Tropical Fruit in Indonesia: Eyeing Rising Domestic Output

07 September 2017

Indonesia-investments.com

In the second half of 2017 the number of imported fruit in Indonesian supermarkets and markets has fallen rather drastically. This is mainly caused by Indonesian government regulation and performance. Firstly, the government has been eager to limit imports of tropical fruit (since 2012). Secondly, the Trade Ministry was slow in issuing import approval permits (in Indonesia: Surat Persetujuan Impor, or SPI). Hence, imports of foreign fruit tumbled.

New government regulation, issued in 2012 by the Susilo Bambang Yudhoyono administration, had a big impact on shipments of foreign fruit into Indonesia. Through the "Farmers Protection and Empowerment Act", inspection of imported fruits into Indonesia was strengthened considerably, particularly the quarantine process. Contrary to previous methods (random sampling), all imported fruit products must now be inspected in a registered laboratory.

Meanwhile, aforementioned new regulation also significantly increased export costs as each batch of fruit products must be inspected before being allowed to enter the Indonesian market. The additional costs are borne by the product owner, hence undermining the competitive advantage of foreign fruit exporters.

The main aim of the regulation is to protect Indonesian fruit and vegetable farmers. Indonesian farmers lack the competitive advantage amid weak local infrastructure, high logistics costs and inefficient farming techniques. Thus, it is often mentioned that imported fruit in Indonesian supermarkets is cheaper than its local (Indonesian) counterparts, a paradoxical situation.

Besides government regulation that discourages imports of tropical fruit, there have also been administrative problems that led to a reduced number of fruit in local Indonesian supermarkets and markets. It is reported in local media that Indonesia's Trade Ministry was late with issuing import approval permits (SPIs) to local entrepreneurs. While these permits should have been issued in June, there was a delay up to August.

Khafid Sirotuddin, Chairman of the Association of Indonesian Fresh Vegetables and Fruits Importers (Aseibssindo), added that the Indonesian government also discourages fruit imports by limiting quotas based on the storage capacity of local importers. For example, if an Indonesian importer has fruit storage capacity of 1,000 tons (and thus requests approval for imports of 1,000 tons of fruit) then only about 20-40 percent of capacity is approved. This is a new method that was introduced in the second half of 2017 and further limits numbers of fruit imports into Southeast Asia's largest economy.

Sirotuddin added that the government should be more clear and transparent by simply banning imports of tropical fruit (which can be produced at home) and only allow imports of sub-tropical fruit (which cannot be produced in enough quantities in Indonesia).

Another negative issue is that the Indonesian government recently issued SPIs for various new companies - or existing companies but that were previously not importers of fruit. This negatively affects business of the long-term established fruit importers because the more fruit importers, the less (approved) quantity per importer. According to Sirotuddin it is not transparent that the government provide SPIs to new companies because it is not clear whether these companies have a reliable background and performance.

Lastly, the ongoing harvest season in Indonesia caused a surge in locally produced fruit and therefore there is - for the moment - less need for imported fruit items.

However, contrary to the statements above, Oke Nurwan (the Trade Ministry's Oversea Trade Directorate General) rejects that the Indonesian government has been limiting imports of fruit. He said the government only implemented a restriction on imports in terms of time.

Meanwhile, based on statements from Indonesia's Agriculture Ministry local fruit production has been on the rise in 2017 and therefore the ministry aims for a 20 percent year-on-year increase to 22 million tons of Indonesia-grown fruit this year. Indonesia's fruit production mainly originates from Central Java, followed by East Java and West Java.

Indonesia's Top Fruit Products in 2016:

Fruit

Production Volume
(in tons)

Banana

 7,000,000

Orange

 2,000,000

Mango

 1,800,000

Pineapple

 1,400,000

Watermelon

  598,000

Salak

  702,000

Rambutan

  572,000

Avocado

  305,000

Mangosteen

  163,000

Other fruits

 3,760,000

Total Fruit Production

18,340,000

Source: Kontan

Meanwhile, there are several interrelated factors that limit higher export volumes and earnings from Indonesia's fruit exports. Firstly, the quality of Indonesia's fruit is generally low because nearly all of Indonesian fruit farmers are smallholders who lack the financial resources to invest in higher-quality machinery, pesticides and fertilizer, and who also lack mastery of higher-quality farming techniques. This low quality fruit is not suitable for export purposes. Secondly, Indonesia does not have big fruit plantations or estates. Thirdly, despite being rich in tropical fruit, Indonesia lacks a well developed cold storage & transportation industry. Adequate handling of freshly picked fruit is crucial for long storage and shelf lives of fruit and vegetables.

Moreover, due to issues related to the inadequate quality and quantity of infrastructure development in Indonesia, logistics costs are high.

Source: www.indonesia-investments.com/business/business-columns/tropical-fruit-in-indonesia-eyeing-rising-domestic-output/item8171