Global Business Guide Indonesia

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Agriculture | Agriculture: Moving Downstream in Cocoa

Indonesia is the world’s third largest cocoa exporter after the Ivory Coast and Ghana accounting for 18% of global market share with 470,000 MET produced in 2010. Production figures for 2011 are estimated at 500,000 MET according to the Indonesian Cocoa Industry Association, although severe rain could result in a drop to 450,000 MET. Global demand for the commodity rose to 3.7 million MET in 2010. Demand is arising out of increased confectionary and chocolate consumption from markets such as China and India as well as the European Union. This has caused a shortage of supply in the world markets that stood at 73,000 MET for 2009 and rose to 100,000 MET for 2010. Prices are rising rapidly in the confectionary market as a result and forcing cocoa buyers to look to under exploited markets in terms of productivity for future supply.

Indonesia’s cocoa productivity per hectare has long lagged behind that of other producing countries at 700 kg/hectare compared to a potential yield of 1,000-15000 kg/hectare (BKPM) Production is concentrated in Sulawesi where 63% of the country’s raw cocoa is produced. Despite land under cultivation increasing over the past three years; productivity has been declining, particularly in South Sulawesi. Rejuvenation of current trees has been taking place under the government program Gernas Pro Kakao which replaced 200,000 hectares of trees and will take several years before effects can be measured. The potential for cocoa production in the country is very positive but requires investment to keep on track to the 1 million MET annual output target by the International Cocoa Organisation by 2013-2014. The enhanced organisation of the sector under the economic corridor program will maintain Sulawesi as the cocoa hub while accelerating the development of much needed infrastructure for transportation to access materials such as fertiliser.

Moving up the value added chain in cocoa is a priority area for the government with the target of $6.25 billion USD in export value by 2025. These targets are in line with the increasing demand for cocoa that has risen by 5% annually from 2005-2010 and is forecast to continue to grow at 2-4% for the coming years according to the International Coffee and Cocoa Association. Indonesia is in a prime position to take advantage of this trend but requires substantial investment to raise productivity, quality and gain added value. The International Cocoa Organisation’s data shows that only 28% of cocoa was processed domestically with the remaining 72% exported in raw bean form. Processed cocoa such as in butter and powder forms hold a value of up to $5,000 USD/MET compared to $2,900 USD/MET for raw beans. The quality of Indonesian cocoa has also been a factor holding back the potential gains from exports. The United States, the second largest cocoa importer after the EU, requires that cocoa beans undergo a fermentation process which the majority of Indonesian beans do not thus lowering the price significantly. The European Union imposes an import tariff on Indonesian cocoa products while those from West Africa are subject to zero. The issue of both import and export tariffs imposed by both sides will be one of the central matters to be resolved in the formation of the upcoming Indonesia – EU FTA.

Cocoa is a priority area for the government as stated in Presidential Decree No. 28/2008. In order to incentivise investment into the downstream cocoa industry, a progressive tax was introduced in April 2010 that increases in line with global prices for raw cocoa beans under Ministry of Finance Decree No. 67/2010. The tax goes up to 15% when the world price exceeds $3,500 USD /MET. This tax maintains ample domestic supply for processing, however it has been heavily criticised considering the low domestic uptake which results in an excess. Increasing the capacity of the downstream sector, which accounted for 158,075 MET and 103,055 in exports for 2010 (Ministry of Trade) is now the priority. Incentives for investors include expected revisions to Government Regulation Number 62/2008 on income tax facilities, which will soon cover cocoa. Other incentives include the exemption of import tax on machinery and capital goods needed for production as well as exemption of VAT on cocoa beans.

Extract of Negative Investment List 2010

Negative Investment List 2010 extract

Laws to Consider

  • Ministry of Finance Regulation No. 67/2010 on export duties subject to export duties and tariffs.
  • Government Regulation Number 62/2008 on income tax facilities for investors.
  • Negative Investment List Presidential Decree No.36/2010 permits foreign ownership of up to 95% in plantations for agricultural crops of over 25 hectares. For processing units, an additional permit is required from the Ministry of Agriculture and the Directorate of Plantations.

Global Business Guide Indonesia - 2012

icone share

Indonesia Agriculture Snapshot

Contribution to GDP: 13.70% (2016 including Fisheries & Livestock)
Number Employed in the Sector: 46 million (2016)
Main Products: Palm Oil, Palm Kernel, Rubber, Cocoa, Coffee, Tea, Tobacco, Rice, Sugarcane, Maize, Cassava, Tropical Fruits, Spices, Poultry, Fisheries.
Main Export Markets: China, USA, Japan, India, Singapore, Malaysia, Pakistan, South Korea, Italy, Netherlands, Bangladesh, Egypt.
Relevant Law: Presidential Regulation No. 39 of 2014 on the Negative Investment List imposes varying degrees of foreign ownership limitations in plantations depending on the crop type, and Government Regulation No. 98 of 2013 limits private plantations to 100,000 hectares.