17 November 2011

3 minute read

Asia

The report ‘Indonesia Food & Agribusiness Outlook: Leading the Southeast Asian Growth Story’ describes the future growth in the Indonesian food and agribusiness sector. Indonesia is widely considered to be one of the major regional economies driving the recovery from the global financial crisis and looks set to lead the Southeast Asian growth story for the next decade.

The future growth in the Indonesian food and agribusiness sector will be driven by resilient domestic demand for affordable food products from the middle and lower income segments, and exports of agricultural products to growing Asian economies.

Key agricultural products will continue to support Indonesia’s economic growth, the Rabobank report said.

Palm oil will continue to be a leading industry for Indonesia’s agribusiness earnings given the country’s position as the largest global producer.

Rubber demand will be driven by demand for tires from China and India, where vehicle demand appears to be resilient.

Indonesia’s domestic coffee industry is expected to register robust growth due to a strong investment in marketing and communications, as well as new product developments.

With production growth of Indonesian cocoa higher than that of world production, there is a big opportunity for the Indonesian cocoa industry to capture a bigger share of the world market.

The growth potential of the Indonesia sugar industry has attracted interest from offshore investors and will continue to attract investment in the future.

Growth in the sugar industry coupled with growth of plantation and other field crops will mean that the fertiliser industry will continue to experience positive growth.

Poultry, being the cheaper source of animal protein, will continue to witness strong growth whereas beef, driven by demand from higher income groups, is expected to witness good demand.

With beef consumption expected to rise at a time when the government quota system is in place, the industry would require a focused effort and government support to fill the deficit through domestic production, otherwise supplies would not suffice to meet the demand and imports will increase further from current levels.

The consumption of corn and soymeal in Indonesia will remain strong due to rising meat consumption in the country, which will necessitate imports of feed grains to meet demand from domestic feed mills.

Indonesia’s ambition to achieve self-sufficiency in sugar and beef industries will result in more investment in plantations, mills, breeding farms and feedlots.

“Being a net producer of key commodities such as palm oil, rubber, cocoa and coffee, Indonesia is well positioned as a key and growing Asian food and agribusiness economy”, said Pawan Kumar, lead author of the report at Rabobank’s Food & Agribusiness Research and Advisory department.

“The growth in the Indonesian food and agribusiness will be driven by domestic demand for affordable food products from the middle and lower income segments and exports of agricultural products to developing Asian economies,” he added.

Driven by increase in per capita income, the development of modern retail and increasing health awareness, the demand for downstream products such as noodles, soft drinks and bakery products is rising, leading to growth of the local food processing industry.

Notwithstanding Indonesia’s food and agribusiness sector’ growth potential, the sector is facing various challenges such as low yields, smallholding farms, sustainability, low-quality produce, low investments, inadequate infrastructure, underdeveloped agricultural practices and restrictive government policies.

Indonesia needs therefore balanced policies and regulation and increased investments in land and technology development in order to encourage further growth, Rabobank said.