Pawan Kumar, lead author of the report at Rabobank Food & Agribusiness Research and Advisory, told FoodNavigator-Asia that the number of agribusiness companies working in Indonesia is an indication of the country’s potential.
He said: “In the rest of Asia, there are a lot of fragmented and small companies but in Indonesia, there are sizeable, strong companies. There is clearly a confidence that the country has better growth potential than elsewhere in Asia.”
Domestic and export strengths
The report states that the future growth of the country’s food and agribusiness market 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.”
Indonesia has the world’s fourth largest population, and it is a young, working demographic, Kumar emphasised.
95% of the country comprises of 15 – 65 year olds with 68% in work.
“There is more disposable income of a young population who want to spend… they will drive domestic consumption,” he continued.
Harry Puspito, CEO of Marketing Research Indonesia (MRI) agreed and said that it is an increased income per capita and growing population that is driving the sector.
Kumar explained that while the domestic market contributes to the country’s future, it will be exports that will continue to underpin future business.
Three commodities: palm oil, cocoa and coffee are Indonesia’s stronghold in the industry and they continue to drive growth with the strongest demand coming from China and India, he said.
Indonesia is the world’s largest producer of palm oil, accounting for just under half of the global output. It is the third-largest cocoa exporter, producing 844,626 tonnes in 2010 and the fourth largest producer and exporter of coffee.
Sugar: sweet for business
Kumar identified opportunities in the Indonesian sugar sector as production only currently meets half of the domestic demand, with 2.28 million tonnes produced in 2010.
He noted that it is an area that will continue to attract corporate interest, particularly with sugar prices at historically high levels both internationally and domestically.
There is a demand for poultry too and it is a well organised sector with a strong supply chain and the beef sector also holds prospects.
However, it needs more players and input for further development, Kumar said.
Focus on the challenges
MRI’s Puspito said that the government needs to get involved and encourage private sectors to enter the market, “so that new technology is introduced and production can become more efficient and larger in scale.”
Kumar identified agricultural yields as a concern, as they are lower than they should be. He said that there needs to be mechanisms implemented to improve this.
It could be an option for farmers to join forces with corporate companies, he added.
Of the 8 million plantation hectares for palm oil, only 40% is now operated by small holders, and production was up 13.7 million tonnes (165%) in 2009/10 from 2000/2001.
Kumar also detailed the weak infrastructure systems as a problem.
“If logistical problems are addressed and improved, for example the road system, the country can drive growth further,” he explained.