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Food and drink report on Indonesia market

The Indonesian government has stepped up initiatives to increase investments and expand agricultural land area. We believe this will be a long-term challenge as many Indonesian agricultural sectors continue to underperform compared to both global and regional peers. Much of the inefficiency comes from the poor infrastructure, which will remain a challenge given the country's geography. We expect the main opportunities of growth to lie in rice, corn, cocoa as well as palm oil crops. While we are generally not so optimistic about the government's pursuit for food self-sufficiency, we believe that the rice sector holds the most potential in reaching that goal as it is currently marginally selfsufficient in the key grain.

Key Views

- Palm oil production growth to 2014/15: 34.1% to reach 27.2mn tonnes. The key drivers of this growth, other than physical expansion of planted area, are increased investment into downstream activities, such as biodiesel and oleochemical production.
- Corn production growth to 2014/15: 13.2% to 8.5mn tonnes. This should allow Indonesia to remain at or close to self-sufficiency in corn. Most of this rise will be gained through improved yields.
- Rice consumption growth to 2015: 10.7% to 41.7mn tonnes. BMI notes that the campaign launched in 2009 aimed to lower domestic rice consumption has largely been unsuccessful in encouraging Indonesians to switch to other carbohydrate sources like cassava instead of consuming rice. We expect Indonesia to be self-sufficient in rice by 2014/15
- Poultry production growth to 2014/15: 46.7% to 1.3mn tonnes. Over the forecast period, the increasing ability of Indonesians to afford meat in their daily diet will drive healthy consumption growth of meat products.
- 2011 Real GDP Growth: 5.9% (up from 5.8% in 2010; predicted to average 6.1% from now until 2015).
- 2011 Consumer Price Inflation ave: 7.2% y-o-y in 2011 (up from 5.1% in 2010e).

Key Industry Developments

Indonesia has the world's highest number of recorded human cases of avian flu and the most fatalities of any country. Indeed, Of the total 176 cases confirmed to date in Indonesia, 145 have been fatal, according to the WHO. This highly contagious flu has recently made a comeback, especially in the Sumatran provinces of West Sumatra, Bengkulu, Jambi and Bangka Belitung. In the first three months of 2011, thousands of deaths of chickens have been reported and more than 30 people have been admitted into hospitals after being suspected of being infected with the bird flu virus.

The cocoa export tax applied in April 2010 to all raw Indonesian cocoa bean exports has started to bear fruit in the form of increased local grindings. According to the Indonesian Cocoa Association, current grinding volume has increased roughly 35% since before the tax was implemented, to 170,000 tonnes. Moreover, this figure still stands below the reported total national grinding capacity of 250,000 tonnes, suggesting significant room for growth in this sector. According to reports, export values for cocoa products - butter and powder - are expected to jump by 61% year-on-year in 2010/11 on the back of increased grinding capacity.

Increase in international collaboration should see the country improve the agricultural methods as well as yields of various key crops such as rice. The government has expressed plans to build more food estates and has opened itself to investment from neighbouring countries like Malaysia, Brunei and even China.

Overall, official targets are for GDP from the agriculture sector to expand by 3.61% in 2011, up one percentage point from the first three quarters in 2010.

by S. C.
25 may 2011, World News > Asia