Liberalising the Indonesian food industry: What SEA nation’s controversial omnibus law means for the F&B sector

17-Nov-2020 - Last updated on 17-Nov-2020 at 02:36 GMT

Indonesia’s highly controversial omnibus law will impact the local food and beverage industry in a raft of ways. ©Getty Images

Indonesia’s highly controversial omnibus law will impact the local food and beverage industry in a raft of ways, including potentially creating better access to food ingredient imports and streamlining business licensing requirements.

The omnibus, or ‘Job Creation’ bill was first proposed by President Joko Widodo, who recently signed this into law. The final draft is over 800 pages long, and it is expected to impact over 1,200 provisions across more than 70 existing laws.

Within these are many provisions and regulatory changes expected to impact the food and beverage industry in Indonesia, with a key area of change expected to be in terms of ease of access to imported ingredient inputs due to a degree of liberalisation.

“Food imports have always been allowed into Indonesia of course, but the system is very complicated – previously it’s always been that if there is sufficient domestic production of a food, imports are not allowed, but the data on whether local production is sufficient is not always reliable, so there have been a lot of issues,” local think tank Center for Indonesian Policy Studies Head of Research Felippa Amanta told FoodNavigator-Asia.

“It’s not that the gates will just open, imports are still subject to tariff measures, but what has changed with the omnibus law is that it now normalises imports and officially acknowledges these as a complementary measure to domestic food sources in alignment with FAO guidelines.

“The actual regulations to enforce each part of the omnibus law are still in progress, but I do believe we’ll see things like licensing and imports being liberalised for food – so where previously import prohibitions kicked into place as long as there is enough food as mentioned, now there could be other reasons for allowing imports such as high food prices.

“The strategy here is they want to open up imports to increase competitiveness, but at the same time also support and equip local food firms and producers with the skills and technology to compete – so the government is really trying to be innovative in this space.

This is actually likely to be one of the main areas benefitting food and beverage manufacturers, as it opens up the door to more overseas ingredient input.

“The liberalised import measures would hopefully make it easier for the F&B industry to access input needs – there are many companies that rely on raw materials from outside Indonesia such as sugar and wheat, and this would make it easier and cheaper for them to access these,” said Amanta.

“This is across the board too – if implemented, we can see it benefitting not just big brand names and companies, but also small and medium food enterprises that need these raw materials.”

The other area most expected to benefit food firms if implemented properly is in terms of business licensing, which the omnibus law is looking to streamline.

“The law will make it such that local governments will still be in charge of business licensing but will now have a standard electronic system and guidelines from the central government to follow called the Norma Standar Prosedur dan Kriteria (NSPK),” she said.

“This is hoped to improve the system as previously different local governments would have different added requirements and also different response times, making it difficult to get licenses, so they really want to streamline this process now.

“This system also looks to simplify business requirements to obtain licenses, and under this simplification, I believe that again all F&B companies big and small are set to benefit.”

However when asked if any implementation challenges were foreseen with the new electronic system, especially in rural areas, Amanta concurred that this was a major concern currently.

“How they intend to implement this in terms of technology is definitely the biggest concern – they will need to see how to get people to comply and use the system, which will be a tough challenge,” she said.

“Another major concern here is that this new system intends to divide businesses into Low, Medium and High risk classifications based on assessed risk to health, environment, safety and so on – and this is also a major challenge as the means of classification are as yet unclear, so many companies are worried.”

Palm oil and environmental concerns

The law has been a source of great controversy ever since Widodo first proposed it and its recent signing into law led to fervent protests from the Indonesian public.

“The public in general is upset due to both the process and the substance of this – the main thing about the whole process has been that it’s been very non-transparent with little public engagement. The whole thing has felt very rushed, and there were many changes even after it was passed in parliament, which should not happen,” she said.

“Substance-wise, one of the main controversies was around the environmental issues – this is very much related to the lack of transparency. There is a lot of misunderstanding that environmental regulations were removed, but in fact they were not – it’s more that some environmental laws were ‘demoted’ to regulations, which essentially have lower legal power, and that’s what activists are concerned about.”

As for how this would affect food industries such as palm oil, which is already under attack by western countries for its apparent destruction on the environment, Amanta expressed concern about this moving forward.

“The problem is that the way they’ve gone about it and the lack of transparency could send the wrong message, and this is such an important area for EU relations, especially when talking about a commodity like palm oil,” she said.

“They are still taking environmental concerns into consideration – this leads back to the risk-based approach in business licensing where an industry like palm oil could be classified medium or high risk and then be mandated to undergo an environmental impact assessment – but this has not been communicated transparently.”

All in all though, she is certain that protests or not, the law will proceed for better or worse, although it seems that the fight is not yet over.

“There is no chance President Widodo will back down on this – it’s what he wants as his legacy, and there’s no way he will change his mind,” said Amanta.

“The protests are settling down now and things are more stable, but people are still looking for ways to stop this e.g going through the judicial system, but I doubt it will make a huge difference, so I do feel it’s here to stay.”