Indonesian investment in agriculture in northern Australia

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Author: Ashley Vines, University of Melbourne

Indonesia is Australia’s oldest trading partner, with the aborigines of northern Australia having traded goods and products with the Makassan long before European colonization. But this long-standing commercial connection remains underdeveloped given the size, complementary economies and proximity of the two countries. This is particularly the case in the agricultural sector.

While Australia is currently the main market supplier of wheat and live animal exports to Indonesia, exporters have yet to fully capture the growing market of Indonesian middle class who now consume higher levels. of quality protein and fresh produce. The circumvention of trade barriers, mainly in the form of non-tariff measures – such as import restrictions, licenses and quotas – is a major reason why the export of agricultural products to Indonesia is often considered as “too difficult” by Australian exporters.

The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), which entered into force on July 5, 2020, represents a change in these trade relations. The agreement lowers trade and investment barriers and is Australia’s first free trade agreement to have an entire chapter on non-tariff measures. Much of the discussion leading up to this deal focused on these export opportunities for Australian agribusiness.

But there has been little discussion about the possibility of Indonesian investments in Australian agriculture. IA-CEPA Chapter 14 describes an investor-state dispute resolution mechanism that will give investors access to an independent arbitral tribunal to resolve investment disputes. If Indonesians invest in Australian agriculture and export products to Indonesia, they would also be subject to the same tariff and non-tariff measures in place for Australian exporters. Removing some of these trade barriers increases certainty for potential Indonesian investors.

With a population of 267 million, Indonesia is currently the fourth most populous country in the world. It is also the world’s ninth-largest economy, with some economic forecasts suggesting it will become the fourth-largest by 2050. Indonesia faces challenges in meeting the consumption needs of its growing population, currently importing a large part of its economy. commodities, mainly wheat. , soy, meat protein, fresh fruit and dairy products. Like other food-importing countries, such as China, Vietnam and Qatar, Indonesia may seek to diversify its agricultural production base and reduce its dependence on the purchase of agricultural products on the market. international markets.

Northern Australia is a region very close to Indonesia and in need of greater investment in primary production and supply chains. Northern Australia has always been presented by successive Australian federal governments as a rare investment opportunity, with enormous agricultural “potential”, close to Asian markets. Live cattle are the largest agricultural industry in northern Australia and represent the region’s strongest trade link with Indonesia.

Yet the region’s agricultural “potential” in other industries has yet to be realized. Some reasons for this include the harsh climate, soil suitability, transport costs and logistics (especially given its remoteness), the challenge of developing land under governance and tenure systems, profitability of growing certain crops and the lack of infrastructure to access water. Resources. There is no doubt that investing in the emerging agricultural industries of northern Australia is risky.

Despite these risks, food importing countries are beginning to invest in northern Australia. Chinese investment is particularly important, contributing to the growth of emerging agricultural industries in the region. For example, Kimberley Agricultural Investment (KAI) is a subsidiary of the Chinese company Shanghai Zhongfu Group. In 2012, KAI was selected to be the developer of Stage 2 of the Ord Irrigation District, as part of the Ord-East expansion project. It draws on Australian research and development to become a key player in the growth and development of the region’s emerging cotton and corn industry.

A Vietnamese company also recently bought three large breeding stations and expressed its willingness to invest in the cultivation of supermarkets. These countries see the region as a long-term opportunity for agricultural expansion and diversification, despite the development challenges.

The question is whether Indonesian companies or state-owned enterprises could also do the same and expand their agricultural production base in northern Australia? The answer is probably not in the short term.

Food policy in Indonesia is currently guided by the principles of food security, sovereignty and self-sufficiency, which means that public investments in agriculture are focused on domestic production rather than exploring investment opportunities. outside.

Nonetheless, as Indonesia’s economy and investment capacity continue to grow, northern Australia may present opportunities for long-term mutually beneficial collaboration and investment. There is currently research and development on various agricultural production opportunities in the north that match the main Indonesian import demands. Soybeans, peanuts and other large-area crops, horticultural production (such as fresh fruit, avocados and specialty coconuts), raw sugar, aquaculture and beef could be considered.

If Indonesian companies are willing to invest in these emerging opportunities – as Vietnam and China are doing – it could support the region’s agricultural and economic growth and increase Indonesia’s food supply. This is just a future possibility that could add ballast to Australia’s long-standing trade relationship with Indonesia.

Ashley Vines is a Westpac Future Leaders Fellow at the University of Melbourne. His research was carried out in collaboration with the Center for Cooperative Development Research of North Australia (ACC).


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