Improving Agricultural Market Performance:
Creation and Development of Market Institutions
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5.4 Indonesia
The purpose of this country case study is to firstly introduce Indonesia’s general agricultural
market system (5.4.1), after which a selection of institutions will be evaluated into more
details (5.4.2 to 5.4.4). Conclusions and lessons learnt may be generalized and serve as
inspiration to other OIC Member Countries (5.4.5).
5.4.1 Overview of Agricultural & Food Sectors and Markets
The following section briefly describes the current situation of the five stages of Indonesia’s
agricultural market system as explained in the Conceptual Framework. The selected
agricultural market institutions (Section 5.4.2) typically intervene in one or more of these
stages. The five stages include:
 Production;
 Handling and storage;
 Processing and packaging;
 Distribution and market; and
 Consumption and trade.
Production
Traditionally, Indonesia’s agricultural production system has been characterized by small-
scale rice farming, complemented by large-scale plantations (both state-owned and privately-
owned). These plantations were primarily engaged in the production of rubber and palm oil.335
Indonesia’s current agricultural sector is divided into four sub-sectors:
 Food crops;
 Horticulture crops;
 Cash and estate crops; and
 Animal husbandry (including fisheries and forestry).
A trend is notable where small-scale farmers move away from food crops such as cocoa, coffee,
and tea to palm oil and rubber due to better prospects in these sub-sectors.336 The food crops,
however, continue to generate most employment and income. This production is
complemented with considerable imports of sugar, wheat, soybean, milk, and rice, though
Indonesia is among the three largest global producers of rice. Agricultural production is still
concentrated on land-extensive subsistence farming while Indonesia is in transition as a result
of non-agricultural rural employment opportunities, industrialization, urbanization, physical
limitations, and shifting livelihood ambitions. 337 These development have undermined
Indonesia’s self-sufficiency and its ability to respond to international demand.
335 WTO (2013), Indonesia Trade Policy Review Report by the Secretariat, Geneva: World Trade Organization.
336 Indonesia Investments (2017), Rubber (Natural), available a
Accessed June 2017].
337 FAO/INRA (2016), Innovative markets for sustainable agriculture - How innovations in market institutions encourage
sustainable agriculture in developing countries, p. 2, Rome: Food and Agriculture Organization of the United Nations and
Institut National de la Recherche Agronomique.