Global Business Guide Indonesia

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Agriculture | Indonesia’s Budding Silk Industry

The silk industry in Indonesia represents a key opportunity for further development in light of the global demand for the high value commodity and recent supply limitations from traditional producers due to natural disasters. Indonesia silk sector has been somewhat stagnant for the past decade, being mainly dominated by small producers using traditional methods of production. The quality of the raw silk produced has been overshadowed by that of China, Thailand and Japan where the silk industry is far more mature and technologically advanced. However, regional authorities are seizing the opportunity to take advantage of the domestic demand for silk, the majority of which is currently relying on imports. Indonesia possesses the natural attributes and has the land available to create a competitive silk industry with the introduction of the right investment and technology.

Indonesia’s main silk producing regions are found in South Sulawesi, Yogyakarta, East Timor and some small scale production in Bali. The silk industry has a long standing history being used in traditional handicrafts, particularly in batik clothing and textiles. The country’s environmental characteristics make it ideal for silk production because of the high sunlight intensity throughout the year, availability of land and having over 25 species of wild silk moth including the golden wild silk moth. This combination offers the potential to produce raw silk of quality on par with other silk producing nations such as China.

However, the sector has failed to develop a competitive edge and go beyond the scope of its cottage industries. Production for 2009 reached 62.5 MET but dropped to 36.85 MET in 2010 due to an infestation among the cocoons. For 2011, the production target from the Ministry of Agriculture is set at 81.2 MET. Such figures fall well short of the domestic demand which reached 900 MET in 2010 still leaving plenty of room for imports.

The government of South Sulawesi, the largest silk producing region in the country recently announced (May 2011) a shakeup of the industry to increase production through new technology with the aim of producing 600 MET of raw silk every year. The project involves extensive land acquisition of approximately 10,000 hectares for mulberry plant harvesting, 60,000 farmers and the supply of automatic reeling machines to replace traditional spinners.

Chinese investors have been quick to tap potential of silk as part of the government’s pledge to invest $20 million USD in Indonesia’s forestry sector. Chongqing Wintus Enterprises Group in partnership with the local government of South Sulawesi and PT Global ABC will cultivate 3,000 hectares for mulberry plantations and a silkworm farm. Indonesia represents an opportunity for Chinese investors to bring their knowhow and technology for the plantations and production technology to take advantage of the ready availability of land and low labour costs that Indonesia has to offer.

Price of silk cocoons has seen a sharp rise recently, hitting a 15 year high in mid 2010 with a knock on effect for the raw silk material around the globe. The price reflects the growing demand for the commodity which had been lacking in the face of demand for artificial fibres such as polyester. Cotton and wool have also seen a steep price increase in line with this pattern. This trend serves to illustrate the squeeze on supply due to the decrease in land available for cultivation in China which is the largest silk producer accounting for 70% of world production. This is due to areas of land around Shanghai, which have been traditionally used for mulberry plantations that are now becoming subject to the city’s urban sprawl. The country’s inventories of silk are also low due to floods in Southern China in June 2010 that affected the main silk cocoon harvesting areas of the country. Another attractive aspect of the silk industry is the upcoming revisions to India’s import duties on raw silk. India is the largest importer of silk worldwide, consuming 26,000 MET in 2010. The Federation of Indian Export Organisations is reviewing the current import duties on silk that are at 30% for raw silk and 10% for silk fabrics. Reducing the import duties will be a boon for raw silk producers in making their prices more competitive.

The opportunities in this sector lay in technology and investment; the cost of the technology has deterred investors in the past with one spinning mill at a capacity of 500 kg an hour requiring 3-4 billion Rupiah. The challenges lay in cooperating with the local authorities of the area in question for the land acquisition permits as well as establishing a suitable partnership. Under the Negative Investment List 2010, the silk cocoon industry can only be entered into by foreign investors in the form of partnerships with micro, small and medium enterprises whereby the larger company offers guidance and support for mutual benefit. Approaching the local authorities is therefore the most suitable way of entering the industry to form a cooperative using local labour, which brings with its own set of challenges. Yet, the potential for both domestic and international consumption as demand continues to grow makes the sector highly attractive.

Extract of Negative Investment List 2010

Negative Investment List 2010 extract

Laws to Consider

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.