TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Analysis: Can Indonesia become the global seaweed champion?
Indonesia’s export structure is largely dominated by natural commodities, such as crude palm oil (CPO), coal and rubber
Change Size
Indonesia’s export structure is largely dominated by natural commodities, such as crude palm oil (CPO), coal and rubber. All of these commodities are mostly exported rather than consumed domestically. Hence, commodity prices impact export performance.
Global CPO and coal prices declined throughout 2019. Consequently, Indonesia’s export value dropped 8.6 percent year-on-year (yoy) in the first half, in contrast to the same period last year when export value rose 9.8 percent yoy.
Indonesia suffered a trade deficit of US$1.9 billion during the first half, higher than the $1.2 billion in the same period last year.
To reduce the deficit, Indonesia should export more finished goods instead of raw commodities. However, it will take decades to revolutionize manufacturing.
Alternatively, Indonesia should focus on promoting sectors that have greater export value. One of the examples is the seaweed sector.
The export value of this sector is indeed small, however because of its simpler business structure this sector can be boosted faster than industrial sectors.
Food and Agriculture Organization (FAO) data shows that Indonesia was the second biggest seaweed producer in 2015, with 11.3 million tons of wet seaweed produced, contributing 39 percent of seaweed produced globally.
China controls the largest market share with 47.9 percent. However, Indonesia is growing the sector faster than China.
Between 2010 and 2015, Indonesia’s wet seaweed production grew 23.7 percent annually, while China’s production only grew 4.7 percent. Furthermore, Indonesia’s production growth slowed between 2016 and 2018 because of stagnant demand from China, which is also the biggest seaweed consumer.
Nevertheless, the Maritime Affairs and Fisheries Ministry has set a higher production target of 11 million tons in 2018 and 11.8 million tons in 2019.
In terms of farming area, Indonesia still has abundant resources. According to the ministry, seaweed aquaculture area is 267.8 hectares, or only 2.2 percent of total indicative cultivation area. As the biggest archipelago country, Indonesia has the biggest potential farming area for seaweed cultivation in the world. Hence, Indonesia has the potential to become the biggest seaweed producer in the world.
Most Indonesian seaweed is exported rather than consumed domestically. Indonesia’s seaweed export volume has increased significantly since 2010 from 123,100 tons to 201,200 tons in 2018.
Additionally, Indonesia’s seaweed export volume in the first five months of this year reached 68,900 tons, an increase by 3.6 percent yoy.
At this rate, Indonesia is the biggest seaweed exporter in the world because China’s production is used for its own consumption.
Approximately 78.8 percent of exported Indonesian seaweed is sold to China. Most of China’s seaweed imports come from Indonesia. Indonesia’s market share in China was 49.5 percent in 2010 and increased by 64.3 percent in 2018.
Most seaweed producers are in the eastern part of Indonesia, namely South Sulawesi, East Nusa Tenggara, Southeast Sulawesi, West Nusa Tenggara (NTB) and Maluku.
The production of these five provinces accounted for more than 76 percent of total seaweed produced in 2017. Additionally, seaweed farmers in South Sulawesi enjoyed prices higher than other provinces, while seaweed farmers from NTB received the lowest.
This could be caused by different types of seaweed produced or higher logistics costs. The later is due to the distance between producers and processors or export facilities. It is important to develop some sort of export hub near cultivation areas to reduce logistics costs.
Furthermore, the downstream industry for seaweed in Indonesia has not been fully developed yet, as 80 percent of exports are still in the form of dry raw seaweed.
Government efforts to encourage the establishment of seaweed processing facilities near the cultivation center has not been optimal. One of the biggest problems is a lack of competence of human resources and technology to develop downstream products.
Remapping seaweed seedlings to match with market needs can also boost seaweed exports. For example, 87.7 percent of Indonesia seaweed export in 2018 was categorized as seaweed that can be consumed by humans and only 12.3 percent is used for specific industrial needs. Through diversification, Indonesia can improve its competitive advantages among competitors.
In addition to improving production, Indonesia should also expand its export market outside China. Indonesia should apply the international standard and certification for sustainable seaweed farming.
It is important in order to enter a more modern market, such as the European Union, United States and Japan. Complying on international standards in other agricultural products could help penetrate those markets.
Targeting these markets could help offset China’s market if it does not expand in the coming year.
Despite of all the advantages, support for the seaweed sector is low.
Bank loans to this sector are miniscule. Although credit quality is maintained at a low nonperforming loan (NPL) ratio, investments are barely visible. It is important for the government and private sector to work hand-in-hand to improve this sector. Even though the size of this sector is relatively small, Indonesia has the potential to become a global champion.
_______________
The writer is an industry analyst at Bank Mandiri
