Analysis of Indonesia’s food industry landscape and how to enter the market.
Despite COVID-19, Indonesia’s food and beverage sector managed to grow by 3% in 2020 (TheInsiderStories, 2020). The food industry trend 2021 is expected to reach USD 2,517 million with an annual growth rate of 10.8% from 2021 to 2026. The sector is also projected to reach a market volume of USD 3,724 million by 2025 (Statista, 2021). Thus, the sector offers huge investment opportunities.
Previously we have discussed Indonesia’s beverage Industry. In this article, we are going to cover the landscape of Indonesia’s food industry and its prospects. Many segments are contributing to Indonesia’s food industry, which are agriculture, food processing, and food distribution that we discuss in this article. Moreover, we also provide an analysis on the impact of COVID-19, how to enter the market, and its prospect to give a comprehensive understanding of Indonesia’s food industry.
The Growth of Agriculture Sector
Agriculture is an important part of Indonesia’s food industry. The country has an estimated 57 million hectares of agricultural land, making agriculture as one of the prominent sectors of Indonesia, contributing to 12.72% of the share of GDP in 2019 (The World Bank, 2019). Both domestic and foreign investments in Indonesia’s agriculture sector were more focused on the plantation sub-sector accounting for 94.47%, which is followed by the livestock sub-sector at 3.71%, and the food crops sub-sector at 0.57% (FTT, 2020).
GDP from Indonesia’s food crops was about IDR 446 trillion in 2019. The country’s main food crops production include rice, maize, soybean, cassava, and sweet potato. Indonesia’s rice production is dominated by smallholder farmers that account for 90% of the country’s rice production with each farmer holding around 0.8 hectares of land area (Ministry of Agriculture, Republic of Indonesia, 2016). Meanwhile, sweet potato, mungbean, peanut, and soybean are secondary crops usually planted after the rice has been planted.
Major vegetables cultivated in Indonesia are mushrooms, cabbages, chili, potato, shallot and onions, and tomato. Meanwhile, Indonesia’s highest fruit production are banana, mango, citrus, papaya, durian, pineapple, apple, snake fruit, jackfruit, and rambutan (Statistics Indonesia, 2016).
In 2017, Indonesia’s livestock sector and its products amounted to IDR 148.5 trillion to the country’s GDP with an annual average growth of 4.3% from 2013 to 2017 (Bureau of Statistics, Indonesia). The livestock and poultry populations have risen significantly in response to the country’s growing food demand.
Indonesia’s cattle sector experienced a gap between supply and demand of beef in which domestic production can only meet 45% of Indonesians demand for meat (Agus and Widi, 2018). In 2017, Indonesia’s meat production reached 532,000 tons, in which Java is the home of the cattle population and most of the cattle slaughter (Directorate General of Livestock Service and Animal Health, 2018).
Indonesia’s goat sector is still underestimated due to small-scale production. In 2018, goat production reached 18.72 million heads, with half of the goat population centered in Java. According to Asia’s Food & Fertilizer Technology Center, the growing demand for goat meat and dairy are mostly during the Eid Adha and Ramadan. Meanwhile, sheep meat production amounted to 55 million tons in 2017 (BKPM, 2018).
Although the majority of Indonesians are Muslim, the country’s pig meat industry is supported by the growing demand of the 32.5 million non-Mulsim population. In 2017, pig meat production amounted to 344 million tons in which the industry is centered in East Nusa Tenggara (Directorate General of Livestock Service and Animal Health, 2018).
Indonesia’s poultry sector includes the native chicken and broiler sector. In 2017, there are around 1.5 billion native chicken population and 1.7 billion of the broiler population. While the main poultry productions are mostly located in Java, Indonesia’s production of poultry remains spread throughout the islands as it is the main type of animal protein source (BPS & Directorate General of Livestock and Animal Health Services Statistics, 2018).
The fisheries sector contributed USD 26.8 billion or 2.6% of Indonesia’s GDP in 2018. With fish consumption reaching 46.49 kg per year per capita, Indonesia is one of the top ten fish-dependent nations in the world (BPS, 2017). In 2019, the country’s fish production reached 25.32 million tons with 12% GDP growth.
In Indonesia, shrimp is the most important fisheries commodity amounting to 45% of fishery products export value. Shrimp production was estimated to range between 11 million tons to 17.6 million tons (The Association of Genetic Technologists, 2016). The country is also ranked as the top five global exporters of canned and processed tuna. In 2016, tuna contributed to 22% of the country’s fisheries production (Globefish, 2016).
California Santa Barbara and the Ministry of Marine Affairs and Fisheries conducted a study that projected Indonesia’s fish biomass will increase 224% which amounted to USD 3.7 billion of economic growth in 2050.
Agrochemicals and Farm Machinery
In Indonesia, the agrochemicals market segment was valued at USD 523.3 million in 2018. The market is projected to have a value of USD 668.4 million by 2024 with an annual growth rate of 4.09%. The leading segment of the agrochemical market in Indonesia is grains and cereals accounted for 36.4% of the total market share in 2018 followed by rice at 21% (Mordor Intelligence).
Meanwhile, two-wheel tractors are the most sought after farm machinery in Indonesia. The country’s agriculture tractors market is expected to have an annual growth of 6.6% from 2019 to 2024 (Businesswire, 2020).
Development of Food Processing Industry
Food processing is one of the most promising industries in Indonesia due to its large number of businesses that compete for sales. It is estimated that the food and beverage manufacturing sector received USD 4.4 billion in 2019 which is an increase of 11% from 2018 (Ministry of Industry, Republic of Indonesia, 2019).
Indonesia’s food processing industry comprises an estimated 5,700 large and medium-sized producers that employ 765,000 of the Indonesian population, and 1.6 million micro and small-scale producers with 3.75 million employees. The value of the food and beverage processing industry in Indonesia is approximately USD 118 billion (Yuningsih, 2020).
Based on the Ministry of Industry of Indonesia data, the food and beverage industry contributed to the non-oil and gas industry’s GDP by about 34.95% in the third quarter of 2017. This figure made the food and beverage industry the most extensive industry that contributes GDP compared to other sub-sectors. Those GDP increased by 4% compared to the previous period in 2016, for contributions to the national GDP at 6.21% in the third quarter of 2017 or an increase of 3.85 % compared to the same period in 2018 (Karawang New Industry City, 2019).
Wholesale and Food Distribution
In Indonesia, the wholesale/distributor’s business function is to breakbulk an intermediary between the food producers and the food operators. The example is like food retailers or as a restaurant. 1% CAGR forecast over 2018-2023, as domestic demand further drives economic growth and government programs invest in social support programs. Strong economic growth provides higher household expenditure levels, leading to a substantial 10% expansion of the retail and wholesale industry (Euromonitor, 2019).
Compared with its regional neighbors, Indonesia’s warehousing market remains underdeveloped. Many facilities are still in the traditional warehouse or gudang style. With clear heights of between 5-6 meters, this gudang has no or limited loading docks, such legacy warehousing with the centers of the warehouse are often made of timber or reinforced concrete, and inaccurate floor for the loading data.
In warehousing’s case, it’s land prices that are causing a problem. For example, it rents in Greater Jakarta, floats around $6-7 per square meter at the moment, and is expected to be moderate, single-digit growth in the coming years. Building on speculation is potentially risky for business, and the trouble island prices have risen 300% in recent years. But the outlook is anything but quite gloomy. Some of the vital economic sectors are rapidly expanding, pointing towards increased demand for fresh warehousing stock (Transport Exhibitions, 2017).
Logistics and Transportation
There are some reasons why transport infrastructure and transport services play a significant role in logistics outcomes. Since the food industries require the ingredients to come from many various geographical locations, halfway worldwide, transportation and logistics play a crucial role in ensuring the industry’s success. The short-term nature of raw materials and finished products, especially the food and dairy industry, faces many rare and unique challenges not found in any other sector. For instance, logistics for the food industry in Indonesia is still an essential thing. The food and dairy industry depends on how smooth and timely the supply of raw materials is. (3PL Links, 2014).
Food and grocery is the most significant contributor to Indonesia’s retail industry accounting for 64.9% of the total retail sales. Food and grocery sales in Indonesia reached USD 108.84 billion in 2018 and are projected to have an annual growth rate of 8.5% from 2016 to 2021 amounted to IDR 3,783.8 trillion by 2021 (Global Data, 2017). It is estimated that the country’s food retail industry has an 8.9% sales growth in 2019 in which traditional grocery stores hold 83% share (Yuningsih, 2019).
The retail sector, including hotels, restaurants, markets is changing rapidly as personal income and consumer spending increased. According to Mckinsey Global Institute, 90 million new Indonesians are likely to join the consuming class, making it as big as about 135 million by 2030.
The largest channel of Indonesia’s food retail is convenience stores followed by hypermarkets, while online retail experienced high growth during the pandemic. The sector is mainly dominated by local retailers such as Indomaret, Super Indo, Family Mart, and Alfamart. For instance, Alfamart operates 13,991 outlets and Indomaret has 15,633 outlets across Indonesia (The Jakarta Post, 2018).
A large socio-economic class population is going to be a crucial part. This group of individuals will search for a replacement house and car, filling shopping malls and restaurants. Despite the weakened rupiah, this sector contributed IDR 1473 trillion in 2014 or 14.6% of GDP, growing at a double-digit rate for five consecutive years since 2010. The restaurant comes next in the group added IDR 235 trillion with average annual growth of 11.3% over the past five years, strongly pointing out the increasing number of food-service operations (Cekindo, 2020).
Impact of COVID-19 on Indonesia’s Food Industry
The pandemic of COVID-19 has affected the economy of the food industry. The Government of Indonesia created large-scale social restrictions (PSBB) to limit the broader spread of COVID-19. Nevertheless, the full extent of the impact of the implementation of PSBB in Jakarta in early September 2020 is allowing some restaurants, cafes, and markets to open. The cafe is open with the restrictions of serve takeaways only. With prohibited dine-in activities, it may no longer be sustainable for many food retail businesses to continue operations by relying solely on takeaway and online delivery in every demand.
Discouraging consumers from further purchases will affect limited mobility and other movement restrictions of Indonesia’s food industry. However, the sector has managed to rebound quickly and is trying to survive. Good news, since the easing of large-scale social restrictions in mid-June 2020, the Government of Indonesia permitted consumers to dine in at restaurants. In Jakarta, restaurants may open for only up to 25% of the full capacity. Some restaurants in the Greater Jakarta Area saw their number of visits soar by 35% and 54% in July and August, respectively (Deloitte, 2020).
Future Market Prospect
The food industry is projected to remain the mainstay of supporting Indonesia’s manufacturing and economic growth. The sector offers a large contribution to the country’s non-oil and gas gross domestic product (GDP). The GDP could reach 34.95% in the third quarter of 2017. This achievement has increased by 4% compared to the same period the previous year.
Food Industry 4.0
The food industry in Indonesia will also be adaptive to the development of digital technology. It is expected that the food industry will become more established in the future. The prospect of growth in the food and beverage business in the future will also be the focus of the development of several manufacturing industry players. In the roadmap of making Indonesia 4.0, Indonesia has set a target for the food industry in Indonesia to dominate the Southeast Asian market (Antara News, 2020). For instance, one of the food industry companies in East Java has already applied to food industry technology, such as robotic, big data, and 3D printing, which can reduce production costs (Indonesia Investment, 2018).
One of the promising sectors of Indonesia’s food retail industry is the packaged food market that has been estimated to have USD 24.5 billion in sales in 2016 (Euromonitor, 2016). It is projected that in 2021, the retail sales of packaged food will reach USD 20.1 billion with a growth rate of 48.2% (USD 13 billion). The packaged food categories include ready meals, savory snacks, rice pasta and noodles, ice cream, cereals, processed seafood and meat, sauces, condiments, dressings, dairy, and frozen desserts (Food Export, 2015). One of the most popular packaged foods is Indonesian instant noodle that has a great demand in Africa.
Confectionery and Snacks
The confectionery and snacks segment experienced an increase of 11% in 2017 with nuts and seeds being the most sought-after food items followed by potato chips as it is estimated about 69% of Indonesian urban consumers snack at least once a day (SGE, 2018). The revenue of the segment is expected to reach USD 33,269 million in 2021 and grow annually by 4% from 2021 to 2025. Per person revenues with total population figures will generate USD 120,38 with an average consumption of 18kg in 2021 (Statista, 2021). Thus, this segment offers huge opportunities for new products.
Indonesian food consumption is likely to continue to increase. In particular, the prospect market in animal products’ consumption that now lowers compared to some other Asian countries, is expected to grow. Prospects for growth in broiler meat and dairy product consumption are strong if incomes continue to rise. These foods benefit from refrigeration, and large-scale supply chains may offer such products at lower prices (Jurnal Ekonomi Indonesia, 2019). Thus, further consumer shifts to animal products are likely to present an opportunity that modern food retail chains will pursue.
The food and beverage industry is the most extensive industry that contributes GDP compared to other sub-sectors in Indonesia. Although the industry experienced the negative impact of COVID-19, where there is a restriction in some restaurants, cafes, and markets to help decrease the spread of the pandemic. The food industry is expected to remain the mainstay of supporting Indonesia’s manufacturing and economic growth.
Digitalization of the food industry in Indonesia, the increasing demand of packaged food, the increasing domestic consumption of confectionery and snacks, and the prospects for growth in animal products especially broiler meat and dairy product consumption are strong. It can be an excellent prospect for Indonesia to look for some way to maximize its opportunities itself.
How to Enter Indonesia Food Market?
With so many requirements of how to enter Indonesia food market and also the strategy of how to engage the consumer landscape, it is important for companies interested in Indonesia’s food market to know a few things about entering Indonesia’s market:
1. Do initial research on your product
All products of food and drug, including traditional medicine, cosmetics, supplements of food, and processing of the food, must fulfill all the safe food requirements to enter Indonesia’s market. This drug registration and imported food are regulated under the Indonesian National Agency of Drug and Food Control (BPOM). One among the provisions is the Regulation of The Head of The Agency of Food Control and the Drug Republic of Indonesia Number 27 the Year 2013 concerning Importation Control of Drug and Food into Indonesia’s Territory.
Food and drink service business is referred to as part of the tourism business, and an owner may direct the regulations to Ministerial regulation of Ministry Culture and Tourism, Republic of Indonesia, No. PM. 87 /HK.501/MKP/2010. Based on this regulation, the tourism business included restaurants providing food and drinks, food stall, bar, café, catering services, food courts, and other food and beverage service businesses.
2. Product registration and halal certification
There are several requirements to apply for registration in this industry. The registration must be done by the local company, local agent, or distributor before the distribution of the products is running. The regular registration process usually takes between 2-3 months, depending upon the product. Each registration number will be renewed every five years. In general, there are eight documents required by BPOM for the food and beverages registration; they are:
- Certificate of Free Sales in the country of origin
- Ingredients of finished products and their raw materials(includes expired info)
- HACCP Validation
- Certificate of Analysis of Finished Products
- Certificate of Analysis of Raw Materials & its ingredients
- Packaging information
- Product code explanation
- Authorization Letter
Muslim is the majority in Indonesia. Therefore, if you really want to enter the market, it can be an advantage for you to obtain halal certification. Halal certification is a necessity in Indonesia. Unfortunately, halal certifications from foreign countries are not accepted in Indonesia, so every product has to obtain a new Indonesian license
3. BRIGHT Indonesia as The Right Local Partner
There is also an easier way to enter the Indonesia food market: find the right local partner to tailor your needs in entering the market and tackle market entry challenges. Moreover, Indonesia has a diverse cultural background, thus it is important to find the right communication style to align with Indonesian business to find access to the top decision-makers.
BRIGHT Indonesia can assist your business development in Indonesia through services such as Market Insight Research, Business Partnership Engagement, and Business Registration and Establishment. We will help you analyze the opportunities and obstacles of the Indonesian food market through our comprehensive market research, provide a list of potentially suitable partners within the food market, register and establish your food products and company in Indonesia, and obtain the work and stay permits such as expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), and limited stay permit (KITAS).
Our strategy consulting services domain focuses on supporting private sector clients with the development of corporate or business unit strategies and helping public sector organizations with public policy.
For more information, email firstname.lastname@example.org.
*This article is co-written with Alifia Berizky