Indonesian Commodity Prospects as a Price Reference for the World

As an agricultural country, Indonesia has a great abundance of natural resources. Many Indonesian commodities – both soft and hard commodities — have world rankings.

Indonesian commodities contributed about one-fourth of Indonesia’s Gross Domestic Product (GDP) and government revenue in 2007. This has led Indonesia to become one of the largest global commodity exporters.  Check out some interesting facts about Indonesian commodities:

CPO (Crude Palm Oil)

Indonesia is the largest palm oil producer in the world. CPO exports reached US$19 billion in 2013 and account for 3.8 milion full-time jobs. CPO production in Indonesia continues to increase annually, with an average growth of 12.3 %. In 2013 the production of CPO  in Indonesia reached 27.0 million metric tons of crude palm oil. Currently, Indonesia is the world leader in CPO production. In fact, Indonesia and Malaysia together generate more than 85 percent of the world supply.

Rubber

World rubber production in the period 1995-2011 increased by 1.7 %. Indonesia is the second largest rubber producer after Thailand. In 2002, Indonesia was capable of producing approximately 1.6 million tons, in 2007 increased to 2.8 million tons, then had dropped back in 2009 to 2.5 million tons. In addition, Indonesia currently has an area of 2.93 million hectares devoted to rubber plantation. According to the Indonesian Rubber Research Institute in 2015 and 2020 Indonesia is projected to produce 3.5 million tons of s / d 3.8 million tons of rubber.

Cocoa

Indonesia is the third largest producer of cocoa in the world after the Ivory Coast and Ghana. The highest production reached 621 873 tons in 2006. Since 2011 there has been a cocoa revolution in Indonesia, transforming the country in a leading producer. Exports increased from approximately 100,000 tons in 2009 to over 300,000 ton in 2012. It is possible that Indonesia could become the world’s largest cocoa exporter.

Indonesian cocoa has important value as the mainstay of exports: It is the third largest foreign exchange earner after oil and rubber for the agricultural sector, and it supports more than 1.3 million head of family farmers nationwide.

 Coal

Indonesia is one of the world’s largest potential mining countries, home to the third-largest global coal and nickel reserves. Based on research from the Directorate General of Mineral and Coal, Ministry of Energy and Mineral Resources, Indonesia’s coal production increases annually. In 2003, Indonesia produced about 121 million tons and in 2008 production doubled to 240 million tons. Interestingly, in 2012, Indonesian coal production was three times more than 2003, which is about 386 million tons. Indonesia is now considered the fifth largest coal producing country in the world, with production of 376 million tons in 2011.

Determining Commodity Prices

These commodities have the potential to leading Indonesia to become dominant globally, at least in production Indonesia, but in fact commodity prices are determined by other countries as well because they are also consumers.

In the global commodity trade, consumer countries will always strive to suppress the price of Indonesia’s main commodities, because it benefits them, of course. The main cause of weak commodity pricing negotiations in Indonesian production is its inability to establish domestic prices, leading to price competition among commodity producers.

For example, in the production of Indonesian commodities such as cocoa, coffee and coal, from December 2011 to February 2013, the price was likely to continue declining. Cocoa prices dropped from US$2,150 to US$2,130, down 1 %. Coffee prices fell from US$220 into US$150, down 30 %, and the price of coal decreased to US$95 from US$115, down 17 %.

Indonesian Government Support

The Ministry of Trade encourages the creation of a reference price from the commodity exchange. The regulations regarding the export of tin (Regulation of the Minister of Trade of Indonesia  No. 32/M-Dag/Per/6/2013 on Amendment to Regulation of the Minister of Trade No. 78/M-Dag / Per/12/2012 about export) require that the export should go through trading in commodity exchanges. It is expected that the Indonesian government continues to support and create transparency in commodity prices in order to give farmers an opportunity to contribute to the development of Indonesia.

Exchanges and Supporting Facilities

The role of exchange rates is expected to be a reference point in the management of commodity prices and is expected to trigger the presence of other actions, such as:

• Commodity reserves management through a warehousing system integrated with trading on the exchange mechanism
• Standardization of the commodity quality based on prevailing standards in the global market
• Ease of access to the global trade, where the doors to foreign trade and domestic commodity exchanges are open
• The inclusion of funds for the management of the stock market commodity money for the farmers, so that farmers are able to hold commodity reserves and not release them at a price that is not profitable while there is an abundant production.

These factors will determine Indonesia’s commodity trade power in the global market.

Accelerate the Formation of the Price Commodity Reference

To become powerful in the global market, Indonesia has a tremendous opportunity:

• Indonesia as a country with substantial natural resources should take advantage of this position as a bargaining chip to establish a reference price for producers.
• The potential of Indonesia’s main commodities are quite promising in the global market. However, they should be managed — along with efficient price management — to improve the welfare of Indonesian farmers.
• Increase the role of commodity exchanges in Indonesia as the reference price, thus reducing the dominance of the state pricing consumers.
• In addition to the commodity market, now is the time to actually build facilities such as warehouses, develop information technology for market access, and the integrate trade financing of commodities so that Indonesia can increase its bargaining power globally.
• Regulations issued by the Indonesian government support the creation of efficiencies in the domestic market to increase global competitiveness.