Focus on Indonesia

by Chris Lyddon
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Global perspective of Indonesia

Economic problems have slowed the Indonesian flour market, but there has been a trend for Indonesians to move to more wheat-based foods, even though the country does not produce wheat.

In its August Grain Market Report, the International Grains Council (IGC) put total grains production in Indonesia in 2015-16 at 9.6 million tonnes, up from 9.4 million the year before. The figure is all maize. Total Indonesian grain imports are put at 11.5 million tonnes in 2015-16, up from 11.2 million the year before. About 8.1 million tonnes of the import total is wheat, a rise from 7.4 million the year before. Maize imports are put at an unchanged 3.3 million tonnes.

Indonesia is set to produce 37.5 million tonnes of rice in 2015-16, compared with 37.1 million the year before. It will also import 1.4 million tonnes of rice, up from 1.3 million in the previous year.

In 2015-16, Indonesia will produce 600,000 tonnes of soybeans, unchanged from 2014-15. It will import 2.5 million tonnes of soybeans, up from 2.4 million, and 4.4 million tonnes of soy meal, up from 4.2 million in the previous year.

The IGC also reported the latest government moves to support agriculture. “In an effort to support local farmers and promote self-sufficiency, it was announced on Aug. 3, 2015 that the government had stopped issuing import permits for maize used in feed mills,” it said. “It was also reported that there were plans to introduce temporary rules allowing only Bulog, the state procurement agency, to import the grain from 2016. On Aug. 26, 2015, it was reported that imports of maize which have been agreed before the government stopped issuing permits have so far been accepted.

According to the IGC, Indonesia will import 350,000 tonnes of wheat flour in 2015-16, up 50,000 tonnes from the year before.

Flour mills

During the 1998 Indonesian monetary crisis, only four flour mills were operating in Indonesia, the USDA attaché said in an update on the grains sector.

“Today, Indonesia is home to 29 flour mills with a total installed capacity of 10.3 million tonnes per year, currently operating at 60% to 70% capacity,” the attaché said. “This is lower than 2012, when estimates indicated that mills were operating at 75% capacity. The decline is attributable to a highly competitive market and strong supply.”

Franciscus Welirang, chairman of the Association of Flour Producers in Indonesia (APTINDO) and director of PT Indofood Sukses Makmur Tbk (Bogasari Flour Mills), in an overview of the Indonesian wheat flour industry presented at the Global Grains Asia Conference in March 2014, put the total number of flour mills at 29, with all but five of them in Java. He put their capacity at around 9.7 million tonnes a year.

The largest flour mill in Indonesia, and in the world, is Bogasari Flour Mills’ plant in Jakarta, which produces more than 3 million tonnes per year.

He said there were only five mills prior to 1998, when the Indonesian flour milling industry was deregulated.

The attaché explained that the Indonesian economic slowdown has inhibited flour imports, putting 2014-15 imports at 7.6 million tonnes in wheat equivalent. “However, millers remain optimistic for 2015-16, expecting higher demand for wheat flour-based food that will drive an increase of wheat imports to 8.1 million tonnes in 2015-16,” the report said.

For the period of July 2014 to April 2015, Australia held the largest market share for wheat (60%), followed by Canada (23%), the United States (9%), and Ukraine (4%), according to the report.

“Australia’s majority market share is due to the noodle industry’s preference for Australian standard white wheat, price, and Australia’s close proximity,” the attaché said. “U.S. wheat import market share is expected to remain stable at approximately 9% in 2015-16, in line with increasing imports from Indonesian flour mills.

“Indonesia’s wheat flour import quota, which limits imports of wheat flour, expired on Dec. 4, 2014. Despite the quota’s expiration, industry reports that the depreciating Rupiah has resulted in higher freight rates, discouraging wheat flour imports from Sri Lanka, India, or Turkey. Indonesian flour continues to dominate the market with a 96.4% market share.”

The attaché cited Global Trade Atlas data showing that from July 2014-April 2015, India overtook Turkey as the largest supplier of wheat flour to Indonesia with a 35% market share, followed by Turkey (28%), Sri Lanka (16%), and Ukraine (11%). “For the same period, Indonesia imported a total of 117,698 tonnes of wheat flour, 161,000 tonnes of wheat equivalent,” it said.

It also described the mills’ customers. “Approximately 66% of Indonesian flour mill customers are small and medium-sized wheat food producers,” it said. “These include small-scale wet noodle makers, street food vendors, low- end bread and bakery businesses, and traditional Indonesian cake makers. Instant noodle manufacturers, middle and upper end bakeries, and cookie and biscuit manufacturers take the other 34% of the market. APTINDO reported that approximately 200,000 small- and medium-scale enterprises, employing 2 million workers, are operational in Indonesia.”

Indonesia’s wheat flour consumption per person in 2013-14 was 19 kg. “Rather than eating rice three times per day, many Indonesians have switched to eating bread or noodles for breakfast,” it said. “Restaurants are also driving demand for wheat-based food products.

“Contrary to the depressed growth of small- and medium-scale bakeries, the number of high-end bakeries is growing, mainly in major cities including Jakarta, Surabaya, Medan, and Bandung. Instant noodle prices are currently cheaper than rice, and many more lower- and middle-income consumers substitute instant noodles for breakfast or dinner.

“As a result, the noodle industry continues to grow rapidly, consuming 70% of Indonesia’s wheat flour. Bakery industry consumption follows with 20% of flour, while household and commercial biscuit producers each consume 10%, respectively.”

Partly as a result of an economic slowdown that began in the last quarter of 2014, wheat flour consumption by modern industry declined in the first half of 2015, the attaché said.

“Based on declining industrial consumption, it is estimated that 2014-15 Indonesian wheat consumption for food, seed, and industry (FSI) will decline to 7.3 million tonnes of wheat equivalent,” it said.

Palm oil

Indonesia is a large-scale palm oil producer.

“Indonesian palm oil production has continued to grow through 2014-15 due to improving yields in maturing plantations,” a July attaché report said. “Certified palm oil seed sales indicate a general slowdown of new planted area, likely due to land disputes with local inhabitants as well as the implementation of the forest moratorium policy.

“Crude palm oil (CPO) production remains on track for 2014-15 at 33 million tonnes. However, 2015-16 CPO production may decline due to weather concerns. The arriving El-Niño phenomenon is causing concern for the palm oil industry.”

The attaché reported that Indonesia’s biofuel subsidies have not been implemented through most of 2015. The country’s House of Representatives increased the subsidy earlier in the year after a fall in fossil fuel prices. “On July 16, 2015, a new plantation fund was implemented, which mandates a levy on exports of palm oil and its derivatives,” the attaché reported. “The levy, to be charged at a rate of $50 per tonne of CPO and $20-$30 per tonne of palm oil products, will be used to subsidize biodiesel blending.”

Although Indonesia has fallen short of blending mandates in the past, growth has, according to the attaché, been robust. “Major urban centers were accessing supplies of B10 in 2014. Blending infrastructure continues to come online, and industry sources report that major population centers, especially those in closer proximity to palm oil production areas, will be better able to meet the mandatory blending requirements.”

The target for 2016 is 20%.

Key Facts

Capital: Jakarta

Population: 255,993,674 (July 2015 est.)

Religions: Muslim 87.2%, Christian 7%, Roman Catholic 2.9%, Hindu 1.7%, other 0.9% (includes Buddhist and Confucian), unspecified 0.4% (2010 est.).

Location: Southeastern Asia, archipelago between the Indian Ocean and the Pacific Ocean.

Government: Republic. Chief of state and head of government: President Joko Widodo (since Oct. 20, 2014).

Economy: Indonesia has seen a slowdown in growth since 2012, mostly due to the end of the commodities export boom. During the global financial crisis, Indonesia outperformed its regional neighbors and joined China and India as the only G20 members posting growth. The government has promoted fiscally conservative policies, resulting in a debt-to-GDP ratio of less than 25% and historically low rates of inflation. Fitch and Moody’s upgraded Indonesia’s credit rating to investment grade in December 2011. Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, a current account deficit, and unequal resource distribution among regions. President Joko Widodo – elected in July 2014 – has emphasized maritime and other infrastructure development, and especially increased electric power capacity, since taking office. Fuel subsidies were almost completely removed in early 2015, a move which could help the government increase spending on its development priorities. Indonesia, with the nine other ASEAN members, will continue to move toward participation in the ASEAN Economic Community, though full implementation of economic integration will not be completed until the end of 2015.

GDP per capita: $10,600 (2014 est.); inflation: 6.4% (2014 est.); unemployment: 6.1% (2014 est.).

Currency: Indonesian rupiah (IDR): 14,445 rupiahs equal 1U.S. dollar (Sept. 16, 2015).

Exports: $175.3 billion (2014 est.): Palm oil, oil and gas, ores and slags, electrical appliances, plywood, textiles, rubber.

Imports: $168.4 billion (2014 est.): Machinery and equipment, electronic equipment, chemicals, fuels, foodstuffs.

Major crops/agricultural products: Rubber and similar products, palm oil, poultry, beef, forest products, shrimp, cocoa, coffee, medicinal herbs, essential oil, fish and its similar products, and spices.

Agriculture: 14.2% of GDP and 38.9% of the labor force.

Internet: Code: .id. 42.4 million users.