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Growing Green: Indonesia Government initiatives give an edge to the Agriculture Equipment Market to grow in Indonesia

May 29, 2023
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Agriculture has been the backbone of Indonesia’s economy and agriculture equipment is one of the important aspects of the farming industry. The agriculture equipment sector is growing at a CAGR of ~9 between 2014 and 2020, as per the Ken Research report. However, the market was impacted by the global pandemic.
Here is a glimpse of the Indonesian agriculture industry and a deep insight into the country’s government schemes to promote the growth of the sector.

1) With ~57 Mn Ha of Agricultural Lands, farming has long been the backbone of Indonesia’s economy

Agricultural Indicators in Indonesia2

Parameters 2010 2015 2019
Number of Farm (‘000) 23 K ~26.1 K NA
Average Farm Size (in Ha) ~<1 Ha ~0.3-0.5 NA
Land in Farms (in Mn Ha) 40.1 37.5 ~57
Per Capita Cultivated Land (in Ha) 0.188 0.178 NA
Agricultural Labour Productivity (in ‘000 Rp at Constant Price 2010) ~25K ~31K ~35.5K
Livestock Inventory (Mn Animals) 6.25 4.06 3.85

Average Farm Wage in Rural Area for Food Crops in Rp / day, 20192

Plowing Hoeing Harvesting Planting
62,532 62,236 55,908 55,127

Agricultural Land Area by Utilization in Indonesia1, 2014 & 2018

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Key Takeaways

  • >2 Mn Ha1 Agricultural Land has been degraded from 2014 to 2018 due to Land Conversion & change of Land Use Planning which focus more on Infrastructure
  • Reduction of 100 K Ha of Agricultural Land due to conversion for industrial & residential purposes almost every year since 2010 has led govt. to increase the import of Food Crops
  • Rising Temperatures & Sea Levels, Altered Precipitation Patterns has resulted into reductions in Arable Land area along with forest loss due to increased wildfires
Source: 1 - Agricultural Statistics, Ministry of Agriculture, Republic of Indonesia | 2 - FAOSTAT | NA refers to Not Available

2) Among APEC member economies, Indonesia has relatively high Contribution of Agriculture to its GDP

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Source: The World Bank, Ken Research Analysis | Note: Only Far East Asian countries where agriculture, forestry and fishing employ over 10% of the total working age population have been considered.

3) The digital disruption in the agriculture equipment market is opening new opportunities in the country

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Source: The World Bank, Ken Research Analysis | Note: Only Far East Asian countries where agriculture, forestry and fishing employ over 10% of the total working age population have been considered.

4) However, the pandemic Impacted the growth of the Indonesia Agriculture Equipment industry; Supply Chain and Farm Operations Disruption were the major impacts of Covid-19

Lockdown Affects

    Rapid Decline in Tractors Value / Volume
  • Job Losses & Pay Cuts led to rapid decline in income
  • 4.7% Reduction in Tractors Volume
  • 11.7% Reduction in Tractors Revenue
    Labor Force / Supply Chain Disruptions
  • Shortage of transportation and workforce to assemble equipment parts, affecting daily volumes
  • Closure / Shutdown of distributor outlets
    Incidental Shift in the Harvest Season
  • Delay in harvesting of major staple crops such as rice
  • Halt in farm operations due to restrictions imposed

Initiatives to Improve Pandemic Situation

Government Investment, 20201

Rp 1.85 Tn out of Rp 14.06 Tn budget

Launch of Kostratani scheme

District-based agri counseling centers

New Focus

Microloans to farmers & seeking to increase agri exports

Local Entities

Concentrate on local firms to fulfil supply chain requirements

Budget Allocation from Indonesia Agriculture Ministry towards Multiple Sectors

Seed assistance, labor-intensive programs, stabilization of food stocks & prices as well as food distribution and transportation.

Expected Shift towards Tractors & Combine Harvesters in Indonesia

chart4

Final Conclusion

Due to the COVID-19 outbreak, the supply chain of agriculture equipment has been interrupted in Indonesia, and companies are focusing on new strategies of assembling and producing machineries locally. Lowering trade barriers can also aid the country to diversify import sources to hedge the trade risks from other countries.

Industry requested flexibility for agriculture equipment to be fitted with transition engines already manufactured & procured before crisis

Land leasing, contract farming & other structural reforms are expected to bring enhanced investments into the Indonesian agriculture sector

Source: Industry Articles, Ken Research Analysis | 1 – The Jakarta Post
Note: P refers to Provisional Numbers and F refers to Forecasted Numbers

5) The market soon picked up pace owing to the Rising Population and Government push for Mechanization in the country

    Technological Advancements
  • Indonesia introduced “Smart Farming 4.0” in February 2018 i.e. a technology-based farming method. This includes Agriculture Drone Sprayer (pesticide and liquid fertilizer drones), Drone Surveillance (drones for land mapping), and Soil and Weather Sensors (ground and weather sensors).
  • The initiative has eliminated the dependency of applying water, fertilizers and pesticides uniformly across entire fields.
  • With this initiative, farmers use the minimum quantities required and target very specific areas.
    Bringing Precision Farming in Indonesia
  • Precision farming is gaining traction in Indonesia with the help of sensors, aerial imagery, drones and big data analytics.
  • Helps in taking critical decisions and analyzing supply chain, farming conditions and crop insurance to determine the best insurance model for farmers.
    Government Efforts
  • Government is focused towards food sovereignty and self-sufficiency in the staple foods of rice and maize, and increased production of other strategic crops.
  • It launched a Food Estate Program in 2020 to utilize abandoned / less-utilized agricultural land for rice, maize, and soybean cultivation and to connect the new rice fields with irrigation infrastructure.
    Agricultural Mechanization
  • Presently, level of mechanization varies from low to medium-high primarily in rice cultivation, ranging from 10-90% depends on intensity of the farming system.
  • Govt. is pushing for farm mechanization to increase productivity through intensification, reduce post-harvest losses, increase added value & maintain the quality of farm products.
    Increasing Supply of Food Crops due to Rising Population
  • Appx. 31 mn tonnes of rice, 19 mn tonnes of maize and 0.9 mn tonnes of soybean were produced in Indonesia during 2019-2020.1
  • Agricultural product exports for rubber, tea, coffee, oil palm, tobacco, white and black pepper, and timber also showcased an increasing trend.
Source: 1 - Ken Research Proprietary Database

6) Government Initiatives, Support Schemes, and After-Sales Support Policies to Drive Market Value and Volume of the Indonesia Agriculture Equipment Market in the Future

pisagro

Partnership for Indonesia’s Sustainable Agriculture (PISAgro)

  • Indonesian Economist Association (ISEI) and Indonesia Chamber of Commerce & Industry (ICCI) collectively formed the scheme.
  • Founded in June 2011 at the World Economic Forum on East Asia in Jakarta and was officially operational in 2012.
  • As of 2015, 83,000 farmers with an estimated area of 67,000 Ha participated in the PISAgro scheme
  • Devised to create more effective associations between institutions and small farmers to optimize production methods & overcome issues of insufficient access to high quality seeds and fertilizers.
  • Creation of a strong value chain with better methods under this program to revive the agricultural sector and raise farmer’s welfare.
  • Future Prospects:
    • Plans to target close to 1 Mn farmers in various commodity industries with the hope to raise their income and standard of living
    • 20% increase in the production of selected commodities (rice, soybean, corn, palm oil, coffee, cocoa, potatoes, rubber and others)
    • 20% increase in the welfare of farmers
    • 20% reduction in greenhouse gas emissions
    • To cover additional farmers and area
gov

Government Initiatives

  • Various government initiatives including the Seed Development Policy and Fertilizer Subsidy program had helped increase farmers’ income from farm operations.
  • Govt. of Indonesia launched an Agriculture Disaster Insurance Policy, providing each farmer with up to $69.3 for crop damage due to natural calamities.
  • The scheme safeguarded the interest of farmers & continued to employ traditional methods of farming, resulting into lower productivity of crops.
  • In 2017, the government budgeted $223 Mn for machinery procurement including imported 4-wheeled tractors and excavators.

After Sales Support Policies

Product Warranty Period Routine-Check ups
Agricultural Tractors 1,500 Hours or 1 Year 3 times a year
Combine Harvesters 1,500 Hours or 1 Year 3 times a year
Rice Transplanters 1,500 Hours or 1 Year 3 times a year
Tractor Implements 1 Year Check-up done along with tractors
Source: Interview conducted with industry experts in Indonesia Agriculture Equipment Market, Ken Research Analysis
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