it was rated 59th out of 155 countries. The role of a logistics system is to ensure the smooth flow of goods to consumers.

With respect to the food sector, the role of banks in supporting the agricultural, hunting and forestry, livestock, as well as marine and fisheries industries is continually growing. In 2014, loans to the agricultural sector grew by 19.9 percent year-on-year (yoy) to Rp 220 trillion, significantly higher than total credit growth of 11.9 percent. In the last five years, average annual growth of agricultural sector loans amounted to 23.3 percent, also greater than the average annual growth of total loans from commercial banks, which stood at 20.7 percent over the same period.

For 2015, the Financial Services Authority (OJK) expects credit to the agricultural, hunting and forestry, livestock as well as marine and fisheries sectors to grow by Rp 43 trillion, or 20.3 percent yoy.

With the increasing amount of credit detailed above, banks were able to manage non-performing loans (NPL) in the agricultural sector at a low level of 1.8 percent in 2014. This NPL figure is an excellent improvement on the 2001 figure of 18.5 percent, as well as that of 3.7 percent in 2007. The level of NPL in the agricultural sector was also lower than NPL of total bank credit in 2014, which stood at 2.2 percent.

Overall, the level of NPL in the food sector was quite low, but NPL in the livestock and marine and fisheries sectors were higher than the NPL figure for total credit. NPL in the marine and fisheries sector in 2014 amounted to 2.5 percent. This figure did, however, represent an improvement from 5.7 percent in 2011, 3.3 percent in 2012 and 2.9 percent in 2013. Meanwhile, NPL in the livestock sector require special attention as they stood at 4.3 percent in 2014, worse than their 2013 level of 3.6 percent.

In terms of the share of financing, lending in the agricultural sector was relatively low at only 5.9 percent of total credit disbursement in 2014. This was far below the share of lending in the trade, restaurant and hotel sectors (21.5 percent) and the manufacturing sector (18.0 percent). The agricultural sector'€™s share of financing in 2014 remained at 5.7 percent of the total loan portfolio of commercial banks in Indonesia, the same as in 2007.

Going forward, the government needs to find a real strategy to encourage investment in the food sector. An increase in capital per worker in the agricultural sector will encourage productivity, thereby ensuring that national food needs are safely met. Investment in this sector is also important because an increase in income for those working in the agricultural sector supports faster growth in this sector than that of the national economy. In addition, with improved innovations and technology, other planting media could be discovered, which in turn would enhance the amount of domestic food production.

On the banking side, an increased role of banks in financing food-related sectors should be complemented by the participation of microfinance institutions and cooperatives. Banking systems need to overcome the limitations of network coverage of financial institutions, ensuring banks are able to offer financial products, according to the business characteristics of the agricultural, livestock and fisheries sectors. It is also important to enhance information related to sources of financing, as well as financing mechanisms and conditions for micro, small and medium enterprises (MSMEs).

The banking sector also needs the support of government programs, such as linkages between banks and insurance companies, pawnshops, local credit guarantee companies, rural banks and cooperatives, as well as the support of telecommunications companies.
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Nurul Y. Karunia is a junior economist at the Office of Chief Economist (OCE) at Bank Mandiri (Persero). The views expressed are her own.

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