Indonesia dependence on Australian wheat imports

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Illustration of Australian wheat. (Source: Detik Finance)

Importing food needs through international trade mechanisms is a common thing for countries in the world. It’s rare for a country to meet all its food needs independently, without supplies from other countries. Globalization and urbanization have changed the consumption patterns of people in the world. The free trade regime has broken down trade barriers and made it easier for consumers to access imported food. Inadequacy of local food needed is also a consideration for importing. The state argues that food imports are needed to guarantee national supply while maintaining food security.

Food imports have become particularly sensitive with staple food (staples) such as wheat, rice, corn, which are the basic needs of the community. Wheat (Triticum Aestivum), along with corn, rice is the most traded food commodity in the world and has strategic value. Riots and instability often occur in developing countries that have not been able to meet food needs because people are not able to access basic needs.

Former Secretary of the United States of America (US), Henry Kissinger put forward his great idea about food as a strategic tool for US national security: “Who controls the food supply means controlling the nation.” The staple food management by the government represents a fundamental ability in managing the economy and the welfare of its citizens. In the relation between nations, exporting countries may have a higher bargaining position than importing countries, especially countries with high levels of food import dependence.

Indonesia is still entirely dependent on imports to meet the needs of wheat. Indonesia has become the most wheat importing country in the world, with 10,096,299 million tons since 2018 and represents 6.1% of the total world imports (BPS, 2019). Indonesia’s position as an importer of wheat is unlikely to change because of the rapid consumption of domestic needs for wheat for both people and livestock. It is estimated that Indonesia will need around 11.3 million tons of wheat from the global market in the 2019-2020 period (USDA, 2019).

Australia is a traditional partner that dominates wheat supply in Indonesia. In 2012-2017, this country controlled 50-60% of wheat imports in Indonesia. In 2018, quoting the Indonesian Central Bureau of Statistics (BPS), the top four wheat importing countries in Indonesia were Ukraine (2,419,768) million tons, Australia (2,419,709), Canada 1973,706, and US 904,174. Although Ukraine this year surpassed Australia as the most wheat importing country in Indonesia. Ukrainian wheat is more for animal feed instead of corn imports, which are prohibited to protect domestic corn.

The tendency of dependence on imported wheat supplies, especially from Australia raises questions. What does this dependence on wheat imports depend on, especially for Indonesia’s food security? Will dependence on wheat imports contribute to Indonesia’s food security, or will this create food security?

Pros and Cons of Australian Wheat Import

There is a consideration of the comparative advantage of wheat imports from Australia. The fact that Australia is the biggest wheat producer in the world, while Indonesia has not been able to produce wheat economically. Weather and climate conditions in Indonesia are suspected to be a barrier factor for the growth of wheat in this country. This wheat from Australia supports the availability of food when local production is unable to meet supply. For Indonesia, this is the most realistic option to guarantee the increasing demand for wheat. Associated with the need to support food security, it cannot be denied that this import of wheat supports the availability of domestic supply.

The geographical proximity factor between Indonesia and Australia adds a comparative advantage in both wheat trade. Compared to other world wheat producers, Australia is the closest country to Indonesia. Importing wheat from Australia is an efficient way in terms of time and transportation costs. Logically, this geographical proximity is a determining factor in Australia’s share of the wheat market in Indonesia.

Indonesia’s dependence on Australian wheat is also triggered by market demand. Indonesian wheat flour producers recognize that wheat from Australia is most suitable for their production needs. For the wheat milling industry, the type of white wheat from Australia is the most suitable for the production of noodles, which are currently widely consumed (APTINDO 2017). This unique characteristic of Australian wheat cannot be replaced by wheat from other countries.

However, this condition of dependency also poses a risk to the future of Indonesia’s food self-sufficiency and sovereignty. Indonesia is not the biggest importer of wheat in the world, and almost 100% dependent on imports. This is contrary to the national idea to realize food independence and sovereignty that was proclaimed by President Jokowi since the beginning of the Period 1 government, Nawa Cita.

Food imports help national food availability, but also harm local food production. Changes in the diets of Indonesian people who switch to wheat products have eliminated local food. Concerns about the quality of imported products will be dangerous content. For example, Indonesia does not have the authority in the process of producing wheat outside the territory of the Republic of Indonesia. Indonesian authorities are weak in this oversight.

Conditions of dependence on massive food imports are at risk for Indonesia’s food future. The drastic increase in the price of imported food will have an impact on the decline in people’s purchasing power. Chronic dependence on wheat imports will also deplete the rupiah exchange rate. This condition was experienced when the Asian financial crisis in 1997 when the Indonesian exchange rate dropped and impacted the people’s purchasing power drastically. Inflation towards wheat is likely due to farmers in Australia facing climate change, which disrupts the quality and quantity of wheat production. It has been reported that massive desertification has occurred in Australia, which has disrupted wheat production (Hochman et.all, 2017; Minchin, 2019). A fall in supply will raise the price of wheat on the international market.

This dependence on wheat imports is vulnerable to Indonesia. Disruption of trade relations between the two parties is possible due to the history of the dynamics of the relationship between the two fluctuating, experiencing crises and tensions which impact the economic sector. The second trade dispute has been related to the import of Australian cattle, where Indonesia has a high dependency on this commodity. As a result of the deteriorating diplomatic relations between the two countries, Australia has stopped the export of cattle, causing chaos in the Indonesian market due to the high price of beef. Such a scenario might be repeated in the future in the case of wheat.

In conclusion, Indonesia is facing a dilemma due to the high dependence on Australian imported wheat. On the one hand, they provide the consumer needs, but it can weaken Indonesia’s food security are also looming. However, efforts to eliminate dependence on imports are not easy because Indonesia has not prepared itself to meet the local wheat market.

Author: Sartika Soesilowati

The full article can be seen at the following link: -420

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