IDEAS home Printed from https://ideas.repec.org/p/zbw/esprep/190822.html
   My bibliography  Save this paper

Policy Reforms on Poultry Industry in Indonesia

Author

Listed:
  • Ferlito, Carmelo

Abstract

The Indonesian poultry industry is a key sector for the national economy, supplying 65% of all animal protein and employing 10% of the national labour force. All over the country, though local production successfully copes with domestic demand, the potential for growth is high, consistent with expectations of rising GDP per capita. The market looks healthy and attractive, which has resulted in this gradual entry of new foreign groups. In past decades, the production process has evolved and modernized. The market is dominated by five main players-three foreign companies operating in feed production and two in day-old chick production. Even though expectations for the industry are strongly positive, prices for both broiler chicken and eggs are consistently higher in Indonesia than in Europe and America. From March- October 2018, Indonesian broiler chicken meat cost an average of about IDR 40,500/kg, while in the EU the price was around IDR 32,600 /kg (+24%). Over the same period, the average egg price in Indonesia was around IDR 28,000/kg, compared to just above IDR 21,000/kg (+33%) in the EU. The differences in price are partially due to differences in demand and supply- Indonesia is a Muslim country, so the demand for chicken meat may be stronger than in countries with higher pork consumption. However, Indonesia's higher prices are surprising given lower production costs. In Indonesia, farm salaries are lower than in Europe. In addition, the EU banned egg layer battery cages in 2012, forcing layer farmers to decrease bird density and therefore to implement more expensive methods of production, pushing up egg production costs. So production costs are higher in the EU, but consumer prices are lower. Price differences can also be explained in part by general market conditions in the EU and Indonesia. While the European market is a mature one, the constant growth in Indonesia, supported by growing demand, is an important element keeping prices high. While many economic factors are out of Indonesia's control, prices are also affected by Indonesian public policy. Therefore, we propose policy modifications that aim to support sound growth of the industry, which might be accompanied by lower prices. The first important act would be to resolve conflicts between existing regulations, in particular between Regulation of the Minister of Trade (MOT) 21/2018 and Regulation of the Minister of Agriculture (MOA) 57/2015 on the ministerial recommendation letter for maize import and maize import rights. Our second suggestion, related to MOA 26/2016, is to liberalize parent stock1 imports, enabling poultry producers to more freely implement sound entrepreneurial strategies rather than relying on incorrect government estimations. At the same time, we believe that it is necessary to open Indonesia to the international market for maize, rather than using trade protections to force local production. Current regulations have driven domestic maize prices incredibly high compared to the international price. Since maize is the main component of poultry feed, and feed is in turn the major cost in Indonesian poultry production, free access to international markets would heavily and positively affect production costs in the poultry industry, helping prices to cool down. Finally, the government could play an important role in improving infrastructure, which, at the moment, burdens the industry-particularly in the case of transporting raw materials for feed from the ports to the mills. An improvement in road infrastructure would also allow the transport of heavy machinery, further boosting modernization of the poultry industry.

Suggested Citation

  • Ferlito, Carmelo, 2018. "Policy Reforms on Poultry Industry in Indonesia," EconStor Preprints 190822, ZBW - Leibniz Information Centre for Economics.
  • Handle: RePEc:zbw:esprep:190822
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/190822/1/20181210-Poultry-Indonesia-CF-bis.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jesús Huerta de Soto, 2010. "Socialism, Economic Calculation and Entrepreneurship," Books, Edward Elgar Publishing, number 13905.
    2. Lachmann, Ludwig M, 1976. "From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society," Journal of Economic Literature, American Economic Association, vol. 14(1), pages 54-62, March.
    3. Ricardo, David, 1821. "On the Principles of Political Economy and Taxation," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 3, number ricardo1821.
    4. von Hayek, Friedrich August, 1989. "The Pretence of Knowledge," American Economic Review, American Economic Association, vol. 79(6), pages 3-7, December.
    5. Jesús Huerta de Soto, 2008. "The Austrian School," Books, Edward Elgar Publishing, number 13047.
    6. von Mises, Ludwig, 1957. "Theory and History," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 1, number mises1957.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Darcy W E Allen, 2020. "When Entrepreneurs Meet:The Collective Governance of New Ideas," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number q0269, August.
    2. Calcagno, Peter T. & Hall, Joshua C. & Lawson, Robert A., 2010. "Objectivism versus subjectivism: A market test," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 445-448, November.
    3. Van Den Hauwe, Ludwig, 2023. "Why Machines Will Not Replace Entrepreneurs. On the Inevitable Limitations of Artificial Intelligence in Economic Life," MPRA Paper 118307, University Library of Munich, Germany.
    4. Victor I. Espinosa & Miguel A. Alonso Neira & Jesús Huerta de Soto, 2021. "Principles of Sustainable Economic Growth and Development: A Call to Action in a Post-COVID-19 World," Sustainability, MDPI, vol. 13(23), pages 1-14, November.
    5. Victor I. Espinosa & William Hongsong Wang & Jesús Huerta de Soto, 2022. "Principles of Nudging and Boosting: Steering or Empowering Decision-Making for Behavioral Development Economics," Sustainability, MDPI, vol. 14(4), pages 1-18, February.
    6. Vicente Moreno-Casas, 2023. "The Harvard-MIT complexity approach to development and Austrian economics: Similarities and policy implications," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 36(4), pages 515-539, December.
    7. Paul Lewis, 2008. "Solving the “Lachmann Problem”: Orientation, Individualism, and the Causal Explanation of Socioeconomic Order," American Journal of Economics and Sociology, Wiley Blackwell, vol. 67(5), pages 827-857, November.
    8. Carmelo Ferlito, 2022. "Axel Leijonhufvud: A personal recollection from an Austrian perspective," PSL Quarterly Review, Economia civile, vol. 75(302), pages 299-310.
    9. Vicente Moreno‐Casas & Philipp Bagus, 2022. "Dynamic efficiency and economic complexity," Economic Affairs, Wiley Blackwell, vol. 42(1), pages 115-134, February.
    10. Rothbard Murray N., 1995. "The Present State of Austrian Economics," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 6(1), pages 43-90, March.
    11. Zijp, R. van, 1991. "The methodology of the neo-Austrian research programme," Serie Research Memoranda 0034, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    12. Ferlito, Carmelo, 2014. "Ludwig M. Lachmann Against the Cambridge School. Macroeconomics, Microfoundations, Expectations, Rate of Profit, Equilibrium and Innovations," MPRA Paper 67709, University Library of Munich, Germany, revised 22 Jan 2015.
    13. Maria Irina Trofin (Dromereschi), 2011. "Entrepreneur: between the old and the new. Portrait of Romanian entrepreneur," Studies and Scientific Researches. Economics Edition, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, issue 16-17.
    14. Florian Follert & Werner Gleißner & Dominik Möst, 2021. "What Can Politics Learn from Management Decisions? A Case Study of Germany’s Exit from Nuclear Energy after Fukushima," Energies, MDPI, vol. 14(13), pages 1-15, June.
    15. Petroni Angelo Maria, 1991. "L'Individualisme Methodologique," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 2(1), pages 25-62, March.
    16. Ferlito, Carmelo, 2018. "Economics: A Science of Meaning," EconStor Preprints 190821, ZBW - Leibniz Information Centre for Economics.
    17. Muñoz, Félix & Encinar, María Isabel & Fernández-de-Pinedo, Nadia, 2014. "Intentionality and technological and institutional change: Implications for economic development," Working Papers in Economic Theory 2014/04, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    18. Jayme Lemke & John Kroencke, 2020. "Methodological confusions and the science wars in economics," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 33(1), pages 87-106, March.
    19. Witt Ulrich, 1990. "LE SUBJECTTVISME EN SCIENCES ECONOMIQUES: Proposition de reorientation," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 1(2), pages 41-60, June.
    20. Makovi, Michael, 2016. "Labor Economics in a Planned Economy: F. A. Hayek and John Jewkes on the Impossibility of Democratic Socialism," MPRA Paper 70174, University Library of Munich, Germany.

    More about this item

    Keywords

    Poultry market; Indonesia; Political Economy; Free Trade;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:esprep:190822. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zbwkide.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.