Indonesia and Australia key to regional food security, says urea, fertiliser supplier

Indonesia’s Pupuk Kalimantan Timur is investing more than $2bn in AdBlue urea, soda ash and ammonia plants for the Australian market.

Pupuk Kalimantan Timur chief executive Rahmad Pribadi.

Of the myriad crises Australia faced during the pandemic, one of the least anticipated but potentially catastrophic was the sudden realisation the nation was poised to run out of urea.

The unsexy by-product of ammonia is a key ingredient in fertiliser as well as AdBlue, an anti-pollutant required in the diesel engines used across Australia’s transportation and logistics network.

The critical shortage in late 2021 – as the world’s largest urea producers, Russia and China, hoarded their supplies – not only threatened Australia’s domestic supply chains but food security worldwide, contributing to soaring inflation.

Australia’s dilemma – which only worsened after Russia’s invasion of Ukraine – was well publicised.

However, the fact it was solved by Indonesian state-owned company Pupuk Kalimantan Timur stepping in with a 5000-tonne emergency shipment was less known, and a sign of Australia’s changing relationship with its most important neighbour.

At a time of growing resource nationalism worldwide, Pupuk Kalimantan Timur chief executive Rahmad Pribadi saw an opportunity to go against that tide in the interests of both nations.

His rationale was simple.

“Even if you have millions of friends, it is meaningless if you have a bad neighbour. Pupuk Kalimantan Timur sees regional co-operation as very important,” he told the Weekend Australian.

“Indonesia needs other countries to function well so that Indonesia can function well. I strongly believe in regional food security. No single country in this region can stand on its own feet when it comes to food security – you have to co-operate.

“If we want to achieve strong food security then we have to look beyond our borders, because what happens in fertiliser doesn’t stay in fertiliser. The volatility in fertiliser will have serious detrimental implications for food security.”

It’s a mantra the Harvard-educated chief executive – with a Masters’ degree in public administration and geopolitics – is fond of repeating.

Farmer Martin McKenzie sprays urea in Goondiwindi, southern Queensland. Picture: Tara Croser

The hoariest cliches about the Australia-Indonesia relationship are that it is perennially underdone and that the two countries are trading competitors, not ­partners.

But Pribadi is one of a growing band of Indonesian executives keen to exploit the mutual benefits of greater trade and co-operation between what he sees as two complementary markets on each other’s doorstep.

Indonesia, Southeast Asia’s largest urea producer, buys much of its sugar, wheat and meat from Australia. Australia imports a lot of urea.

“What happens if the supply of fertiliser to Australia is disrupted? Everybody needs everybody and I think that attitude should be adopted not only at the strategic level but at the commercial level too,” says Pribadi.

“By supplying urea to Australia we are indirectly ensuring food security for Indonesia. That’s why when I took the helm I looked at Australia as a potential partner. Indonesia and Australia have complementary resources that we can efficiently use to benefit both ends.”

As part of Indonesia’s State-owned-enterprise ecosystem the Pupuk Kaltim CEO is obliged to support the national objective of achieving food self-sufficiency, though that has become a “delicate issue” because of the shift in consumption patterns, he says.

Indonesians are still voracious rice consumers but as the economy has grown and urbanised, they’re drinking more milk and eating more meat and wheat, none of which can be efficiently produced in Indonesia.

Since Pribadi took the helm in August 2020, urea shipments to Australia have grown almost five-fold – from 70,000 tonnes that year to 340,000 tonnes in 2022 – as a result of global supply chain disruptions and a gold standard Australian Level One rating that cut quarantine and inspection times.

China is still Australia’s main urea source, but Indonesia now contributes 28 per cent.

At the same time, Indonesia’s urea exports to regional neighbours have dropped as soaring prices crippled demand among producers whose crops did not see comparable price rises.

That didn’t dent Pupuk Kaltim’s profits, but Pribadi welcomes this year’s price correction of more than 20 per cent “because we don’t live in a vacuum ­chamber”.

“We benefited from higher prices but that reduced affordability and that can destroy demand. When demand collapses, industry collapses.”

Still, the company is determined to build on its “realignment” to the Australian market with a planned $2bn investment in new facilities, including a soda ash plant in West Papua (a key ingredient in glass manufacturing), and a re-purposed West Papuan plant to produce urea specifically for AdBlue.

It already produces ammonia for Orica, an Australian mining services company with a production base in Pupuk Kaltim’s Kalimantan industrial estate that manufactures mining explosives for the local industry, and wants to export more ammonia to Australian miners.

Pribadi says he is “actively seeking” new areas of co-operation with Australia, including the development of a nitrogen fertiliser specifically for the Indonesian agricultural sector, and is eyeing off Australia’s “underexploited” phosphate reserves – a more convenient source than its current suppliers in North Africa, Middle East and China.

The 53-year-old credits the 2021 Indonesia Australia Comprehensive Economic Partnership Partnership for “opening a door for us to explore more possibilities” and wants to see more players from both countries walk through it.

“Having better co-operation with Australia is very important not only for us in commercial terms but in more strategic views. Indonesia and Australia need each other,” he says. “I see strategic reasons for Pupuk Kalimantan Timur to realign to Australia. We don’t have the phosphate that Australia has but we have a lot of urea and Australia doesn’t have that same production capacity.

“We can efficiently produce urea in Indonesia because gas prices in Indonesia are more affordable than Australia. Let Australia be the energy provider to global markets but let us be the provider of agro inputs to Australia. We can produce urea and sell it to Australia at a much more competitive price. I would like to see that relationship become more tied.”