The World Bank Supports Indonesia’s Agriculture Sector to Become More Resilient and Inclusive

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WASHINGTON  – The Government of Indonesia will develop models for supporting sustainable and inclusive agriculture value chains in nine selected locations through the Agriculture Value Chain Development (ICARE) project. This US$100 million project was approved by the World Bank’s Board of Executive Directors on June 9, 2022 and became effective on September 5, 2022. The project aims to help strengthen value chain in selected agri-zone clusters and to strengthen Ministry of Agriculture’s institutional capacity to provide catalytic support to stakeholders.

“The Ministry of Agriculture is currently prioritizing five key areas to support food system development, namely production capacity enhancement, diversification, logistics, agriculture modernization, and export promotion. We are also accelerating the transformation of the agricultural sector by strengthening technologies and digital approaches in agriculture and food systems. This project will cover all those aspects, which will enable the creation of more producer companies, transitioning them into modern businesses. The Government can then replicate the project approach at the national level to improve our farmers’ welfare, and subsequently become a more prosperous country”, stated Syahrul Yasin Limpo, Minister of Agriculture of the Republic of Indonesia.

Around 43 percent of Indonesia’s population reside in rural areas and close to 29 percent of the Indonesian workforce work in the agricultural sector. Primary agricultural production accounted for 13.7 percent of GDP in 2020. Agribusinesses, comprising agro-input, agro-processing, agro-trading, agro-logistics, food retail and wholesale, employ significant workforce in the manufacturing and services sectors. They are crucial for meeting the rising demand of food and agro-industrial products, particularly amid the threat of food insecurity.

While rising demand for diversified and higher-value products presents a huge opportunity for Indonesia’s agri-food sector, at the same time the sector needs to navigate a set of increasingly complex challenges. Although approximately 10 percent of agricultural households are female-headed, and that women represent 24 percent of farmers, women usually own a smaller landholding size, compared to men. Around half of Indonesian farmers are smallholders – earning an average of US$3.2 per day, and they are vulnerable to climate shocks. On the other end, food prices in Indonesia – especially for high nutrition commodities such as fruits and vegetables, are the highest in the region. This is due to factors such as high costs of production, processing and distribution and high food losses along the supply chain due to insufficient connectivity and logistics infrastructure.

The ICARE project is designed to provide integrated and site-specific support for the development of viable value chain models in selected agricultural clusters to help farmers adapt to changing climate and to reduce the carbon footprint of the selected value chains. It is also aimed at strengthening public and private sector institutional capacity to promote climate-smart agriculture and value chains in the targeted project locations. A strong learning and knowledge management component will ensure that successful models supported by the project are well-documented to foster replication and scaling up.

“The World Bank applauds efforts of the Ministry of Agriculture to address challenges associated with small and fragmented land holdings and to make farming more profitable for smallholder farmers. We welcome the work on strengthening digital technologies and approaches, and focus on sustainable agriculture and food systems. Transforming the agricultural sector by shifting from supply-driven production to one that is more responsive to market demand and farmers’ needs is essential,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste. “Through carefully-designed support, the project will increase women’s participation in cooperatives and ensure that women benefit from technologies disseminated through the project.”

ICARE is well-aligned with Indonesia’s national policy frameworks and high-level commitments. The project supports the development of Korporasi Petani – farmer economic institutions with legal entities – prioritized by President Joko Widodo as a ‘major project’ in the National Medium-Term Development Plan (RPJMN) 2020-2024. By supporting climate-smart agriculture, this project contributes to Indonesia’s Nationally Determined Contributions (NDC) 2021 for climate change mitigation and adaptation, as well as Indonesia’s Long-Term Strategy for Low-Carbon and Climate Resilience 2050.

The project also aligns with the World Bank FY 21-25 Country Partnership Framework (CPF) to improve agriculture and natural resources-based livelihood, while mainstreaming the three cross-cutting themes of the CPF – digitalization, gender, and climate change. By supporting smallholder farmers, this project addresses the World Bank Group’s twin goals of alleviating poverty and boosting shared prosperity.

 

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