Investment in Indonesia's processed food and beverage industry is expected to surpass the IDR 50 trillion level (approx. USD $3.9 billion) again in 2016, up 16 percent (y/y) from IDR 43 trillion in 2015. Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (GAPMMI), said investment in this industry has been recovering in 2016 after a weakish 2015 when foreign direct investment into Indonesia's processed food and beverage industry fell 50 percent to USD $1.5 billion.
Lukman is optimistic that investment in Indonesia's processed food and beverage industry will bounce back above IDR 50 trillion in 2016. He added there are currently three companies in talks with GAPMMI regarding their investment plans in Indonesia. In fact, Lukman detects a positive development, namely companies are increasingly focused on the construction of factories that produce raw materials. This development would reduce Indonesia's reliance on imports of raw materials for processed food and beverages.
According to information from the Indonesia Investment Coordinating Board (BKPM), two companies from South Korea are interested to build two factories in Indonesia, each requiring an investment estimated at USD $300 million. However, few further details were given about these companies. They are currently still studying the most strategic location. Most likely they will choose to build the facilities in either West or East Java. Java is the most populous island of Indonesia and therefore forms a large market for food and beverage products.
Indonesia's processed food and beverage industry is expected to grow 8 percent (y/y) in the second quarter of 2016, slightly better than the 7.5 percentage point growth recorded in the same quarter one year earlier. Turnover in the food and beverage industry always rises sharply (about 30 percent from "normal" conditions) during the Ramadan and Idul Fitri holiday (the festivities that mark the end of the Ramadan month or holy Islamic fasting month). During this year's Idul Fitri period (which had its peak between 4 and 8 July), Lukman expects turnover to reach up to IDR 140 trillion (approx. USD $10.7 billion). Total turnover in 2016 is targeted at IDR 1,300 trillion (approx. USD $99 billion), up 8 percent from last year.
The Indonesian economy is expected to improve in 2016 compared to last year (when the economy grew at a pace of 4.8 percent y/y). Accelerated economic growth would surely impact positively on Indonesia's food and beverage industry as people's purchasing power strengthens. Moreover, Lukman added that prices in the food and beverage sector will not rise significantly this year. This would mean that there is a real improvement in purchasing power in case economic growth accelerates in 2016. Last year, producers raised prices of processed food and beverage products by an average of 7.5 percent (y/y), primarily due to higher transportation costs after the central government largely scrapped fuel subsidies as well as pressures originating from heavy rupiah depreciation (giving rise to exchange rate losses when importing raw materials such as sugar, wheat, milk, fruit juices and soybeans).
Indonesia, a country that contains over 255 million people, is a lucrative market for food and beverage producers. Due to the huge population there exists a big market. Moreover, given growing per capital GDP and the expanding middle class segment, people are consuming more and more (and becoming more picky about products, seeking higher-quality products). Although Indonesia's purchasing power has weakened in Indonesia over the past couple years amid the country's slowing economic growth trend, the middle and long term pictures remain positive. Generally, investment in Indonesia's food and beverage industry is centered on Java, Indonesia's most populous island (and which has relatively good infrastructure compared to the other Indonesian islands).