Indonesia — a growing market opportunity for Australian exporters?

By Sofia Omstedt

INDONESIA IS the fourth most populous country in the world and one of the fastest growing economies in southeast Asia.

It is also a country of increasing importance and interest among South-East major dairy exporters. While some suggest Indonesia could be the next big demand market for dairy products, several challenges remain for exporters looking to capitalise.

Indonesia’s economy has expanded rapidly over the past decade, leading to rising household incomes and a growing middle class.

This, combined with a surge in urbanisation, has resulted in an increase in household food expenditure and consumption of dairy products.

Dairy products are considered a convenient way to stay healthy and demand for products that are perceived to be healthy has grown in recent years in Indonesia.

Sweetened drinking yoghurts are becoming more popular as they are perceived to be healthy.

Sweetened and flavoured single-serve yoghurts have grown substantially in popularity over the past five years, with both local producers and exporters increasing production capabilities, exports and sales.

Dairy products are primarily sold in small, single-use pack sizes as cold chains and storage opportunities are still largely under-developed.

Australia is the fourth largest supplier of dairy products to Indonesia, and Australian exports to the market have grown almost 20 per cent in the past five years.

Skim milk powder makes up roughly 65 per cent to 70 per cent of Australian exports to Indonesia.

Indonesia’s economy has expanded rapidly over the past decade, leading to rising household incomes and a growing middle class.

Over the past five years whey powder exports and cheese exports to Indonesia have grown significantly, up 72 per cent and 31 per cent respectively. Australian dairy products are both sold in supermarkets and used as ingredients in local production.

While dairy exports from all major dairy exporters have increased 7.8 per cent in volume in the past five years, Indonesia remains an under-developed market.

A combination of reduced consumer purchasing, government trade restrictions and importer uncertainty has seen dairy imports fall over the past year.

Exporters wishing to capture the forecast growing demand for dairy products face a number of challenges in doing business in the market.

Primarily the distribution of the population in Indonesia across numerous islands and the often poor infrastructure make distribution difficult.

Most companies are limited to Java (which contains both Jakarta and Surabaya) and Bali (more focused on tourism and hotel channels).

Cold chains necessary for the distribution of chilled and fresh dairy products are also under-developed. Political uncertainty and large capital account imbalances increase the possibility of capital flight and further exchange rate volatility.

Domestic policy setting may also present challenges for exporters. The Indonesian Government has committed to improving port processing times and streamlining inspection and approval processes for agricultural imports.

Nonetheless, the Indonesian Government also remains subject to protectionist and economic nationalist influences and has been known to place non-tariff restriction on trade with little prior consultations.

Indonesia is forecast to experience further economic growth over the next five years, which will increase local demand for different dairy products.

Australia’s ability to capture this demand will not just depend on our domestic milk production, but on overcoming non-tariff and technical barriers to trade in Indonesia.

 Sofia Omstedt is an industry analyst with Dairy Australia.