Being South East Asia’s biggest economy, Indonesia’s rising middle income populations are well-identified by exporters across the globe. The increased penetration of modern supermarkets, highly associated with the phenomenon, has contributed to increased inflows of fruits and vegetables imports to the economy. According to a 2007 World Bank study, the value of fresh fruits and vegetables (FFV) output doubled in Indonesia over 1994-2004, to become a 10 billion dollar industry, while imports of FFV nearly tripled over that decade, but by today are still very minor, accounting for about 3 percent of FFV consumption in Indonesia (the same as the developing country average). The increasing trend, however, seems to already raise concerns leading the Indonesian government to issue a ban on Port of Jakarta (Tanjung Priok sea port) fresh food imports planned to be enforced in March 2012. The ban is applied to imports of “Fresh Food Originating from Plant”, “Fresh Fruits And/Or Fruity Vegetables” and “Fresh Layered Tuber Vegetables” that will be restricted to four entry points, which do not include the country’s major sea port in Jakarta.
Why does the government plan to implement such a ban and what would be the likely effects?
Trade ban has always been a politically sensitive topic. To date, policy to ban the entry of fresh food imports via the Jakarta port has not been effectively enforced and the commencement date is yet to be discussed. The issue, however, has become part of high-level discussions between governments. Indeed, according to freshfruitportal, the Australian government has asked the World Trade Organization’s (WTO) involvement.
Clearly, whether or not those high-level discussions would result in a delay or the abolition of the ban depend on the policy objective of the Indonesian government. There has not been a clear explanation from the Indonesian government regarding why fresh fruit imports are not allowed to enter the Jakarta port but are still allowed to enter other major ports including the Tanjung Sea Port in Surabaya, the Belawan Sea Port in Medan, the Soekarno-Hatta Airport in Jakarta and the Makassar Sea Port.
The ban indicates multi-dimensional concerns that the Indonesian government is having. It has been said that Indonesia aims to stop illegal fruit imports and reduce quarantine risks. The later is said to protect consumers. But allowing fruit imports to enter via other ports, which have no visible boundary with the capital city Jakarta and other parts of the country including Sumatera and Sulawesi, is unlikely to achieve those objectives.
For many parties, the ban is perceived simply as a protectionist trade policy to protect local producers. It is more or less similar to what Indonesia aims to achieve through import quota cut in livestock trade by promoting the notion that Indonesia is able to be self-sufficient in beef.
Increasing demand for local produce is obviously an acceptable policy objective for any country in the world. But the problem is that whether protectionist trade policy is the only or best available solution. Our previous study on livestock industries has suggested that improved productivity through increased investments in research and development may provide better outcomes than a blunt trade policy. Not only such an approach would benefit consumers but also promote Indonesia’s commitment to be an active participant at the global market. In regard to improving market access of local traditional food producers, the Indonesian government should have taken more into account results from various studies that Indonesian researchers have conducted. For example, our PPIA (Indonesian student association)-GoLive academic workshop presenting Hery Toiba explored comparative advantage of local food producers or traders.
It is also important to note that in such a competitive global market, policy uncertainty in Indonesia may cost its trade relationships with its trade partners in other sectors. What worrying is that this policy uncertainty is now becoming more routinely observed. This would likely affect doing business costs and future investments in Indonesia.
This article is prepared by Risti Permani.