Market Development and Access Strategy 2011/2012
Indonesia is the most populous country in South East Asian with 238 million people, making it the 4th largest country in the world. Indonesia has weathered the global financial crisis relatively smoothly because of its heavy reliance on domestic consumption as the driver of economic growth. Increasing investment by both local and foreign investors is also supporting solid growth. Although the economy slowed to 4.5% growth in 2009 by 2010 it returned to a 6% rate. Indonesia offers great potential for Victorian agri-food. Across Indonesia the agri-food sector remains highly fragmented largely due to its archipelagic nature, lack of transport, cool chain and storage infrastructure.
The Agri-Food Sector
Traditional wet and dry markets, basic ‘Mom & Pop’ food stores, street side vendors and traditional restaurants are the dominant route to market for the vast majority of local and certain imported products such as fruits and vegetables, meat, noodles, rice and soy bean products. At the same time an estimated market of 30 million middle to high income consumers are driving the rapid expansion of modern food retail and service businesses in large metropolitan centres such as Jakarta, Surabaya, Bandung and Bali. Together with a strong tourism trade, expatriate and transit business people, the demand for imported western food products is experiencing robust growth.
Domestic agricultural production is vital to the Indonesian economy, accounting for 16% of annual GDP and is the major source of food for the majority of Indonesians. Palm oil, tea, peanuts and cocoa are net exporting industries and Indonesia has been self-sufficient in rice for the past two years. The food processing industry is heavily reliant upon imported grains (wheat), soya bean, meat (beef) and dairy.
Indonesia has implemented a number of significant reforms to improve the ease of doing business and is emerging as an attractive investment and business market for Australian companies. The Australian-New Zealand-ASEAN FTA, which was signed in early 2009, is expected to eliminate 96% of tariffs of Australian exports to ASEAN nations by 2020. Quarantine protocols and regulations for agri-food products exported into Indonesia have been relatively modest, however they are becoming more stringent, for example all processed imported foods sold at the retail level, by law, must be registered with an ML number issued from Indonesia’s food and safety authority (BPOM), a timely and costly exercise which is ‘irregularly’ regulated. Importation of beef from BSE and foot and mouth affected countries is not permitted, likewise the import of particular categories of meat offal’s. It is also worth noting that all food entering Indonesia should be certified halal where appropriate, as approximately 90% of the population are of the Muslim faith.
Victorian Agri-Food Exports to Indonesia
VALUE OF VICTORIAN FOOD & FIBRE EXPORTS TO INDONESIA 2009/10 (A$ million)
Victorian food and fibre exports to Indonesia were valued at A$332 million in 2009-10 and accounted for 5% of Victoria’s total food and fibre exports. Key exports to Indonesia were dairy (37%), and meat products (35%).
The average Indonesian spends 53% of total income on food, earns and receives money and purchases food on a daily basis which highlights the importance of segmenting this market. The target market for the Victorian agri-food sector is the 30 million middle-high income earning households plus the expatriates, and business/tourist consumers who are now highly urbanised and educated with a strong awareness and demand for imported food products.
Traditional retailers still dominate retailing in Indonesia out-numbering modern retailers by over 200 to 1. The sector is very fragmented, competitive and price sensitive. But modern retailers (supermarkets, hypermarkets and convenience stores), both international and domestic, such as Carrefour, the Dairy Farm Group, Makro, Matahari plus a range of high end retailers (much smaller in size) such as Ranch Market, Sogo and Food Hall are expanding rapidly. In general they are located in urban areas with high quality cool chain management, storage and distribution and provide considerable opportunities for Victorian agri-food companies. Accessing agri-food retail channels in Indonesia is best done via a local import/distribution company who deal directly with the retailers. Opportunities exist for beef, dairy, fresh fruit and packaged grocery goods.
Indonesia’s food service sector is very diverse. It consists of hotels and restaurants, fast food outlets/chains, clubs, small restaurants serving local and international food and street-side open air restaurants and street vendors serving local food, at local prices. Demand for imported foods is concentrated in the five star hotels and restaurants and fast food chains located in urban areas. This sector is expanding at pace as is the percentage of consumers who dine out at least once a week Similarly to retail, gaining access to this market is best done by engaging a local import/distribution company that has a network of suitable clients. Opportunities exist for meat (beef and lamb), dairy (cheese) and specialty food products.
Indonesia has a significant food processing sector with current and growth opportunities for Victorian agri-food companies. In 2005 this sector was valued at $US24 billion and was primarily focussed on the processing of dairy (milk, yoghurt, powders), wheat (noodles and flour), beef, horticulture (potatoes, fruit, fruit juice) and flavourings/ingredients. Other than noodles which are a significant export earner, the majority of manufactured food is consumed domestically. This sector is very competitive with multinational and local companies such as Danone and Indofood, the worlds largest noodle manufacturer, in operation. Many of these processing companies will import directly given the large volumes of product, whilst smaller companies may use an intermediary to import product.
Indonesia has a significant amount of arable land and water availability for agricultural production. With the exception of some major corporate operations in palm oil, and tea, and to a lesser extent beef, seafood and dairy, the vast majority of agricultural production is undertaken by small land holders. Increasing food self sufficiency is a high priority for the Indonesian government as its population grows and demand for non-essential foods increase. There is a lack of agricultural production expertise, farming systems and technology to substantially increase food output.
This provides a commercial opportunity for agricultural service providers to develop the Indonesian agricultural industry with local partners, particularly in dairy, aquaculture and vegetables.
Key Activities for 2011/2012
Represent Victoria at the Australian-Indonesian Working Group on Agriculture, Fisheries and Forestry, to coordinate activities and better understand issues associated with market access and trade relevant to the agri-food sector between Australia and Indonesia.
Continue to develop agribusiness service opportunities for the Victorian meat, dairy, vegetable, grain and aquaculture industries in Indonesia. Input into the DFAT administered Indonesian dairy development and investment strategy.
Assist with coordination of Victoria’s response to issues associated with the live cattle trade and boxed beef between Australia and Indonesia.
Contact: Mr Brendan Larkin Market Access & Competitiveness, Meat & Wool Services Branch, Farm Services Victoria. Email: Brendan.email@example.com
Sources: GTIS, USDA, CIA Worldfact Book