Miller Magazine Issue: 115 July 2019

INDONESIA 82 MILLER / JULY 2019 Indonesia is the world’s fourth largest country by population, third biggest democracy and largest Muslim nation. With 262 million people, Indonesia’s economy comprises nearly half of ASEAN economic output. Indonesia has charted impressive economic growth since overcoming the Asian financial crisis of the late 1990s. The country’s GDP per capita has steadily risen, from $807 in the year 2000 to $3,877 in 2018. Indonesia is a thriving democracy with sig- nificant regional autonomy. It is located on one of the world’s major trade routes and has extensive natural resource wealth distributed over an area the size of the United States and comprised of 17,508 islands. Today, Indonesia is the world’s 10th largest econo- my in terms of purchasing power parity, and a mem- ber of the G-20. Despite heightened global uncer- tainty, Indonesia’s economic outlook continues to be positive, with domestic demand being the main driver of growth. Supported by robust investment, stable inflation, and a strong job market, Indonesia’s eco- nomic growth is forecast to reach 5.2% in 2019. The Indonesian economy is forecast to become the fifth largest economy in the world by 2030, surpassing the UK and Germany. Indonesia has the great potential land areas to de- velop the business in the agricultural sector. With its vast and abundant fertile soils, Indonesia is a major global key producer of a wide variety of agricultural tropical products, and although agriculture’s share of the country’s gross domestic product (GDP) has de- clined markedly during the last five decades, it still provides income for the majority of Indonesian house- holds today. The primary agricultural products in Indonesia are palm oil, rubber, cocoa, coffee, tea, cassava, rice and tropical spices. This sector encompasses large plantations and smallholder productions, both private and state-owned. While Indonesia is a net exporter of many agricultural products, the country is reliant on imports of grains (non-durum wheat), sugar, soya- beans, maize and meat. The Indonesian government has placed self sufficiency in certain agricultural prod- ucts high on the agenda. In particular this applies to rice which by far is the main staple food for the ma- jority of the population. Indonesia has the highest per capita rice consumption in the world (approximately 139 kilo per capita per year). However, the country is still dependent on imports from Vietnam and Thailand to secure the domestic rice supply. Other food crops that have become target of self sufficiency programs are soy beans, corn and sugar. WHEAT IMPORTS TO FURTHER INCREASE Indonesia is fully reliant on wheat imports to fulfill demand for wheat flour-based food and as an ingre- dient for poultry and livestock feed. According to last USDA report on Indonesia published in March, despite increased corn production, feed mills will continue to use significant quantities of imported feed wheat. In line with increased corn production, 2018/19 feed mills’ demand for wheat will decline to 2 million tons. Wheat used for feed is forecast to rebound to 2.2 mil- lion tons in 2019/20 as overall feed production rises. Continued demand for wheat for feed use and sta- ble flour demand are expected to increase Indonesia’s wheat imports to 11.15 million tons in 2018/19. In line with population growth and expected feed production increases, 2019/20 wheat imports are forecast to fur- ther increase to 11.3 million tons, USDA reports. FLOUR MILLING INDUSTRY IN INDONESIA Currently, twenty-eight flour mills operate under twenty-three companies, with a total installed capac- ity of 11.8 million tons per annum. Most of the mills are located on Java. Running capacity of the mills reached 80 percent in 2017/18, an increase from 70 percent in 2016/17. The industry is estimated to grow five percent in 2018/19 due to the relatively low price of wheat flour and wheat flour-based foods compared to rice. Despite the number of mills, the sector remains heavily concentrated with mills controlled by the Sal- im Group. Of these mills, by far the biggest is Boga- sari, which alone has more than 50 per cent market share. According to APTINDO, the country’s peak body for flour mills, the sector’s capacity is expected to grow to more than 14 mmt by 2024–25. Due to low labour costs, a cheap rupiah and economies of scale, Indonesia’s flour millers are generally competitive by global standards; however, this is gradually diminish- ing as the cost of labour and variable costs such as utilities increase. Indonesia’s wheat imports for feed use are directly tied to the Ministry of Agriculture’s (MOA) ban on corn imports for poultry and livestock feed. Domestic corn prices, among the highest in the world, have forced feed mills to source other commodities to meet ener- gy needs in feed rations. Since the policy went into effect in 2015, wheat imports, especially from the Black Sea region, have often filled the needs of feed