April 5, 2005

 

Indonesia wheat imports to rise moderately

 

 

Fuelled by improving economic prospects, notably expected income growth, Indonesia's wheat imports are forecast to grow moderately in 2005-06, according to USDA.

 

Improving consumer-buying power is boosting demand for wheat-based products, such as instant noodles and bakery products. With the growing demand, mill operations are anticipated to approach 65 percent of capacity in 2005, continuing the moderate growth in the sector since 2000. With extraction rates (ranging according to the grain quality) from 70 percent to 74 percent, flour production is expected to reach 3.1 million tonnes in 2005-06. Imports are forecast to grow, reaching 4.6 million tonnes in 2005-06, including 150,000 tonnes of US wheat. Local millers continue to complain about low quality and low priced flour imports from the United Arab Emirates, Australia, the European Union and other countries. The local millers allege that that such competition obliges them to slash margins to maintain market share and creates the incentive to buy lower quality wheat and produce lower quality flour. US wheat sales are dominated by soft white and western white wheat types for special customized biscuit flour and hard red spring wheat type for blending with other wheat types to produce high protein flour. Australian wheat continues to dominate the market with nearly 50 percent share due to its competitive price, which can be up to 20 percent lower compared to US wheat.

 

Corn production is forecast to grow slightly to 6.6 million tonnes in 2005-06 as newly reopened areas become more productive. Corn use is forecast to rebound only slowly, hindered by the continued prevalence of AI in the poultry sector. Anticipating slight growth in domestic output, combined with sluggish growth in local demand, imports are forecast to reach only 1.1 million tonnes in 2005-06. The local corn industry continues to source local corn first and then turn to the international market when domestic supplies dwindle. High freight rates and the inability/unwillingness of local buyers to finance Panamax sized vessels hinders US competitiveness. Nonetheless, with the absence of Chinese corn in the market, opportunities for US corn exist.

 

Wheat
 

Economic growth (5.13 percent in 2004 and 5.5 percent estimated for 2005) is fuelling demand for wheat-based products and leading to slight growth in flour demand. Milling operations are currently reported to be running at 65 percent of the industry's total installed capacity. Plans to build a new mill in North Sumatra have been shelved, but two of the mills have invested in new blending facilities to enhance output of higher quality flour. Reportedly, owners of the two largest flour mills recently acquired at least part-ownership in the third largest mill. The implications of this deal are still unclear, but in the least it will mean that one firm has only further concentrated its domination of flour distribution in eastern Indonesia. Furthermore, the merging of all these mills means that roughly 80 percent of Indonesia's import needs will be handled by one central desk.

 

Trade

 

Total imports (wheat and flour) are forecast to grow only slightly 2004-05 and 2005-06, remaining just slightly above 4.5 million tonnes. Major suppliers continue to be Australia and Canada. The competitiveness of US wheat remains weak in 2004-05 (sales of approximately 150,000 tonnes) due to relatively high landed costs of US wheat. Total exports (mainly pasta conscious) have been increasing and estimated at nearly 100,000 tonnes annually. Main destinations are Malaysia (23 percent), Japan (13 percent), and Singapore (12 percent). The local milling industry continues to allege that several countries are dumping flour into Indonesia. They continue to have a standing petition with the Dumping Committee (KADIKomite Anti Dumping Indonesia) to take measures such as counter-veiling duties against the targeted countries.

 

Consumption

 

Bakery products continue to diversify, with new brands of instant noodles and modern bakeries increasingly present, and wider distribution of economical noodle-bakery outlets. Total wheat domestic consumption is estimated to increase from 4.4 million tonnes in 2004-05 and is forecast to 4.55 million tonnes in 2005-06. The noodle industry (wet, dry and instant) represents the largest single user for flour (nearly 60 percent); bakeries and the snack food industry consume another 30 percent and household use is estimated at about 10 percent. Based on the demand, the mills flour output consists of 75 percent high-protein flour (protein content 12 percent), with the balance being medium (10-12 percent) and low protein flour (8-9 percent).

 

Prices

 

Increasing wheat prices and soaring freight rates forced the mills to increase prices in early 2005. Distributor prices for Lencana Merah brand increased 2 percent from Rp. 76,650 or US$ 8.24/25 kg bag (January 2005) to Rp. 78,190 or US$ 8.41/25 kg bag (March 2005). Payung brand increased from Rp. 76,100 or US$ 8.18/25 kg bag to Rp. 77,640 or US$ 8.35/25 kg bag.

 

Average exchange rate in 2005 is Rp. 9,300/US$ 1.

 

Corn
 

Production

 

As a result of a slight expansion in area, corn production is estimated up slightly to 6.5 million tonnes in 2004-05. As newly reopened areas become more productive, output is forecast to growth further in 2005-06 to 6.6 million tonnes.

 

Yields remain low as certified/hybrid corn seed use accounts only around 20 percent of total corn planting areas. The high price of hybrid seeds (ranging from Rp. 20,000 or US$ 2.15/kilogram up to Rp. 30,000 or US$ 3.23/kilogram, compared to Rp. 1,750 or US$ 0.2/kilogram for local seeds) and lack of intensive farming capacity required for hybrid corn hamper increases in hybrid seed plantings. Quarantine procedures have reportedly caused difficulties in importing (parent) seeds and contribute to the lack of hybrid seed availability, which make the price of hybrid seeds high. Total planting areas using hybrid seeds declining from approximately 675,000 hectares (2004) to 550,000 hectares in 2005. Improper post harvest treatment and lack of storage/drying facilities are also constraints to improving corn quality and marketing.

 

Consumption

 

The animal feed industry consumes around 50 percent of all Indonesian corn. This percentage has declined due to the AI outbreak in early 2005. Feed industry demand is expected to increase somewhat in 2005-06 to 3.7 million tonnes. Imported corn is used primarily to produce poultry feed. Assuming that the AI outbreaks are only sporadic and remain contained, total compound feed production (including self mixing poultry feed) is forecast to rebound to around 7.4 million tonnes in 2005-06.

 

Trade

 

Given expectations for a slight increase in domestic production, but only sluggish demand growth, imports are forecast to remain stable at around 1.1 million tonnes in 2005-06. US prices in 2004-05 have so far not been competitive against local or supplies from other exporters. As a result, sales have been minimal.

 

Prices

 

In March 2005, farm gate prices of local corn in major producing areas (Lampung) ranged from Rp 1,300/kg (US$ 139.8/mt) to Rp. 1,400/kg (US$ 150.5/mt) in East Java. Prices range from Rp. 1,450/kg (US$ 155.9/mt) to Rp. 1,500/kg (US$ 161.3) delivered to feed mills in Jakarta.

 

Despite increasing feed ingredients (corn and protein meal) prices, average feed prices fell from reported levels the previous year. Local sources indicate price of Rp. 2,750/kg (broiler feed) in 2005 vs. Rp. 2,925/kg in 2004 and Rp. 1,750/kg (layer feed) in 2005 compared to Rp. 2,223/kg in 2004.

 

Source: USDA