Strategic Resource Management to Drive Indonesia’s Industrial Growth

Reporter: Yudho Winarto | Editor: Yudho Winarto

MACROECONOMICS - JAKARTA. Indonesia’s recent trade agreements are expected to widen access to global markets, but analysts say the country’s export ambitions will depend just as much on secure and predictable access to reliable inputs for production, including selected agricultural imports.

The signing of the Indonesia–United States Agreement on Reciprocal Trade (ART) in February 2026, alongside the free trade agreement with the Eurasian Economic Union (EAEU) and ongoing negotiations on the EU–Indonesia Comprehensive Economic Partnership Agreement (CEPA), reflects the government’s drive to strengthen the competitiveness of national industries and attract export‑oriented investment.

Government officials have noted that certain agricultural commodities, such as wheat and soybeans, are essential inputs for domestic manufacturers and must be imported to maintain price stability and industrial resilience.

A similar logic applies across key value chains, including food and beverage manufacturing, palm oil downstream industries, and tobacco, where imported inputs complement domestic supply to meet quality and consistency requirements.

In the food and beverage sector, manufacturers rely on imported ingredients that are not produced locally in sufficient volume or consistency, particularly for export markets.

The palm oil industry has also benefited from selective imports of inputs and technology to support downstream processing and higher‑value exports.

Market demand ultimately determines the standards producers must meet both in terms of quality and production scale in order to remain competitive.

When domestic supply alone cannot consistently satisfy these requirements, manufacturers often supplement it with imported raw materials to ensure stable and reliable production.

Producers of food processing also rely on a mix of domestic and imported inputs—such as wheat and dairy ingredients.

Data from the Badan Pusat Statistik (BPS) shows that between January and November 2024, Indonesia’s milk import reached US$803.4 million, with the largest share consisting of powdered or skim milk. In the same year, Indonesia recorded US$621 million in exports of dairy products, butter, and eggs.

The tobacco agro‑industry operates under comparable conditions. To meet export specifications, manufacturers import raw tobacco leaf that cannot always be substituted by domestic supply alone. In 2024, Indonesia imported tobacco worth around US$911 million, while exports of tobacco and manufactured substitutes exceeded US$2 billion, more than double of the import value, which highlighting the role of downstream value addition.

Senior Researcher and Policy Analyst at the Center for Indonesian Policy Studies (CIPS), Hasran, stated that imports will become one of the drivers of competition, including for the domestic agricultural sector.

Some manufacturing industries require specific agricultural raw materials, and local products are sometimes insufficient to meet these needs.

“For example, potatoes used for vegetables differ from those required as industrial raw materials. So in some cases, imports are indeed necessary. Industries are also driven by considerations of quality and price when choosing to import. Sometimes, even if products are produced domestically, their quality and reliability are not always guaranteed,” he explained.

Hasran also emphasized the importance of industrial down streaming but noted that it should not be accompanied by restrictions on the import or export of agricultural products in the form of quotas or other bans.

He cautioned that limiting access to industrial inputs without nuance could undermine Indonesia’s export reliability, especially as new trade agreements open non-traditional markets.

“Exports will certainly be disrupted if access to raw materials is restricted, including imports. Our study at CIPS shows that companies exposed to imported products have a greater chance of exporting,” he added.

As Indonesia seeks to move beyond commodity exports toward higher value‑added manufacturing, analysts argue that strategic imports should be seen as an enabler of industrialization rather than a contradiction, provided they are governed through selective and risk‑based policies.