Improving Agricultural Market Performance:
Creation and Development of Market Institutions
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Responding to these challenges lead to the development of a corporate turnaround program
which has been developed in May 2016. It focuses on five elements, including productivity
improvement, cost improvement, financial restructuring, HR restructuring, and system and
procedure development. This integrated turnaround program should contribute to building a
more corporate culture and is part of PTPN’s long-term plan, which concerns optimizing the
business model, operational movement, higher performance, and medium-term investment.
First evidence shows a positive impact, as the net operational cash flow in December 2016
tripled compared to the same cash flow in December 2015.448
With regards to PT Pupuk Indonesia, the market demand is quite stable, which does require no
change current activities though PT Pupuk Indonesia continues to look for other products to
sell through R&D.449 However, as the market price for Urea is going down and production price
goes up to due increased gas prices, it becomes more expensive to produce Urea, which, in the
long run as this scenario sustains, may impede the effectiveness of PT Pupuk Indonesia.
5.4.4 Need Assessment Analysis
The objective of this section is to identify and select certain crops, products, or commodity
groups for which a need exists to create a market institution and to further develop existing
agricultural and food market institutions facing inefficiencies and deficiencies.
Creating New Market Institution(s)
A main bottleneck – similar to Tunisia and Uganda - is the fragmented coordination of
Indonesia’s agricultural marketing system and market intelligence. Food Law 2012 has
initiated the establishment of a National Food Authority to regulate price stabilization from
production to consumption.450 It has been initiated in response to fragmented statistics, data
discrepancies, and conflicts of interest among various Ministries (e.g. Ministry of Agriculture,
providing data on supply, and Ministry of Trade, providing data on demand).
With regards to creating new market institutions for specific commodities, a trend is notable
where small-scale farmers move away from food crops such as rice, cocoa, coffee, and tea to
palm oil and rubber due to better prospects in these sectors.451 However, cocoa, coffee, and tea
still provide considerable export opportunities. This section will focus on these five
commodities (i.e. rice, cocoa, coffee, tea, palm oil, and rubber), which are Indonesia’s five
largest foreign exchange earnings, in combination with rice, which is Indonesia’s most
important staple food.
One of the bottlenecks new market institutions may address with regards to these six
commodities is the lack of diffusion of technologies and farming practices, which would
contribute to increase smallholders’ production of export-orientated commodities. Sector-
specific market institutions (e.g. marketing boards) may be needed to transfer and disseminate
technologies to small-scale farmers. This is also the case for rice, as this sector is primarily
448 Interview conducted with PT Perkebunan Nusantara III in Jakarta, July 12, 2017
449 Interview conducted with PT Putuk Indonesia in Jakarta, July 12, 2017
450 Interview conducted with Ministry of Trade in Jakarta, July 14, 2017
451 Indonesia Investments (2017), Palm Oil, available a
Accessed June 2017].