With the great success of the FIA exhibition in Jakarta we decided we would take a closer look at the food and agriculture industry in Indonesia. A south east Asian country made up of thousands of tiny islands nestling in the Pacific and Indian Ocean, Indonesia harbours a population of over 250 million. To deal with issues of sustenance the country has developed robust local industries in food, beverages, agriculture and fisheries. These local businesses in turn have attracted great investment from international companies helping the industry to thrive. The knock-on effect is that as well as providing for the native population, the food industry also makes a substantial contribution to the Indonesian economy.
Investment from Both Sectors
Investment therefore is now forthcoming from both the private and the public sector now that the government recognises the food sector as one of the ten priority industry groups industries and it is also designated for accelerated development in the Master Plan of National Industry 2015-2035. Private companies are attracted to the trade in Indonesia because of the large captive market – once an organisation has established themselves there is a significant opportunity for them to expand into other neighbouring Asian countries.
The Domestic Market Is Growing
The domestic market is very important for the food industry in Indonesia and there are many reasons why it is continuing to thrive:
Firstly, the population is continuing to increase and so there is an increasing demand for foodstuffs to feed the native population.
Secondly, with the rise in population, the personal income available to individuals has continued to increase. As a result, there has been greater spending on food and drink.
Thirdly, due to cultural changes within Indonesia and a growing middle class, consumers are looking for higher quality foods and fast foods as the time for cooking becomes more precious. To meet this demand the country has spawned a healthy and thriving retail infrastructure. Hypermarkets and mini-markets are springing up even in the smaller regions and the logistics to facilitate it and the online world are available too.
Food and beverage processing is one of the most mature industries in Indonesia. There is a vast amount of smaller businesses and some larger organisations dominating the market. Foreign businesses are also well integrated into the market (Nestle, Kraft Foods, Unilever etc). Whereas traditional Indonesian foods are most popular, it is this type of international company which has introduced foreign foods at acceptable prices.
Government and Politics
Understanding how important the food and beverage industry is to the economy, the government actively promotes its companies abroad. To enable businesses further it has facilitated several deregulation measures in order to make it simpler for the country to obtain raw material supplies for products.
Strangely enough, politics in Indonesia tends to boost the food industry just by its processes. For instance, 2018 will see elections across the country which in turn will lead to an increase in food and beverage consumption. This is because in Indonesia, election campaigns are made up of special events which have, at their core the attraction of food and drink. The ultimate aim of the Indonesian government is to reduce the country’s reliance on imports (this tends to be for products which are generally not available within Indonesia such as wheat, dairy or processed food products) and bolster the manufacturing by investing in the capacity of the domestic manufacturing processes in the country.
Exports and Imports in Indonesia
However, the country remains the largest producer of such products as palm oil, fish, cocoa, and coffee and indeed exports surpluses abroad. And imports and exports to work well there needs to be trade off between the producer and source countries. Currently, many EU countries such as Germany, Italy and the Netherlands are leading trading partners. The top commodities exported to the EU include palm oil, fish products, vegetable oils and unroasted coffee, while the top commodities sourced from the EU are dairy products, prepared food, vegetable oils and chocolate and cocoa products. For some commodities, trade with the EU accounts for more than 20% of total imports (e.g. wine and beer, dairy products, vegetable oils), and of exports (e.g. fruit juices, processed
Trading countries need to be aware of specific and unique challenges in order for the Indonesian food industry to continue to grow. For instance, Indonesia does not always provide a robust infrastructure for some products (i.e. cold chain issues). Also the legal system is open to change, is not always transparent and can be somewhat complex. Hopefully with backing from the government in terms of streamlining fundamental environmental processes as well as investment – the future looks very good.
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