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.

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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.

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Before the end of 2016 the Indonesian government plans to have imposed a controversial excise on plastic packaging. Earlier this year the government had already suggested a IDR 200 (approx. USD $0.02) excise duty for food and beverage products wrapped in plastic packages. However, with all spotlights focused on Indonesia's tax amnesty program this plastic wrapping excise tax has been off analysts' radar. Lets take a closer look at this excise: what is it and why does the government of Southeast Asia's largest economy want to implement it?

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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.

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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.

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Sales in Indonesia's plastic industry are expected to rise 6.5 percent to 4.3 million tons (roughly USD $8 billion) in 2016 supported by rising plastic and plastic products demand in those industries that use these materials (for example, Indonesia's food & beverage industry and the automotive industry). Fajar Budiono, Secretary General of the Aromatic, Olefin and Plastic Industry Association (Inaplas), said the year 2016 should be a good one for the plastic industry as the economy of Indonesia has started to stabilize after a prolonged slowdown.

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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.

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Three Indonesian sectors are expected to be negatively affected by the government's proposal to impose an excise tax of at least IDR 200 (approx. USD $0.02) on plastic bottles and packaging. These three sectors are the food & beverage sector, the packaging sector, and petrochemicals. Last week, the Indonesian government unveiled its plan to introduce a new excise tax in an effort to collect additional tax money, while protecting the environment as the tax should lead to a reduction in consumption of plastic products. However, the plan led to fierce criticism from dozens of industry associations.

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In terms of trade, imports into Indonesia in Q1-2016 were dominated by food and beverage products. In fact, Indonesia's Statistics Agency (BPS) detected a staggering jump in food and beverage imports: imports of primary food and beverage items rose 32 percent (y/y) to USD $364 million in Q1-2016, while imports of processed food items surged 75 percent (y/y) to USD $886 million over the same period. This major jump cannot be explained by a massive increase in Indonesians' purchasing power or a sudden rapidly expanding (as well as hungry) population.

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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.

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The Coca Cola Company (TCCC) and its Australia-based subsidiary Coca Cola Amatil (CCA) launched two new production lines at the Coca Cola Amatil Indonesia plant located in Bekasi (West Java) at the start of the week, part of a USD $500 million investment package that will materialize over the next 4 years. TCCC, the US-based multinational beverage manufacturer, is eager to expand its business activities in Indonesia as it considers Indonesia a dynamic and promising market as well as one of the growth engines to achieve its long-term targets.

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Food product exports from Indonesia to the Netherlands have increased according to Wim Jansen, Commercial Manager at NIVO Import & Export BV, Netherlands-based importer and exporter of Asian food products. About 45 percent of the company’s imports constitute food products from Indonesia, reaching a value of 3.5 million euro per year. Some popular Indonesian food products that are imported into the Netherlands are chili sauce, soy sauce, crackers (krupuk), various spices and noodles.

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Growth of the manufacturing industry in Indonesia is expected to be significantly weaker in 2015 than initially forecast. Indonesia’s Industry Ministry cut its 2015 forecast for expansion of the country’s manufacturing industry to 6.1 percent (year-on-year) from the previous estimate of 6.8 percent. In tandem with slowing economic growth in Southeast Asia’s largest economy, manufacturing growth has slowed to 4.99 percent (y/y) in Q3-2014. Moreover, the HSBC/Markit PMI contracted to a record low of 48.0 in November 2014.

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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.

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An important change will be made to the ministerial regulation that deals with the franchise businesses and traditional markets in Indonesia. Indonesian Trade Minister Muhammad Lutfi said that the government plans to adjust a retroactive clause formulated in Ministry of Trade Regulation No. 7 Year 2013 on Partnership Development in Franchise Business Services for Food and Beverages (Permendag Nomor 7). Initially this clause limited franchise ownership to a maximum of 250 outlets, forcing big franchisees to confirm to new requirement.

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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.

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Last February, the Indonesian government, through its Ministry of Trade, issued new rules with regard to Indonesia's franchise sector. This new regulatory framework - formulated in Ministry of Trade Regulation No. 7 Year 2013 on Partnership Development in Franchise Business Services for Food and Beverages (Permendag Nomor 7) - will have an impact on Indonesia's food and beverage services as limitations are set on the amount of outlets.

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