Animal Feed Industry in Indonesia

MARKET INTELLIGENCE REPORT ON

ANIMAL FEED INDUSTRY IN INDONESIA

May 2008

Current Issues

Indonesia's animal feed industry has contributed considerably to development of livestock farms in the country. Feeds account for 70% of the total production cost of livestock farming.

In general, animal feed industry has good prospects in the country. The country's animal feed production has increased 8.4% annually on the average in the past 5 years. In 2007, the country's production of animal feed shrank 7.7 million tons from 9.9 million tons in the previous year as a result of the dreaded bird flue. Cases of bird flue were reports in various areas including West Java, Jakarta, Banten, Central Java, Bali, North Sumatra, Jambi, South Kalimantan, West Kalimantan and South Sulawesi.

Many people restrained form consuming chicken meat because of the deadly disease. Sales of chicken meat and related products fell 50%-60% that year, inflicting heavy losses to the livestock industry as well as animal feed industry. Demand for animal feed dropped 30% in 2007.

According to the association of animal feed producers (GPMT), the country's animal feed industry could supply up to 5 million tons of 7 million tons requirement every year.

After the bird blue attacks receded, demand began to scale up for chicken meat and related products and at the same time demand for animal feed rose. In 2008, demand for animal feed is estimated to reach 8.13 million tons from 7.6 million tons in 2007.

The prospects of the industry are still encouraging with the growing consumption. he good prospects have prompted producers to expand heir production capacity. Malindo Feed Mill plans to build a new factory in a Tangerang with an annual capacity of 300,000 tons and Charoen Pokphand plans to expand the capacity of its existing factories.

Foreign investors still dominate animal feed industry in the country such as Charoen Pokphand, Japfa Comfeed, Sierad Produce, CJ Feed, Gold Coin, and Sentra Profeed. The producers still relay on import for basic materials especially corn grains, which are imported mainly from the United States and Brazil. The government hopes to increase the use of locally produced basic materials, which are cheaper in prices.

Producers and their production capacityies

Based on data from GPMT Indonesia has 42 animal feed factories in operation until 2008. The number declined from 50 earlier as 8 companies have stopped operation.

The industry is still dominated by foreign investors such as Charoen Pokphand, Japfa Comfeed, Sierad Produce, CJ Feed, Gold Coin, and Sentra Profeed. Large feed factories are generally integrated with livestock farming and livestock product processing industries.

In the period of 2002-2006 the production capacity of the country's animal feed industry rose 3.1% annually on the average - up from 10 million tons in 2003 to 11 million tons in 2007.

Some large producers like Charoen Pokphand and CJ Feed expanded their capacity but some other producers stopped operation following the spread of bird flue in 2005 and 2007.

Table - Production capacity of animal feed, 2003-2007

Year Capacity

(million tons ) Growth

(%)

2003 10,026,331 ---

2004 10,737,831 7.1

2005 11,278,231 5.0

2006 11,304,831 0.2

2007 11,304,831 0

Average growth 3.1

Source: Animal husbandry directorate general

Main players

Charoen Popkhand Indonesia Tbk

Charoen Popkhand Indonesia Tbk (CPI) was established in 1972 to operate in animal feed industry and chicken meat processing industry. The foreign investment (PMA) company is jointly owned by PT. Central Proteinaprima, Royal Bank of Canada (Asia) Ltd., UBS AG Singapore and the public.

Currently CPI has an annual production capacity 2.6 million tons of animal feed with factories in Mojokerto, Jakarta and Medan.

In 2006 CPI and its subsidiary CP Jaya Farm acquired the entire shares of PT. Centralavian Pertiwi at Rp 30 billion. Centralavian Pertiwi operates in parent stock breeding to produce day old chicken (DOC) Subang, Bogor and Lampung. The acquisition of the company strengthened the position of CP in agribusiness in the country.

Its chicken meat processing factory is under another subsidiary PT. Primafood International. The product of chicken meat is known with the brand of Fiesta.

In 2007 CPI Tbk acquired an animal feed factory of PT Central Proteina Prima in Semarang, Central Java through exchange of feed factories. A fish and shrimp feed plant of CPI in Medan priced at Rp 48 billion was given as part of the payment for the factory of CP Prima priced at Rp 108.7 billion.

The factory has an annual production capacity of 25,000 tons of shrimp feed and 110,000 tons of fish feed. CP, therefore had to pay Rp 60 billion in cash for price.

In addition, CPI plans to build an animal feed factory in Lampung and a small chicken farm in eastern Indonesia. CP also plans to build chicken meat processing factories in Salatiga, Bandung and Medan with a slaughtering capacity of 2,000 chickens per hour. CP has secured a loan pledge of Rp310 billion and US$ 45 million from Citibank to finance the expansion.

In 2007, the company posted Rp 8.3 trillion in income and Rp 210 billion in net profit or an increase of 31% from the previous year. In 2008, CP is set to chalk up a 25% increase in profit.

Japfa Comfeed

Japfa Comfeed (JC) was established in 1971 to operate in animal feed industry. It is 28.94% by Pacific Focus Enterprises, Ltd, 9.65% by JP Morgan Chase Bank 9.15% by Coutts Bank Von Ernst, Ltd, 8.57% by Rangi Management Ltd, 6.63% by BNP Paribas Private Bank Singapore and 37.06% by investing public.

JC is one of integrated agribusiness companies in the country. Now it has an annual production capacity of 1.73 million tons of animal feed. Its parent stock breeding farm is managed by its subsidiary PT Multibreeder Adirama Tbk, business sin aquaculture is managed by another subsidiary PT Suri Tani Pemuka. The animal feed factories and livestock farms are located in various areas in Lampung, Cirebon (West Java), Sidoarjo (East Java) and Tangerang.

In 2007 Japfa built 2 units animal feed factory with an investment of Rp 50 billion in Cikupa and Padang. JC plans to build animal feed factory with an annual capacity of 1,000 tons and an investment of Rp 50 billiion. The new factory will be built in Padang, West Sumatra and it is expected to come on line this year.

JC also plans to develop stock breeding industry to produce day-old chicks (DOC) to meet growing demand in West Sumatra and surrounding areas.

Recently JC injected US$ 55 million in fresh fund for its subsidiary PT Multibreeder Adirama Indonesia. Most or US$ 38.21 million of the fund will be used to repay a debt maturing in 2011 and US$ 16.78 million to buy assets and increase working capital.

In 2007, the company posted Rp 7.9 trillion in income and Rp 180.9 billion in net profit. Around 80% of the income was contributed by its animal feed industry.

Cheil Jedang Feed Indonesia

CJ Feed Indonesia is a subsidiary of Cheil Jedang from South Korea starting operation in the country in 1989. CJFI had 2 feed mill subsidiaries - PT. CJ Superfeed , which was established in 1996 and PT. CJ Feed Jombang established in 2004. The two factories are located in Serang, Banten and Jombang, East Java with a total production capacity of 750,000 tons per year.

Animal feed produced by CJ Feed includes feed for broiler, egg layer, breeders, pig, quails, and shrimp to meet growing demands in West Java, the Greater Jakarta, Sumatra and Kalimantan. Its animal feed products are known with the brand of Superfeed.

In 1997 CJ Feed Indonesia established PT. Super Unggas Jaya to operate in livestock farm industry producing DOC with a capacity of. 20 million per year. The farm is located in Tutur, East Java. Its product of DOC is known with the brand of Superchicks. SUJ expanded business by building 9 more units of chicken farms in various areas in West Java and East Kalimantan, etc. Now it has a total production 54 million heads of DOC per year.

CJ Feed Jombang built silos to store corn grains as he main basic material for animal feed. The storage facility will help guarantee supply of basic material in time of scarcity in between harvest times.

In 2008, CJ Feed hopes to grow to become the third largest animal feed producer in the country with a total production of one million tons annually from its three factories.

Sierad Produce Tbk

Sierad Produce was established in 1985 with the name of PT Betara Darma Ekspor Impor, as a nerger of four companies in 2001 including PT Anwar Sierad Tbk, PT Sierad Produce Tbk, PT Sierad Feedmill and PT Sierad Grains.

Sierad Produce (SP) was established in 1985 and operates in parent stock farming to produce final stock and broilers and chicken meat processing plant integrated with cold storage. SP also operates in animal feed industry, corn drying industry and animal medicine and vitamin industry. It livestock farms and processing plants are located in Tangerang, Bogor, Sukabumi, Lampung and Sidoarjo. Currently SP is one of the largest producers of animal feed in Southeast Asia.

The company started business as retailer of eggs in the Jatinegara market center in East Jakarta, before it expanded operation by opening chicken slaughter house in Jabaon, West Java with a capacity of 8,000 chickens per day or the largest in the country. The company use the brand of Delfarm for its chicken meat sold in large supermarkets in Indonesia.

Its animal feed factories are located in Sidoarjo (East Java). Tangerang (Banten) with a total production capacity of 540,000 tons per year. Its main animal feed product is poultry feed.

The company imports basic material in the form of corn up to 100,000 tons a year. Imports are made as local production of corn is not enough. For efficiency, in 2006, it sold its subsidiaries PT Biotek Indonesia (producing animal medicines and vitamins) and Wendy's Restaurant and Hartz Chicken Buffet Restaurant (restaurant). The company earned Rp 50 billion form the same of the three business units. It also sold chicken slaughter house and animal breeding farms in Lampung at a price of Rp 70.5 billion.

In 2007, SP received a loan of Rp 225 billion from BNI, and Rp 200 billion of the fund were used to increase its production capacity for animal feed and the rest were used to increase its working capital. The company used its assets in Sidoarjo and Tangerang as collateral for the loan.

In 2008, SP plans to build three new factories in Magelang, Central Java to be completed in 2009. The company also plans to expand its production of chicken by 420,000 head per week to 2 million heads per week.

Currently SP has a 7% share of DOC market and 7% share of animal feed market.

In 2007 SP reported Rp 1,2 trillion in income with net profit at Rp 27.5 billion. This year it hopes to chalk up a 60% increase in income and net profit.

Malindo Feedmill

The company was originally known with the name of PT. Gymtech Feedmill Indonesia, which was established in 1998 before it was renamed Malindo Feedmill. Malindo is owned by the Lau family from Malaysia. Malindo operates in the production of animal feed with a production capacity of 438,000 tons a year. It also has chicken breeding farm and sell pure bred DOC for broilers and egg layers. Through its subsidiary PT Bibit Indonesia the company has a 6% share of DOC market in Indonesia. Currently it has an annual production capacity of 100 million DOC.

In 2006 Malindo launched Initial Public Offering (IPO) selling 18% of its shares to the public. Around 70% Rp 53.7 billion of the IPO fund were used for business expansion by opening new poultry farms and 30% for working capital. Currently the company is 81.6% owned by Dragon Amity Ltd, 0.4% by Lai Hup Heng and 18% by investing public.

Malindo has breeding farms with an annual capacity of 18 million DOC in Pasuruan and Surabaya consisting of breeding area and hatching area coming on line in 2007. By the end of 2007, MF set aside US$ 26 million to build an animal feed plant with a capacity of 360,000 tons per year. The new factory is to be built in the middle of 2008 in the Cikande Modern Industrial Estate, Banten with an investment of Rp 100 billion.

The factory location will in Cikande, near the port of Bojonegara now under construction. Malindo plans to acquire an affiliated company PT Leong Ayamsatu Primedona (LAP), which operates in DOC breeding and broiler farming. Leong Ayamsatu has a production capacity 62 million DOCs and 6 million broilers annually. Its poultry farms are located in Medan and Jakarta. In 2007, MF reported Rp 982.8 billion in income.

Integrated from upstream to downstream

All large producers of animal feed in the country operate integrated facilities from upstream to downstream - from livestock farms to animal slaightering houses, animal medicine and vitamin industry and farm equipment industry.

Sierad Produce operates an integrated poultry industry with business units in chicken breeding, animal feed industry, commercial chicken farms, contract farms and slaughterhouse.

Through PT Sierad Industries it produces poultry farm equipment and PT. Biotek Industri produces animal medicines and vitamins, and PT Dwipa Mina Nusantara produces fishmeal. Sierad Corporation operates as a distirbutor and trader of chicken farm equipment and animal feed basic materials.

Sierad Produced through its subsidiary PT. Wendy Citarasa has fast food restaurant as an exclusive franchisee of Wendy's & Hartz Chicken Buffet in Indonesia.

Charoen Popkhnad Group has two types of core business agribusiness and aquaculture. Its agribusiness focises more on animal feed industry and DOC breeding through Charoen Popkhand Indonesia Tbk and subsidiaries. Aquaculture business includes shrimp farms under Central Proteinaprima Tbk and subsidisries. .............................