Food & Beverage Industry Indonesia: Rising Consumption on Ramadan & Idul Fitri
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.
Adhi Lukman, Chairman of the Indonesian Food and Beverage Association (GAPMMI), said sales in Indonesia's food and beverage industry had risen 7.55 percent (y/y) in the first quarter of 2016 from the same period one year earlier. Lukman is optimistic that sales will continue to grow in the remainder of the year, supported by accelerating overall economic growth in Indonesia and improving purchasing power. According to the latest data from Statistics Indonesia (BPS), Indonesia's GDP growth accelerated from 4.73 percent in Q1-2015 to 4.92 percent in Q1-2016.
The Ramadan month starts in early June, followed by the Idul Fitri celebrations in early July. In this period sales of syrup, cookies and bread tend to rise sharply in Indonesia. Idul Fitri - also known as Lebaran - marks the end of the fasting month. During this week-long national holiday millions of Indonesians living and working in urban regions travel back to their places of origin to spend a couple of days with their families (a tradition called mudik). As the millions of Indonesians who travel back to the regions carry trillions of rupiah (hundreds of millions of US dollars) with them (supported by the pay out of workers’ 13-month salary) Idul Fitri significantly boosts the money circulation in Indonesia, while spending on food and beverage products grows accordingly.
Lukman expects sales in Indonesia's food and beverage industry to reach IDR 1,300 trillion in full-year 2016. He added that this industry is one of the country's key industries, contributing 30 percent to the nation's gross domestic product (GDP).
Excise Tax on Plastic Bottles and Plastic Packaging
However, Lukman says one of the government's latest plans could jeopardize growth in the food and beverage industry. Earlier this year the government unveiled the idea to impose an excise tax of at least IDR 200 (approx. USD $0.02) on plastic bottles and plastic packaging in a bid to raise tax revenue and protect the environment by somewhat discouraging purchases of goods packed in plastic. According to Lukman this plan - if approved by the House of Representatives - would disturb sales volumes in the food and beverage industry because retailers will rise prices, while the attractiveness of Indonesia's investment climate as well as the country's competitiveness may be reduced. Triyono Prijosoesilo, Chairman of the Association of Indonesian Soft Drink Producers (Asrim), said sales volumes of packaged drinks are highly vulnerable to such price hikes.
Quick Overview of the Prospects in Indonesia's Food & Beverage Industry
The food and beverage industry of Indonesia is attractive for both domestic and foreign direct investment as Indonesia's population numbers over 255 million individuals who all need to consume food and beverage products. In other words, there exists a huge market. Moreover, emerging markets - including Indonesia - are characterized by a rapidly expanding middle class segment (and rising per capita GDP). Given Indonesia is expected to show accelerated economic growth starting from 2016 onward, purchasing power should improve, implying that Indonesians will start to consume more products.
Investment related to the food and beverage industry in Indonesia are largely focused on Java because this is the most populous island of Indonesia (and has good infrastructure compared to the other Indonesian islands).