Focus on Indonesia

by Melissa Alexander
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By Melissa Alexander

Indonesia ranks as the world’s fourth most populated country and enjoys diversified resources. Indonesia has one of the largest agri-food markets in Southeast Asia, and as the world’s second-largest producer and exporter of palm oil, it exerts significant influence on world oilseed prices.

Agriculture basically is market-orientated, but the National Logistics Agency (BULOG) maintains control over essential food commodities, such as rice. The government recently "privatized" BULOG as a State Trading Enterprise that may engage in market operations and realize profits.

Nonetheless, BULOG retains its role of distributing subsidized rice to low-income consumers and continues to procure or release rice supplies as needed to influence market prices.

In 1998, Indonesia allowed private traders to import wheat for the first time, removing control from BULOG. Soybeans, maize and sugar also are handled by the private sector.

WHEAT AND FLOUR MILLING

Indonesia consumes a significant amount of wheat annually, all of which is imported. The value of Indonesia’s wheat product sector is estimated at U.S.$690 million annually.

Consumption of wheat products is directly related to disposable income. Wheat-based products are still considered a luxury item for many Indonesians and are consumed primarily by higher income families living in urban areas.

This disparity is reflected in Indonesia’s annual per capita wheat flour consumption, which is approximately 15 kg. Because that figure is quite low compared with other Southeast Asia countries — Singapore’s per capita use is about 71 kg — Indonesian millers and bakers foresee continuous growth in the domestic wheat sector.

Although the financial crisis of the 1990s seriously affected domestic demand as well as Indonesia’s ability to import wheat, consumption has increased steadily with the ongoing economic recovery. In fact, wheat use in 2003-04, estimated at a record 4.2 million tonnes, will be 58% higher than in economically depressed 1998-99.

Indonesia is home to four wheat flour milling companies. PT Bogasari Flour Mills, a division of Indofood, is by far the country’s largest in terms of wheat ground and market share. (See related story on page 43.)

Bogasari operates a mill in Jakarta with a daily capacity of 10,500 tonnes of wheat and one in Surabaya with daily capacity of 5,600 tonnes. With its huge capacity, Bogasari in 2000 enjoyed a market share of about 67%, according to data from the Association of Indonesian Flour Millers (APTINDO).

Other milling companies include PT Panganmas Inti Persada, whose daily capacity is 1,000 tonnes and whose market share is about 5%, and PT Sriboga Raturaya, with a daily capacity of 1,500 tonnes and market share of 5%. Both operate mills on Java.

PT Berdikari Sari Utama Flour Mills, with a plant on Sulawesi, has a daily milling capacity of 2,900 tonnes and a market share of 8.5%.

The U.S. Department of Agriculture recently estimated Indonesia’s wheat milling extraction rate at between 74% to 75%, depending on grain quality, and estimated annual production at about 3.3 million tonnes of flour. Mills produce flour with high protein (greater than 12%), medium protein (10% to 11%), and low protein (8% to 9%) content, but about 75% is made up of high-protein flour for instant noodles and bakery products.

Output of noodles, both traditional and instant, accounts for nearly 60% of total wheat flour production, with bakery products accounting for about 25%. Bread and biscuit use each account for 10% to 15% of total flour output.

Indonesia has more than 30,000 small and medium-sized bakeries accounting for nearly 60% of total domestic flour use. About 200 large industrial food processors account for the remaining annual domestic flour consumption, as household use is minimal.

Bakery products are sold via the traditional village markets or directly from the bakeries. A few modern retail outlets offer bakery products, but they are located primarily in major cities.

Flour imports in 2000 accounted for about 15% of domestic market share, according to APTINDO data. Since then, domestic millers have said, imports of "cheap" flour have surged, threatening the domestic industry.

In 2002, the millers took their complaints to the Indonesia Anti-Dumping Committee (KADI), which agreed that cheap flour imports constituted dumping and urged the government to impose import tariffs. The government refused, fearing such action would push up flour prices.

In April 2003, APTINDO noted that imports of wheat flour had shot up 300% recently, inflicting big losses on small and medium-sized millers. At that time, the government agreed to impose a 5% import duty on flour from all origins, effective May 1, 2003, until December 31, 2004.

APTINDO also submitted a formal filing to KADI about alleged dumping of Chinese flour into the Indonesian market. The trade ministry has recommended a filing with the finance ministry, as well as the WTO, to allow for specific tariffs for certain countries of origin.

The controversy over flour imports involves quality as well as quantity.

 

Indonesia requires flour imports to meet the national standard, which includes fortification. Earlier this year, the government charged that much of the flour imported was not up to standard and that import documents had been manipulated and/or falsified.

An investigation of imports from China, Malaysia, Australia and India was launched, and the trade ministry withdrew four brands of imported wheat flour from the domestic market because they failed to meet standards.

COARSE GRAINS AND FEED

Indonesia currently imports around 1.2 million tonnes of maize a year, which represents about 17% of total annual use. But officials are aiming to make the country self-sufficient in maize by the end of 2004. Indonesia is expanding the maize cultivation area by 100,000 hectares and is trying to improve productivity and post-harvest processing quality.

Nearly 50% of domestic maize is used in traditional meals as a rice substitute, with the remainder used for animal feed. Approximately 80% of imported maize is used by the feed industry for poultry and broiler production, with 20% used for swine and aquaculture feed.

The amount of maize used by the feed industry has been increasing over the past few years, reflecting growth in Indonesia’s feed industry. Feed maize consumption was estimated to have grown about 6% in 2002-03, and analysts expect 4% growth in 2003-04.

Indonesia’s feed industry, which was seriously affected by the Asian economic crisis in the late 1990s, had recovered completely to pre-crisis output in 2002, and the production of broilers has underpinned the industry’s expansion.

Indonesia’s feed manufacturing is dominated by five to 10 large companies. Perhaps the largest is PT Japfa Comfeed, a vertically integrated Indonesian company with 1.6 million tonnes of annual feed manufacturing capacity. Japfa Comfeed operates six feed-making plants, focusing on poultry and aquaculture feed output. The company also operates in chicken breeding and poultry meat processing.

Foreign investment in Indonesia’s feed industry also has been notable.

Thailand-based Charoen Pokphand is a large market player in Indonesian feed, operating four plants with total capacity of at least 1 million tonnes annually.

Other major overseas companies include Cargill, which opened its first Indonesian feed mill in 1972 and today operates four plants; and Asian conglomerate Gold Coin, which operates three mills in Indonesia.

RICE

Rice remains a staple food, and consumption continues to increase slightly each year with population growth.

The government remains committed to increasing domestic output to keep imports, which currently average about 3 million tonnes a year, in check.

As a protectionist move, the government also increased rice import tariffs for private traders to 30% from zero, hoping the action would boost farmer confidence and provide an incentive to increase production and planting. Farm groups continue to press for a 51% tariff.

But smuggling of cheaper rice from nearby producing nations already is a problem, and the government fears an increase in this activity if tariffs are raised.

 

Key Facts

Capital: Jakarta.

Demography: Population 231.3 million, 1.54% growth rate (2002 estimates); Bahasa Indonesia language; Muslim religion (88%).

Geography: Southeast Asia, archipelago between Indian and Pacific oceans; tropical climate, with mostly coastal lowlands, larger islands have interior mountains.

Government: Republic. Chief of state and head of government is President Megawati Sukarnoputri.

Official agricultural agencies: Ministry of Agriculture under Minister Bunngaran Saragih.

Economy: Although Indonesia has recovered from the "Asian flu" economic crisis of the 1990s, it still faces economic development problems. Difficulties stem from secessionist movements, security issues, banking system weaknesses, and suspect legal infrastructure for contract disputes and corruption. Keys to future growth remain internal reform, the build-up of confidence among international donors and investors and a rebound in the global economy.

Agriculture accounts for 45% of the labor force and 17% of gross domestic product.

G.D.P. per capita: U.S.$3,000 (purchasing power parity), 3.3% growth rate, 11.5% inflation, 8% unemployment, (2001 estimates).

Currency: Rupiah. July 15, 2003 exchange rate, 8,220 Rupiahs = 1 U.S. dollar.

Exports: U.S.$56.5 billion (f.o.b., 2001), oil and gas, electrical appliances, plywood, textiles, rubber.

Imports: U.S.$38.1 billion (f.o.b., 2001), machinery and equipment, chemicals, foodstuffs.

Major crops/agricultural products: Rice, palm oil, cassava, rubber, cocoa, coffee.

Wheat: Indonesia produces no wheat. Imports from 1998-2002 averaged 3.7 million tonnes a year, with total domestic use averaging 3.6 million tonnes annually.

Maize: Production averages 6.14 million tonnes annually, with imports at about 1.2 million and total use at 7.2 million.

Rice: Milled production averages 32.8 million tonnes, with imports at about 2.7 million and total use at 35.9 million.

Transportation: Highways, 342,700 km, 158,670 paved; railroads, 6,458 km, mostly 1.067-m gauge; Cilacap, Jakarta, Surabaya, Semarang are major ports.

Internet: Country code, *.id; 24 service providers (2000); 4.4 million users (2002).

Data (1,000 tonnes)

Production

Consumption

Exports

Imports

Rice

33,300

36,950

0

3,500

Wheat

0

4,200

0

4,100

Maize

6,500

7,700

0

1,400

Wheat flour

2,167

na

na

na

2003-04 marketing year projections, except wheat flour, 2000

Source: U.S. Department of Agriculture, International Grains Council

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