Food & Beverage Industry of Indonesia: Positive Outlook
Turnover in one of the most lucrative industries within the Indonesian economy - the processed food and beverage industry - is expected to reach IDR 540 trillion (approx. USD $40.9 billion) in the second half of 2016, up roughly 8 percent from realization in the same period one year earlier. This solid growth is supported by Indonesia's improving purchasing power amid the accelerating economy and higher commodity prices, and growing output of the nation's processed food and beverage industry.
Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (Gapmmi), is satisfied seeing the latest data from Statistics Indonesia (BPS) and is convinced that Indonesia's processed food and beverage industry can grow at least 8 percent (y/y) in the second half of the year. Provided that Indonesia's economic acceleration will continue (GDP growth accelerating to 5.18 percent y/y in Q2-2016) and the central government will not implement policies that can undermine earnings in the food and beverage industry, this growth projection (8 percent y/y) should be achieved.
A government policy that can jeopardize achieving the 8 percent growth target is the plastic packaging excise. Earlier this year the government suggested a IDR 200 (approx. USD $0.02) excise duty for food and beverage products wrapped in plastic packages. This tax would generate more state revenue while discouraging consumption of plastic and therefore cause a cleaner environment.
Read more: What You Need to Know about Indonesia's Excise on Plastic Packaging
Earlier, Statistics Indonesia released data that informed production growth in the big and medium-sized food industry was recorded at 10.39 percent (m/m) or 5.17 percent (y/y) in the second quarter of 2016. Meanwhile, production growth in the big and medium-sized beverage industry was recorded at 3.14 percent (m/m) or 2.07 percent (y/y) in Q2-2016.
BPS data also indicated that production growth in the small and micro food industry was recorded at 5.87 percent (m/m) or 6.49 percent (y/y) in Q2-2016, while production growth in the small and micro beverage industry was recorded at 9.43 percent (m/m) or 14.42 percent (y/y) over the same period.
Gapmmi Chairman Lukman added that Indonesia's purchasing power is improving amid overall rising commodity prices. This is reflected by strong food and drink demand in August 2016. Regarding full-year 2016, turnover in Indonesia's processed food and beverage industry is expected to reach IDR 1,400 trillion (approx. USD $106 billion), up 8 percent (y/y). The first semester of the year will contribute about 60 percent to full-year turnover as consumption of food and beverages increases in June due to Islamic celebrations.
According to Lukman, the Indonesian government needs to remain committed to its earlier promise to lower the nation's interest rates as this is important to boost investment in the food and beverage industry. It is also important for the government to remain committed to its economic policy packages that include deregulation as this would improve the country's investment climate. Currently, Indonesia still lags behind Thailand and Malaysia in terms of investment realization in the food and beverage industry. Although Lukman detects high interest of investors to invest in Indonesia's food and beverage industry, actual investment realization remains low due to Indonesia's unconducive investment climate.
Investment realization in Indonesia's food and beverage industry totaled IDR 40 trillion in 2015. However, the value of principal permits was recorded at IDR 180 trillion that year. A principal permit is the first step that needs to be taken by a foreign investor. However, follow-up commitments often remain unrealized. This is a worrying sign. Investors quite their investment plans in Indonesia after experiencing a prolonged period of tough bureaucracy or the difficulty to acquire land.