“Recover Together, Recover Stronger”: A Look at Potential Indonesia-Australia’s Agriculture Partnerships
There’s something compelling about Indonesia’s logo for its first-ever G20 presidency, which will officially start in December 2021, following the handover in Rome this past weekend.
Batik connoisseurs could tell there are two main motifs in the design: gunungan and kawung. As explained by Indonesian Foreign Minister Retno Marsudi, the mountain-shaped gunungan motif speaks of ‘movement towards a new chapter’, while the geometric kawungan details suggest a willingness ‘to be useful to others’—both of which underline Indonesia’s call for a spirit of collective recovery under the theme of “Recover Together, Recover Stronger”.
In the context of bilateral Indonesian-Australian economic relations, recovering together and stronger has indeed been at the forefront of almost every discussion Katalis has had with government and business communities from both countries. Thanks to the framework provided by the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), now in its second year of implementation, there are vast opportunities for Indonesia and Australia to tap into each other’s resources to build back better.
In the important sector of agriculture, both Indonesia and Australia are major players in the world’s agribusiness trade, accounting for USD 36.5 billion and USD 28.5 billion in total agri products exports respectively in 2020, with Indonesia ranking 11th and Australia 17th largest (UN Comtrade & WITS 2021). Both countries also play a large role as target market, with Australia importing USD 18.3 billion worth of agribusiness products and Indonesia USD 16.6 billion.
Given its vital role in creating employment , providing work for 29 percent of Indonesia’s workforce in 2019, and contributing almost 13 percent to Indonesia’s GDP in the same year, expanding the agriculture sector is a priority for the Indonesian government, especially in the context of recovering from the COVID-19 pandemic. While Australia’s agriculture sector has been hit hard during the pandemic, Indonesia has been relatively resilient as it continues to enjoy growth amidst the contraction in industry and services. The agriculture sector is currently considered to be a window of opportunity for former city-dwellers who lost jobs during the pandemic and have had to return to their hometowns. The sector has also absorbed aspiring youths with an interest in agriculture, aided by strong government support.
The bilateral trade on the agriculture sector between Indonesia and Australia has room for growth. Indonesia’s top agriculture exports to Australia include cocoa preparation, cereal/flour preparation, tobacco, and fish and aquatic animals with the increasing trend within recent years. Meanwhile, Australia’s top exported agriculture products to Indonesia, namely live animals, meat, cereals, dairy products and fruits and nuts, have relatively stagnated within the same period. The export of cereals (mostly wheat) have declined sharply since 2018 due to a combination of drought in Australia and increasing competition from other countries, while animal products also face fiercer competition.
By accessing preferential treatment resulting from IA-CEPA, both countries can emerge stronger, not only by tapping into each other’s market but also by expanding beyond bilateral trade.
As recommended by the Centre for Indonesian Policy Studies (2021), it would be far more economically beneficial if the two countries look beyond any competing similarities in natural resources to find complementarities at a more disaggregated level. Cooperation in the form of a ‘powerhouse’ would bring together Australian inputs into Indonesian agribusiness exports, or vice versa, allowing the two countries to be better integrated within the global value chains.
There’s a good reason for this. A closer look at Indonesia and Australia’s food product export reveals a wide disparity in their offering—the least similar products being raw, animal-related products and their preparations, raw plants and vegetables and their preparations, milling products and cereals. At the other end of the spectrum are the more similar products such as maritime produce, sugar, fats and oil, beverages, cereal preparations and flour, and other edible food preparations.
Given their low product similarity, cooperation in agribusiness could benefit both countries to boost and reinforce their exports. To take an example, Australian wheat could potentially serve as an input for Indonesia’s food industry, which could then be exported to third markets.
By pursuing such ‘powerhouse’ collaborations in agribusiness, Indonesia would also benefit from increased Australian foreign direct investment, much of which has been allocated in the lucrative primary sector in recent years. Promoting and developing a sector that employs a significant number of female workers with low standard wage would go a long way in improving their livelihoods and welfare. Through IA-CEPA, it is also possible to encourage their upskilling as part of a larger scheme to improve the labour force in the agricultural sector.
With the IA-CEPA providing wide frameworks for better regulations, removal of non-health and safety trade measures, removal of quotas, and greater information on standards and certification in the agriculture sector, there exists real support for both countries to speed up their recovery.
Echoing the theme aptly heralded by Indonesia’s G20 theme, the momentum is now for us to move forward together, stronger.
Muhammad Rizqy Anandhika
Katalis Trade and Investment Economist