July 22, 2013

Rising inflation is pushing Indonesia closer towards the world number two position of wheat importers, a place presently occupied by Brazil.

Indonesians are demanding cheaper wheat-based foods to cope with rising costs. This surge in demand from financially-weaker consumers will support benchmark prices that have fallen about 14% this year, with Australia set to benefit the most as its premium and standard white wheat account for the bulk of Indonesia's imports.

Inflation in South-east Asia's largest economy is expected to hit 7.2% - 7.8% by year-end compared with 4.3% in December 2012, stoked by fuel prices that jumped an average 33% in June when subsidies were cut. "Increased fuel prices and higher non-cereal prices are denting discretionary spending," said Paul Deane, agricultural commodity strategist at ANZ. Indonesian rice prices have inflated as the government curbs imports and farmlands are ovetaken for housing development. "Consumers will look to save costs - usual response will be to trade down to lower-value products such as wheat noodles."

Deane said that such trend will drive up Indonesian wheat imports to 7.5 million tonnes this year, more than the seven million touted by industry officials before the fuel hike kicked in. It will be a rise of 1-1.5 million tonnes from 2012, and could match the number of shipments into Brazil.