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Bulletin of Indonesian Economic Studies

ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20

Transformation of the Indonesian Agrifood System

and the Future beyond Rice: A Special Issue

Thomas Reardon, Randy Stringer, C. Peter Timmer, Nicholas Minot & Arief


To cite this article: Thomas Reardon, Randy Stringer, C. Peter Timmer, Nicholas Minot & Arief Daryanto (2015) Transformation of the Indonesian Agrifood System and the Future beyond Rice: A Special Issue, Bulletin of Indonesian Economic Studies, 51:3, 369-373, DOI: 10.1080/00074918.2015.1111827

To link to this article: http://dx.doi.org/10.1080/00074918.2015.1111827

Published online: 29 Nov 2015.

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ISSN 0007-4918 print/ISSN 1472-7234 online/15/000369-5 © 2015 Indonesia Project ANU http://dx.doi.org/10.1080/00074918.2015.1111827




Thomas Reardon Randy Stringer

Michigan State University; University of Adelaide University of Adelaide

C. Peter Timmer Nicholas Minot*

Harvard University; The Australian National University IFPRI

Arief Daryanto

Bogor Agricultural University


The Indonesian agricultural and food policy debate, and most research litera-ture on the topic, has for decades been rice-centric. Yet rice is only one part of

Indonesia’s food economy, and it is increasingly being eclipsed in consumer food

budgets by other product categories. In 2010, urban consumers in Indonesia spent 16% of their food budgets on rice, 15% on fruit and vegetables, and 22% on animal

proteins (meat, ish, eggs, and dairy). Rural consumers spent 24%, 17%, and 20%, respectively (Reardon et al. 2014). Yet these important diversiication products

have received little coverage in the policy debate.1

The policy debate and the literature have tended to focus on two poles of the agrifood economy: farming per se, with much less attention paid to the off-farm components of the agrifood system (such as processors, wholesalers, retailers, and logistics agents), and foreign trade in agricultural products. These poles are important, but they exclude a great deal that is crucial to feeding an increasingly

urban and afluent Indonesia. The farm segment accounts for only 30%–60% of the costs and value added of Indonesia’s rural–urban food supply chains; farms account for roughly half of urban Indonesia’s food costs. Seen another way, the

performance of processors and distributors is as important to Indonesian food security as the yields of farmers (although food cannot be processed and distrib-uted unless it is grown).

* IFPRI = International Food Policy Research Institute.

1. This diversiication is happening rapidly throughout rice-based food systems in

Southeast Asia, although Indonesia seems to be lagging in several dimensions, especially

in recognising the policy consequences of having a diversiied food system. See the work

of Timmer (2013, 2015) for a discussion of the historical trends and policy implications.


370 Thomas Reardon, Randy Stringer, C. Peter Timmer, Nicholas Minot, and Arief Daryanto

The urban food market and rural–urban food supply chains are crucial to Indonesian food security; they are growing quickly and already dominate the

agrifood economy. Indonesia’s urban population soared from 40 million in 1984

to 134 million in 2014, or from 25% of the national population to 53% (World Bank 2015). Urban consumers, because they are wealthier than their rural cousins, make up an even larger share of the overall food economy—roughly 70%, depending on the product (Reardon and Timmer 2014). Hence, overall, the urban market is the main consumer for the Indonesian farmer. Mango is a useful example: 75% of the marketed volume of production of Indonesian mango goes to Indonesian cities. Further, 1% of mangoes are exported and 24% are consumed in rural areas. Yet even in rural areas in Indonesia, food supply is not mainly from home production (subsistence-oriented); Reardon et al. (2014) showed that 80% of the value of food consumed in Indonesian rural areas is purchased from markets.

We believe that the Indonesian food policy debate has tended to focus on farm-ing or foreign trade because of a long-held assumption that the domestic market is traditional and non-transformative. The policy debate and the research have rarely considered the transformations afoot in domestic food markets, yet the structure and conduct of the domestic food economy, in general, and of rural– urban food supply chains, in particular, are transforming rapidly. Supermarkets,

large processors, logistics irms, and urban-based wholesalers are proliferating

and often reaching farmers directly, displacing traditional small rural brokers. The distance between the conventional assumptions of the policy debate and the rapidly emerging reality of transformation has created gaps in the discussion of the Indonesian agrifood system. The authors of the articles in this special issue

attempt to ill some of these gaps by analysing this transformation and determin -ing its effects on farmers.


Minot, Stringer, Umberger, and Wahida’s article ‘Urban Shopping Patterns in Indonesia and Their Implications for Small Farmers’ uses data from their primary

survey of 1,180 urban households in Surabaya, Bogor, and Surakarta (Solo)—

representing large, medium, and small cities, respectively. The authors ind that

while supermarket-company investments have been substantial, especially in the past decade, supermarket penetration of food overall is about 20% (versus cited estimates of, for example, 30%) and positively correlated with household

income. They also ind that this penetration is most advanced among processed

food products and only incipient among fruit and vegetables. The authors project that over the next 15 years the share of supermarkets will account for nearly 40%

of urban food spending. We note that these indings are, in the main, similar to trends in other developing countries today, in irst-wave supermarket-diffusion

countries (such as Thailand or Taiwan) about a decade ago, and in the United States during the early to mid-point of development of the supermarket sector in the 20th century. Minot and his co-authors conclude that policymakers should not yet be concerned that small horticulture farmers cannot meet the quality and safety demands of supermarkets, since modern retail is still only a market niche

in horticulture. Of course, as the share of supermarkets in the food market grows,

this challenge will face small farmers in the future.


Toiba, Umberger, and Minot’s article ‘Diet Transition and Supermarket Shopping Behaviour: Is There a Link?’ uses the same urban Java dataset as the above article.

The authors examine the impact of shopping at supermarkets on expenditures of

urban consumers on processed foods—such as reined carbohydrates, fats, and oils—which are widely thought to contribute to poor nutrition. They ind that con -sumers who shop more in supermarkets, eat at restaurants and fast-food chains, and have higher incomes tend to have a higher share of processed-food expendi-ture in their total expendiexpendi-ture. City size did not affect the result.

Yi and Reardon’s article ‘Allocative Eficiency of Agrifood Traders: Shrimp Traders in Indonesia’ uses data from their primary survey of 200 shrimp traders

in Central Java and South Sulawesi, two main shrimp-farming areas and

impor-tant contributors to Indonesia’s subsimpor-tantial shrimp exports. This is a rare article

on the wholesale segment, and it is even rarer in that it addresses the allocative

eficiency of a midstream sector and is based on a survey of traders in the aqua

-culture sector. The authors ind that larger traders have a cost advantage and are more eficient in allocating factors than their smaller competitors, partly owing

to their better access to factor markets (for capital and labour) and their use of contracts with shrimp suppliers. These results help to explain the trend towards consolidation in the wholesale sector.

In ‘Tomato Farmers and Modernising Value Chains in Indonesia’, Hernandez,

Reardon, Natawidjaja, and Shetty study a sector that has expanded from a tiny share of vegetable consumption in 1980 to grow sixty-fold up to 2010, with very rapid growth in Java. The authors use data from their primary survey of 600 tomato farmers in West Java, stratifying market channels into the traditional (local rural brokers) and the modern (supermarket buyers) and adding an

intermedi-ate, transitional channel that they call ‘modernising wholesalers’—a signiicant

distinction. This third, non-traditional channel comprises large urban wholesalers that eschew multilayered supply chains and buy directly from farmers. Farmers selling into this second-tier modern channel share several characteristics with farmers selling to supermarkets but also share many characteristics with farm-ers selling to traditional markets, in effect making modernising wholesalfarm-ers an

intermediate market channel. Over time, some of its farmers may graduate to

participating in the supermarket channel.

Sahara, Minot, Stringer, and Umberger, in their article ‘Determinants and Effects of Small Chilli Farmers’ Participation in Supermarket Channels in Indonesia’, use

their primary survey of 600 chilli farmers in Java to study farmers selling into supermarket channels compared with those selling into traditional channels.

After controlling for other factors, the authors ind that selling into the super -market channel substantially increases farm income, and that participating in this

channel requires greater effort to produce and sort for speciic standards, requir -ing new grow-ing and handl-ing techniques and new equipment and storage units. This is still a small modern channel; only 5% of chillies go to supermarkets and

processors (the rest go to traditional wet markets). Just as Hernandez et al.’s arti -cle on tomato farmers points to the existence of important and new market play-ers, this article on chillies highlights the importance of specialised and dedicated wholesalers in linking farmers and supermarkets in Indonesia, as they have in Latin America, for example (see Reardon and Berdegue 2002). Chilli farmers sell-ing into supermarket channels in Indonesia tend to have very small farms—just


372 Thomas Reardon, Randy Stringer, C. Peter Timmer, Nicholas Minot, and Arief Daryanto

like those selling into traditional channels—but they also tend to be more edu-cated, live closer to sealed roads, and specialise in growing chillies. This is a clear example of how government investment in roads and education can help farmers move into modern markets.

The last article in this issue, ‘Market-Channel Choices of Indonesian Potato

Farmers: A Best–Worst Scaling Experiment’, by Umberger, Reardon, Stringer, and

Mueller Loose, uses a primary survey of 307 potato-farming households in West Java. The authors sample from the set of farms that sell to the large processor Indofood as well as to traditional markets; the authors asked farmers to rank buy-ers from different market channels (such as Indofood vbuy-ersus traditional brokbuy-ers)

by the perceived importance of certain buyer attributes. They ind that farmers

place more importance on buyer attributes related to payment than on those

related to the provision of information and inputs. The farmers’ preferences point

to their desire to enter into long-term commercial relationships to minimise the risk of non-payment. The rankings differ substantially across different types of farmers, however. Farmers with larger, better-irrigated potato farms, for example, are more likely than their counterparts to sell to Indofood but are also more likely

to place more importance on the provision of inputs, especially certiied seed.


Three main points emerge from the articles in this special issue. First, the recent rapid growth in the horticulture and animal-protein sectors in Indonesia, linked to the increase in incomes and in urbanisation, is a great boon to farmers. Producing these products rather than rice returns substantially more per hectare and allows

farmers to climb the value ladder. This diversiication also gives consumers bet -ter access to animal protein, vitamins, and minerals. Rice remains important as a

staple food, but consumers are voting in support of agricultural diversiication.

The empirical evidence is clear.

What does the government need to do to support agricultural diversiication?

If Indonesian farmers cannot access the supply chains that meet domestic

con-sumer demand, foreign farmers will. The World Bank’s (2007) inding that a high

share of fruit and some vegetables in Indonesian supermarkets comes from China, Thailand, and other regional competitors shows that the demanded volumes and quality will come from somewhere. For Indonesian farmers to have a chance to compete, the government needs to implement policies that actively support

agri-cultural diversiication—especially away from rice—as well as to invest in the public infrastructure needed for eficient supply chains for perishable products.

This includes investing in water control, road and electricity infrastructure,

train-ing by extension agents, and wholesale market infrastructure. The ixation on rice self-suficiency must end: it harms consumers and producers.

Second, new market channels and actors are emerging to develop and mediate

Indonesia’s rural–urban value chains. Downstream, these entrants include super -markets and fast-food chains. Midstream, they include processors and modernis-ing (urban) wholesalers that reach into rural areas, and specialised and dedicated wholesalers that serve modern downstream companies and link to farmers,

trans-mitting the companies’ standards and commercial requirements. All these players

help farmers by developing their markets. They provide fundamental services,


from arranging logistics, to marketing, to transmitting information, to sorting, grading, and packing. At the same time, they transmit and magnify the good and the bad, the opportunities and challenges, of the new markets. They make it easier for consumers to get unhealthy processed food; for mothers employed outside the home to get convenient, nutritious processed food; and for poor urban families to

get fruits and vegetables, meat, ish, eggs, and milk.

The new wholesalers, in particular, reduce the number of links in supply

chains, increase eficiencies, and manage contractual risk. At the same time, these

wholesalers bring standards, competition, and market pressures to urban tradi-tional and modern markets—and to farmers, thus challenging them while creat-ing market opportunities. Yet helpcreat-ing farmers meet modern market requirements also requires government action to ensure that the hard and soft infrastructure

is in place for both traders and farmers to respond to demand. Eventually this

response will also require good commercial regulations and an enabling busi-ness environment in which small and medium actors can interact sustainably and commercially. Good policy will help these intermediaries make these private investments.

Third, supermarkets and fast-food chains in Indonesia are in the early stages of emergence and yet are already placing considerable demands on public pol-icy. They will continue to grow, regardless of the policy environment. In fact, the development stage of supermarkets in Indonesia is no different from that experi-enced in other developing countries (as well as in the United States, where

super-markets began a century ago). The difference in Asia is speed. Even the small

amount of penetration that supermarkets are making in the fruit and vegetable market in Indonesia has happened much faster than it did in the United States, for example. Consequently, over time, the government will need to adjust its policies to support farmers who want to meet rising quality and safety standards. Such

support would also beneit urban consumers, who will make up three-quarters of

the food market in Indonesia by 2030.


Reardon, Thomas, and Julio A. Berdegué. 2002. ‘The Rapid Rise of Supermarkets in Latin America: Challenges and Opportunities for Development’. Development Policy Review

20 (4): 371–88.

Reardon, Thomas, and C. Peter Timmer. 2014. ‘Five Inter-Linked Transformations in the

Asian Agrifood Economy: Food Security Implications’. Global Food Security 3 (2): 108–17. Reardon, Thomas, David Tschirley, Michael Dolislager, Jason Snyder, Chaoran Hu, and

Stephanie White. 2014. Urbanization, Diet Change, and Transformation of Food Supply Chains in Asia. Report prepared for USAID. East Lansing, MI: Global Center for Food

Systems Innovation, Michigan State University.

Timmer, C. Peter. 2013. ‘Food Security in Asia and the Paciic: The Rapidly Changing Role of Rice’. Asia and the Paciic Policy Studies 1 (1): 73–90.

———. 2015. ‘The Dynamics of Agricultural Development and Food Security in Southeast

Asia: Historical Continuity and Rapid Change’. In Handbook of Southeast Asian Econom -ics, edited by Ian Coxhead, 89–113. Abingdon: Routledge.

World Bank. 2007. Horticultural Producers and Supermarket Development in Indonesia. Report 38543-ID. Jakarta: World Bank.

———. 2015. World Development Indicators database. Updated 12 November. http:// data.worldbank.org/data-catalog/world-development-indicators/.




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