Indonesia focuses on downstream agriculture to dominate ASEAN

Plunging commodity prices and China's economic weakness will be challenges for the new government to boost exports, yet Indonesia also has significant export potential in the downstream agricultural sector.Commodity prices soared in 2022 after the outbreak of the Russian-Ukrainian war in February. Coal, gold and gross palm oil (CPO) prices took turns setting new records. Data showed that the average price of coal reached US$345.41 per ton in 2022, up 128.61 TP3T from the previous year.Similarly, the annual average price of crude palm oil soared to 4,155.1 Malaysian ringgit per ton in 2022, i.e., a rise of 1,341 TP3T.The price of coal would hit record highs in 2022 and peaked at US$463 on 5 September 2022.The price of crude palm oil was also on the rise in 2022 as the price of gold and gold reached US$4,630 per ton in the same period. Crude palm oil prices touched an all-time high of MYR7,268/tonne on March 9, 2022.Nickel prices hit a new record in March 2022, and trading was even suspended for up to a week in early March 2022 on the London Metal Exchange (LME) due to short-selling that caused nickel prices to rise to more than US$100,000/tonne. Commodity prices began to surge in late 2021, in line with normal global trade activity following the Covid-19 pandemic, and the 2022-2023 period is the world's first "commodity boom" since the last 10 years or 2010-2012. Indonesia's exports set a number of records in 2022, peaking in August 2022 at US$27.86 billion due to soaring crude palm oil and coal prices. On the other hand, the increase in domestic imports so far in 2020 has not yet reached pre-epidemic levels. The surge in commodity exports, but not imports, has resulted in Indonesia recording 52 consecutive months of long-term surpluses, with a surplus period from May 2020 to August 2024, the longest surplus period since the Suharto era. Indonesian exports in the Joko era have also benefited from a strong boost in the nickel downstream business. According to BPS data, Indonesia's ferronickel exports jumped from $373.6 million (Rp 5.66 trillion) in 2010 to $15.29 billion (Rp 231.57 trillion) in 2023. Exports of nickel and its products also jumped from $1.44 billion (Rp 21.81 trillion) in 2010 to $6.82 billion (Rp 103.29 trillion) in 2023.

On the other hand, imports remain subdued, especially for consumer goods, signaling a slowdown in domestic demand.Consumer goods imports will grow by only 8.61 TP3T in 2023 and will even contract in 2022. In fact, consumer goods imports were growing in double digits just before the outbreak. UOB economists said the decline in imports was largely due to the sharp drop in consumer goods imports during and after the Singkwan outbreak, suggesting that consumption levels and public confidence have not yet recovered. Indonesia's trade orientation has changed in recent years, with China now replacing the U.S. and Japan as the country's largest trading partner. before the 2010s, Japan was Indonesia's main export destination or largest trading partner. Significant changes have occurred since the launch of the China-ASEAN Free Trade Agreement (ACFTA) in 2004, which eliminated tariffs on Indonesia's exports of 94.61 TP3T to China. Data from the Central Bureau of Statistics (BPS) showed that Indonesia's trade with Japan in 2004 amounted to US$18.62 billion, with Indonesia's exports amounting to US$15.96 billion. Meanwhile, trade with China was only $12.24 billion, of which exports amounted to $4.6 billion.In 2014, 10 years after ACFTA came into effect, Indonesia's trade with China jumped to $48.23 billion, of which exports amounted to $17.61 billion. Since 2011, China has been Indonesia's largest non-hydrocarbon export market. since 2021, trade between the two countries has even surpassed $100 billion for the first time in history. Indonesia's exports to China jumped from $17.61 billion in 2014 to $64.93 billion in 2023. china's exports accounted for 25% of total exports in 2023, with major commodities destined for China including coal, palm oil, steel and iron ore. According to UOB, China dominated Indonesia's steel export market in 2023 with a share of 68.71 TP3T.Meanwhile, for coal and crude palm oil commodities, China accounted for 29.61 TP3T and 21.41 TP3T of Indonesia's total exports of the two commodities, respectively.When China's economy is in a downturn, as it is currently, Indonesia's heavy reliance on Chinese exports could become a problem.The Chinese economy grew by only 4.7% (year-on-year) in the second quarter of 2024, down from 5.3% in the first quarter of 2024.The weakening of the Chinese economy affected exports to Indonesia, which declined by 8.7% to US$33.12 billion in the January-July period of 2024.The Chinese economy is also a major source of growth for Indonesia, as it is the largest exporter in the world, and the largest exporter in the world, which is the largest exporter in the world.

Diversification of products and export markets is the key to achieving sustainable export growth in Indonesia, as explained by UOB economists in their report Macro Note Indonesia: Export Diversification is the Key to Sustainable Growth. Commodity diversification, especially products with added value. It is important for Indonesia to optimize other export commodities, especially rubber, coffee and fish. Exports to ASEAN, India and the US need to be increased to offset a possible decline in exports to China. According to UOB, ASEAN is Indonesia's second largest trading partner and has been contributing an average of 211 TP3T over the past two decades, with fossil fuels, mainly coal, being the commodity contributing the most to Indonesia's exports to ASEAN. Indonesia is also an ASEAN exporter of automobiles and auto parts, mainly cars, motorcycles and auto parts. Indonesia and ASEAN have also signed the ASEAN Free Trade Area (AFTA) agreement, which makes it easier for Indonesia to become an ASEAN exporter. India is also an attractive export market worth exploring further, as the world's fifth largest economy, India is a strategic trading partner for Indonesia, especially in coal and gross palm oil commodities.2024 From January to July, Indonesia's exports to India grew by nearly 10% to US$12.34 billion. In addition to this, Indonesia's exports were supported by steady demand from the U.S. amid weak demand from China.From January to July 2024, Indonesia's exports to the U.S. grew by 6.8% to $14.35 billion. The demand outlook for crude palm oil, textiles and electronics will remain positive amid a strong US economy.

Indonesia is the world's sixth largest country in terms of geological resources, with almost all major commodities being coal, precious metals and common metals. Indonesia also has great potential in agricultural products, particularly crude palm oil, rubber, coffee and fish. Although mineral reserves are abundant, they will eventually be depleted as exploration and expansion continue. The Ministry of Energy and Mineral Resources (ESDM) has stated that Indonesia's proven and potential nickel reserves will be depleted within the next 15 years, so the country needs to optimize its agriculture and fisheries sectors to maintain sustainable export growth. Indonesia aims to export about $68 billion in agricultural products, including derivatives, by 2024. A variety of commodities such as crude palm oil, rubber, timber and its derivatives, fish, processed food and essential oils support agricultural exports in 2023, with a share of about 301 TP3T of Indonesia's total exports. downstream exports of agricultural products continue to rise, with about 531 TP3T of Indonesia's total rubber exports in the form of processed rubber in the form of rubber powder, and about 401 TP3T of Indonesia's total wood products exports in the processed wood in the form of end-product furniture. Indonesia will form a new government on October 20 led by President Prabowo. According to the just-approved State Revenue and Expenditure Budget (APBN) for 2025, next year's expenditures will be allocated Rp 3,621.31 trillion. Meanwhile, economic growth is set at 5.21 TP3T.

The APBN 2025 budget allocation for infrastructure is Rp 433.9 trillion, while the budget for subsidy management is Rp 307 trillion. The Parliament has given the new government the freedom to reallocate the 2025 APBN, and in order to support the formation of the new cabinet, the Budget Bureau and the government have agreed to provide flexibility in reallocating the budget to meet the budgetary needs of the new ministries and agencies. It is hoped that this freedom will be utilized in APBN 2025 to increase productive spending and support the economy, especially to boost consumption and exports. The public also expects Indonesia's eighth president to continue sustainable structural transformation starting downstream from mining and food, improve the tax system, improve the quality of education and health, and continue the energy transition. The development of export-oriented manufacturing is also necessary for Indonesia in the face of falling commodity prices and a weakening Chinese economy.