Trade deal opens huge opportunity - and challenges - in agriculture

By Ross B. Taylor

The just concluded trade agreement with Japan presents enormous opportunities for Australia, and in particular for our agriculture sector. But it also presents some challenges for us to closely examine our mindset to producing and exporting food to the region.

This trade deal is set to reinforced our national view that Australia is to become ‘The food bowl of Asia’ and that we are about to experience a massive _‘Dining boom’_ to replace our mining sector as the major exporter for Australia. Yet the official statistics don't necessarily support that view and are concerning.

China’s imports of food imports over the past years have seen our share of that huge market actually fall; from 6% to 3% of total imports. Meanwhile, Indonesia has seen its exports of food to China 'explode’ from just 2% to 13%. It gets worse. Our food exports to Malaysia, which is traditionally a major buyer of food, has dropped from around 17% to just 6% whilst Indonesia has increased its share from 8% to 28%.

Australia’s export of food to Indonesia itself also tells another disturbing story; Down from 16% in 2006 to 8% today.

These countries have a strong and emerging middle class and whilst Australian exports of food, measured in actual tonnes, looks 'satisfactory', when expressed as a percentage of our neighbours growing food imports, the  story doesn't look so good as shown above.

So what has gone wrong in the middle of what should be our next export boom?

Firstly, we have taken our collective eye of the big emerging ‘ball’ to our immediate north. Whilst we see , Indonesia as a place that ‘collects, then ships boat people’, or a place that is home to terrorists or military dictatorships, our neighbour has grown-up and has produced an economy-including agriculture-that needs all the technical and scientific help it can get to expand its food growing capacity to not only feed its own people, but to ‘add value’ and export manufactured food to the Asian and Middle Eastern regions.

We have failed to identify this opportunity, but it’s still not too late if we face the reality that for some food crops, Australia will never be able to compete against our Asian neighbours with their high rainfall, better access to markets, fertile soils and economies-of-scale with large populations and low labour costs. But  just because we are berry growers or dairy farmers for example, doesn’t mean we must only operate from Australia.

By partnering with Asian growers for example we can invest in the supply chain and bring  our extraordinary knowledge and skills to build mutually successful businesses. By taking a more lateral approach to food production and exports, we can widen the opportunities enormously.

Trade expert, Cameron McMillan told 'The Australian's' Rowan Callick (7th April 2014) that "..We are amazing food producers, but after that we lose our way a bit". McMillan, who is the Executive Director of the international BDO Group, said that Australia needs to be, "...working through (partnerships) joint ventures in target economies". These should include not only Japan and China, but also countries closer to home such as Indonesia.

Our live cattle export industry is now rebounding strongly, but we once again fall into the trap of wanting to revert to the ‘we sell; they buy’ model. We must co-invest in the entire supply chain so we build a long-term and vibrant food market, with beef as the core ingredient, selling to not only Indonesian consumers but also to  third-party markets throughout the region.

WA’s CBH Group, through its Interflour operations in Asia doesn’t just sell several million tonnes of WA wheat to Indonesia every year, but ‘adds value’ through its Asian partnerships to manufacture flour, plus billions of packet-noodles with an enormous benefit back to WA farmers. Smart.

One often wonders what could have happened fifteen years ago if we had then identified Indonesia as the future power-house in motor car manufacturing, and that they would need first-class components to be  manufactured nearby using knowhow and technology that Australia has.

Could we today have large vehicle component design, technology and marketing businesses here in Australia with the actual assembly being  done by our JV companies next door to the car plants in Jakarta?

Sadly we will never know.

Meanwhile for our farmers and growers of agriculture products here in Australia we need to get their input costs down. Energy costs are an enormous burden on our primary industries. Labour availability and  costs remain a major problem, as does government regulation and red tape which has lead to Australia falling nine places this year (to 23rd place) in trade efficiency in the past four years.

Fortunately local food associations such as _Horticulture Australia_ have identified these challenges and the industry is moving to achieve better economies-of-scale through larger farms and improved on-farm  practices plus being supported by government to cut the red tape and the cost burdens to which I have already referred.

Even if we do all these things, and they are needed to be done urgently, we still must think more laterally as to how we produce food and goods for export. Using integrated supply chains through international partnerships, that involve co-investment overseas and in Australia, will be critical. Government organsiations such as  Austrade should play a key role in implementing and facilitating these plans. They have many good people and we should use them.

Asylum seekers have been the most important regional issue for many Australians in recent years. If any 'good' can come from the Prime Minister's determination to stop this terrible trade in people will be that it will not only save lives and help Australia and Indonesia, but it may also help us to re-focus our attention on the real issues and opportunities for our country that will create jobs and prosperity. And agriculture should lead the way.

Ross B Taylor AM is the Preseident of the Indonesia Institute (Inc).

 

(This article first appeared in The West Australian Newspaper on 3rd April 2014)

(Ross Taylor acknowledges the contribution and research on this topic by Michael Sheehy, Nuffield Scholar and Senior Advisor on Agriculture, Jakarta Indonesia)

Indonesia’s legislative election: a vote for moderation?

By Dominic Berger


On April 9, Indonesians voted in their fourth free and fair national election since the fall of President Suharto in 1998 ended four decades of authoritarianism. A win for the main opposition party, the PDI-P, was widely predicted, in large part due the enthusiasm surrounding its popular presidential candidate, Jakarta governor Joko Widodo, widely known as Jokowi.

In a highly fragmented party system where 12 parties competed for 560 seats in the House of Representatives, some polls suggested the PDI-P could take close to 30 per cent of the popular vote. Quick counts on Wednesday suggested the party fell far short of such predictions, earning the trust of only about 19 per cent of Indonesian voters.

The dominant reaction to the election so far has been one of surprise and disappointment that the PDI-P did not earn a stronger mandate for what many hoped could be a reformist Jokowi-led government. At the same time, concerns were aired that despite predictions of declining influence, Islamic parties appear to have increased their combined vote from 29 per cent in 2009 to about 32 per cent.

But there is reason to be cautiously optimistic. The nature of the likely coalition to take shape over the coming weeks suggests Indonesia will be governed by a moderate government under which the recent trend of hostility towards religious minorities could be reversed.

Now that the votes are counted, and parties know exactly what they have to bargain with, party elites are busy cementing coalitions. To officially nominate a president/vice-president pair for the presidential election on July 9, a party, or a coalition of parties, must reach 25 per cent of the popular vote or 20 per cent of lower house seats. Polls had suggested that the PDI-P would get close to reaching this threshold on its own, but it now seems that it could fall just short.

But while the coalitions for presidential elections are important, within weeks, parties will also form a governing coalition that can command a majority of seats in the House of Representatives. It is almost certain now that the PDI-P will hold the highest number of seats in the house. In addition, despite the PDI-P’s failure to capitalise on Jokowi’s popularity in the legislative election, it remains highly unlikely that Jokowi could be defeated by former General Prabowo Subianto in the presidential elections in July.

While the low result for the PDI-P makes it more reliant on coalition partners, eventually, parties will either have to cooperate with a Jokowi-led government, or assume a more oppositional stance.

There are several reasons why the next PDI-P-led coalition is likely to be more moderate in regards to minority rights than the current government led by Susilo Bambang Yudhoyono and his Democrat Party.

The PDI-P regards itself a legatee of Sukarno, Indonesia’s first president, and is a staunch defender of his Pancasila philosophy – a set of ideas that enjoins belief in god, but also entails the virtues of diversity and tolerance. In the Indonesian context these leanings are often described as "secular-nationalist", in contrast to parties that champion a more explicitly Islamic agenda. In opposition the PDI-P opposed several conservative pieces of legislation and criticised the government’s inaction in the face of violent attacks against religious minorities, such as Shia Muslims and the Ahmadiyah. It is likely to continue drawing on this pluralist ideological legacy when in government.

In addition to its own pluralist track record, according to Indonesian media reports the PDI-P is strongly inclined to work with the National Awakening Party (PKB) and the National Mandate Party (PAN), who surpassed pollster’s expectations by gaining about 9.2 per cent and 7.5 per cent of the national vote respectively. Both are linked to Indonesia’s two oldest and largest Islamic organisations, Nahdlatul Ulama and Muhammadiyah, whose membership bases in the tens-of-millions make up the vast majority of Indonesia’s Muslim community. A coalition with these two parties would anchor the "secular-nationalist" PDI-P firmly in the pluralist Muslim centre.

While the probable coalition between the PDI-P, PKB and PAN is in itself a centrist force, the likely exclusion of two other Islamic parties further indicates that the next government will be more moderate.

The Prosperous Justice Party (PKS) and the United Development Party (PPP) have both been part of President Yudhoyono’s governing coalition, holding key ministries. To varying degrees, both played a role in Indonesia losing its international reputation as home to a moderate and tolerant Islam. Importantly, in contrast to the gains made by the moderate Islamic parties, the combined vote for the PKS and PPP in 2014 stagnated relative to 2009. The PDI-P is unlikely to take either of them on board in a new government.
But a coalition of the PDI-P with only the two moderate Islamic parties would not be enough to form a stable majority-government. The PDI-P will need the support of one of the medium-sized parties – Gerindra; Prabowo’s party; Golkar, Suharto’s former electoral vehicle; or the Democrat Party, incumbent president Yudhoyono’s party.

It seems unlikely that PDI-P and Gerindra can work together for a number of reasons. First, Prabowo recently accused PDI-P chairwoman Megawati Sukarnoputri of betraying an agreement dating from 2009 between the PDI-P and Gerindra according to which Megawati was to support Prabowo for the presidency in 2014, after he ran as her vice-president in 2009. Second, Jokowi is likely to shatter Prabowo’s ambition of becoming president in July, after Gerindra helped to deliver him onto the national scene by supporting his successful run for governor of Jakarta in 2012. Last, and most importantly, over the coming three months, PDI-P and Gerindra are likely to throw more dirt at each other as the presidential race will pit Jokowi against Prabowo.

As to a deal between the PDI-P and the Democrat Party, the well-known personal animosity between PDI-P chairwoman Megawati and Democrat Party patron Yudhoyono, means that the Democrat Party is also an unlikely coalition partner for the PDI-P. The Democrat Party also dropped from 20 per cent of the vote in 2009 to 9 per cent in 2014, due to the arrest by the Anti-Corruption Eradication Commission of several senior board members.

That leaves Golkar as the only party that can offer enough supportive House of Representatives seats to the PDI-P when it comes to passing legislation. And what better party to govern with than the party that is yet to spent a single day in opposition in more than four decades of its existence. Despite on election night expressing coy ambiguity over Golkar’s prospect of joining a PDI-P-led coalition, Golkar chairman and presidential candidate Aburizal Bakrie has previously indicated that Golkar is a "government party".

While Golkar has a mixed record in standing up for minority rights, the absence of the PPP and PKS from government is bound to drag the government down a much more tolerant path. The starkest illustration of the changing tone the next government is likely to take towards minorities will be the replacement of the conservative current minister of religious affairs, PPP chairman Suryadharma Ali, who is currently facing a backlash from his own party board for, unbeknownst to them, last week appearing on stage with Prabowo at a Gerindra rally. He will soon be replaced with a more moderate figure, almost certainly from the PKB.

In sum, under this possible scenario of a new governing-coalition, the conservative slice of Islamic parties is relegated to opposition benches. Instead, the most consistent defender of pluralist values, the PDI-P, together with the moderate Islamic parties, takes the levers of government.

While a coalition that includes Golkar is not what many hoped for, the realities of election day leave little hope for a more limited reformist coalition. But a PDI-P-led government, in which PAN and PKB represent the moderate Islamic voice, and Golkar makes sure the machine putters along, would at least allow for the increasingly tight space for religious minorities to widen again.

Dominic Berger is a PhD candidate at the Department of Political Social Change at the Australian National University. This article originally appeared 11 April in the Sydney Morning Herald.