Analysis of Indonesia’s fish export and investment opportunities in the fisheries sector.
This month, Indonesia’s state-owned airline, Garuda Indonesia has affirmed to help foster the growth of Indonesia’s fishery export specifically in North Sulawesi Province. Despite the pandemic, Indonesia has recorded export growth in its fisheries industry of more than 7% compared to 2019.
As the world’s largest archipelagic state, Indonesia’s coastal and marine waters make up one of the most fertile fishing grounds in the world. In 2019, Indonesia’s fisheries and fishing industry contributed 2.65% or around USD 26.9 billion to the Indonesian gross domestic product (GDP). Indonesia scores among the top five fishery and aquaculture producers in the world making the sector one of the most promising investment opportunities. Thus, in this article, we discuss the landscape, investment opportunities, challenges, prospects, and how to enter the world’s second-largest fish producer market.
Increasing Fishery Export
General Manager of Garuda Indonesia in Manado, Vonny F. Pinontoan, confirmed that the airline is supporting the growth of North Sulawesi Province’s fishery exports. The airline had successfully transported direct call cargoes 23 times from the Sam Ratulangi International Airport in Manado to Narita Airport of Tokyo, Japan. It is estimated that 356.2 tons of fishery products had been exported through Garuda Indonesia (Antara News, 2021).
Amid the COVID-19, Indonesia’s fishery product exports increased by more than 7% compared to 2019, and Indonesia was able to suppress imports of products in the sector by more than 12% compared to the previous year. This exhibited that Indonesia has a strong export performance that boosts the country’s national economy.
Indonesia’s Fisheries Industry: World’s Largest Archipelagic State
Indonesia is the world’s largest archipelagic state in which the ocean brings pivotal benefits for its economy, culture, geopolitics, and natural environment. The country has a water area of nearly four times larger than its land area that is situated at the center of major maritime trade routes linking the Middle East, Africa, Europe, and South Asia. Indonesia’s total economic potential of the maritime sector was estimated to reach USD 1.348 trillion (IPB, 2021).
55% of Indonesia’s fisheries production comes from coastal areas particularly mangroves, coral reefs, seagrass beds, and estuaries. Indonesia also has one of the highest levels of marine biodiversity in the world as the world’s largest area of mangrove forests of about 3 million hectares (CEA, 2018).
Moreover, the fisheries industry in Indonesia plays a crucial role in supporting national food security as most of the population are in the coastal areas where fish is one of the main components of their diet. It is estimated that Indonesia’s average fish consumption was 41.11 kg/capita/year (SEAFDEC, 2017).
In terms of livelihoods, the majority of Indonesian fishers are small-scale fishers with vessels under 10 gross tons (GT). The wild capture fisheries and aquaculture sectors employ around 2.7 million and 3.3 million people. On the other hand, over 1 million workers are involved in the processing and marketing of fisheries products (CEA, 2018). However, it is estimated that the total economic potential of Indonesia’s maritime sector that can be explored and developed into various fields is projected to absorb at least 45 million workers or around 17% of Indonesia’s total population.
Opportunities: World’s Second Largest Fish Producer
Indonesia is the world’s largest fish producer after China. In 2019, Indonesia’s fisheries and fishing industry contributed 2.65% or around USD 26.9 billion to the Indonesian gross domestic product (GDP) (Statista, 2020). This contribution is larger compared to the neighboring countries’ fisheries sectors such as the Philippines, Malaysia, and Thailand.
Indonesia produced 25.32 million tons of fish production in 2019 with 12% growth from 2018 to 2019 (The Packard Foundation, 2019).
Indonesia scores among the top five fishery and aquaculture producers in the world. Its shrimp sector is among the top three producing nations in the world and its tuna sectors are among the largest and most productive in the world. Thus, both sectors imposed undeniable profitable investment opportunities.
It is estimated that Indonesia’s shrimp production in 2016, reached 637,555 tons making the country the second-largest shrimp product in the world after China (FAO, 2018). Moreover, in 2019, the total export volume of shrimp reached 200,591 metric tons, representing a 5.81% increase compared to the previous year which was 189,573 metric tons.
Recently, Indonesia’s Ministry of Marine Affairs and Fisheries (KKP) has called on all aquaculture stakeholders to help the government achieve its target of a 250% increase in shrimp export value by 2024 (KKP, 2020). Making the country’s shrimp sector a great investment opportunity.
In 2016, Indonesia is one of the biggest tuna-producing nations in the world that contributed 17% or 1.12 million metric tonnes (MT) to the total global tuna production (FAO, 2018). According to Indian Ocean Tuna Commission (IOTC) and Western and Central Pacific Fisheries Commission (WCPFC) reports, Indonesia ranked first as a global tuna-catching country from 2011 to 2017. In the Pacific Ocean, Indonesia topped the list ahead of Japan, South Korea, Papua New Guinea, and Taiwan (The Jakarta Post, 2019).
Indonesia’s government’s claim that the eradication of illegal, unreported, and unregulated fishing has supported the increase in the volume of tuna and skipjack exports. In terms of frozen tuna fillets, Indonesia was ranked as the 5th largest exporter, with a value of USD 94 million which is almost equal to China that has a total value of USD 101 million.
The United States market is by far the most important market for Indonesian tuna exporters accounting for an export value of USD 60 million while the second-largest market in Japan with a value of USD 8 million (Indonesian Tuna, 2019). The global sushi trend has triggered the demand for tuna fillet making it a huge investment opportunity.
Market Manage Challenges
With six million square kilometers of ocean territory, Indonesia’s fisheries industry could make a more significant contribution to its economy if better managed. However, for a spread of reasons, Indonesia’s fisheries industry has several challenges, including unable to satisfy its production and export targets since 2015 (The ASEAN Post, 2019).
Slack of the several pollutions has control measures and has been full of many tons of plastic waste. Also, other hazardous material makes their way into Indonesia’s oceans over the years, damaging delicate marine eco-systems which are already hurting from the consequences of global climate change.
Combined with data deficiencies and a scarcity of coordination among agencies, and it is soon apparent why Indonesia ranks 22nd out of the most essential 28 marine fishing nations for fishery management effectiveness consistent with a 2016 study titled ‘Global fishery prospects under contrasting management regimes’ published within the Proceedings of the National Academy of Sciences journal (The ASEAN Post, 2019).
Improve cooperation, better data, fishery-specific plan
Apart from clarifying roles and responsibilities, such things as a framework should also work towards better coordination. Also, Improving fishery data for evidence-based management is crucial. Several reports noted how the study found that there is some false report. Some of the tuna catch from small and medium-scale fishing vessels from the second-largest tuna port in Indonesia, near North Sulawesi, might be almost 40% above the reported.
Importantly, small vessels that catch around 50% of the entire harvest must be brought under evidence-based harvest controls over time. These practices should complement efforts to extend fisheries’ fiscal contribution, which has traditionally always been low. Between 2011 and 2016, the fisheries sector’s tax-to-GDP contribution (0.26%) ratio was well below the national cross-sector average of 11% (The ASEAN Post, 2019).
Highly perishable, fish face a race against the clock to be transported from sea to local markets or foreign retailers – and their quality can rapidly deteriorate without proper management to move and store them. Some fish that are caught are discarded on fishing boats to save lots of space in refrigerators and iceboxes for higher-value seafood. On land, fish can quickly rot and go if they are unloaded on jetties with no roofs or soaked in water for too long.
Bad distribution networks contribute 15 % to the present figure, with another 9% lost thanks to insufficient processing and packaging processes. Like unwanted discard catch at sea, destructive fishing practices potentially contribute to 8.2% – with another 6% of losses stemming from poor transportation and inadequate storage systems. With Indonesia’s fisheries sector playing a critical role in providing food security and employment, the industry’s stakeholders should consider the risks that continued mismanagement poses to long-term productivity and affect the value of its fishery assets (The ASEAN Post, 2019).
Although the Indonesian government has taken various steps to reinforce the local fishery sector, multiple problems remain. One of Indonesia’s main weaknesses is that 95% of the two 2 million people engaged within the industry are traditional fishermen. These fishermen lack the resources and capital to explore the enormous potential of Indonesian aquatic resources. The bulk of fishers still use small boats and standard equipment, which prevents them from getting into deep waters, which ends up in lower catch volumes. They even have minimum access to finance as banks are generally reluctant to increase credit to the fishery sector, especially smallholder players, thanks to the high level of bad debts, which reached 11.76%.
Moreover, many banks are more interested in disbursing loans to the fish processing industry than the capture fishery or aquaculture industry. This is often understood as long because the fish processing industry’s value reached 115 trillion IDR, far greater than the capture fishery and aquaculture sectors of 70 trillion IDR and 75 trillion IDR, respectively. Other constraints faced by the Indonesian fishing industry are the shortage of infrastructure, technology, and equipment like ports, container ships, and cold chain systems like cool boxes, ice factories, and cold storage. As a result, fishers don’t have the bargaining power when choosing a market for their catch, resulting in lower incomes (GBG Indonesia, 2016).
Prospect of Fisheries Market
Despite the challenges of the Industry and Indonesia’s efforts to increase fisheries export, Indonesia fisheries industry has several prospects for the future, knowing some of these facts of the Indonesia fisheries industry.
A new wave
The Indonesian government continues to strengthen its policies to enhance fishers’ living standards and boost investment within the fishery sector. These policies include the opening of six sub-sectors within the fish processing industry to foreign investment, the availability of fishing equipment, storage, and processing facilities like modern ships and cold storage, and facilitating access to financing.
Overall, Central Statistics Agency (BPS) data, Indonesia’s fisheries sector has grown 8.37% Year on Year (YoY) within the third quarter of 2015, far above the country’s economic process of 4.73% YoY within the same quarter. Until the highest of 2015, domestic capture fishery production reached 6.2 million tonnes, while aquaculture reached 17.6 million tonnes. Although both areas missed their set targets, Indonesia remains the world’s second-largest capture fishery producer after China, and therefore the fourth largest aquaculture producer within the world (GBG Indonesia, 2016).
Increased government support
As a country with the most part being sea, and with two-thirds of its territory consisting of the sea, Indonesia’s fishery sector has been sorely neglected. The marine and fishery sector’s contribution to Indonesia’s gross domestic product remains small, only 3.57% in 2014, with a growth of only 0.6% over the previous three years. This dire state is starting to improve under the Widodo administration. In 2016, within the 2016 State Budget (APBN) for Indonesia’s Ministry of Agriculture and Fisheries (MAF), the government allocated around 13.8 trillion IDR, up 31.4% from the budget allocation in 2015.
In 2016, a variety of policies to assist the Indonesian fishery industry had prepared by the government. One such procedure, among others, is the construction of the latest ports in fish production centers so the fishers can directly export their catch without having to move them first to large ports in Jakarta, Medan, Surabaya, or Bali. The Indonesian government also plans to supply 3,200 modern fishing vessels and sow 1 million fish seeds. The government has plans to create 354 ice machines within the downstream sector, 61 cold storage areas, two units of freighters, and one processing vessel (GBG Indonesia, 2016).
Bright investment opportunities
Indonesia is a maritime country. Foreign and domestic investment opportunities in Indonesia’s fishery sector are known to be very promising. Meanwhile, the entire investment needed by the aquaculture industry during an equivalent period reached IDR 320.73 trillion. In 2016, the investment required by the capture fishery and aquaculture sectors was predicted to achieve IDR 23 trillion and IDR 29.97 trillion, respectively. Various investment opportunities exist within capture fishery, aquaculture, fish processing, cold chain systems, and warehousing.
The Indonesian government has found four supporting policies to spice up investment within the fisheries sector, especially within the special economic zones. First, tax incentives (PPH) within the sort of a discount in applicable tax by 5% per annum for 6 years, a deal in value-added tax (VAT) within the type of free VAT on taxable goods, customs facilities within the sort of duty-free entry for the imports of products and capital, and a discount of the bureaucratic procedure through the streamlining of processes by BKPM (GBG Indonesia, 2016).
Entrepreneurship in maritime affairs and fisheries
Indonesia’s Ministry of Maritime Affairs and Fisheries (KKP) itself encourages entrepreneurship within maritime affairs and fisheries, one among which is organizing entrepreneurship competitions within the marine sector.
Later, participants with superior products have the chance to create networks and obtain capital from KKP to become advanced, even export-oriented startups. In addition to that, KKP has partnered with the Maritime and Fisheries Business Capital Management Institute (LPMUKP) of KKP, which focuses on capitalizing on SME beginners. In the future, KKP also has a plan to request Bank BRI and Bank BNI participation in its CSR programs (Komira, 2019).
BRIGHT Indonesia as a perfect local partner
Overall, the Indonesian fisheries market holds much potential. The industry is set to grow in future years and has many prospects since Indonesia started increasing fisheries export. However, despite the growing demand due to Indonesia’s efforts to improve fisheries industry export, one thing to note in entering Indonesia’s fisheries industry is crucial to have the right local partner.
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