Abstract
This study assesses the contribution of the food and beverage industry to the Indonesian economy based on firm characteristics. The comparative descriptive statistical method describes a detailed mapping of the firm's character and the main supporting factors, such as processed commodities, firm size, island region, capital ownership, and exporters. The contribution of the food and beverage sub-industry varies; the vegetable and animal oils and fats industry is the largest and most effective. Small and medium firms have the lowest contribution compared to large firms. Firms in the Sumatra region have the highest contribution compared to firms in other regions. PMDN firms have a higher contribution than PMA firms. Non-exporting firms have a high average contribution compared to exporting firms. Based on the results, policymakers can concentrate on the potential to increase the contribution of a particular group of firms.
TopIntroduction
The manufacturing sector is an industry that plays a vital role in the national economy (Attiah, 2019; Banerjee, 2020; Chakravarty & Mitra, 2009; Herman, 2016; Khan & Siddiqi, 2011; Qayyum, Khalid, & Muhammad Usman, 2021; Su & Yao, 2017; Nusratovich, 2019; Sengupta, Sinha, & Dutta, 2019). National Gross Domestic Product (GDP) data for the 2010-2020 period illustrate that the manufacturing sector consistently contributes the most to national GDP compared to other sectors (Statistics Indonesia, 2021a). The performance of manufacturing can provide a contribution share of 19.70 - 22.04 percent, with an average of 20.64 percent per year. In 2020, the manufacturing sector will remain the largest contributor to GDP at 19.88 percent (Figure 1).
In most developing countries, manufacturing sectors play a significant role in increasing economic development since the primary sectors have a low contribution to speeding up the national economy. To construct economic development, the role of manufacturing and labor-intensive industries are very significant in their contribution to non-mining export, absorbing the surplus manpower, and influencing the emergence of new employments (Wijaya, Kurniawati, & Hutama, 2018; Haraguchi, Cheng, & Smeets, 2017).
The food industry indicated higher total factor productivity growth compared to other industries. Meanwhile, the industry of processing and preserving meat, fish, fruits, vegetables, cooking oil, and fat (ISIC 151) has the highest productivity growth. General evidence shows that technical progress becomes the main factor of TFP growth, followed by scale and technical efficiency change (Widodo, Salim, & Bloch, 2015; Liu, Wang, Yang, Rahman, & Sriboonchitta, 2020).
The increasing trend of economic growth denotes that the Indonesian economy is experiencing an increase in production and expenditure, components that exist in GDP. Indonesia also experienced increased economic growth per capita (Suryahani, Susilowati, & M., 2018). The agricultural sector has proven to restore the economy in the domestic economic crisis. This sector contributes to the national economy and plays an important role in increasing income, creating job opportunities, as a source of foreign exchange, ensuring local food needs, and producing raw materials. In general, the agricultural sector plays a vital role in maintaining food security and economic stability (Firmansyah, Widodo, Karsinah, & Oktavilia, 2017; Rozaki, 2021; Nugroho et al., 2022; Pawlak & Kołodziejczak, 2020).
Figure 1. GDP of the sector and its contribution to national GDP in 2020 (Statistics Indonesia, 2021a), author’s calculation
Deindustrialization and diminishing economic growth have become one of the main issues caused by the COVID-19 pandemic. One of the sub-sectors of manufacturing believed to be very important and capable of sustaining its expansion is the food and beverage industry (F&B). The growth of the F&B has proven to be stable during the pandemic period because it is one of the efforts to increase endurance in anticipation of the COVID-19 pandemic (Adhiem, 2021). In addition, the F&B sub-sector can consistently provide the highest contribution share increase in national GDP from 5.25% in 2010 to 6.85% in 2020 (an average of 6.05%). The share of this contribution was 28.18% in 2010 and 38.29% in 2020 to the GDP of the manufacturing sector (average of 33.24%) (Table 1). Thus, the F&B sub-sector becomes one of the sub-sectors that drive the national economy and can accelerate national economic recovery.
Key Terms in this Chapter
Type of ownership: This refers to the participation of domestic investment (PMDN) and foreign investment (PMA). PMDN is an investment activity to run a business in the territory of Indonesia, which is carried out by domestic investors by relying on domestic capital. PMA is the formation of business capital in Indonesia aimed at foreign investors, using foreign capital fully or partially with domestic investors.
Exporter: Indonesian food and beverages firm that that ship goods from the Indonesian custom area to the custom area of other countries. Usually, export process starts from an offer of a party followed by the agreement from another party in a sales contract process.
Food and beverages industry: is all companies involved in processing raw food materials, packaging, and distributing them. This includes fresh, prepared foods as well as packaged foods, and alcoholic and nonalcoholic beverages.
Firm characteristic: are defined as a firm internal environment that is comprised of firm’s demographics and management characteristics that are part of the firm’s operating environment. Firm size, leverage, firm age, revenue growth, asset growth, and turnover are all examples of firm characteristics ( Zou and Stan, 1998 ; Ashiq et al., 2022 ; Salah, 2018 ; Mutende et al., 2017 ).
Industrial Cluster: A geographic concentration of interconnected firms, suppliers, and institutions in a particular field. It has the potential to affect competition by increasing the productivity of the companies in the clusters, driving innovation, and stimulating new businesses in the specific field ( Christiansen, 2014 ).
Firm Size: firm scale measured in number of employees. It usually categorized in small, medium and large firm.
Industrial sub-sector: The International Standard Industrial Classification of All Economic Activities (ISIC) is the international reference classification of productive activities. Its main purpose is to provide a set of activity categories that can be utilized for the collection and reporting of statistics according to such activities ( United Nations-Statistical Division, 2008 ).
Economic contribution: Business or industrial events that add value to the performance of countries, which is reflected on their gross domestic products (GDP), index standard of living, industrialization, and production of goods. The industrialized countries have numerous and sophisticated ways that contribute to their economies. Economic contributions of an industry sector are often vital information in the policy-making process ( Mosweunyane, 2019 ; Pelkki & Sherman, 2020 ).