Indon agri supply-chain problems similar to those of PHL

  • 6 November 2014, Thursday

Source: BusinessMirror
2 Nov 2014

A BUSINESS economist noted that as archipelagic countries, Indonesia and the Philippines share practically the same logistical nightmares and agricultural supply-chain troubles.

Dr. Arief Daryanto, a lecturer at the Department of Economic Studies at the Bogor Agricultural University in Indonesia and lecturer Sahara (most Indonesians only use first names), said these problems have become a serious concern among Indonesian businessmen, who have to supply more than 200 million Indonesians with food.

With the establishment of the “roll on, roll off “(Ro-Ro)” service between Indonesia and the Philippines on October 22, trade between the two neighboring countries will be hastened. The Ro-Ro service covers Davao City, General Santos City, and Bitung, Indonesia.

Daryanto and Sahara will deliver their paper “The Indonesian Experience on Logistics Systems in the Supply Chain of Agricultural Products: Opportunities and Challenges” during the 2014 International Conference on Agricultural and Rural Development (2014ARD) at the Makati Shangri-La Hotel on November 12 and 13.

The conference will be hosted by the Southeast Asian Regional Center for Advanced Study and Reseach in Agriculture (Searca.)

Searca Director Dr. Gil C. Saguiguit Jr. said Daryanto and Sahara are two of the more than 400 experts from various Asean nations, international organizations, governments and private businesses who will participate in 2014ARD.

“In the traditional market channel, the logistics system in Indonesia is characterized by inadequate distribution centers and poor institutional and infrastructure support, cold chains  and packing houses,” Daryanto and Sahara said.

Indonesia has more islands than the Philippines but the main sources of crops and meat are the major islands of Java and Sumatra, which have to be transported to the different islands by boat. “This situation is exacerbated by the lack of a marine transportation -system. In fact, as an archipelagic country, Indonesia needs a good archipelagic logistics system,” the authors said.

“In contrast to the traditional market channels, modern market channels [e.g., food processors and supermarkets] have adopted modern logistics systems including modern computer and telecommunication systems that can allow them to conduct large-volume procurement and to lower their inventory holdings.

Modern markets have also invested in cold chains, packing houses and distribution centers,” the Indonesian experts said. “However, with poor public infrastructure [e.g., roads and ports], modern markets still face challenges,” they said.

A Searca study conducted last year showed that farmers selling farm products from Mindanao and consigned to Manila had to pay exorbitant freight rates, prompting food producers to opt for the Ro-Ro system that cuts their expenses anywhere from 15 percent to more than 37 percent.

In Mindanao inland transport costs for papaya, lettuce and tomatoes have ballooned to P1,600 per metric ton (MT) and the lowest price for bringing other crops for a distance of 12 kilometers was more than P300 per MT. Worse, food producers could only ship their products via Cagayan de Oro City under the less than container load scheme, their perishable commodities ending up as break bulk cargo.

In contrast, export crops like pineapples and bananas are shipped out under the full container load system, even using refrigerated vans to reduce spoilage.

Speaking further on the Indonesian experience, Daryanto and Sahara said, “Demand for agricultural products in many developing countries, including Indonesia, has changed dramatically over the last decades. Previously, consumers paid little attention to quality of agricultural products. As income per capita increases, however, consumers are more concerned with quality, food safety and continuity in supply.

To ensure consistent quality and quantity of agricultural products, a good logistics system is necessary. The system is one important activity in the supply chain of agricultural products connecting producers and consumer centers and transferring raw materials.”

They concluded that “a good logistics system can reduce risks and uncertainties in transferring input and output of the agriculture sector. This will reduce transaction costs and increase competitiveness of agricultural products.

The lack of logistics systems leads to increased risks in the agricultural supply chain that can impact on the availability, delivery time, traceability, and quality of products. Logistics infrastructure, warehouses, distribution centers, cold chain, services, and institutional framework are important factors determining the performance of the agriculture logistics system.”