Focus on Indonesia

Indonesia is entirely dependent on imports of raw material to satisfy its growing consumption of wheat-based products and keep its growing flour milling sector supplied.

In its September Grain Market Report, the International Grains Council (IGC) put Indonesia’s total 2021-22 grains production (not including rice) at 12.4 million tonnes, a figure unchanged from its estimate of a month earlier. It put 2020-21 grains output at 11.8 million tonnes. The figure consists entirely of corn in both cases.

The Council forecasts Indonesia’s total grains imports, not including rice, in 2021-22 at 11.2 million tonnes, down from 11.7 million the year before. The figure includes 10.4 million tonnes of wheat, down from 10.6 million in 2020-21.

Rice production in 2021-22 will come to 35.6 million tonnes, an unrevised figure from the previous month’s report, which compares with the previous year’s crop of 35.2 million. Imports of rice are put at 300,000 tonnes, down from the previous year’s 400,000.

Indonesia also produces soybeans, with the crop put at 400,000 tonnes in 2021-22, compared with 500,000 the year before. The country is forecast to import 2.6 million tonnes of soybeans in 2021-22, up from 2.5 million the year before.

Indonesia doesn’t produce wheat and is entirely dependent on imported wheat for its flour milling sector. In an annual report on the grain and feed sector, dated March 27, 2021, the USDA attaché said that from 1970 until 1998, when all wheat imports were carried out by the state procurement company, BULOG, there were only five flour mills operating in Indonesia.

Currently, 30 flour mills are operational across the archipelago, including 22 mills on Java Island, six mills on Sumatera Island and two mills in South Sulawesi, the report said. Despite a challenging 2020, the expansion of existing mills continues. Installed capacity in 2020-21 is estimated to reach 12.8 million tonnes, an increase from 12.6 million in 2019-20.

However, running capacity is currently only averaging 60% to 70%, a decline from 80% in 2018-19, the report said.

“Additionally, new flour mills located in Riau, West Java, North Sumatera, and South Sulawesi are expected to come online in 2022,” the USDA said. “As more mills open and expand capacity, competition in the market is expected to further increase price sensitivities, already a major factor in determining the source of imports.”

The attaché expects Australia to export significant quantities of wheat to Indonesia, following an improved harvest, with Ukraine and Russia increasing their prices and restricting imports.

“Argentina, which saw its market share of Indonesian imports soar at the expense of Australia, has faced challenges meeting demand due to strikes and less competitive prices,” the report noted. “During the first six months of 2020-21 (July-December), Australia’s market share increased to 10.2%, compared to 7.9% during the same period of 2019-20.

“Ukraine continued to lead the market with a 47.5% market share, followed by Canada with 26.9%. The US market share remains relatively stable at 10.2%.”

The flour market is dominated by local production, with a 99.9% market share.

“In line with weakened consumer purchasing power and reduced consumption, wheat flour imports during the period of July 2020 to January 2021 decreased 46% to 25,600 tonnes (wheat equivalent) compared to 48,041 tonnes in the same period of 2019-20,” the attaché said. “Turkey held the largest wheat flour market share (64%), followed by South Korea with 13%.”

Wheat flour consumption has been increasing and stood at 31kg per capita in 2019-20.

“Indonesia’s trend toward urbanization and a growing middle class continue to align with an increasingly diverse diet and increased consumption of wheat-based foods such as bread, pizza and pasta,” the attaché said. “The COVID-19 outbreak and resulting global and local economic slowdown has decreased the growth rate of wheat consumption for food.

“The closure and subsequent re-opening with limited capacity of shopping malls and restaurants has changed consumer behavior, leading to an increase in at-home food preparation.”

Indonesia’s Ministry of Agriculture provides farmers with subsidized seed to encourage corn production.

“In 2020, around 70% of total corn area was grown with hybrid corn seed,” it said. “Despite some concerns from farmers on the quality of the subsidized seed, the program did incentivize farmers to grow corn over other secondary crops.”

However, with a reduced budget allocated to MOA, the volume of certified subsidized hybrid corn seed under the 2021 program has been reduced to cover only 988,000 hectares, the report said.

Indonesia’s feed mill sector consists of 110 feed mills located in 10 provinces, with 81 mills located on Java Island, the report said. In 2020, total installed capacity reached approximately 29.7 million tonnes, an increase of 20% from 24.7 million tonnes in 2018.

“Feed mills are running at 70% of total installed capacity,” the attaché said.

Turning to rice, the attaché said approximately 50% to 55% of rice production is in Java, while Sumatera and Sulawesi contribute 20% and 12%, respectively. Approximately 85% of rice production comes from irrigated paddy fields.

“In order to assist people economically affected by the pandemic, the GOI has distributed social assistance aid in the form of rice, which has been distributed in the amount of 15 kilograms per month during August-October 2020 to select households,” the attaché said. “Under the program, rice was distributed to 10 million recipients of the Family Hope Program (PKH, Program Keluarga Harapan) throughout Indonesia.”

Per capita rice consumption continues to decline by about 0.62% per year as middle and upper-middle income consumers “continue diversifying their diets to include more western-style foods like bread and pasta and lower-middle income consumers continue to replace rice-based dishes with instant noodles due to ease of preparation and affordability,” it said.

Favorable weather, increased use of fertilizer, and surging prices are expected to push Indonesia’s palm oil production and exports to record highs in 2021-22, the attaché said in an annual report on the oilseeds sector dated March 16, 2021.

The report forecast palm oil production at 45.5 million tonnes.

“As the economy rebounds and social distancing and travel restrictions are eased, soybean and soybean meal imports are forecast upward on increasing demand for tempeh, tofu, and poultry meat in the foodservice sector,” the report said. “Indonesia’s biodiesel mandate program will continue to drive palm oil consumption in 2021-22, with industrial consumption expected to reach 9 million tonnes. The GOI (government of Indonesia) has allocated 9.2 billion liters of palm-based fatty acid methyl ester (FAME) production to maintain B30 in 2021 as the economy continues to recover and with the expectation of increased transportation fuel usage as travel and social distancing restrictions are lifted. Plans to increase blend rates beyond 30% have been postponed due to constraints on subsidy funds.”

In a report on agricultural biotechnology, dated Nov. 24, 2020, the attaché said the United States exported more than $1.8 billion in genetically engineered (GE) products to Indonesia in 2019, including more than $860 million of soybeans.

“Despite completing biosafety assessments for various GE products, Indonesia has yet to finalize monitoring guidelines for GE crops that would allow for full domestic commercial cultivation,” the report said.

WORLD-GRAIN.com

Tags: corn, Indonesia, rice, soybeans, wheat, rice production, flour milling sector, grains production, grains imports