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Indonesia Food and Drink Report Q2 2008
Business Monitor International, April 2008, Pages: 68
The Indonesia Food Drink Report provides independent forecasts and competitive intelligence on Indonesias food and drink industry.
Executive Summary
Global food price inflation continues to make itself felt in both developed and emerging markets, with Indonesia’s agricultural and fledgling food processing industries no exception. In BMI’s newly published Q208 Indonesia Food & Drink Report, we examine the impact spiralling food prices are having on consumer spending in the country and their knock-on effect on food and beverage industry investment. Back at the start of the year, leading local food processor Indofood Sukses Makmur revealed that it expected rising commodity costs to have a considerable knock-on effect on profitability throughout 2008. In Q208, this view was supported by Indonesia’s vast tempeh production industry, with producers of these soybean cakes - a staple in Indonesian diets - claiming that rising soybean import costs were threatening to put them out of business.
The scrapping of soybean import tariffs and a short-term government subsidy scheme helped to remove the threat to tempeh producer livelihoods, while Indofood’s announcement of interim financials revealed steady profit growth which suggested that it too was riding out the current storm. Confirmation from Unilever Indonesia - the local subsidiary of the Dutch consumer goods giant - that it would match its US$60mn 2007 investment in the country in 2008 after price increases of 4% had only a minor impact on customer loyalty further alleviated the short-term outlook for producers.
However, while the local food and beverage industry might be finding the capital to weather the current storm, with the government assisting the agricultural sector to do the same, unabated consumer demand will continue to stimulate local food price inflation. The current situation highlights the conflicting nature of the Indonesian food and beverage market. On the one hand, a developed mass grocery retail sector simplifies distribution for producers, while an immense population ensures an enormous audience for food and beverage products.
On the other, however, food spending in Indonesia is low - with average per capita levels dragged down by the country’s poorer rural groups. Food and beverage import dependency - a situation expected to alleviate as government agricultural initiatives finally come to the fore - causes further vulnerability to food price inflation, vulnerability that will ensure that this long-term promising, but hugely price sensitive, market remains a risky proposition for investors for the time being.
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