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For Bigger Role in Global Trade, Indonesia Should Reshape Industrial Policy

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Indonesia should reshape its industrial strategy to become more closely integrated into global production networks and enjoy the long-term benefits of growing global trade, says a new study from the Asian Development Bank (ADB) and the Islamic Development Bank (IsDB).

The study, The Evolution of Indonesia’s Participation in Global Value Chains, notes that Indonesia’s participation in global value chains declined between 2000 and 2017. Forward linkages, where the country’s intermediate products are exported for use in the production of final goods elsewhere, declined from 21.5% of total exports to 12.9%, while backward linkages, or the share of foreign value-added in Indonesia’s exports, dropped from 16.9% to 10.1%.

“Indonesia’s limited participation in global value chains means it doesn’t benefit from global trade growth to the same extent as its Asian neighbors and isn’t benefiting from trade redirection resulting from trade tensions between the United States and the People’s Republic of China,” said ADB Vice-President for Knowledge Management and Sustainable Development Mr. Bambang Susantono at the launch of the study. “Globalization of production helps economies and workers overall. It also raises awareness of the environment and climate change, contributing to the achievement of the Sustainable Development Goals.”

“Value chains have facilitated the participation of developing countries in advanced production processes without having the necessity to develop entire production ecosystems,” said IsDB President Mr. Hajjar. “Value chains have also entered the digital space, creating opportunities and challenges for individuals, firms, and nations. Such participation in global value chains has increased income and spurred economic progress in many developing countries which is why the IsDB prioritizes assisting its member countries enter specific global networks.”

The study makes four recommendations to support Indonesia’s participation in global value chains.

Forging stronger links among domestic industries would help firms to innovate, expand, and offer greater value to companies overseas. This can be done through coordinating industrial policies and addressing governance bottlenecks to help firms thrive.

Infrastructure investment is critical in an archipelagic nation like Indonesia to ensure efficient transportation of goods and people and fast transmission of information. Reliable energy is also needed, particularly for capital-intensive manufacturing firms. Good infrastructure can also attract investment in global value chain-related firms.

To manage the impact of technological change, Indonesia should consider labor policies that encourage agricultural workers to shift to other sectors and to ensure workers can upgrade their skills to remain relevant to industry needs.

Finally, Indonesia should seek to develop its innovation capacity by attracting foreign direct investment in non-extractive and research and development industries, notably those that are closely linked to other sectors within the domestic economy.

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Environment

Excess salt in soils puts food security at risk

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Improper water management, including insufficient supply and poor quality drainage systems, are contributing to excessive soil salinization – a problem that threatens global food security, according to the UN’s Food and Agriculture Organization (FAO). 

Soil salinization refers to excessive levels of salt in the soil, which can inhibit plant growth and even be toxic to life.  It can occur naturally, for example in deserts due to lack of water and intense evaporation, or as a consequence of human activity. 

FAO is highlighting the issue in marking World Soil Day on Friday, ahead of the official commemoration on Sunday. 

Soils at risk 

“Soil is the foundation of agriculture and the world’s farmers depend on soil to produce about 95 per cent of the food we eat.  Yet, our soils are at risk,” said Qu Dongyu, the agency’s Director-General, in advance of the Day, which is organized around the theme of Halt soil salinization, boost soil productivity. 

FAO said unsustainable agricultural practices and the overexploitation of natural resources, as well as a growing global population, are putting increased pressure on soils and causing alarming rates of soil degradation worldwide. 

More than 833 million hectares of soils are already salt-affected, representing around nine per cent of the world’s land surface, or roughly four times the size of India. 

Salt-affected soils occur in all continents, and under almost all climatic conditions, but more than two-thirds are in arid and semi-arid zones. 

Some of the regions most affected are in Central Asia, the Middle East, South America, North Africa and the Pacific. 

Challenges in Uzbekistan  

Uzbekistan, located in Central Asia, is the world’s largest landlocked country, and is in turn surrounded by other landlocked nations. More than half the soils there are salt-affected, making it extremely difficult to farm productively.  

Adyl Khujanov runs a farm in the village of Kyzylkesek, situated in the Karakalpakstan region in western Uzbekistan, which is considered the hottest and driest place in the country. 

“I’ve been farming this land all of my life and seen so many people from this area leave over the years because of the heat, dry weather and water shortages,” he told FAO recently. 

However, in other regions of the world, soil salination is attributed to unsustainable human activities.  These include over use of fertilizers, inappropriate irrigation methods, poor quality water, and deforestation. 

Learning new methods  

FAO works with countries to support them in managing soil resources. 

In Uzbekistan, FAO’s Global Soil Partnership (GSP) collaborates with scientists to develop climate-smart soil management practices so that crops in salt-affected areas can thrive.  

“Thanks to new methods which we have learnt and adopted here to cope with climate change and severe water shortages, I can grow tomatoes, melons, pulses and forage crops to feed animals,” said Mr. Khujanov. 

Reliable data critical 

FAO has also stressed the importance of generating reliable soil data, though it warns that many countries face challenges in this area. 

The agency has published the Global Soil Laboratory Assessment Report, which reveals that out of 142 countries surveyed, 55 per cent lack adequate capability for soil analysis.  Most are in Africa and Asia. 

At the report’s launch, Mr. Qu underlined the need for investment in soil laboratories to provide reliable data that will inform sound decisions for ensuring sustainable soil management and preventing degradation. 

He said the recent adoption of a new Soil Strategy by the European Union (EU) is a positive example, setting concrete and ambitious targets to improve soil health within and outside the bloc. 

FAO recalled that the vital role of healthy soils in climate change mitigation and adaptation and in building resilience figured prominently at the COP26 conference last month. 

The agency has called on all countries to urgently improve their soil information and capacities by making stronger commitments towards sustainable soil management. 

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Development

With 1.3 million annual road deaths, UN wants to halve number by 2030

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Road accidents are still responsible for 1.3 million annual deaths and 50 million injuries all over the world, but the United Nations has a Global Plan to halve road deaths and injuries by 2030.    

The plan is a key part of the Decade of Action for Road Safety 2021-2030 and was discussed, on Friday, at an event supporting the High-Level Meeting on Global Road Safety at the General Assembly in New York. 

Opening the discussion, the President of General Assembly, Abdulla Shahid, said that the world needs to address this “unnecessary and tragic burden on families, communities and economies.”   

“Road accidents are entirely preventable, and our priority must be exactly that, to implement preventive measures”, he continued.  

Necessary action 

Mr. Shahid highlighted the importance of the Global Plan, but warned that “unless it is implemented, it is nothing more than a plan of action.” 

Looking ahead, he said implementation by national and local governments will require two main elements: financing and the engagement of relevant actors.    

With a notable funding gap in most countries, 90% of road deaths happen in low and middle-income countries. 

For Mr. Shahid, this means that achieving the targets will require increased support to these countries.  

Road traffic crashes are also the leading killer of children and young people worldwide, aged five to 29.  

As things stand, they are set to cause a further estimated 13 million deaths and 500 million injuries during the next decade. 

Personal stories 

During Friday’s event, Member States heard from families who lost loved ones, politicians that led the way, grassroot youth working on advocacy programs, and both government and non-governmental organizations.  

For the President of the General Assembly, “each is a story that will foster greater understanding and knowledge on how we can better engage on global road safety.” 

Mr. Shahid invited Member States, civil societies, and the international community to use these exchanges “as an opportunity to build collective commitments and strengthened partnerships”.   

“Global road safety is a shared responsibility that must be prioritized and integrated”, he argued.   

For him, achieving safety would contribute to the achievement of Sustainable Development Goals under education, health, and the environment, among others.   

The High‑Level Meeting on the topic will be held in July next year, under the theme “The 2030 horizon for road safety: securing a decade of action and delivery”. 

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Development

Strong Producer Organizations Key to a Vibrant Farming Sector

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Scaling up agricultural production among small farmers through clustering and organizing them into cooperatives and various types of producers’ organizations, and forging partnerships with agribusiness firms can help raise their incomes and subsequently spur the socio-economic transformation of the Philippine countryside.

A report titled “Realizing Scale in Smallholder-Based Agriculture: Policy Options for the Philippines” – launched jointly by the World Bank and the Department of Agriculture (DA) – said that there are rich lessons in the country and abroad for these clustering and consolidation of activities on-farm and along the value chain to succeed and transform the agricultural sector.

One notable example of this approach, the report said, is the Philippine Rural Development Project (PRDP), which is currently implemented by the DA. The PRDP clusters or organizes producers into enterprises that take a business-oriented approach to farming and fishing, supported through complementary investments in infrastructure such as farm-to-market roads, irrigation, post-harvest facilities, and cold storage.

“To succeed, efforts at clustering and consolidation needs to be voluntary, built on trust and confidence, and collaborative relationships among stakeholders—whether they are farmers, communities, municipalities, other local government units, or small and larger agribusiness enterprises,” said Ndiame Diop, World Bank Country Director Brunei, Malaysia, Thailand, and the Philippines.

“Where different approaches to clustering land management are not feasible, support for the mechanization of farming and post-harvest operations may be an alternative or complementary strategy for smallholder-based systems to increase farmer productivity and incomes, both on and off the farm,” Diop said.

Philippine agriculture is dominated by small farmers and fishers who operate independently, mostly using traditional production practices and earning low incomes. A typical farmer earns an average of P100,000 pesos each year, well below the poverty line (based on 2015 PSA figures).

Average farm size declined from three hectares (ha) per family per holding in the 1980s to only 0.9 ha per family per holding in 2012. These increasingly smaller farms are often split into more fragmented blocks. The country has some 5.56 million farms, totaling 7.2 million hectares, of which more than half (57 percent) are one ha or less, 32 percent are one to three ha, 9 percent are three to seven ha, and only two percent are seven ha or larger.

Agriculture Secretary William Dar has highlighted that using modern technology, schemes like block farming, trust farming, and contract farming can make farming more efficient and profitable for farmers and their partners in agribusiness ventures. With higher and better-quality production, linking agriculture to the domestic and global manufacturing sectors and accessing markets become easier, he said.

“Finding opportunities for clustering and consolidation of small and medium-sized farms as well as partnerships with agribusiness enterprises – to bring about economies of scale (and lower per-unit cost of production), particularly for crops that require mechanization and extensive use of technology – is part of the ‘new thinking’ of the Department of Agriculture,” said Secretary Dar.

“We want to collectively empower farmers, fisherfolk, and the private sector to increase agricultural productivity and profitability, taking into account sustainability and resilience,” the DA chief added.

Global experience shows that forcing collaboration among farmers and agribusiness enterprises through decree or subsidies (top-down approach) usually does not work but those that emerge from farmers’ bottoms up collective initiatives yield good results.

The report says that the country can explore various arrangements based on global experiences, including:

  • Realizing scale in primary production. In the Philippines, perhaps the most promising areas to pursue clustering can be among selected irrigation schemes where water user associations are already well established; and within Agrarian Reform Communities supported by the Department of Agrarian Reform.
  • Supporting market-oriented producer organizations. Encouraging the growth of cooperatives and producer organizations. In the East Asia region, Japan, South Korea, and Taiwan have had especially rich experiences promoting farmer groups or cooperatives.
  • Fostering contract farming, productive alliances, or other linkages between farmers groups and agricultural enterprises. These are well understood in the Philippines and can be scaled up.

Elsewhere in the region, contract farming has become increasingly common in some value chains, including value chains for specialized rice varieties or rice production systems.

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