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The food and beverage industry of Indonesia remains one of the most promising investment destinations for domestic and foreign investors. In the January-September 2017 period, a total of IDR 47.56 trillion (approx. USD $3.5 billion) was invested in this industry.
Several players in Indonesia's food and beverage industry are optimistic that their business will do better in 2017 compared to the preceding year. Meanwhile, while the Industry Ministry of Indonesia set its target for growth of the national food and beverage industry in 2017 at the range of 7.5 - 7.8 percent year-on-year (y/y), an industry group is confident that the industry will expand up to 8.5 percent (y/y) this year, similar to last year's performance. Why should Indonesia's food and beverage industry expand stronger than the government's target in 2017?
Players in Indonesia's food and beverage industry request the government to revise Law No. 33/2014 on the Halal Product Guarantee because this law is highly difficult to be implemented and makes the nation's business environment less attractive. The law, drafted in 2014, requires all food, pharmaceutical, and cosmetic products that are consumed in Indonesia to have halal certification (which indicates the product was prepared according to Islamic law) by October 2019.
Indonesia's exports of processed food and beverage products may surpass the level of USD $8 billion this year, up around 33 percent (y/y) from the realization of USD $6 billion in 2015. Rising food and beverage exports are the result of an improving global economic environment. Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (Gapmmi), informed that Indonesia's rapidly rising processed food and beverage exports are particularly supported by growing demand from other ASEAN countries.
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.
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.
Several companies in Indonesia's food and beverage industry may need to cease production altogether as there is a shortage of sugar ahead of the Idul Fitri celebrations (which mark the end of the Ramadan month). Adhi Lukman, Chairman of the Indonesian Food and Beverage Association (Gapmmi), said there are at least ten companies that are in direct need of new sugar supplies for their production process. Without new sugar supplies, the factories will simply need to be shut down temporarily.
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.
The government of Indonesia proposes to impose an excise tax of at least IDR 200 (approx. USD $0.02) on plastic bottles and packaging. This proposal is part of talks about revisions to the 2016 State Budget (APNB-P 2016). Later this week, the government will discuss the matter with Indonesia's House of Representatives (DPR). Around the globe several countries (including Great Britain and India) have imposed such an excise tax on plastic bottles and packages, both for additional tax revenue and as a measure to protect the environment.
Despite having contracted for 17 straight months, there has emerged optimism that Indonesia's manufacturing industry will rebound in 2016. Yesterday (01/03), Markit Economics announced that the Indonesia Manufacturing Purchasing Managers' Index (PMI) showed a reading of 48.7 in February 2016, slightly down from a reading of 48.9 in the preceding month (a reading below 50 signals contraction). According to Markit economist Pollyanna De Lima Indonesia's manufacturing sector continues to show a recovering trend, despite the soft decline in February.
Latest Columns Adhi Lukman
Turnover in Indonesia's food and beverage industry is expected to grow 8.5 percent year-on-year (y/y) to IDR 1,400 trillion (approx. USD $105.2 billion) in 2017, while direct investment in this industry is expected to remain flat at around IDR 63 trillion (approx. USD $4.7 billion) with especially investors from Japan and South Korea eager to invest. Considering Indonesia's huge population (numbering more than 255 million) and their recovering purchasing power (after the five-year economic slowdown ended in 2016, while commodity prices have improved) the food and beverage industry is an attractive one for investors.
Turnover in Indonesia's processed food and beverage industry is expected to rise 10 percent (m/m) to IDR 440 trillion (approx. USD $32.4 billion) in the second quarter of 2016 from IDR 400 trillion in the preceding quarter. This growth is expected to come on the back of Islamic celebrations (Ramadan and Idul Fitri) that always trigger rising consumption. Although the Ramadan is the holy fasting month for Muslims - implying a focus on self-control - dinner and early breakfast 'parties' boost turnover in the nation's food and beverage industry.
Investment in Indonesia’s processed food and beverage industry is expected to grow at least ten percent to IDR 55 trillion (USD $4.6 billion) in 2015 from an estimated investment realization of IDR 50 trillion in 2014. Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (GAPMMI), said that investments in this sector have been solid due to rising consumption of food and beverages in Southeast Asia’s largest economy. Particularly foreign investments have been strong in 2014 and are expected to continue next year.
A total of twenty Japanese companies engaged in the food and beverage industry are exploring investment opportunities in Indonesia. According to research conducted by the Japan International Cooperation Agency (JICA), the food and beverage industry of Indonesia is regarded as a lucrative investment opportunity by these companies. If realized, these foreign direct investments could be worth between USD $400 million to USD $1 billion. However, JICA’s research did not mention any names of the Japanese companies.
