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Indonesia Country Profile

Indonesia

Indonesia 

Euromonitor reports that the Indonesian economy has survived the global recession and become more balanced with investment and large consumption markets propelling growth rather than exports.  Its economy improved in recent years, expanding at a pace well above the average over the past decade.  Real Gross Domestic Product (GDP) grew by 6.2% in 2012 and the same rate is forecast for 2013.  An improvement in the investment climate is expected during the year.  Economic recovery among Indonesia’s trading partners should provide further support.  Indonesia is now considered as the most stable democracy in Southeast Asia.  Today Indonesia is one of the most decentralized countries in the world with substantial funds and authorities devolved to the regional levels.

U.S. exports of agricultural products declined 11% to US$2.4 billion in 2012, and consumer ready exports from the U.S. decreased 4% to US462.7million.  Since the economic forecast is positive it is clear that imported food products in the form of raw materials, food ingredients and finished products should be able to rebound and increase to serve the growing modern retail and food service sectors as well as the food processing industry.  Top 2012 processed food exports from the U.S. to Indonesia included concentrated milk, whey, cheese, and sweetener, processed red meat, french fries and frozen cooked shellfish.  Indonesia is the largest market in Southeast Asia for exports of U.S. agricultural products and remains the 8th largest market overall.

Indonesia is the 4th most populous nation in the world and is also undergoing a major structural shift in terms of demographics.  More than half of the roughly 240 million people in 2012 were between 5 and 34 years of age.  The emerging middle class and consumers from the Indonesian middle class broadly support domestic industry and imported goods, particularly for retail and consumer products, processed foods, and the automotive industry. In 2011, consumption accounted for 44% of the GDP.

However, despite expanded levels of trade, increasing barriers to trade continue to exist. Also, uneven enforcement of existing regulations, combined with new regulations which are often not properly notified to trading partners, create additional uncertainty for exporters.  In general terms, market access barriers are a result of a combination of protectionism, nationalism, corruption, and lack of soft infrastructure among inspection agencies.  Recently the Government of Indonesia, (GOI), issued regulations which impact the importation of horticulture products.  The recent horticulture import regulations are structurally similar to the procedures and requirements for importing beef, which has resulted in significant losses in market share for U.S. and other third country beef exports.

Since December 2007, GOI has maintained a National Single Window (NSW) system to facilitate 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.  All ASEAN countries were required to completely harmonize their NSW systems in 2012.  However, the electronic system creates additional problems for Indonesian traders as confusion persists regarding unclear classifications of Harmonized System (HS) codes for the online system as well as requirements demanded by new regulations.  Meanwhile, the product registration number (ML) requirements remains time consuming and bureaucratic, although significant progress has been made. Issues pertaining to food labeling remain complicated and unclear.

As of December 2012, Indonesia maintains free trade agreements (FTA) with ASEAN-South Korea, ASEAN-China, ASEAN-Australia and New Zealand, Indonesia-Japan; Indonesia-Pakistan.  However beside the gradual reduction in tariffs and quotas following trade agreements, exporters and importers still continue face lengthy and cumbersome custom procedures and non-tariff measures.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Indonesia had been estimated to reach US$24.3 billion in 2012, making it the largest in Southeast Asia.  That represents a growth rate of over 59.2% or US$9 billion since 2008.  The forecast for growth in this market is also promising.  By the year 2017, the retail sales in the packaged food market in Indonesia is expected to reach nearly US$32.5 billion, a growth rate of 33.6%, or US$8.2 billion.  High growth categories in the forecast include snack bars, canned/preserved food, frozen and dried processed food, meal replacement, ice cream, spreads, pasta and soup.

Growth within the food retail sector includes foreign stakeholders such as Giant, Lotte (formerly Makro), and Lion Superindo.  In late 2012, TransCorp, an Indonesian company, bought 100% share of Carrefour Indonesia.  Competition among these retailers is high and the Indonesian consumers benefit directly.  Some retailers have multi-format outlets.  Although modern retailers such as hypermarkets, supermarkets, and mini-marts are developing rapidly throughout Indonesia, they are not fully substituting traditional retail outlets, including wet markets and independent small groceries.

PT Midi Utama Indonesia opened Lawson (Japan retail chain) convenience store in July 2011.  This format competes directly with 7-Eleven that already widely distribute all over Jakarta although they just opened in 2009 through a master Franchise agreement with PT. Modern Putra Indonesia (PT Modern) Jakarta.  Family Mart/Eko Mart and Ministop, also a Japan retail chain, plan to open convenience outlets in the near future.  Matahari Putra Prima just opened new mini market, Bigmart, in August 2012.  Some state-owned companies such as BULOG are also opening minimarkets.  The convenience store concept generated by 7-Eleven is booming and are even beginning to cater to young adults as places to “hang out”.  

Modern retailers are concentrating on improving their marketing of quality fresh produce, a substantial portion of which is imported, as is exemplified by the emergence of a number of fruit boutiques.  Beside growing numbers of specialty stores to serve high-end customers, dairy, poultry, and frozen fish products one-stop shopping stores are also starting in Jakarta and surrounding areas.  Kalbe-e store just launched and is serving Jakarta and Surabaya customers.  In addition, mini-markets, convenience stores, and other shops carry a wide range of convenience food items such as readymade meals, bakery products, processed foods, ice cream, beverages and fresh fruits.  These stores are found throughout Indonesia’s major urban centers and are also co-located with gasoline stations, such as Bright, Circle K, Surya, Bonjour, and now Indomaret and Alfamart. Franchising is also driving the rapid growth of mini-markets and convenient stores.  

Best Product Prospects:

For U.S. products currently available in the Indonesian market, fresh fruit continues to have the best sales prospects.  U.S. cheese and processed fruits & vegetables have also started to increase in market share.  Some of the best-selling processed foods include frozen french fries, frozen and canned vegetables, breakfast cereals, snack foods, biscuits, crackers, popcorn, baby food, dressings, sauces, seasonings, cooking and salad oils, fruit juices and beverages.  There are also good opportunities for sales of other U.S. high-value items, including frozen foods such as frozen pizzas, frozen meats, delicatessen meats, organic foods, and specialty fruits, particularly certain types of berries.

Food Service Sector:

Over the past view years; the food service sector, especially hotels, restaurants, bars and cafés, has expanded into the major secondary cities in Java and the bigger cities in other islands. This is driven by business visitors and cultural events: Meeting, Incentive, Convention, and Event (MICE) - to include domestic tourists and the opening of new modern shopping malls in those cities.  Bali remains the most visited tourist destination in Indonesia followed by Jakarta and Batam.  A total of 7.6 million tourist visited Indonesia in 2011.  The number of tourist arrival is predicted to over 9 million in 2013.

There are around 1,500 star rated, boutique and resort hotels with roughly 143,000 rooms in Indonesia.  Major concentrations of the five star hotels/resorts were in West Java (Bandung and the greater Jakarta metro area, 199 hotels), Jakarta proper (162 hotels), Central Java (Yogyakarta, Solo, Semarang 131 hotels) and in Bali (199 hotels).  Currently more hotels have been built in the big cities all over Indonesia for business people.  State owned companies are also entering the hotel business.  The hotels in the main cities other than Bali depend very much on MICE business and also as a new tourist destination area.  The rapid growing aviation sector in the past years has prompted domestic tourists visiting the new tourist spots.

Hotels in tourist areas like Bali and main urban centers such as Jakarta, Bandung, Surabaya, and Medan are more likely to serve imported food products in their fine dining restaurants, bars and wine lounges.  Imported foods are also used by airlines, mining and petroleum companies, and international standard catering services, to include star rated hotels and independent restaurants that provide outside-catering serving private social events and weddings.  Other non-Indonesian food restaurants are also dominant users of imported food products.

In 2010, there were 2,916 large and medium chain and independent restaurants in Indonesia, an increase 7.8 % from 2009.  The rapid growth of Western-style, specialized coffee shops, café, bars and wine lounges as well as bakeries have also resulted in an increase of imported specialty and gourmet food and beverage products.

Fast food outlets continue to thrive, despite the domination of roadside stalls and vendors in the food service industry.  Currently, over 30% of Indonesia’s urban population eats fast food once a week.  The most prevalent fast food outlets include Kentucky Fried Chicken (427 outlets as of May 2012), McDonald’s (112 outlets as of 2011), A&W (207 outlets as of May 2011) and Pizza Hut (274 outlets as of November 2012).  These outlets will remain popular due to affordable prices, high standards and quality, and their widespread throughout Indonesia.  More and more burger outlets (Burger King, Carl’s Junior, MOS Burger, Fatburger, Wendy’s) and pizza outlets (Domino’s Pizza, Marzano Pizza) outlets from different companies open in Jakarta and its surrounding in the last few years.

Western style fast food outlets purchase imported foods, 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 beef offal/trimming, fresh and canned fruits, frozen potatoes and vegetables, dressing, sauces, bakery ingredients, juice and mixed drinks, whipping cream, bakery ingredients and mixes, delicatessen products, and various coffee ingredients, such as creamer, honey, and flavorings.

Best Product Prospects:

The Hotel Restaurant Institutional Sector, (HRI) will continue to demand a number of food items, such as chicken, beef, processed meats, seafood, and frozen potatoes.  Best market prospects for U.S. suppliers include duck, turkey, seafood, french-fries, bakery ingredients, sauces and seasonings, oil and vinegars, cereals, seafood, canned food, fresh fruits, soft drinks, juices, tree nuts, ice cream, snacks, beer, reasonably-priced wines, liquor, beef and beef offals.  USDA choice meat, processed meat, chicken, salmon, cheeses, and wine are among the products that have potential, but lack of availability due to complicated procedures.

Food Processing Sector:

In 2011, the estimated value of goods produced by large and medium sized Indonesian food processors was US$58.7 billion, a 19.2% increase over 2010.  Meanwhile, the estimated raw material inputs during the year were US$31.4 billion, up 4% from 2010.

The industry consists of businesses of all sizes.  In 2010, about 5,864 large and medium-sized, as well as 929,910 small-scale producers were found all over Indonesia.  The large and medium-size food industry accounts for around 90% of output.  However the total employees of those processors are only around 25% out of total employees for all type processor which reached 2.87 million.  The remaining 10% of processed food is produced by home industries.  Food products produce at this level is typically sold on the street vendors and by small, outdoor restaurants.  

Several medium and large-scale Indonesian snack food manufactures have merged over the past several years.  The results of these mergers include lower production costs, and an increased use of more modern manufacturing methods and equipment.  This has ultimately led to higher quality, and more consistent products that are less expensive for consumers.  Also, large scale Indonesian snack food manufacturers are developing more creative ways to compete with imports in the domestic market.

Other than beef, chicken, fish, and soybean-based foods (e.g. tofu), processed meat and products are an alternative protein source for over 50% of the Indonesian population – namely among the middle and lower income consumers.  Processed meat products include delicatessen products, burger patties, meatballs, sausages, and nuggets. These products are more affordable to the middle and lower income consumers than beef or poultry meat. Meatballs have always been a significant source of meat protein for the total population.   

The meat processing industries require consistent supplies of quality meat as basic ingredients; this demand cannot be met locally and are totally reliant on meat imports. The limited availability of imported beef recently caused business uncertainty for the industry and meatball sellers.  In the last few years, more and more processed meat and fish products have been available in the market.  The availability of freezer in traditional wet markets supports the supply of those products to the wet markets customers.

Functional and ‘health foods’ are currently surging in popularity with urban consumers. Functional beverage products currently popular in the Indonesian market are beverages that feature vitamin C, minerals, polyphenols, ginseng, fruit juice extract, and are ‘low calorie’. The rapid expansion of convenience stores and mini-markets support the distribution channel those variety beverage products.

Best Product Prospects:

Best prospects for U.S. exporters of food ingredient products include those that go into sweet snack foods, which generally include items like sweet biscuits, creamed layered biscuits, butter cookies, chocolate and cheese wafers, and different types of extruded snacks, to include chocolate and vanilla rolls.  For baby food and drinking milk products, the manufactures add imported skim milk powder, sweet whey, full cream, and demineralized whey to the ingredient mixture and/or as additional ingredients for chocolate coating and filling.  Other imported products, such as egg powder, malt extract, emulsifier, and flavoring, vitamin premix are used in smaller amounts.