United States 

Department 

of Agriculture 

www.ers.usda.gov 

 A Report from the Economic Research Service

Abstract

As the Indonesian Government transitioned from a food (rice) self-sufficiency focus to 

an industrial export-oriented development strategy in the mid-1980s, the agricultural 

sector responded by diversifying production to include cash crops. Sharp currency 

devaluation and trade liberalization following the Asian financial crisis in 1997 provided 

incentives for Indonesian agricultural producers to assert their comparative advantage in 

tropical perennial crops. This report evaluates the ensuing impact on Indonesia’s agricultural productivity growth and consumer food demand and lifestyle. Shifting agricultural 

production and consumption patterns have led to improving agricultural trade patterns 

and food security. These developments have contributed to increased export opportunities for U.S. agricultural suppliers.

Keywords: Indonesia, agricultural productivity, food security

Acknowledgments

The authors are grateful to Cheryl Christensen, Mary Anne Normile, Greg Pompelli, 

Keith Fuglie, John Dyck, and Molly Garber of the Economic Research Service for their 

insightful comments, suggestions, and edits on this report. We also appreciate the timely 

effort and review comments of Dennis Voboril (Foreign Agricultural Service), Charles 

Alexander (U.S. Central Command), Michael Nehrbass (U.S. Agency for International 

Development), and Peter Guest (World Food Program).

Nicholas Rada, nrada@ers.usda.gov

Anita Regmi, aregmi@ers.usda.gov

Trade and Food Security 

Implications From the 

Indonesian Agricultural 

Experience

WRS-10-01

May 2010

Contents

Approved by USDA’s 

World Agricultural 

Outlook Board

Introduction. . . . . . . . . . . . . . . . 2

Indonesian Agriculture’s 

Shifting Production 

Patterns. . . . . . . . . . . . . . . . . . 4

Agricultural Demand 

Transitions. . . . . . . . . . . . . . . . 7

Agricultural Trade. . . . . . . . . . 12

Outlook and Implications. . . . 17

References. . . . . . . . . . . . . . . . . 18
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Indonesia’s resilient economic growth, expanding middle class, and strong 

domestic demand have led some economists to see the country as a potential fifth member of the BRIC group—Brazil, Russia, India, and China—of 

rapidly growing developing nations (Aglionby, 2009). Investments in the 

Indonesian agricultural research system, including U.S. foreign aid, assisted in 

establishing agricultural research capacity, raising productivity, and supporting 

stronger growth. The agricultural sector underwent some realignment in 

response to policy changes that shifted focus from food crop production to an 

industrial, export-led development strategy. Coupling this market reorientation 

with the devaluation of the rupiah and trade liberalization following the Asian 

financial crisis allowed Indonesian producers to exploit their comparative 

advantage in tropical perennial crop production. Strong economic growth and 

vibrant trade have increased consumer demand for higher valued foods and 

have expanded U.S. export opportunities for fruit, dairy, other packaged food, 

and feed and fodder. 

This report examines the evolution of Indonesia’s agricultural sector and 

the ensuing impact on agricultural productivity growth and consumer food 

demand and lifestyle. The report further examines how the development of 

the agricultural sector has affected Indonesian agricultural trade patterns, the 

country’s food security status, and the outlook for these trends. At a time when 

food security initiatives are being developed to reduce poverty and hunger 

in some of the poorest nations in the world through growth in agricultural 

productivity, Indonesia can provide an illustration of the wide-ranging possibilities for improving agricultural productivity and food security. 

Background

In the mid-1960s, Indonesia was the world’s largest rice importer (Fuglie 

and Piggott, 2006). From the 1970s until the mid-1980s, the country focused 

its efforts on reducing its reliance on food imports and directed investments 

toward increasing food crop (mainly rice) production. Growth in the agricultural sector coincided with the “Green Revolution” as seed-fertilizer technologies and substantial Government subsidies allowed increased production 

through crop intensification. Bolstered by a buoyant food sector in the 1980s, 

Government sentiment began shifting toward a new industry-first policy. 

Indonesia’s 1983-93 market transformation restructured the economy to assist 

producers in competing with low commodity prices observed in world markets 

(Timmer, 2004). 

The Asian financial crisis shocked the Indonesian economy, plunging its 

1998 gross domestic product (GDP) growth rate to -13 percent (World Bank, 

2008). Regaining macroeconomic stability required instituting specific policy 

measures, negotiated with the International Monetary Fund (IMF), such as 

reducing food crop tariffs to no more than 5 percent, deregulating the movement of interprovincial agricultural commodities, and breaking the Government Logistical Agency’s (Badan Urusan Logistik) monopoly over the trade 

rights for rice, wheat, soybeans, sugar, and garlic (USDA, Economic Research 

Service, 2000; Timmer, 2004). Trade liberalizing policies and currency devaluation promoted a greater market-oriented economy and allowed Indonesia’s 

Introduction
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tropical perennial crops to assert their comparative advantage.1 By the late 

1990s, Indonesia emerged as the second largest exporter of rubber and palm 

oil and the third largest exporter of cacao and coffee (Fuglie and Piggott, 

2006). Despite diversifying away from food crops, the country improved food 

security, largely by increasing access to food with a revitalized economy and 

rising income levels. In a sample representing 40 percent of the lowest income 

group in both rural and urban areas, a United Nations’ (UN) analysis found 

that the proportion of Indonesian households experiencing severe food insecurity decreased from nearly 31 percent in 1999 to just under 11 percent in 2002 

(United Nations, 2008, p. 30-2).2

1Note that Indonesia, as of January 

2008, altered its import duty on rice to 

450 rupiah/kilogram.

2Household food insecurity is defined 

in this UN analysis as a food expenditure share greater than 60 percent 

and energy intake less than 80 percent 

of the standard requirement of 2,100 

kilocalories/capita/day.
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Total agricultural output in Indonesia grew through land expansion, increased 

labor and capital investments, and intensified use of intermediate inputs, such 

as fertilizer.3 Average annual agricultural output growth in Indonesia increased 

3.6 percent between 1961 and 2006, with roughly half accounted for by farms 

increasing input usage (Fuglie, 2009). The remaining portion of output growth 

is attributed to total factor productivity growth—that is, growth from improved 

technologies and more efficient allocation of farm resources. While technical 

changes and improved information may come from various sources, both 

international and domestic, a country’s own agricultural research system bears 

the burden of improving its farmers’ productivity. 

Although Indonesian agricultural research dates to the early 1800s, the Great 

Depression, World War II, the War of Independence (1945-49), and nationalization of many foreign-owned plantations (1957) decimated research 

capacity. To assist in rebuilding domestic public agricultural research capabilities, the World Bank, the U.S. Agency for International Development 

(USAID), and the Asian Development Bank have accounted for nearly a third 

of total annual research expenditures between 1974 and 2003 (fig. 1).4 Despite 

these international contributions, low funding for agricultural research in Indonesia has historically been a constraint to improving agricultural productivity 

growth (Agency for Agricultural Research and Development, 1987; Fuglie and 

Piggott, 2006; Mellor et al., 2003). Private agricultural research is increasing 

but from a very small base: It accounted for about 3 percent of all agricultural 

research expenditures in 1985, about 7 percent in 1996, and has continued to 

grow since (Pray and Fuglie, 2002). 

Empirical evidence indicates that research investments have benefited Indonesian agricultural development. Agricultural research investments on rice 

Indonesian Agriculture’s Shifting

Production Patterns

3Secondary data employed in this 

report are from Indonesian Government 

statistical publications and non-Indonesian sources. The Indonesian data 

sources are the Buro Pusat Statistik 

(BPS), or the Central Statistics Office; 

the Ministry of Agriculture (MOA); and 

the Director General of Estate Crops, 

or DG Estate. Non-Indonesian sources 

are the Food and Agricultural Organization FAOSTAT Agricultural Databases, 

the World Bank’s World Development 

Indicators, the U.S. Census Bureau, and 

USDA’s Economic Research Service.

4Indonesia’s domestic public agricultural research expenditures entail 

funding sources from the Agency for 

Agricultural Research and Development 

(AARD) and the Indonesian Planters 

Association for Research and Development (IPARD).

Figure 1

Sources of funding for Indonesian agricultural research, 1974-2003

Million dollars1

1

In 1999 international dollars.

Source: Fuglie and Piggott (2006).

1974 76 78 80 82 84 86 88 90 92 94 96 98 2000 02

0

50

100

150

200

250

300

Domestic

International
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were estimated to generate a rate of return, which is the ratio of money gained 

relative to the amount invested, of 151 percent annually between 1965 and 

1977 (Salmon, 1991). Similarly, other studies have estimated at least a 100 

percent return for dryland rice, wetland rice, maize, soybeans, sweet potatoes, cabbage, potatoes, garlic, mustard, onions, shallots, bananas, papayas, 

pineapples, and milk (Evenson et al., 1994). However, elevating agricultural 

total factor productivity (TFP) growth is generally the goal of any public agricultural research investment. TFP provides the most complete productivity 

measure, compared with partial land or labor productivity measures, because it 

accounts for all farm inputs, rather than a single input, related to production. 

Fuglie’s (2009) TFP estimates—which account for crops, livestock, and 

cultured fisheries—indicate that Indonesia’s agricultural productivity increased 

2.18 percent per year during the early years of investment when the focus was 

on food (rice) self-sufficiency. A shift in focus favoring industrial development resulted in a dramatic slowdown of agricultural productivity growth to 

less than 1 percent between 1985 and 1997. Market liberalization and sharp 

currency devaluation following the Asian financial crisis promoted the development of export-oriented tropical perennial crops. Subsequently, TFP estimates more than tripled to 2.41 percent between 1998 and 2006. 

Analysis by Rada et al. (2010) finds that agricultural technology growth 

between 1985 and 2005 has varied across subsectors, being greatest in perennial (export) crops (2.20 percent), followed by livestock (1.70 percent), and 

least in annual (food) crops (0.67 percent). This analysis suggests that policy 

reforms and currency devaluation created incentives for increased agricultural 

trade and generated growth in agricultural productivity. Furthermore, Rada et 

al. indicate that technology growth was driven more from private and other 

nongovernment sources than from public agricultural research investments. 

One such example is provided by Pray and Fuglie (2002), who note that new 

palm oil clones destined for Indonesia originate from Malaysia, with private 

rather than public research facilitating the technology transfer.

The realignment of the Government’s development focus, accompanied 

by increased private and nongovernment research investments in perennial 

crops—which experienced the greatest productivity gains—has contributed 

to changing Indonesia’s agricultural composition. Although most crops and 

livestock experienced growth in total production levels, their relative shares of 

total agricultural output changed over the years. 

Total agricultural output in Indonesia grew from an average level of 93 million 

metric tons during 1985-1997 to 117.5 million metric tons during1998-2005 

(fig. 2). The eight commodities presented in figure 2 accounted for over 85 

percent of total agricultural production in both periods. Between these two 

periods, average rice production increased over 13 percent, which is significant in the face of low annual crop technology growth during this timeframe. 

In contrast, palm oil production—a principle driver of perennial crop technology growth—increased 110 percent between the two periods. 
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Just as changes in development focus and market liberalization have impacted 

Indonesian agricultural productivity trends and production composition, 

these forces have combined with overall economic growth to drive changes in 

consumer food demand and lifestyles. These factors are briefly described in 

the following section.

Figure 2

Average Indonesian agricultural production, 1985-1997 and 1998-2005

Million metric tons

Source: Rada (2009).

1985-1997 1998-2005

0

20

40

60

80

100

120

140

Rice

Cassava

Maize

Palm oil

Bananas

Rubber

Sugar cane

Coconut

All other
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Growth and development in the agricultural sector have increased agricultural 

value added from $17 billion in 1985 to almost $29 billion in 2003, in constant 

2000 dollars (World Bank, 2008). However, because the rest of the economy 

grew even faster, agriculture’s share in the general economy has declined by 

nearly half (table 1). Agriculture accounted for over 30 percent of the country’s GDP in 1985 but less than 17 percent in 2003. Agricultural productivity 

growth reduced labor needs in the sector, promoting greater labor participation in other sectors of the economy. Additionally, higher wages in urban 

areas have stimulated rural labor migration (World Bank, 2007). As a result, 

agriculture accounted for only about 44 percent of total employment in 2003 

compared with almost 55 percent in 1985 (table 1). Furthermore, the urban 

population rose to account for nearly 50 percent of the overall population in 

2006; it accounted for only 15 percent in 1961 (fig. 3). 

Economic growth and greater urbanization have contributed to lifestyle 

changes, evidenced by a more educated labor force with greater female 

participation (table 1). Increasing employment opportunities have coincided 

with higher per capita wealth. GDP per capita (in 2000 international dollars) 

nearly tripled from $1,150 in 1975 to almost $3,200 in 2003 (table 1). Past 

ERS research indicates that higher income levels are associated with a greater 

demand for more expensive sources of calories, such as meat, fruit, vegetables, 

and processed food products (Seale et al., 2003). For example, if Indonesian 

income levels rose 10 percent, the demand for higher valued foods, such as 

dairy and fish, would rise by about 8 percent for each, whereas cereal demand 

would increase by only 5 percent. 

Urbanization affects food consumption patterns in a number of ways (Regmi 

and Dyck, 2001). Calorie requirements of urban and rural residents differ, with 

sedentary urban lifestyles requiring fewer calories to maintain a given body 

weight. Improved transportation technology offers a wider range of food products in urban areas year-round than in rural areas. Moreover, urban areas are 

centers of economic opportunity where a greater percentage of women work 

outside their homes, in turn generating larger household incomes. 

Agricultural Demand Transitions

Table 1

Indonesian economic development indicators, 1975-20031

Year GDP growth GDP per capita, 

PPP2

Agricultural 

GDP share

Agricultural 

employment3 Female labor Literacy rate4

Percent Constant 2000 

U.S. dollars Percent Percent Thousands Percent

1975 7.8 1,148 30.2 — — 68.7

1985 6.0 1,735 23.2 54.7 25,414 76.1

1995 7.1 2,987 17.1 45.2 31,796 81.9

2003 4.7 3,182 16.6 44.3 37,979 85.8

1Each indicator is provided as a 5-year centered average to net out year-to-year fluctuations. 

2Gross domestic product (GDP) per capita, purchasing power parity (PPP) measured in constant 2000 U.S. dollars. 1975 

employs a 3-year uncentered average as data begin in 1975.

3— = Not applicable. 1985 is the first data point.

41975 employs only 1976 data. 2003 employs a 3-year average as data end in 2003.

Sources: World Bank (2008), Fuglie and Piggott (2006), Euromonitor (2009).
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Greater food consumption and increased purchasing power have contributed 

to average Indonesian per capita food availability growing from 1,726 calories per capita per day in 1961 to 2,890 calories in 2003 (FAO, 2009). While 

the increase in total per capita calories has been remarkable, the changes in 

food sources providing these calories are equally noteworthy. The total calorie 

share of starchy roots, a low-value product, has been consistently replaced by 

high-value foods, such as vegetable oils, meats, fish/seafood, and fruits and 

vegetables (fig. 4). Between 1961 and 2003, starchy root crops as a share of 

total calories consumed per capita per day fell an annual average 2.5 percent, 

from 20 percent to 7 percent. Cassava, long considered an inferior food in 

Indonesia, is the dominant starchy root. Vegetable oil’s share nearly tripled 

between 1961 and 2003, peaking at more than 9 percent. Meat and fish/

seafood as a share of calories modestly rose 1.1 percent and 1 percent, respectively. Sugars and sweeteners and vegetables and fruits remained constant.

Figure 3

Indonesian population growth, 1960-2006

Million people

Source: World Bank (2008).

1960 64 68 72 76 80 84 88 92 96 2000 04

0

50

100

150

200

250

Rural population

Urban population

Figure 4

Changes in Indonesian food sources as a share of total calories 

consumed per capita per day, 1961-2003

1961=100

Source: World Bank (2008).

1961 65 69 73 77 81 85 89 93 97 01 03

0

50

100

150

200

250

300 Cereals

Sugar and sweetners

Fruits and vegetables

Meats

Fish/seafood

Vegetable oils

Starchy roots
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Income growth and lifestyle changes caused by greater urbanization have also 

changed the manner in which consumers purchase food in Indonesia. Increasingly, Indonesians are purchasing packaged food with some value added, 

rather than purchasing unprocessed products from local wet markets. The total 

value of such purchases grew from $4.2 billion in 1998 to over $16 billion in 

2008 (fig. 5). In addition to the changes in the actual consumer food basket, 

the outlets through which these products are purchased have also undergone a 

change. In 1998, less than 22 percent of packaged food was sold in standardized retail outlets rather than in independent corner “mom-and-pop” stores.5

In 2008 over 34 percent of sales were through standardized stores. These standardized outlets are often owned by such companies as Carrefour and Makro 

(recently purchased by Lotte), who play a key role in introducing new food 

products to the market. In this manner, changes in the food retail sector further 

contribute to the evolving food demand pattern of the Indonesian consumers.

5Standardized outlets denote supermarkets, hypermarkets, and discount 

and convenience stores.

Figure 5

Rising packaged food sales in Indonesia, 1998-2008

Billion dollars

Source: Euromonitor (2009).

1998 2008

0

2

4

6

8

10

12

14

16

18

From 

standardized

outlets

From all 

other outlets
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With a surge in the number of dual-income urban households Indonesians are 

finding less time to shop for food or cook their meals, registering a dramatic 

growth in sales from the foodservice sector (fig. 6). Although the size of the 

Indonesian market at $29 billion is relatively small compared with that of the 

United States, it is one of the world’s fastest growing markets. As with food 

retail outlets, a large number of foodservice outlets that have proliferated 

in recent years are foreign affiliates of companies, such as fast food outlets 

McDonald’s and Pizza Hut, as well as sit-down restaurants, such as TGI 

Friday’s, Tony Roma’s, and Planet Hollywood.

Food Security

Although Indonesian agriculture has diversified away from food crops, overall 

food security has improved. Food security generally implies that a country has 

sufficient food available (target of 2,100 calories per person per day) that can 

be readily accessed (physically available as well as affordable) and utilized 

by it citizens (nutrients consumed and absorbed by individuals). Growth in 

agricultural production has increased food availability in Indonesia, while 

higher income levels have improved food accessibility for most of its citizens. 

Increased education, better nutrition, and improved food safety and sanitation 

have contributed to better food utilization in the country.

With increased availability, accessibility, and better utilization, food insecurity in Indonesia has declined since 1981 (fig. 7). Food insecurity results 

in undernourished citizens, with children being the clearest indicator of this 

crisis. Thus, food security measures commonly tend to focus on indicators involving children. The International Food Policy Research Institute’s 

(IFPRI) global hunger index provides a measure that reflects all three pillars 

of food security: availability, accessibility, and utilization. The hunger index 

is an equally weighted index of three measures: the proportion of undernourished population as a percentage of the total population; the prevalence 

of underweight children under the age of 5; and the under-5 mortality rate 

Figure 6

Indonesian foodservice market: Size in value, 2008, and percentage 

growth, 1999-2008

Percent growth

Source: Euromonitor (2009).

Mexico,

$48 billion 

(22%)

Thailand,

$20 billion

(101%)

Indonesia,

$29 billion

(263%)

-50

0

50

100

150

200

250

300

1 2 3 4 5

U.S.,

$446 billion

(42%)
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(IFPRI, 2006). The hunger index score for Indonesia has declined from a 

high of over 28 in 1981 to less than 12 in 2007 (IFPRI, 2006, 2007). If one 

assumes food availability, agricultural trade, and economic development to 

continue their historical trends, the hunger index is expected to decline to 8 in 

2010 and below 2 by 2020. 

Marginal growth in annual crop productivity suggests that imports may have 

played a key role in improving consumer availability and accessibility to food. 

The following section examines how transitions in Indonesia’s agricultural 

production patterns and consumer food demand patterns have affected agricultural trade. 

Figure 7

Improving food security in Indonesia, 1981-2020

Hunger index

Source: The hunger index is from the International Food Policy Research Institute; values for 

2010 and 2020 are authors' trend line forecast.

1981 1992 1997 2003 2007 2010

forecast

2020

forecast

0

5

10

15

20

25

30
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With import tariffs below world average levels, Indonesia has one of the most 

open markets for agricultural imports in Asia (fig. 8). For example, in 2006, 

the average bound rate, a set tariff level above which import tariffs cannot 

be raised, was 48 percent in Indonesia compared with the global average of 

62 percent. More importantly, the actual tariffs that were applied to agricultural imports averaged only 9 percent in Indonesia compared with the world 

average of 19 percent. 

Reflecting the changes in agricultural production and consumer demand 

patterns, Indonesia has focused agricultural exports primarily on tropical 

perennial products in which it has comparative advantage, whereas its imports 

have included feed for its growing poultry sector (in response to greater 

consumer demand for meat) and food for its citizens.

Agricultural Exports

Indonesia’s agricultural export value has grown on average almost 9 percent 

annually, from a base of nearly $900 million in 1975 to nearly $18 billion in 

2007 (FAO, 2009). Growth has been driven by increases in tropical perennial 

crops, such as rubber, cocoa, coffee, and palm oil. As of 2008, Indonesia was 

the second largest exporter of palm oil and the fourth largest exporter of coffee 

(USDA, 2008). While growth was evident in palm oil and rubber following 

Indonesia’s move toward industrialization in the mid-1980s, growth was exponential following the economy’s recovery after the Asian financial crisis (fig. 

9). Between 1975 and 2007, palm oil and rubber accounted for nearly half of 

total export value, with rubber’s share alone nearing a third. Between 2000 

and 2007, shares associated with palm oil and rubber switched, with palm oil 

representing nearly 33 percent of total export value. 

Agricultural Trade

Figure 8

Indonesia's agricultural tariffs, 2006

Percent

Source: Calculations by USDA, ERS using the Agricultural Market Access Database and 

the World Trade Organization's member-submitted ad valorem-equivalent estimates; 

simple averages are calculated.

Bound Applied

0

20

40

60

80

100

120

48

9

World average

bound tariff 62%

World average

applied tariff 19%
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Agricultural Imports

Despite growth in agricultural production, population and income growth 

have contributed to Indonesia’s agricultural import increases (fig. 10). Indonesia’s agricultural import value grew from over $650 million in 1975 to over 

$8.5 billion in 2007, an 8-percent average annual increase, to meet the needs 

of a swelling population that increased from less than 100 million in 1961 

to nearly 230 million in 2009 (FAO, 2009). In addition to the overall growth 

in imports to meet expanding food demand, Indonesian food import trends 

reflect food preferences and lifestyle changes of an increasingly educated, 

urban, and wealthy consumer. Cereals, which accounted for over 60 percent of 

total imports in 1975, have accounted for only about a quarter of agricultural 

imports since 1991 (fig. 11). Instead, imports of feed and fodder to meet the 

needs of the growing poultry sector and foods to satisfy Indonesia’s newly 

discerning consumers have risen. For example, feed and fodder import value 

increased an average 34 percent each year between 1967 and 2007. Similarly, 

soybean (food item) import value increased an average 12 percent per year 

between 1975 and 2007.

Figure 9

Indonesian agricultural export values, 1975-2007

Million dollars

Source: Food and Agriculture Organization of the United Nations, FAOSTAT 

Agricultural Databases (2009).

48

9

1975 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Palm oil

Coffee, cocoa, tea

Rubber

Other
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Figure 11

Selected agricultural products as a share of total Indonesian imports, 

1961-2007

Percent

Source: Food and Agriculture Organization of the United Nations, FAOSTAT Agricultural 

Databases (2009).

48

9

1961 65 69 73 77 81 85 89 93 97 01 03

0

20

40

60

80

100 Cereals

Fruits and vegetables

Meats

Feed and fodder

Figure 10

Indonesian income growth and agricultural import value, 1975-2007

Agricultural imports, million dollars

Source: Food and Agriculture Organization of the United Nations, 

FAOSTAT Agricultural Databases (2009); World Bank (2008).

48

9

GDP/capita, 2000 international dollars

1975 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Cereals

Fruits and

vegetables

Meats

Other

GDP/capita
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U.S. Agricultural Exports to Indonesia

Indonesia’s agricultural transformation has provided opportunity for U.S. agricultural exports. Since 1975, grain and soybeans have averaged 50 percent of 

all U.S. agricultural exports to Indonesia (fig. 12) (U.S. Census Bureau, 2009). 

Most noticeable in figure 12 is the sharp growth starting just before 2000. To 

provide more detail of which U.S. exports have grown since 1997, table 2 

displays the increasing values of bulk, intermediate, and consumer-oriented 

agricultural items exported to Indonesia between 1998 and 2008. Although 

the value of bulk items far exceeded that of intermediate or consumer-oriented 

items, each category experienced impressive growth. Furthermore, the average 

annual value of at least six individual items—wheat, hide and skins, feed 

and fodder, snack foods, dairy products, and fresh fruits—grew more than 20 

percent. Dairy products, the fastest growing export item to Indonesia, grew at 

an annual average rate of almost 40 percent.

Increased U.S. export values after 1998 reflect changes in the composition of 

trade (table 2). Export volumes follow value trends for most commodities/

groups. The significant average annual decline in “other bulk items” is largely 

explained by a nearly 40-percent average annual decline in rice quantities 

between 1998 and 2008. In contrast, strong average annual growth of U.S. 

export volumes to Indonesia in feed and fodder (28 percent), dairy products 

(31 percent), and snack foods (20.5 percent) exemplifies the Indonesian 

consumer’s rising demand for animal feed and high-value food items. 

Whereas figure 12 illustrates the high share that grains and soybeans represent 

in U.S. exports, table 2 traces new growth to specific agricultural items. Moreover, the growth in export quantities indicated in table 2 confirms that rising 

U.S. export values are not completely price driven. Indonesia’s rising demand 

for high-value foods has provided a boon for U.S. agricultural exports. 

Figure 12

U.S. agricultural exports to Indonesia, 1975-2008

Million dollars

Source: U.S. Census Bureau (2009).

48

9

1975 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07

0

500

1,000

1,500

2,000

2,500

Grains

Soybeans

Other
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Table 2

United States-to-Indonesia agricultural export growth, by commodity, 1998-2008

Average annual growth, 

1998-2008

Commodity 1998 2001 2005 2008 Value Volume

Million dollars Percent

Bulk:

Wheat 44.9 72.4 26.8 364.0 20.9 10.2

Cotton 154.6 194.0 277.6 455.0 10.8 10.7

Soybeans 139.2 244.7 302.2 589.3 14.4 7.9

Coarse grains 1.8 43.8 1.2 10.4 17.8 7.5

Other 33.2 19.2 27.0 43.8 2.8 -17.31

Total 373.6 574.0 634.7 1,462.0 13.6 8.3

Intermediate:

Hide and skins 0.2 4.0 3.2 3.0 28.4 N/A2

Soybean meal 11.7 167.5 22.5 20.8 14.7 -1.5

Feed and fodder 9.7 21.4 72.8 189.1 29.7 28.2

Other 34.6 61.0 55.4 138.6 13.9 N/A3

Total 56.2 253.9 153.8 381.5 19.2 N/A

Consumer-oriented:

Snack foods 0.7 1.7 9.3 6.3 22.1 20.5

Dairy products 4.2 14.5 61.4 209.2 39.0 30.8

Fresh fruit 4.9 29.5 37.6 59.6 24.9 17.1

Meats 3.8 10.9 19.1 9.8 9.4 10.1

Processed fruits and vegetables 9.2 11.6 16.4 27.5 11.0 6.5

Tree nuts 0.4 1.0 2.2 3.0 19.5 19.7

Pet foods 0.5 1.9 1.8 3.3 19.4 12.6

Other 5.1 7.8 21.8 32.8 18.5 N/A

Total 28.9 78.9 169.5 351.5 25.0 N/A

Total agricultural exports 495.4 949.5 1,025.3 2,268.3 15.2 N/A

1Excludes peanuts and pulses due to lack of data availability. 

2N/A = Not available.

3Due to differing units of measurement, volume aggregates are available only for bulk items.

Source: U.S. Census Bureau (2009).
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Outlook and Implications

Indonesia has recorded one of the fastest agricultural transformations in 

history, trailing only Korea and Turkey, in shedding 27 percent of agriculture’s 

share of GDP in 35 years (World Bank, 2008).6 Incentives induced through 

the market reorientation of the mid-1980s and the currency devaluation and 

market liberalizing policies after the Asian financial crisis may have been the 

main productivity driver. With greater income, Indonesians are increasingly 

urbanized and gains have been made in improving their food security. These 

consumers increasingly demand higher valued food and have attracted multinational stores as well as U.S. agricultural exporters, retailers, and foodservice 

outlets. 

Under the expectation that population and income trends will continue 

upward, Euromonitor International forecasts that average consumer food 

expenditures per capita will increase 7.5 percent per year over the next 

decade, with average packaged food sales growing over 9 percent per year 

between 2009 and 2014. These forecasts bode favorably for U.S. agricultural 

producers, who can expect their growing export trends to continue, particularly for poultry feed, dairy, and other high-value food products. 

While this historical account of Indonesia’s agricultural development and 

transformation provided the platform for its trade and food security outlook, 

future expectations are contingent upon the continuation of the policies that 

thrust it into its present situation. The Indonesian experience provides some 

insight to donors who are contemplating investments to increase agricultural 

productivity in less-developed countries in order to reduce global poverty 

and hunger. Indonesia provides an example of a country in which improvements in food security are not inconsistent with export crops leading agricultural productivity growth. As such, it is important to consider any country’s 

particular geoclimatic characteristics and agricultural comparative advantages 

before predetermining its food security strategy. Indonesia also indicates that 

increasing productivity, and thereby food availability, is not sufficient for 

improving food security; food accessibility also has to be increased by raising 

the purchasing power of citizens and allowing greater mobility of goods and 

services. 

6Indonesia decreased agriculture’s 

share of GDP between 1971 and 2006 

from 40 percent to 13 percent, whereas 

Korea only required 19 years and 

Turkey 31 years. These statistics are 

adapted from Kim and Lee (2003) and 

Organization for Economic Co-operation and Development (2009).
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Agency for Agricultural Research and Development. 1987. 5 Years of Agricultural Research (1981-1986), Jakarta. 

Aglionby, J. 2009. “Economists split on Jakarta’s Komodo power,” Financial 

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Evenson, R., E. Abdurachman, B. Hutabarat, and A.C. Tubagus. 1994. 

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Economic Research Service/USDA

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