Category Archives: East Asia

Indonesia’s Experience in the ASEAN context

GoLive Indonesia co-founders Professor Christopher Findlay (University of Adelaide) and Professor Mari Elka Pangestu (University of Indonesia, a former Indonesian Minister of Trade and Minister of Creative Economy) presented their work “The Services Sector as a Driver of Change: Indonesia’s Experience in the ASEAN context” at the 10th Sadli Lecture on Tuesday 12th April 2016 in Jakarta.

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Prof. Christopher Findlay (left) and Prof. Mari Elka Pangestu (right) presenting at the 10th Sadli Lecture in Jakarta

The event was hosted by LPEM at the University of Indonesia, Indonesia Project at Australian National University and the ISD (Indonesia Services Dialogue). Annual Sadli lecture series continue to highlight important and local issues using a regional context.

In his opening remarks, Indonesian Trade Minister H.E. Mr Thomas Lembong shared his recent experience of trade negotiations with the European Union and Australia. He highlighted that the negotiations have been focussed on two aspects: i) the services sector; and ii) the digital economy. Any country that has not provided enough attention to the services sector will be left behind.

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Indonesian Trade Minister H.E. Mr Thomas Lembong at 10th Sadli Lecture in Jakarta

The Minister nicely summarised that:

The services sector is “the 21st century’s issue.

In his keynote speech, Professor Christopher Findlay summarised that the services sector contributes to Indonesia’s 45% of GDP and 43% of employment. About 60 million people are employed in services, which indicates an increase of 20 million in the last decade. Indonesia exports mainly travel and transport and also imports travel and transport.

Despite its potentials, this sector is under-developed.

Employment is still mostly in unskilled and informal sector such as trade in construction, but growing in other more formal sectors.

Services sector grows with income. Professor Findlay pointed out that services growth is fundamentally about the organisation of production in particular the use of contracting out services.

The services sector is about providing value adding activities by each other.  He also observed that there is an interesting connection with urbanisation.

In regards to its connection with trade, whilst services require contract, technological change improves ‘tradeability’.

Services sector also supports participation in global value chains. In short, Professor Findlay concluded that the services sector contributes to productivity growth and other sector’s competitiveness.

Within the policy context, Professor Mari Elka Pangestu observed that services sector tends to be regulated because of the simultaneity of consumption and production. Moreover, the services sector regulates first mover advantage and market power in order to regulate competition.

According to OECD and World Bank data, Indonesia has a relatively restrictive policy regime in services especially for restrictions on foreign entry and employment of people. In their econometric analysis, Prof Findlay and Prof Pangestu find that the services restrictiveness index explains more of the variation in services that other variables.

Professor Pangestu pointed out that policy in the services sector is complex and difficult to assess. There is also a complex coordination required across agencies and this requires political will. Several steps to develop modern services sector include diversifying the economy and taking the advantage of technological developments; providing source of foreign exchange; and enhancing human capital and providing jobs.

Policy decision making should also improve transparency; generate better policy information; and implement reforms.

As defined by Prof Pangestu:

Quite often bad times lead to good policy and good times lead to bad policy.

A remaining question is how we can contribute to this growth and policy discussion and ensure that the growth and policy development is inclusive?

More details fabout Prof Findlay and Prof Pangestu’s talk can be found from their BIES article.

Written by Dr. Risti Permani, Lecturer, Global Food Studies, University of Adelaide.
GoLive Indonesia would like to thank Dr Risti Permani for her contribution. Photos are courtesy of Dr. Risti Permani.  
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Filed under ASEAN, Conference, East Asia, Indonesia, Services, Trade

2013 Food Security Regional Dialogue-Medan: Inter-economy perspectives of food security scenarios

As part of promotion of evidence-based policy making, decision makers and researchers have applied a wide range of modelling to evaluate the effectiveness of food security programs. One widely applied model is a multi-country computable general equilibrium model or known as the GTAP.  Anna Strutt (University of Waikato) and Signe Nelgen (University of Adelaide) shared their work entitled “Food security scenarios for the Asia Pacific – inter-sectoral and inter-economy perspectives”.

Anna Strutt (University of Waikato)

Anna Strutt (University of Waikato)

Strutt and Nelgen’s study focuses on CIPTTV countries, namely China, Indonesia, Philippines, Chinese Taipei and Viet Nam aiming to capture the impact of potential policy changes and other external shocks. The study uses an economy-wide framework using a computable general equilibrium model, a global trade model GTAP. Some important features of the modelling include: attention is given to the structural detail of the economy and inter-relationships between sectors; Prices and quantities are determined simultaneously with markets usually are assumed to clear; Incomes are endogenously determined; There is optimising behaviour by consumers and producers, with prices inducing adjustment. The CGE model imposes constraints e.g. availability of factors of production.

The GTAP model and the latest available GTAP version 8.1 data base with a base year of 2007 for 134 countries/regions and 57 sectors are used. Aggregation is implemented to derive 25 sectors and 28 regions in the study. The data are first projected to 2015. Agricultural distortions by Anderson and Valenzuela (2008) are updated and mapped to the GTAP sectors. Bilateral preferences from the GTAP database are maintained. To better capture food security aspects, the study augments the GTAP with food nutrition data using kilocalories per day per person.

Signe Nelgen (University of Adelaide) to explain about agricultural distortions dataset

Signe Nelgen (University of Adelaide) to explain about agricultural distortions dataset

Five scenarios are being simulated for the CIPTTV region: 1) improved agricultural productivity (land consolidation may lead to a 5 per cent increase in TFP in land-using sectors; 2) increased rice self-sufficiency through increasing tariffs imposed on imports from all regions thus eliminating 99 per cent of rice imports; 3) Combination of 1) and 2); 4) increased rice self-sufficiency and retaliatory tariffs from a key rice exporter; and 5) natural disaster harming land productivity which is assumed to lead to a 5 per cent reduction in land productivity in the region.

The study concludes that policies to promote self-sufficiency through the use of protectionist trade policies such as tariff may lead to a worsening of key food security indicators such as household food consumption. But if agricultural productivity improvements are part of the policy mix, the impacts will be less severe. However, retaliatory trade policies are likely to worsen conditions.

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Filed under Agriculture, Conference, East Asia, Economic development, Economic Integration, Food and agriculture, Investment, Methodology, Trade

2013 Food Security Regional Dialogue-Medan: The Quiet Revolution in Staple Food Value Chains in Asia

Professor Tom Reardon of Michigan State University has lead research in the past 10 years on staple food value chains in China, Bangladesh, India, Indonesia, Philippines and Viet Nam where nearly 10,000 farmers and supply chain actors being surveyed. He gave a presentation over the Skype on Day 2 of the 2013 Food Security Regional Dialogue, Medan.

Modern supermarket in Medan, Indonesia

On eve of Green Revolution, there has been debate in these countries on development to choose the following. First is a large-farm development path where supporters saying large estate farms mean fast development. Moreover, there are no good technologies for small farm and small farms wont adapt new technologies.

The second is small farm development path where supporters saying Green Revolution provides technology that makes small farmers as or more productive than large estate farms.  Also, small farm path fits land scarce, labour abundant situation.

All six countries adopted small farm development path starting with the Green Revolution in the 1970s now have massive investments in rural infrastructure. But what progress have they made in small farm modernisation and in developing supply chains from small farms to domestic market (95 per cent of the food market in Asia), especially the rapidly growing cities (urban areas are 75 per cent of food market in Asia).

Tom’s project found some surprising findings. Small farms are rapidly becoming small businesses who sell 70-90 per cent of output such as rice farms in India, China, Vietnam and Bangladesh. They are very responsive to the improved contacts. There has also been rapid intensification of small farms where they shifted into high use of new varieties, purchased seed, fertiliser, pesticide and herbicide. Some examples include shrimp and mangoes in Indonesia where they use new commercial varieties and high use of inputs.

Tom’s project also observed rapid mechanisation of small farming. There was rapid shift to high use of farm machinery to free labour from grain farming to higher income activities (horticulture, rural non-farm jobs). Rapid diversification of small farms was also observed where small farms ‘climbed the value ladder’ shifting from rice/wheat into vegetables, fruits, fish, livestock, dairy,etc and providing them 4-8 times earnings; or shifting from low-quality to high-quality rice with 50-100 per cent higher returns as in Vietnam and China.

Tom’s project also reported ‘quiet revolution’ in food supply chains. It was mainly grassroot revolution by small/medium enterprises and driven by private sector (not government intervention).  There was rapid spread of ‘cold storages’ and  modernisation of wholesale markets and traders and rice mills. Spread of supermarkets in all six countries was also significant. This all supply chain development is important because it forms 50-70 per cent of food costs to consumers.

The role of the government has been extremely important. In all six countries except grain in Indonesia, government role in direct intervention is very small. There was minimal role in input supply and crop marketing. The role of government in enabling farmers and grass-roots private sector was very large. This includes agricultural research (eg seed varieties), investments in roads, ports, electricity grids, permitting cell phone expansion and promotion of information and extension.

*This summary was written by Risti Permani (University of Adelaide) and may be subject to her personal interpretation of the presentation.

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Filed under Agriculture, East Asia, Economic development, Economic Integration, Food and agriculture, Trade, Transport and logistics

2013 Food Security Regional Dialogue-Medan: Food Security in Philippines

Challenges facing Philippines’ food security programs have become more evident in recent years. Salvador Catelo of College of Economics and Management, The University of Los Banos explained challenges and opportunities faced by Philippines to achieve food security.

Salvador Catelo

Salvador Catelo

Between 2012 and 2010, there has been 5 million population increase or 208,000 newborn each month! In addition, income per capita continues to grow. Rice consumption increases by 1.43 per cent per annum between 2000 and 2009 and 5.08 per cent per year increase in consumption of poultry meat. In addition to increase production demand, there has also been increasing demand for safer, healthier and better quality food. It is expected that there will be a significant change in food baskets.

Food staples sufficiency program 2011-2016 has been to enhance agricultural productivity and global competitiveness. Agriculture and Fisheries Modernization Act of AFMA of 1997 defined broad strategies for and basic principles of rational use of resources, poverty alleviation, and social equity, global competitiveness as well as food security.

Whilst the contribution of agriculture to GDP continues to decline in Philippines, its role in poverty alleviation especially in rural areas is still significant. Productivity, however, has been growing at a slow rate despite various government support schemes although sectoral variations exist.

In general, Philippines is a net agricultural importer. The main issue is whether the world can produce enough food, at reasonable prices and provide the poor access to food, and not destroy the environment in the process?

*The summary was written by Risti Permani (University of Adelaide) and may be subject to her interpretation of the presented materials.

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2013 Food Security Regional Dialogue-Medan: Food security situation and policy in Indonesia

Rice in Indonesia has been considered to be not only main staple but also perceived as a cultural symbol of prosperity. Lumbung or rice barn was often used as a symbol of food security achievements. Current government approaches to food self-sufficiency still puts rice self-sufficiency as a key part of its national agenda. Ronnie Natawidjaja and Irlan A. Rum of Center for Agrifood Policy and Agribusiness Studies (CAPAS) – Padjajaran University reported food security situation and policy in Indonesia.

Ronnie Natawidjaja's session was moderated by Randy Stringer (University of Adelaide)

Ronnie Natawidjaja’s session was moderated by Randy Stringer (University of Adelaide)

New Food Law 2012 explicitly states that food security in Indonesia has to be based on domestic food availability and food sovereignty. Food self-sufficiency is defined when 90 per cent of consumption can be met by local production. The logistics agency or BULOG imports 10 per cent to stabilise the rice price. Unfortunately, there is no clear rule about when and how much Indonesia must import rice. As a consequence, policy responses are often coming late and this issue often creates policy debate and uncertainty in markets. Also, the rice domestic market is isolated although rice price has been generally stable (but higher than the international price level). Data from Coordinating Ministry of Economy also suggest that food subsidy for the poor has been increasing since 2007.

According to the Food Law 18/2012, food security is defined as a situation when individuals at all times have physical, social and economic access to sufficient, diversified, safe and nutritious food that meets their dietary needs, food preference and religious requirements for an active and healthy life. However, food security is often misunderstood as securing or protecting our food need and food self-sufficiency is often seen as the only solution.

Data from Statistics Indonesia (BPS) suggest an increasing trend in expenditures on prepared food (as a share of total household expenditure) and decreases in rice expenditures. The trend is related to urbanisation, supermarket transformation and increasing middle income class in Indonesia.

Whilst there has been a decreasing trend in rice import, rice prices continue to increase in the last years. In addition, regional variations exist. Eastern part of Indonesia, in particular Papua, has the biggest challenges to achieve food security due to the lack of infrastructure and low production. Ronnie views that some policy options to achieve food security should include effective trade policy, input and food subsidies, price stabilisation policy, government procurement and reserve stock policy and rice for the poor policy (Raskin).

Two issues that have not been discussed at the session are the following. First, given the increasing role of regional govenrments whether food security is seen as a ‘regional agenda’ where regional (provincial) governments have responsibilities to ensure their regions achieve food security, often be expressed as food self-sufficiency. If it does, regions with low production or with problems accessing food from production areas (due to distance and the lack of infrastructure) will be at risks. Secondly, whilst rice remains the main food commodity there is increasing demand for other food commodities such as animal-based protein sources such as beef and dairy products. One major concern is whether the Indonesian government uses the same quite costly self-sufficiency approach to these commodities. Early observations suggest that the government does.

*This summary was written by Risti Permani (Global Food Studies, University of Adelaide) and may be subject to her personal views.

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Challenges and Opportunities for Indonesia and Australia Relationship in the Asian Century

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On 17 May 2013, Counsellor in Politics and  Senior First Secretary of Economic Affairs of The Republic of Indonesia Embassy in Australia, Mr Widya Rahmanto and Mr Denny Lesmana shared some valuable  insights into  “Challenges and Opportunities for Indonesia and Australia (IA) Relationship in The Asian Century”. This discussion forum was organised by the Indonesian Embassy, South Australian Chapter of The Indonesian Student Association (PPIA), and fully supported by  PPIA at Flinders University, University of Adelaide and University of South Australia and  GoLive Indonesia.

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Filed under Agriculture, Australia, Culture, Democracy, East Asia, Economic development, Economic Integration, Education, Employment, Food and agriculture, Indonesia, Infrastructure, Investment, PPIA academic discussion, Services, Trade

Trade in value added, what is the difference?

 

iPod Ad in Beijing

Christopher Findlay, Dean of Faculty of Professions, University of Adelaide

Would you believe it?  Indonesia actually has a trade surplus with China.  How did this happen?  This is what we find in a new data set released by the OECD and the WTO last month.

We are familiar with the iPod story: it is exported from China but only about 10% of the value of the product is actually added in China.  The rest comes from other countries, either inputs to the item or services that facilitate the process of its assembly. This sort of case study has prompted work on the new data set, which is constructed to find out where the value in a product is created, from foreign sources or domestic.

What are the key messages from the dataset about Indonesia?

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Filed under East Asia, Economic Integration, Indonesia, Review of article, Services, Trade