F

ood policy debates over the last four years in Indonesia have been well-dominated by staple food fundamentalism, as the government has allocated over Rp 23 trillion (US$1.58 billion) of state budget in 2018 to boost the production of rice, maize and soybean, known by its Indonesian acronym as Pajale.

This article shows that the economics of horticulture are equally important as in “traditional” staple foods, since middle-income consumers and the urban population have increased significantly.

In 2025, the urban population is estimated to reach 60 percent of the total population of 284 million. Urban consumers in Indonesia spent 16 percent of their budget on rice, 15 percent on fruit and vegetables and 22 percent on animal protein (meat, fish, eggs and dairy). Rural consumers spent 24 percent on rice, 17 percent on fruit and vegetables and 20 percent on animal protein.

There are at least four strategic policies needed for horticulture development.

First, mainstreaming the economic policy of horticulture. The horticulture sector in Indonesia generally consists of fruits, vegetables, flowers and medicinal plants, has contributed about 2 percent to gross domestic product (GDP) and provides livelihood to 35 percent of farmers. Horticulture production centers are concentrated in Java, although a comprehensive mapping of the supply of and demand for horticulture is not currently available.

Indonesian horticulture is somewhat uneven, varying greatly in terms of capacity of farmers and other actors, economies of scale and access to information networks, market, technology and financing. Vegetable farming involves small farmers, with low levels of education, economical inefficiencies and facing unfriendly market structures. The fruit subsector relies mostly on seasons, and finds it difficult to fulfill the administrative bureaucracy of modern supermarkets and retailers.

Indonesia needs to refocus the future food policy to anticipate the growing middle-income consumers and rapid increase of urban population in recent years that will increase demand for horticultural products.

Currently, average fruit consumption in Indonesia is only 40.35 kilograms per capita, far below the World Health Organization’s (WHO) standard fruit consumption recommendation of 91.25 kg per capita. Average vegetable consumption is only 35 kg per capita, or less than half of WHO’s standard of 73 kg per capita. Fruit consumption is projected to grow rapidly as the economy grows, while income levels also grow steadily and people’s awareness of a balanced diet increases.

Second, compliance with good agricultural practices (GAP). The horticulture production system in Indonesia is traditional, where less than 20 percent of farmers have adopted GAP, hence resulting in low productivity and uncertain farmers’ income.

The structural dimensions of the production systems have complicated the supply response of such rapid growing demand of horticulture.

The vegetable subsector involves small farmers also with low education and economical inefficiencies, and is often adversely affected by unfriendly market structures. As the fruit subsector relies mostly on seasons, without adequate cultivation techniques it is difficult to face the administration of modern supermarket and retail businesses. Nearly 90 percent of horticulture farmers have to market their produce through middlemen and shoulder the costs and other burdens of value chain inefficiency in the sector.

Future policy should encourage contract farming between small farmers and private sectors/buyers in traditional markets or supermarkets to ensure the application of GAP at the farm level. The government provides the rules and regulations that can encourage the mutual benefits of partnerships and increase the economies of scale of horticulture businesses, and integrate with regional development.

The central and local governments should work together to improve the management of supply and demand for horticulture throughout the year, including providing adequate access to market information, technology and working capital.

Improving production and productivity of horticulture could also be conducted by working more closely with “champion-farmers”, or those who are advanced in the knowledge of horticulture production system, from seed to market, and who are easily available in each district, subdistrict or horticulture-producing area.

Third, horticulture value chains as a system. Economic performance of downstream or off-farm sectors horticultural products might be somewhat different from the on-farm sectors, although they seem to be facing more complicated issues in the overall agrifood systems. Farmers and small-scale traders do not have easy access to cold-storage facilities to improve the distribution balance, hence creating spatial price disparities.

Logistics problems or lack of connectivity have worsened the price disparities between producer and consumer centers. Protectionist measures for the sake of price stabilization policies in shallots and chili have created more market speculation, instead of market innovation.

In addition, Indonesia was punished by the World Trade Organization (WTO) due to quantitative import restrictions and has to revise the trade policies in horticulture. Indonesia needs to improve the performance of traditional markets as the majority (over 80 percent) of horticulture products go through cooperation with Wholesale Market (Pasar Induk) as a hub of product collection and distribution to consuming areas across the country.

Large and medium cities should implement spatial planning and zoning policies for end-to-end waste management from these traditional markets of horticulture. Also, partnering with supermarkets should be conducted as the supermarket chains have generally provided better services in differentiating the horticultural products, such as food safety, grading and standards for fruits and vegetables. Small farmers and farmers’ groups that meet the requirements imposed by the supermarkets might have a better chance of getting higher farm incomes.

Fourth, the development of the seed industry of horticulture. The policy of the seed industry of horticulture involving the government, private sectors, farmers and local breeders has not resulted in better performance of domestic seed companies or breeders. More than 70 percent of the seed market in Indonesia is controlled by foreign-affiliated companies, such as PT East-West (45 percent), PT Bisi (25 percent), PT Benih Citra Asia (7 percent), PT Primasid Andalan (7 percent), PT Syngenta (4 percent), PT Mulia Bintang (4 percent) etc. Policy strategies to protect domestic seed industries by limiting the imports and shares of ownership in foreign companies, such as stipulated in Law No. 13/2010, have not solved the root of the problems of low-quality domestic seeds.

A more innovative policy should be formulated and implemented in the near future. This includes facilitating local private roles for local seed supply, new investments of seed companies, assigning specific state-owned enterprises, domestic universities and research and development agencies that have been developing new high-yielding seed varieties.
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