For Food Export Midwest purposes, the Southeast Asian region is defined as Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. These Association of Southeast Asian Nation, or ASEAN countries, account for approximately 96% of the US$6.2 billion in U.S. exports of food and agricultural products to the region in 2009. Of that amount US$1.7 billion or over 27% were exports of consumer ready products. Over 10% of the population, or about 60 million people, are in the middle-to-upper-income group. There is a growing demand from consumers for Western-style food products and dependence on imported food items makes Southeast Asia an attractive market for U.S. food and agricultural exporters.
Major competitors to the U.S. in the ASEAN region are Australia and New Zealand. Their proximity, compared to North America, gives them an advantage of having lower freight costs, shorter shipping times and competitive prices. Their geographical closeness is also associated with increased freshness. In 2003, an ASEAN Free Trade Area, (AFTA), between the six original members, came into full effect, and has cut tariffs on agricultural products to less than 5%. The remaining members were scheduled to join the AFTA between 2006 and 2010.
Also, after more than six years of negotiations, India and the ASEAN signed a Free-Trade Agreement (FTA) in August 2009 for more than 4,000 products, or over 90% of goods traded between India and the ASEAN. The provisions took effect in January 2010 and will cancel tariffs between India and the ASEAN on most trade by 2016. Trade liberalisation between India and the ASEAN countries will expand exports for both parties, helping to lessen their dependence on Western markets, create new jobs and open up business opportunities for companies in India and the ASEAN.
In recent years, a stabilized macro-economic situation and business climate has provided excellent opportunities for U.S. food and agricultural exports to the rapidly growing Indonesian retail, food service, and food processing sector. Despite the recent situation affecting global financial markets, Indonesian Gross Domestic Product, GDP, growth was estimated to remain around 4% in 2009 and growth in consumption – despite an expected slowdown – should remain relatively strong. The International Monetary Fund, IMF, has projected a real growth rate of 4.8% for 2010.
Beyond 2009, economic and financial factors that will affect U.S. food and agricultural exports to Indonesia include access to trade financing, commodity prices, the stability of the Indonesian currency (rupiah), comparative exchange rates from competitor countries, government policy on fuel subsidies, trade regulations, and implementation of regional free trade agreements.
The growth in U.S. food and agricultural exports to Indonesia over the past 10 years has been remarkable, although like many important export markets for the U.S. declined in 2009. U.S. exports of food and agricultural products dropped over 18% to US$1.8 billion in 2009, and consumer ready exports from the U.S. dropped nearly 38% to US218.1 million. Since the economic forecast is positive it is clear that imported food products in the form of raw materials, food ingredients and finished products will continue to increase to serve the growing modern retail and food service sectors as well as the food processing industry.
The majority of Indonesians are Muslim, so products produced according to halal requirements sell best. In addition, a growing number of Indonesians have been exposed to developed-country diets and trends, making these different food products more popular. A rapidly growing trend is the demand for healthier foods – especially those fortified with vitamins and minerals.
Indonesia's population of 229 million in 2008 is relatively young with almost 19% of the population between 15-24 years, and another 18% is between 25-34 years. Nearly 59% of the population lives on Java and is responsible for 60%-65% of consumer good sales. Java also has the best infrastructure although urban areas in Sumatera, Bali, and Sulawesi are developing. Upper and middle-income groups combine to represent about 10%-15% of the population, equal to about 22-33 million people. Most of these people live in major urban areas. This population, which includes a number of working in the oil and gas industry, banking and finance, mining, industrial, hospitality, and consultant industries, consume imported products.
Demand for imported food ingredients is growing as food manufacturers are continually developing new products, in particular to cater to the popular habit of snacking, which is a part of Indonesian culture and promoted in the media. More urban women are entering the workforce and choosing to stay there after marrying and having children. With less time available for shopping and cooking, more urban women are basing purchasing decisions on convenience.
Despite the growth in trade, several market access issues continue to exist. Uneven enforcement of existing regulations combined with new regulations that are not properly notified raise the uncertainty of the business climate. In general terms, market access barriers are a result of a combination of protectionism, nationalism, corruption, and lack of soft infrastructure among inspection agencies. The current global economic crisis plus the 2009 parliamentary and presidential elections were also seen as significant factors.
The Government of Indonesia (GOI) has made efforts to address some concerns. Since December 2007, GOI has implemented the National Single Window (NSW) to push the movement of exported and imported products at the port. The NSW system requires all related government institutions to coordinate the process to clear exported & imported goods through an electronic system. The NSW system is planned to link with the ASEAN Single Window (ASW) in 2009 and all ASEAN countries will link completely in 2012. However, the electronic system creates additional problems for Indonesian traders as confusion continues with the requirements for the online documentation.
Opportunities for specialty supermarkets are in the major urban areas catering to local consumers with higher incomes, expatriates, and consumers who prefer halal. However, recent enforcement of the Ministry of Health registration number (ML) and new regulation on Fresh Food of Plant Origin (FFPO) have affected the availability of imported food products in the modern retail outlets especially specialty supermarket. In addition, disagreements over trading terms continue among retailers, suppliers of modern outlets, and the government.
Modern retail outlets in urban areas with refrigeration and storage facilities provide good prospects for imported U.S. food products. In major urban areas throughout Indonesia, traditional markets are being replaced by modern hypermarkets, supermarkets, and mini markets as a destination for buying packaged foods. Carrefour stimulated the rapid growth of modern retail in Indonesia, combining a shopping atmosphere with attention to entertainment and lifestyle. Carrefour is responsible for the highest sales of modern retailers. In 2008, Carrefour bought Alfa Supermarket and changed these locations into Carrefour and Carrefour Express outlets, the Lotte group of Korea bought Makro Indonesia as well.
According to Euromonitor, retail sales in the packaged food market in Indonesia had been estimated to reach US$15.4billion in 2009, the largest in Southeast Asia. That represents a growth rate of 105.1% or US$7.9 billion since 2004. Historic high growth categories included meal replacement products, frozen processed food, soup, canned and dried foods, baby food and pasta as well as dairy products. The forecast for growth in this market is also promising. By the year 2014, the retail sales in the packaged food market in Indonesia is expected to reach nearly US$18.9 billion, a growth rate of nearly 22.5%, or US$3.4 billion. Forecast high growth products include the same as the historic rates and also include confectionery and snack bars.
Although many large retailers are engaged in major expansion projects - including foreign retail giants Carrefour, Giant, and Delhaize (Lion Superindo) - national and regional modern retail chains are developing in both primary and secondary cities all over Indonesia. One trend among retailers is to change the old perception of its supermarket by redesigning the store or building a new brand because of the competition with retail giants. Examples include Foodmart (former Matahari), and Alfa Midi (Alfa group). Mini-markets and small mini-markets attached to gas stations are growing as well. It is common for modern retail companies - such as Matahari group, Ramayana group, and Hero group - to have more than one format, including hypermarkets, supermarkets, minimarkets, drug stores, and department stores
Most hypermarkets, supermarkets, and wholesalers buy their imported fresh fruit, meat, and processed foods from dedicated distributors and agents. Others import perishable products using multiple agents who purchase directly from foreign suppliers. This trend is expected to expand in the near future. For some national chain outlets with stores in outlying secondary cities, it is easier to purchase domestic items locally rather than shipping product from headquarters in Jakarta. Private label repacked bulk products such as flour, sugar, rice, mung-beans, peanuts, egg, frozen foods, traditional snacks, bakery products, and local fresh fruit and vegetables can be found in foreign and national chain outlets.
Modern outlets are expected to continue to grow as consumer preference for comfortable shopping spaces, a complete range of goods, a consistent quality of products, competitive prices, correct weight, good service, and easy accessibility. The presence of bakeries, snack outlets, and other food specialty outlets in big cities also provide shopping alternatives for consumers. Consumers are adjusting to paying higher prices for imported and local food products.
Best market prospects for U.S. suppliers include fresh fruit, beef offal, frozen french fries, frozen vegetables, confectionery, potato chips, popcorn and other snack foods, sauces and seasonings, and salad dressings. Niche markets exist for frozen meat and poultry, delicatessen items, cooking oils, breakfast cereals, pasta, tomato paste, and non-alcoholic beverages.
The Indonesian HRI sector is extremely diverse, consisting of hotels and restaurants that serve local and international cuisine, fast food outlets, cafés and bars, small restaurants, street-side open air restaurants known as warungs, and vendors that sell food to customers on the street. Catering operations serve airlines, factories, private social functions, cruise and military ships, mining and oil operations with expatriate staffs, prisons, and hospitals.
In the HRI sector, four and five-star hotels catering to the tourist industry and up-scale restaurants including cafés and bars specializing in Western and other non-Indonesian foods are dominant users of imported food products. Local caterers and restaurants tend to purchase local products. The number of foreign tourists remains stable, but it is expected to increase because the U.S. government lifted its travel warning for Indonesia. Bali remains the most visited tourist destination in Indonesia.
Over the past few years, more foreign and locally-owned boutiques and resort hotels have been built in Bali and in other tourist destinations. New hotels are being constructed in other Indonesian cities to accommodate business visitors, MICE (Meetings, Incentives, Conferences, and Exhibitions), and local cultural events. Specialist coffee shops, tea shops, as well as franchise and independent cafes are developing in the large cities as a place for business meetings and socializing.
The rapid expansion of franchise restaurants such as fast food chains, casual dining cafés, international and family style restaurants, and food courts in various cities is expected to increase demand for imported food products. International franchise outlets have a relatively strong presence while local restaurant and bakery franchise outlets are also increasing. The number of restaurants has increased in conjunction with the proliferation of new shopping malls and office buildings in recent years.
Western style fast food outlets purchase imported food, but the variety is limited to such items as frozen french fries, mozzarella cheese, and condiments. Restaurants serving noodles, Japanese food, pizza, and fried chicken, as well as bakery product outlets and coffee houses are prominent and tend to use imported frozen potato products, dressings, sauces, whipping cream, bakery ingredients and mixes, delicatessen products, and various coffee ingredients, such as creamer, honey, and flavorings.
Best market prospects for U.S. suppliers in this sector include duck, turkey, seafood, french fries, bakery ingredients, sauces and seasonings, oil and vinegars, cereals, canned seafood, canned food, fresh fruits, soft drinks, juices, tree nuts, ice cream, snacks, beer, reasonably-priced wines, liquor, beef and beef offal.
Indonesia offers significant market potential for U.S. suppliers of food and ingredients to the local food processing sector. In 2008, Indonesia import US$11.2 billion of agricultural, fish and forestry products with 21.7% coming from the United States. In 2008, over 40% of imported products by value were major inputs for food processing, such as wheat, sugar, dairy, soybeans, wheat flour, beef, and fresh fruit. The food processing industry consists of businesses of all sizes. About 6,100 large and medium-size producers account for over 80% of output and over 20% of the 3.36 million employees. Large-scale food processors use halal- approved production methods and have certificates approved by Indonesia Muslim Council (MUI).
Lately, the Government of Indonesia confiscated all products without a Ministry of Health (ML) registration number and enhanced enforcement of the ML registration requirements for imported package food for retail purpose. This led to expanded opportunities for imported food ingredient for domestic production of further processed foods. The growth of the food-processing sector can be attributed to the introduction of new food products, aggressive promotional activities, growth of modern retail outlets, customer sophistication, and growing health consciousness. In the future, more consumers are expected to make purchasing decisions based on health and wellness concerns and mostly in the form of fortified foods. More processors are finding they can add value by fortifying their products. Currently dairy products, noodles, biscuits (cookies), frozen processed chicken are vitamin fortified food products. Sales of sports drinks are also expected to grow.
Best market prospects include food-use soybeans, beef, cheese and other dairy products, flavorings and other inputs, poultry MDM (mechanically deboned meat), dehydrated potato products, fruit concentrates, bakery ingredients, and wheat flour as an alternative to rice for use in processing noodles and baked goods. Growth opportunities also exist for food ingredients that can be used for fortification.