Why Indonesia's Food & Beverage Industry Should Grow Strong in 2017?
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?
Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (Gapmmi), sees growth of Indonesia's food and beverage industry at around 8.5 percent (y/y) in 2017, approximately the same growth that was recorded in the preceding year. However, this forecast is nearly one percent higher compared to the forecast of Indonesia's Industry Ministry. Therefore, Lukman advises the government to revise its forecast upwards.
There are several reasons why Gapmmi expects a growth rate in Indonesia's food and beverage industry that is - at least - as high as last year's realization:
- Commodity prices are showing an upward trend. Higher commodity prices boost people's purchasing power in those regions that produce a significant amount of commodities (particularly certain regions on Sumatra and Kalimantan).
- The mushrooming of modern retailers (minimarkets) in the regions. These retailers have already conquered the bigger cities of Indonesia and now expand to the smaller ones. Minimarkets mainly sell instant food and beverage products.
- The population of Indonesia continues to expand rapidly and that means more and more mouths need to be fed, while per capita GDP is estimated to rise. In 2015 the Indonesian population is estimated to number 255 million people. This figure is expected to rise to 260 million in 2018.
- Export opportunities have increased for Indonesian food and beverage producers since the implementation of the ASEAN Economic Community (AEC) in 2015. The AEC turned the ASEAN region into one single market and production base.
However, several companies have actually set their sales targets higher. For example, Garuda Food eyes 15 percent (y/y) growth in 2017, up from the 10 percent (y/y) growth that it recorded in the preceding year. Garuda Food, subsidiary of the Tudung Group, is an Indonesian food and beverage company with 15 factories. Similarly, Ultrajaya Milk Industry, Indonesia's leading producer of aseptic dairy products, also eyes 15 percent (y/y) growth in 2017 supported by rising demand for milk in Indonesia.
Traditionally, the food and beverage industry of Indonesia is a lucrative sector for foreign direct investment (FDI) in Indonesia. FDI in Indonesia's food and beverage industry totaled USD $1.5 billion in full-year 2015 (BKPM data), placing it third among manufacturers, behind metal, machinery and electronics investments (USD $3.1 billion) and chemicals and pharmaceuticals (USD $1.96 billion).
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What make Indonesia industry ministry set the target pn range 7.5-7.8?