7 - Creating New Domestic Demand for Cash Crops

Summary

Malaysia and Indonesia have been relying on the export of cash crops for revenue and, in exchange, the import of other food products to meet local demand. Especially, Borneo is a prominent region for such a model of development—it has relatively limited rice production (the staple food throughout Borneo) but extensive export-oriented oil palm plantations. This model, unfortunately, has proven to be highly risky to both the economy and food security when prices of commodities drop substantially (Figure 7.1). After enjoying almost a decade of growth in the 2000s, the palm oil sector was hit by several market shocks with the greatest one in 2009. The global economic instability in recent years, especially the US-China trade war, the Saudi Arabia-Russia oil price war, and the global COVID-19 pandemic have imposed serious risks on such export-oriented economies. A few times, fresh fruit bunches were left to rot on smallholdings when prices were too low and unattractive; so plantations refused to accept the fruit and farmers had no alternative market.

Creating new local demands to take up the excessive stock as a buffer for sudden price dips has been a strategy adopted by the governments in the face of great economic uncertainties. In addition, domestic markets for various bio-based products, including those made of waste materials, may also help to stabilize local economies and farmers’ incomes. This is tagged along with the multiple objectives of replacing fossil-based with bio-based materials and establishing a self-sufficient circular economic ecosystem. It can also stimulate the growth of local bio-based industries. Several successes observed around the world are often cited, such as the case of Brazil (sugarcane ethanol) and Sweden (woody biomass for heat and power) (Silveira and Johnson 2016). This strategy closes the loop of a bio-economy from supply to demand. To do so, proper policy directives and incentives to boost local demand would be necessary.

This chapter provides an overview of two categories of potential markets in Borneo as well as on a broader national scale in Malaysia and Indonesia: (i) the food sector, and (ii) the non-food sector. This chapter mainly uses a country perspective as this strategy relies on policies at the national level. However, the situation in Borneo is discussed wherever applicable or data is available.