Turnover in Indonesia's food and beverage sector reached IDR 400 trillion (approx. USD $30.3 billion) in the first quarter of 2016, up 7.55 percent from the same period one year earlier. Adhi Lukman, Chairman of the Indonesian Food and Beverage Association (GAPMMI), is content to see the growth pace, particularly because it is supported by rising sales volumes. In Q1-2015 the growth pace in Indonesia's food and beverage industry was higher (at +8.16 percent y/y) but this growth was more supported by higher prices rather than rising sales volumes.
Rising sales volumes is a positive matter as it signals that consumer demand in Indonesia is rising (this may indicate that people's purchasing power is strengthening). Lukman added that in the first two months of 2016 Indonesia's food and beverage industry grew in the range of 8 - 9 percent (y/y). However, in March 2016 the growth pace slowed to 7.5 percent (y/y) from the same month one year earlier. This slight slowdown - according to Lukman - occurred because businesses saw inconsistencies in the government's commitment to safeguard the country's investment climate, while investors are also waiting for certainty regarding the Tax Amnesty Bill.
Overall, Lukman is confident that Indonesia's food and beverage industry will post good growth in 2016. He expects to see a growth pace of about 7 - 8 percent (y/y) in full-year 2016. However, he adds that it is important that the government continues to safeguard a conducive climate. One of the government plans that could curb growth in the food and beverage industry is the plan to impose an excise tax of at least IDR 200 (approx. USD $0.02) on plastic bottles and packaging in a bid to collect more tax revenue and protect the environment by somewhat discouraging purchases of goods packed in plastic. This proposal still requires deliberation in the nation's House of Representatives. Lukman believes this excise tax will hurt the country's food and beverage industry as sales volumes may decline while the attractiveness of Indonesia's investment climate as well as the country's competitiveness may be reduced.
Another positive development is that the rupiah halted its sharp depreciation (against the US dollar) that occurred between mid-2013 and end-2015. As a significant chunk of raw materials (for example (such as sugar, wheat, milk, fruit juices and soybeans) still need to be imported, operational costs jump in times of heavy rupiah depreciation. This year so far the rupiah has appreciated about 4 percent against the US dollar.
Lastly, Lukman said lower interest rates would boost the industry as businesses would have easier access to funds for business expansion.
Indonesia's food and beverage industry remains attractive for domestic and foreign investment because Indonesia has a large population (more than 255 million people) - who all need to eat and drink - that is characterized by rapidly rising per capita GDP. Although over the past three years purchasing power has weakened in Indonesia amid the country's slowing economic growth trend, the middle and long term picture remains positive (Indonesia's economic growth is expected to accelerate again starting from this year). Due to rising per capital GDP and the nation's rapidly rising middle class segment Indonesians consume more (as well as higher quality) products. Investments related to the food and beverage industry are focused on Java because this is the most populous island of Indonesia (and has good infrastructure compared to the other Indonesian islands).