Focus on Indonesia

by Chris Lyddon
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Indonsia
 
Indonesia, the fourth most populous country in the world with more than 260 million people, is a big agricultural producer, but the focus is on rubber and palm oil. Wheat, which is an increasing part of the diet of Indonesians, must be imported. The government is pushing for greater self-sufficiency in corn.

According to the International Grains Council (IGC), Indonesia’s total grains production, all of it corn, in 2017-18 will come to 11.2 million tonnes, up from 10.9 million the year before.

The IGC puts Indonesia’s total grain imports at 12.1 million tonnes in 2017-18, up from 10.7 million the year before. The figure includes 11.5 million tonnes of wheat, up from 10.1 million in 2016-17 and 600,000 tonnes of corn, up from 500,000.

On Indonesia’s wheat imports, the IGC commented in its February report that “this month’s biggest change is for Indonesia, where imports are being stimulated by growing food and feed demand; based on reported trade to date, the projection is increased by 600,000 tonnes, to a new high of 11.5 million.”

The USDA attaché reported in November that the biggest sellers of wheat to Indonesia in 2016-17 were Australia (48%), Canada (17%), Ukraine (16%), and the United States (11%), noting that Australia’s big share is due to the noodle industry’s preference for Australian standard white wheat and Australia’s proximity to Indonesia.

Indonesia
*Projected
Source: U.S. Department of Agriculture
 
Indonesia’s forecast rice production in 2017-18 is 37.5 million tonnes, a rise from the previous year’s 37.1 million, according to the IGC. The country’s rice imports are put at 700,000 tonnes in 2017-18, up from 400,000 the year before.

Indonesia also produces soybeans, with output for 2017-18 forecast at 500,000 tonnes, down from 600,000 the previous year. Its imports of soybeans are forecast at 2.7 million tonnes, up from 2.6 million in 2016-17, while imports of soymeal are forecast at 4.5 million tonnes, up from 4.4 million the previous year.

Corn imports are being held back because of the government’s restrictions on imports, which have kept the domestic price well above international levels, the USDA attaché reported in November.

“High corn prices and good moisture conditions are motivating farmers to grow corn over soybeans,” the attaché explained. “However, area expansion is hindered by a lack of arable land, and yield growth is hindered by a shortage of hybrid seed.”

Just over half of Indonesia’s corn area is planted with hybrids. The attaché said that the government’s seed subsidy program has eroded margins for seed producers and cut seed production.

“As a result, seed costs increased about 25% in the last six months of 2017,” the report said.

wheat flour
 

Flour milling

The attaché’s most recent annual report on the Indonesian grain sector, published in March 2017, put the number of operational flour mills in Indonesia at 31, with a total capacity of 11.4 million tonnes. Most of them are in Java. The attaché put capacity utilization at 70% in 2014-15.

“Bogasari, Indonesia’s largest flour mill (with a 52% share of the wheat flour market) is currently running at 85% capacity and is updating three flour mills located in Jakarta,” the attaché said.

Other flour mills in Java also are expanding operations, and the attaché noted that the price competitiveness of wheat flour-based food compared with other staples is stimulating the industry’s growth. The report cited a projection from Indonesian Flour Mills Association (APTINDO, Asosiasi Produsen Tepung Terigu Indonesia) that total installed flour milling capacity in Indonesia would reach around 14.2 million tonnes by 2024-25. Rising Indonesian electricity and labor prices have increased millers’ costs, an effect made worse by a weak Indonesian rupiah, although a well-supplied international market has mitigated the effect.

Flour milling has gone through a long-term expansion in Indonesia. The attaché cited APTINDO figures showing that there were just five mills belonging to four companies in the country during the period 1970 to 1998.

The report also quoted the national statistical service BPS as saying that Indonesian consumption of flour per person in 2015-16 was 23 kilograms, with middle- and upper-income consumers diversifying their diets to eat more western-style foods.

In an update from Nov. 30, the attaché reported that, “demand for flour-based foods remains strong and continues to grow. At the same time, competition among local mills remains tight, some mills are experiencing financial difficulties, and consolidation is occurring. Large mills are buying small mills. This restructuring of the sector should bring greater efficiency and contribute to the growing wheat import demand.”

The IGC forecasts Indonesia’s 2017-18 flour imports at 85,000, well below a prediction of 100,000 tonnes it made in November. The previous year’s flour imports were 100,000 tonnes. The attaché reported that the Ministry of Finance moved in January 2017 to impose an additional 5% duty on flour on top of the normal 5% Most Favored Nation tariff.

“As a result, flour imports during the first semester 2017 declined 74% to only 32,000 tonnes wheat equivalent,” the report said. “Therefore, domestic flour dominated the market throughout 2017, with a 99.8% market share.”

The biggest source of Indonesia’s flour imports is Turkey, with a share of 53%, followed by the Philippines (17%) and Canada (9%).

feed
 

Feed milling

The attaché’s annual report put the number of feed mills in Indonesia at 69 with a capacity of 19.4 million tonnes in 2015-16, with 49 on Java.

In the November update, the attaché reported that a new corn starch wet mill in East Java has been operational since April 2017. The mill is running at full, 600 tonnes a day or 216,000-tonnes-per-year capacity. It will produce starch plus corn gluten meal, with an installed capacity of 12,000 tonnes a year, and corn gluten feed, with 48,000 tonnes of annual capacity.

The new facility only uses imported corn, favoring, the attaché said, that from the United States.

Palm oil, biofuels, GMOs

Indonesia is a major palm oil producer. In an update on Feb. 9 of this year, the attaché maintained a forecast of 2017-18 production at 38.5 million tonnes, up 5.5% on the previous year, noting new mature area entering production and expected above trend yields. The forecast for 2017-18 human consumption was 5.75 million tonnes with industrial use at 3.6 million tonnes.

Indonesia does have a biofuels program, producing palm oil-based biodiesel.

“Indonesia’s palm oil industry has created a biodiesel support program that is funded via a levy on palm oil exports,” the attaché explained in a report on the sector. “Revenues from the levy are used to offset the difference between fossil diesel and biodiesel prices for Indonesian consumers.”

There is no ethanol production for fuel, although ethanol is produced from molasses for other purposes.

Indonesia does import genetically modified crops, according to an attaché report on the biotech sector, which noted that the United States exported more than $1.5 billion of GM products to Indonesia in 2016. There are no GM products approved for planting in the country, but the government and universities are researching a number of potential crops. According to the attaché, government policy is to use science along with the precautionary principle on safety.

“The stated policy is also to take into consideration religion, ethical, socio-cultural, and esthetic norms,” the attaché said. There are non-governmental organizations which have opposed the production of GM crops, “although their intended targets are usually multi-national companies behind the technology.”

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