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Jakarta Post

The imbroglio of foreign investment in the horticultural seed business

  • Vincent Lingga

    The Jakarta Post

Jakarta   /   Wed, October 21, 2020   /   08:31 am
The imbroglio of foreign investment in the horticultural seed business Illustration of vegetables. (Shutterstock/ Morinka)

One of the greatest impacts of the Job Creation Law on the agricultural sector is the liberalization of foreign direct investment (FDI) in developing hybrid seeds for horticulture, which produces vegetables, fruits, flowers and bio-pharmacy products.

The jobs law abolishes the 30 percent cap on FDI in horticultural seed development by amending the 2010 Horticulture Law, which has constricted Indonesia’s agriculture since 2015.

Unfortunately, there is great uncertainty about the liberalization of FDI. Several narrow-minded farming and civil-society organizations will surely challenge the amendment at the Constitutional Court, and they may likely win because the same court turned down a petition for judicial review advocating for the repeal of the same FDI restriction filed by the Association of Horticultural Seed Producers in early 2015.

But such an imbroglio in the seed development industry would hinder the growth of horticulture, which has been playing an increasingly important role in providing main staple foods and export commodities.

Look at how we have been importing billions of dollars worth of horticulture products annually, while countries such as Thailand, Vietnam and the Philippines, which welcome FDI in the horticultural seed business have seen significant earnings from horticultural exports.

The seed development industry, which is a highly knowledge-based business, is key to agricultural development because high-quality seeds, in addition to appropriate fertilizer, pesticides and the best farm practices, determine the productivity of crops.

Ideally, we should develop a strong national foundation for our own seed breeding industry, but this process cannot be achieved by simply forcing foreign investors to divest their controlling ownership in seed businesses.

What the government should do instead is impose strict terms and provide incentives to foreign investors to accelerate the process of transferring scientific knowledge and research capability to Indonesian scientists and companies.

With a population of more than 270 million and counting, Indonesia is a potentially huge market for horticultural products.

But even after the compulsory divestment by foreign investors, the horticulture seed market has been dominated by foreign hybrid seed producers such as Syngenta, DuPont, Bayer, Monsanto and BISI.  

But this dominant role should be attributed to their centuries of experience in research and development in biotechnology and plant breeding. The foreign seed producing companies would simply move their research and knowledge to other ASEAN countries like Thailand and Vietnam, which still allow foreign-majority ownership but under strict conditions on the transfer of research and biotechnological knowledge to locals.

Seed development, besides being highly knowledge-based, is also labor-intensive because the process requires many farm research stations designed to meet the specific conditions of distinct areas, the training of farmers in different provinces to produce certified seeds and wide networks of agricultural extension services.

Most senior Indonesian crop researchers have acknowledged that the remarkable development of horticultural commodities in the country over the past decade should be attributed to the participation of foreign seed companies and their well-equipped research stations and experienced researchers.

But the investment restrictions over the past five years have reduced the participation of foreign seed companies.

Well-functioning seed markets are essential for agriculture and food security. The growth in crop production depends on improved varieties made possible by public and private investments in R&D.

Continued investments in these genetic improvements are necessary for a sustainable increase in agricultural productivity. For this reason, it is important to ensure seed markets remain competitive and innovative.

Horticulture has also played an increasingly important role in our food security as more middle and high-income people have diversified their main staple foods away from rice into horticulture, notably vegetables and fruits. Unfortunately, almost 60 percent of vegetables and fruits sold at supermarkets now are imported.

To meet consumer needs, the quality of horticultural products should be improved and their production should be increased. But the availability of good quality seeds is key to the growth of food crops. Experience during the green revolution proved this.

Horticultural production can be promoted by facilitating farmers’ access to wholesale markets and supermarkets, credit financing, agricultural extension services, better transportation infrastructure, agricultural extension services and high-yield parent seeds.

Traditional retail markets need improved hygiene and sanitary standards, infrastructure (pavement, roads and stalls) and cold chain systems. This will create an efficient system linking producers, processors and packers to the modern procurement system.

Farmers need guidance from extension service workers so that they can meet the standards required by supermarkets. Good and reliable transportation is also quite crucial because vegetables and fruits are highly perishable commodities.

The application of contract-farming schemes between farmers’ associations or farmers’ cooperatives and large supermarket chains is quite appropriate. Under such contract-farming schemes, supermarket chains can act as the development agent for horticultural farmers, providing them with extension services, farm inputs, credit financing and market outlets.

But given the weak bargaining position of farmers, it is imperative for the government to draw clear-cut guidelines to ensure that the terms of the contracts for such farming schemes protect the interests of both the farmers and the retailers equally.

It is encouraging to observe that several agritech companies are improving coordination in the supply chains of the horticulture industry. The firms use digital platforms and new technologies to connect farmers with traders, lenders, consumers and machine and input suppliers.

These agritech startups, such as TaniGroup and 8villages, have attracted tens of million dollars in investment from foreign venture capital firms and national business groups such as Salim Group, Triputra and Sinar Mas.


Senior editor at The Jakarta Post