The Indonesian processed food market is dominated by several large local companies including Indofood Sukses Makmur, one of the world’s largest instant noodle makers, Wings Group, Mayora and Garuda Food. Such companies have embarked on strate- gies to not only entice customers by price, but innovating to produce tailored, value added products that appeal to the Indonesian consumer’s preference for traditional food in an instant form such as Mayora’s instant congee. Foreign companies and brands are also well integrated into the market, including Nestle and Kraft Unilever, often in joint ventures with local companies to access distribution networks. The sector as a whole is estimated to have over 6,000 compa- nies; approximately 90% are classified as large and medium sized companies which are all mainly appealing to the price sensitive lower income customers. Output of the sector grew by 176.3% over the period of 2000 to 2009 putting the industry as a whole at a value of $194 billion USD at the end of 2010 according to the Indonesia Food and Beverage Business Associatio.

GAPMMI. Both domestic consumption and spending on food and beverage, particularly processed foods, has been steadily increasing at a rate of 14.1% a year from 2006-2010, driven by rising incomes as well as inflation of food prices. Total sales for 2010 reached $63.4 billion USD and are projected to grow by 13% to $76.59 billion in 2011 according to GAPMMI. The processed food sector had previously been confined to the domestic market, but its contribution to exports has been increasing from $3.7 billion in 2009 to $5.7 billion in 2010. The Ministry of Industry has put targeted exports from the sector at around $6 billion for 2011 and sector growth as a whole at 8.4% annually to 2013.

The ready availability of natural resources such as cocoa and palm oil as well as the size of the domestic market makes Indonesia an attractive production base for multinational companies. However, the sector still faces the challenge of being regionally and globally competi- tive. Imports of essential raw materials such as wheat, milk and sugar make the sector far from self sufficient. Imports of processed foodstuffs such as seasonings make up substantial part of total sales

and have been increasing with the introduction of the AFTA and CAFTA. In 2011, the amount of imports is set to increase to $2.79 billion USD, up 15% from 2010 (GAPMMI). High logistical costs from poor infrastructure add to domestic operating costs as the country has only 6 ports that can be used for large scale importation of foodstuffs, while others for nationwide distribution are heavily congested. The rise in electricity tariffs and increasing inflation impacting raw material such as wheat and sugar are also placing pressure on operational costs for manufacturers. In a low income market such as Indonesia, consumers are highly sensitive to small increases in product prices given that an average of 50.62% of total per capita income is spent on food (Statistics Indonesia).

The World Economic Forum that took place in Jakarta in June 2011 saw the announcement of large scale invest- ments by food & beverage manufac- turers into the country including Coca Cola which plans to invest up to $500 billion USD and Nestle that will set up a $200 million USD new dairy plant in West Java.

Global Business Guide Indonesia – 2012

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