Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Indonesia – islands of opportunity for NZ agriculture

Indonesia – islands of opportunity for New Zealand agriculture

Indonesia is emerging as a market which needs large volumes of food and agricultural products to satisfy its fast-growing consumer demand. And New Zealand is well placed to capitalise on this demand and grow trade with Indonesia – a significant neighbour – according to new industry report.

In the report, ‘Indonesia – islands of opportunity’, global agricultural banking specialist Rabobank says the economic transformation underway in Indonesia – which is seeing the country emerge as an economic and political powerhouse in South-East Asia – is leading to rapidly-increasing demand for consumer goods, including food.

And with pressure on its natural resources limiting the country’s ability to boost local food production, Indonesia will continue its reliance on imported agricultural commodities.

The report says New Zealand agriculture already plays a vital role, but has a great opportunity to grow trade with Indonesia. However, it also warns these opportunities should not be taken for granted and, while New Zealand is competitively placed, the strength and focus of other food export nations must not be underestimated.

Report lead-author, Rabobank senior analyst Michael Harvey says the New Zealand food and agricultural industries will need to begin a “journey of diversification” to help unlock more value of this trade opportunity.

“Capturing more value is critical. Extracting more value from the market will be vital in providing a sustainable return to the New Zealand supply chains,” he says.

Mr Harvey says this will involve factors such as developing new strategies and competencies around food quality and safety, tailoring product to meet specific customer and consumer needs and providing technical service and expertise to the Indonesian agricultural sector.

“Collectively these types of initiatives will enhance New Zealand’s position as a trusted and preferred food and agricultural product supplier,” he says.

An island of opportunity

The Rabobank report says Indonesia has all the ‘hallmark’ economic traits to remain one of the world’s fastest-growing consumer markets.

Mr Harvey says drivers include a combination of urbanisation, a rapidly-expanding middle class, a greater share of discretionary spending on food and a modernising retail sector. Media Release November 14, 2013

“These local economic changes strengthen the trend of growing food consumption and great demand for high protein food products,” he says.

To fully capitalise on these opportunities, Rabobank says the focus should be on ‘the value, not the volume’, with an aim to develop more strategic partnerships within Indonesia, build stronger government-to-government relations, to continue the shift to value-added products and to extract maximum value from supply chains.

Indonesia’s fast-growing consumer markets

Indonesia is the most populous country in South-East Asia with 248 million people, making it the fourth largest economy in the world – and it is also rapidly urbanising.

The Rabobank report says a middle class that is expected to surpass 140 million by 2020 is driving the rapid expansion of the modern food retail and service sector.

“Indonesia’s significant increase in per capital disposable income is encouraging a preference for western-style foods, with flour and protein-based products such as cakes, biscuits, pizza and processed foods, including a wide range of snack products, becoming more and more popular,” Mr Harvey says.

“Notably, across many food categories, consumption per person in urban areas is up to double that of rural areas.”

In recent years, many QSR (quick service restaurant) operators have increased their presence in Indonesia and are now looking to expand further beyond the island of Java.

According to Rabobank, there will be more western fast food chains – Indonesia currently has 5,890 fast food outlets and this number is expected to reach 9,100 in 2017.

Limits to local production – opportunity knocks

Agriculture is very important to the Indonesian economy and increasing food self-sufficiency is also a high priority for the Indonesia government, the Rabobank report says.

However, while it is possible to increase local production in some sectors, there are several structural weaknesses in Indonesia’s traditional agricultural sector which will limit growth in local production and see growing reliance on agricultural exports, Mr Harvey says. These include competition for land and other resources, lack of investment across agricultural supply chains, low farm profitability and productivity due to small scale farms, and the lack of finance and limited access to capital for expansion.

Given its geographical proximity to Indonesia, the Rabobank report says, New Zealand has natural competitive advantages for trade.

“This proximity provides freight advantages to many agricultural sectors, particularly for meat and dairy exporters who have lower shipping time and costs than our competitors,” Mr Harvey says.

New Zealand has also been successful in securing better market access through the implementation of the ASEAN-Australia New Zealand Free Trade Area (AANZFTA), he says.

“This agreement provides greater certainty to both Indonesian and New Zealand businesses, and dramatically reduces tariffs on two-way trade.”

But despite enjoying a number of competitive advantages, Mr Harvey says, New Zealand cannot lose sight of the fact it competes on a world stage – industry must maintain supply chain cost competitiveness.

Opportunities for key NZ sectors

Dairy – Striving to keep up with demand

• Dairy consumption in Indonesia is low by global standards, however consumption is expanding at a rapid pace – Rabobank expects an average annual increase of five per cent each year out to 2020.

• There is a lack of supply from the local dairy industry in Indonesia, with a fragmented domestic dairy sector with lots of small scale farms supplying to small scale cooperatives.

• There is scope for New Zealand and Australia to build on existing dairy trade flows, however it will be vitally important to extract a premium from the Indonesian market through innovation. This won’t be easy given Indonesia, despite its strong economic growth, is a low income economy and its consumers are facing inflationary pressures.

Beef – Imports an essential ingredient

• New Zealand and Australia have a geographical advantage relative to other competitors.

• Demand growth for beef in Indonesia remains firm, but is currently being pressured by increasing prices. Common across South-East Asia, falling herds combined with increasing consumption patterns predicate a strong demand outlook for boxed beef exports from New Zealand and Australia.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Real Estate: Auckland House Price Deflation Accelerates

The decline in Auckland house prices is starting to accelerate as the number of house sales plummet, not just in Auckland but in most parts of the country. More>>


'Wellbeing Budget': Grant Robertson Pre-Budget Speech

There has been a fair amount of attention in the media here and internationally on this year’s budget – our country’s first Wellbeing Budget. Enough for me to be invited to the recent Spring Meetings of the World Bank and International Monetary Fund, to talk about our approach... More>>


New Vodafowners: Vodafone Sale To Infratil Consortium

Vodafone Group Plc has today announced the conditional sale of 100% of Vodafone New Zealand Limited to a consortium of long-term investors, New Zealand-based Infratil, and Canada-based Brookfield Asset Management. More>>


Ice Cream: Global Giant Buys Tip Top From Fonterra

Froneri has today agreed to acquire the iconic New Zealand ice cream business Tip Top from global dairy co-operative Fonterra with completion expected by the end of the month. More>>