Food manufacturing industry came to the spotlight lately after manufactured food products from China were reported to contain dangerous chemicals. Indonesian authorities said Chinese food products were found to contain chemicals that could cause health hazard such as formalin. Indonesia is not the only one claiming to have found the dangerous contents, which will certainly damage the reputation of Chinese food industry but similar reports have also come from a number of other countries in Asia and Latin America.
Chinese food products have flooded the world market with highly competitive prices. Indonesia, the fourth most populous country in the word with low income is a potential market target for the Chinese cheap products. The Chinese products are highly competitive in price. Local products with basic materials mostly imported could not meet the Chinese products in open market.
However, the formalin-spiced food issue is only one of the hottest in the food sector in the world lately. Another big issue is the planned acquisition of France's food giant Danone by a bigger giant Kraft, which is the world largest food maker from the United States. Kraft plans to acquire the biscuit division of Danone as it apparently wants to tighten its grip of biscuit market in the world especially in emerging markets China, Indonesia and other Asian countries which make up 25% of the world market of biscuits.
Food industry is still growing fast in developing Asian countries making them an attractive market targets for multinational companies. In industrialized West, food industry is stable with low growth.
Indonesia has attracted not only foreign products but also foreign investors as the prospects for manufactured food products are encouraging in the country. Indonesia still needs to import considerable quantity of manufactured food products. Foreign suppliers and investors are competing to make their way to the growing market and home to more than 220 people.
Imports of processed food products growing
Imports of processed food products and basic materials have increased from year to year. Imports for household consumption have increased 14.5% annually in the past five years - from US$ 720 million in 2002 to US$ 1.2 billion in 2006. Imports of processed food for industry rose from US$ 440 million in 2002 to US$ 910 million in 2006 or an annual growth of 20.8%.
The imported products are generally already produced in the country such as snacks including biscuits and candies. Other ASEAN countries and China dominate imports.
The fact that Indonesia still is heavily dependent on imports for basic material such as wheat grain, wheat flour, corn, milk and soybean makes local products less competitive facing imported products, opening an opportunity for foreign products to enter the domestic market.
Based on official record of the Central Bureau of Statistics (BPS), the country's imports of food basic material have continued to scale up in the past five years. Imports of basic materials for household food products rose from US$ 365 million in 2002 to US$ 600 million in 2006; and imports of food basic materials for industrial consumption increased from US$ 1,100 million ton US$ 1,250 million in 2006.
Therefore, imports of food products and food basic materials totaled US$ 4,076 million in 2006. Meanwhile, imports of consumer goods in the first seven months of 2007 shot up 44.5% from the same period last year and imports of consumer goods basic materials increased 15.07% and imports of capital rose only by 8.34%. It is more difficult to develop local products at present as protection has become a taboo when the world is heading for free trade system.
Foreign investors eyeing Indonesian market
The potential market is an attraction for foreign investment to the country. The presence of foreign investment may cause a problem for local producers which are mostly small enterprises. Competition, will be inevitable and the outcome will likely be that the industry is dominated by foreign giants.
In fact multinational companies already hold the domination in certain sectors of food and beverage indusry6 not only in the country but also in the world. In soft drink industry, Coca Cola and Pepsi Cola have long enjoyed domination and the world biscuit market is split between a few large producers such as industry Kraft and Arnot, etc. It is noteworthy that instant noodle industry remain strongly dominated by local producers in Indonesia although the business in the industry has reached a global scale with annual sales reaching 1 million tons worth Rp 10 trillion a year.
So far the Indofood Group is virtually unrivaled in instant noodle industry. Any worthy challenge even comes from another local producer the Wings Group with its Mie Sedaap. Mie Sedaap has contributed largely to reducing the domination of Indofood products from 90% to now 70% in instant noodle market in the country.
It is not unlikely, however, that some greedy multinational companies will acquire a local producer to establish foothold on the domestic market as an initial step toward domination of the industry. They will not hesitate to learn from the success of Mie Sedap if it would bring them to greater success to finally dislodge the Indonesian giant the Indofood Group. Small producers with fairly good marketing networks would be a likely target of acquisition of multinational companies.
Waves of acquisition has also slammed across the bakery and pastry industry, originally dominated by small and traditional enterprises. Currently foreign companies have entered the bakery market through franchising system. One example is the appearance of Bread Talk of Singapore in the Indonesian market triggering growth of mushrooming foreign bakery franchises in Indonesia, although until now the bakery industry is still dominated by household industries. Modern bakeries account for only 4% of the domestic market, but he potential market of 1.3 million tons a year, may soon draw multinational companies to grab that opportunity in the open market.
Opportunity to grab investment opportunity
There is no way of blocking foreign investment from doing business in food industry in the country. It is the same as in many other emerging markets.
What is more important is how to make them serve the national interest that is to help in improving the condition of the country's ailing economy. They must not be allowed to make Indonesia merely as a market target but they should develop and establish a production base that would make the country a big players in the global market.
The small and medium enterprises, which provide jobs for millions of Indonesians should not be sacrificed without compensation for the country.
The huge domestic market is a potential base for large scale development of food industry with strong competitiveness in global market.
INDONESIAN COMMERCIAL NEWSLETTER
List of Contents
FOCUS: FOOD PROCESSING INDUSTRY IN ERA OF GLOBALIZATION 1
DEVELOPMENT OF WHEAT FLOUR INDUSTRY IN INDONESIA 5
Current issue 5
Specifications of wheat floor 6
Capacity of wheat flour industry remain unchanged 7
Players in wheat flour industry 8
Bogasari the largest and most efficient 9
Wheat flour production up 10
Imports of wheat flour up 10
Dumping allegation stronger 12
Characteristics of imported wheat flour 13
Exports of wheat flour down 13
Consumption of wheat flour growing 14
SMEs largest users 15
Bogasari leads in competition 16
Prospects and conclusion 17
DEVELOPMENT OF BISCUIT INDUSTRY IN INDONESIA 18
Current issue 18
Structure of biscuit industry in Indonesia 18
Main players in biscuit industry in Indonesia 22
Global players begin to take control of biscuit industry in Indonesia 25
Kraft Foods Inc to acquire Danone Group 26
Biscuit sales in Indonesia 27
Market aspect 29
New Investments 32
Prospects and Conclusion 32
DEVELOPMENT OF INSTANT NOODLE INDUSTRY IN INDONESIA 33
Producers and production capacity 34
Investment small 38
Supply of wheat flour 39
Imports up 41
Consumption up 41
Sales value of instant noodle around Rp 10 trillion 44
Competition tighter between Indomie and Mie Sedaap 44
Prices varying 48
Conclusion and prospects 49
COMPANY PROFILE: INDOFOOD GROUP A GIANT IN FOOD INDUSTRY 51
BAKERY INDUSTRY DOMINATED BY COTTAGE INDUSTRIES 59
Bakery franchises 59
Large scale bakery industry 61
Semi modern and manufacturing players mostly in Java 62
Nippon Indosari Corpindo the largest manufacturing player 63
Bakery production reaches 1.3 million tons 64
DEVELOPMENT OF FILM PLASTIC INDUSTRY DEPENDS ON FOOD INDUSTRY 65
Current issue 65
Food processing industry the largest consumer of film plastic 65
Production of film plastic stagnant 66
Exports of film plastic up 66
Imports of film plastic up sharply since 2005 67
Consumption of plastic stable 67
Plastic packaging and rotogravure printing industry the largest users 68
Prospects and conclusion 70
CORPORATE NEWS IN BRIEF:
Antam & China to invest US$ 500 million in Alumina factory 71
Garuda ends years of being in the red 71
Inco to build new nickel smelters to cost US$ 2.5 billion 71
Emaar set to go ahead with Lombok US$ 800 million project 71
BII considers merger with Bank Danamon 72
Asian Agri to expand oil palm plantation in Kalimantan 72
Bank Mandiri set for big acquisition 72
Yamaha retakes lead putting Honda behind again 72
ECONOMIC NEWS IN BRIEF:
FTZ status attracts investors to Batam 73
Indonesian airliners allowed to continue flying to Saudi Arabia 73
Government revokes 678 regional regulations 73
Royalty system used in geothermal power contracts 74
RI-Australia move closer to having FTA 74
Govt. bans domination of oil palm plantations 74
Directory of food industry company in Indonesia 75