Indonesia’s Danantara Examines The Chicken And The Egg
New venture adds to fears the fund’s investments are built on politics, not the market
Only a year old, Danantara, Indonesia’s “national wealth fund,” is doing more than laying eggs. Its ever-longer tentacles are reaching into areas of the economy diversely served by a mix of corporate business, smaller local entrepreneurs, and backyard producers, as well as managing the affairs of Indonesia’s 70-odd SOEs that are money-losing and riddled with inefficiency and corruption.
With a view to supplying the National Nutrition Agency (BGN) and, in turn, underpin President Prabowo Subianto’s Free Nutritious Meals program for schools, Danantara has now announced it is to invest Rp20 trillion (US$1.198 billion) in chicken farms to meet demand for chicken meat and eggs created by the lunch program.
This sounds all very well but there is limited evidence that there is currently any underlying shortage either of supply of chickens or eggs, and even less in the availability of private capital and family farms to respond to an increase in demand long before any Danantara operatives get their boots muddy.
The prices of chickens and eggs vary quite widely in Indonesia according to seasonal and local supply factors and the cost of feed and other inputs. But there is scant evidence to suggest that prices in general could be brought down by a few Danantara farms. For a start, Indonesia’s largest chicken supplier is CP Pokphand, the Thailand-based food giant whose local subsidiary is listed on the Jakarta Stock Exchange. So too is its closest competitor, Japfa, a company based in Singapore but with its main operations in Indonesia through its listed subsidiary Japfa Comfeed.
Then there are mid-sized companies serving some regional markets and a mass of small local producers. It is hard to imagine a Danantara startup reaching the efficiency levels of those companies, nor of the lesser ones, without the weight of Danantara bureaucracy.
Does Danantara seriously consider that it can add value in what is already a diverse production situation, one that is sensitive to price signals? It may have ambitions to supply the whole school’s program with chicken at a fixed cost which is the same all over the nation. But the program is as geographically dispersed as the schools themselves. The chickens don’t fly themselves, so fixed-cost Danantara chickens will need to be flown to areas, notably in eastern Indonesia, where local chickens cost more.
The logistics involved in the program have already proved formidable. Adding production sources would make matters worse. If Danantara has a justification other than to increase the power of the political center, it is to invest in major industries and projects for which private capital, local or foreign, is insufficient. That is clearly not the case with the poultry industry.
Further down the road, Danantara plans to get into high-value-added plantation crops such as cocoa and cashews. For sure, there may be opportunities in such items, but there are justifiable fears that, just as it is being asked here to inject itself into an already-established industry to prop up the lunch program, a Prabowo hobby horse, the fund will find itself investing in or bailing out industries or programs for political whim.
Surely, the job of the government in such development as the chicken industry is for the agriculture ministry to promote them among local farmers and help develop marketing systems. But, like their counterparts in the Philippines, government and politicians have long been over-focused on rice and self-sufficiency to the detriment of growing what makes the most money.
From the start, there has been concern that Danantara’s leadership includes many politically connected figures, thus sparking fears of potential political interference in investment decisions – like the poultry trade – in which decisions may be driven by political agendas or factional interests rather than economic analysis and profit potential.
This, after all, is the very same Danantara that recently raised billions via so-called Patriot Bonds, paying a mere 2 percent – with October inflation reaching 2.86 percent – thanks to a squeeze applied to big-name businesses and their families. President Prabowo seems to have learned nothing from his own failure as a businessman but sees markets as threats to the power of politicians.
That may work in countries like China with strong party systems, but personal power in Indonesia is transitory as his predecessor Joko Widodo is finding out, as Asia Sentinel reported on November 7. The former president is under unrelenting attack from political rivals. Despite his son’s position as vice president, he now appears powerless to shield himself from the blows, and many of the programs and investments he championed are in danger of being scaled back or abandoned.