First of all, it is undeniable that F&B is an important industry for the Indonesian economy. With the fourth largest population in the world, Indonesia has an important demand to fulfill regarding primary goods such as F&B. However, in spite of strong local food and beverage production outputs, a large percentage remains imported to meet local demand.
Regarding market structure, local and foreign companies are already competing for the F&B market in Indonesia, with approximately 6,000 companies acting in this sector in 2012.
Despite the strong local production of rice, soybeans and corn, Indonesia still has to import in order to meet its local demand for these products. Self-sufficiency policies are being put in place, but wheat imports will remain high, as Indonesia does not have the appropriate climate to produce it locally. Furthermore, this study also highlights that packaged food consumption has also been growing in Indonesia, illustrative of a growing concern for food safety, changing lifestyles and urbanization.
The beverage market also represents a major industry in Indonesia. The non alcoholic drinks market has recorded important growth of isotonic drinks, mainly due to a higher health consciousness amongst the population. Considering the important Muslim population in Indonesia, alcoholic drinks are mostly demanded by expats and upper-income bracket local consumers. Beer producers, as well as wine producers, have managed to gather market shares in Indonesia, despite the fact that this sector is closed to foreign investment.
The F&B industry is expected to keep growing in the future, mainly driven by a growing population and an increasing demand of local consumers. Changing food consumption patterns will also characterize future trends, as a young and urbanized population tends to have a greater concern for healthy food and beverages. In addition to this, increasing local tourism will result in a higher demand for specific foreign food products. However, the important Muslim population also represents undeniable opportunities, such as the aforementioned “Halal Logistics” field.
Finally, it is important to bear in mind that despite local opportunities, challenges remain when doing business on the Indonesian market. Indeed, existing partnerships with neighboring Asian countries as well as with Australia and New Zealand foster and facilitate trade between those countries and Indonesia. In addition, the lack of available infrastructures, such as a cold chain store system, harbors and other transportation, are also challenges that may persist in the medium-term. Furthermore, regulations and additional policies are also playing an important role in the F&B sector, especially regarding Halal regulations and labeling.
In conclusion, it is undeniable that Indonesia’s Food and Beverage Industry is and will continue to be an important industry for the country. However, local specificities and patterns, as well as domestic regulations and legislation, will have to be faced in a creative and dynamic fashion by companies willing to enter the Indonesian market.
Strengths & Positioning of the F&B sector in the Indonesian economy
In 2013, Indonesia business boasted an economic growth of approximately 6% and remains a very large market for F&B products. In connection with this, the sector was established as one of the industrial development priorities set by the Indonesian government for its potential for both domestic manufacturers and importers or suppliers of processing equipment and (semi-) finished products. The sector has proven to be very resilient during economic downturns and remained amongst the most important markets for many multinational food companies. The reason for the steady performance of the Indonesian market is strongly linked to the particularities of the Indonesian consumers, which are explored further in the section of this paper titled “Future Prospects/Opportunities”.
According to the World Bank, the Food, Beverage and Tobacco Industry in Indonesia amounted to 23% of value added to manufacturing in 2009. As this sector is expected to grow in the coming years, it is expected that related employment should grow at a rate of c.68,000 workers per year (according to Kelly, a service company providing workforce solutions)
Rice: In 2012, Indonesia’s rice production was already more than enough to meet domestic consumption. Indeed, the local production reached 38,564 million tons for a local consumption of 33,035 million tons. However, 1.5 million tons of foodstuffs from Vietnam were imported that same year in order to strengthen national stock and ensure food security.
Corn: The adoption of a new technology resulted in the growth of Indonesia’s corn production, reaching 18.96 million tons in 2012. An objective to reach self-sufficiency regarding corn in 2014 has been outlined.
Soybeans: Indonesia is the second largest soybean consumer in the world. Indonesians consume considerable amounts of tofu and soybean cake, and the US Foreign Agriculture Service estimated that nearly 90% of soybeans are used for tempe and tofu production. Indeed, in 2012, the local production amounted to 851,647 for a local consumption of 2,769,814: therefore, the country had to import soybeans in order to meet the local demand.
Wheat: The tropical climate of Indonesia makes it impossible to produce wheat domestically. Nevertheless, food products based on wheat are part of the day-to-day consumption in Indonesia, as it is the main component of instant noodles, one of the most popular processed foods in rural and urban areas.
In order to import horticulture products into Indonesia, an import-licensing regime is being imposed by the Ministry of Agriculture and the Ministry of Trade. All Indonesian importers are required to obtain an import recommendation for horticulture products (RIPH) from the Ministry of Agriculture, a prerequisite for applying for the Import Permit Letter (SPI) from the Ministry of Trade. One RIPH is valid for one HS code, one country of origin, one port of entry, one port of loading and one supplier. The horticulture products to be imported must be verified by Indonesian surveyors and/or their authorized agents in their country of origin.
In order to import animal products (dairy, meat, etc), a similar import-licensing regime is also applicable. An importer must first receive an Import Approval Recommendation from the Ministry of Agriculture, after which they must seek an Import License from the Ministry of Trade, which grants licenses based on domestic production and need.
According to this regulation all local and foreign companies that produce or import goods for the Indonesian market are obligated to attach labels written in Bahasa Indonesia. This also applies to the Food and Beverages sector as it is also mentioned in Regulation No. 7/ 1996 about Food Act and PP No. 69/ 1999 about Label and Advertisement. As of January 1st 2013, the labeling regulation requires imported products to have such labels before entering the Indonesian Customs Area. Before an importer can import any products, he has to submit an example of the label written in Bahasa Indonesia to the Ministry of Trade for prior approval. Starting on January 2014 labels have to be in Bahasa Indonesia, however there is a grace period, in which labels can be in the form of a sticker attached to a package. For raw materials, product labels are still allowed to use the native language.